annual report 2004/05 Major events at Eesti Energia

Organisational changes Highlights of the financial year • 1 April 2004 – OÜ Põhivõrk was established as an independent • Launch of the fluidised bed technology-based power unit legal entity • Application of new electricity tariffs in the Eesti Energia service area • 28 June 2004 – the metal testing company OÜ ER Test Service • Completion of the preparatory work for construction of Estlink, was established the undersea cable connecting the Baltic States and Nordic countries. • 1 July 2004 – OÜ Jaotusvõrk was established as an independent • Elimination of the January 9 storm damage legal entity • Export of a record-breaking volume of electrical energy to Latvia – • 5 July 2004 – AS Kohtla-Järve Soojus’ business units – power plant 1.39 TWh and heat network –were sold • Production and sale of a record-breaking volume of shale oil • Establishment of a fiber-optic connection to improve data Major investment projects communication with Russia • Power units 8 and 11 were completed in Narva Power Plants • Reorganization of strategic planning process • The slope shaft was completed in the Estonia mine • Integration of economic value added (EVA) and balance scorecard • The shale-oil based boilerhouse is put into operation in the Viru mine • Implementation of ISO 14001 environmental management • Chimney No. 5 is reconstructed in the Balti Power Plant standards in AS Narva Elektrijaamad, OÜ Jaotusvõrk, AS Energoremont, • The railway freight car tilting device is reconstructed in the Eesti the Iru Power Plant and Televõrk AS Power Plant • Development and implementation of the occupational health and • The shutdown of ash field 2 was started in the Balti Power Plant safety management system standard OHSAS 18001 in AS Eesti • Heat network insulation was replaced in the city of Narva Põlevkivi and OÜ Põhivõrk • The 330 kV Kiisa-Harku overhead transmission line and 330/110 kV • Installation of flue gas monitoring equipment on the chimneys Harku substation were completed of Narva electric power plant • The 110/10 kV Järve substation was completed • Elimination of environmental pollution in Vastseliina substation and • The 110 kV Otepää overhead transmission line and 110/10 kV Koeru substation substation were completed • Establishment of the energy conservation portal • The 110/20 kV Järveküla substation was completed (www.kokkuhoid.energia.ee) • The 110/10 kV Endla substation was reconstructed • Energy conservation project competition • The Keila-Joa hydroelectric power plant was reconstructed • Transition to the new versions of Lotus Notes, Oracle Financial Analyzer and Xpower • Development and implementation of a remote controlled video system for strategic substations.

Main financial indicators of the Group

2004/05 2003/04 2002/03 2001/02 2000/01 1999/00

Sales of electric energy, GWh 7,983 7,674 6,931 6,067 5,948 6,227 Incl domestic sales, GWh 5,947 5,702 5,369 5,276 4,972 5,205 export, GWh 2,036 1,973 1,562 791 976 1,022 Sales of thermal power, GWh 1,977 2,168 2,361 2,169 2,190 2,215

Revenue, MEUR 395 377 366 313 276 263 Operating profit before depreciation, MEUR 149 133 132 98 46 39 Net profit, MEUR 43 33 41 22 (301) (20)

Cash flow from operating activities, MEUR 125 118 115 77 62 34 Investments, MEUR 160 199 238 118 92 73

Assets at the end of the year, MEUR 1,318 1,245 1,185 947 886 1,113 Borrowings at the end of the year, MEUR 309 295 276 124 102 66 Owner’s equity at the end of the year, MEUR 840 795 762 719 698 991

Owner’s equity/assets at the end of the year 64% 64% 64% 76% 79% 89% Return on investment 5.5% 4.7% 5.7% 3.4% (31.1%) (1.9%) Net debt/operating profit before depreciation 1.8 1.9 1.4 0.9 1.5 1.7 Interest cover ratio 8.1 7.5 9.1 15.8 7.6 11.8

Average number of employees 9,542 9,754 9,768 10,349 10,930 12,870 Contents

Eesti Energia in brief 2 Structure Vision, mission and 3 main strategic goals of Eesti Energia Group Letter from the Chairman of the Management Board 4

Summary of the financial results Environmental Report Overview 8 Environmental policy, aspects and objectives of Eesti Energia 31 Operating profit 11 Highlights and major environmental investments 34 EVA 14 The environmental impact of energy in Estonia 36 Investments Energy conservation activities 42 Cash flow and financing 16 ISO 14001 and Eesti Energia Short-term forecast 17 Renewable energy and Green Energy 43 Electricity price regulation in Estonia 20 Ecological Laboratory of Eesti Energia 44 Working environment 45 Fields of activity Supply and Customer service 21 Financial statements OÜ Jaotusvõrk Declaration of the Management Board 48 Balance sheet 49 OÜ Põhivõrk 22 Income statement 50 AS Narva Elektrijaamad Statement of changes in shareholders’ equity 51 Iru Power Plant 23 Cash flow statement 52 AS Kohtla-Järve Soojus Notes to the financial statements 53 Renewable Energy Business Unit AS Eesti Põlevkivi 26 Profit Distribution Proposal 83 AS Elektriteenused Signatures of the Management Board and AS Elpec 27 Supervisory Board to the Annual Report

AS Energoremont Auditor’s report 84 Televõrgu AS AS Elektrikontrollikeskus Personnel 28 Supporting development in Estonia 29 2 Annual Report 2004/05 Eesti Energia

Eesti Energia in brief

Eesti Energia is a state-owned company engaged in the production, sale and transmission of electric and thermal power. The main raw material for energy production – oil shale – is extracted from mines owned by the company. Eesti Energia is also involved in the construction and maintenance of energy systems.

• Eesti Energia was established in 1939. • The total length of Eesti Energia’s power lines is 66,059 kilometres. • Eesti Energia is fully owned by the Republic of Estonia If stretched out, the power lines would circle the globe one and a • The Estonian energy system is the only predominantly oil-shale- half times based energy production system in the world • Eesti Energia companies employ 9,284 people all over Estonia • With a total of 479,111 customers (92% of all power consumers), • Standard & Poor's has given Eesti Energia an A rating. The Moody's Eesti Energia has the biggest customer base in Estonia rating of the company is A3.

History of power production in Estonia

1219 1279 The first written record of the exploitation of a stationary source of energy on Estonian soil. The first written record of a watermill in Tallinn. Historically, watermills were the first stationary sources of energy in the world. The Chancellery of the King of Denmark confirms The LIBER CENSUS DANIAE – the Danish evaluation book, which was written in a letter to the St. John’s almshouse infirmary that the watermill in Latin by the baptising priests and edited by the Tallinn bishop Thorkill, describes, on Härjapea riverbank has been the property of the almshouse for the first time in history, the location of a watermill in Koila village near Jägala river. since time immemorial. Annual Report 2004/05 Eesti Energia 3

Vision of Eesti Energia Group

To be the leader in the Baltic market for electric and thermal power

Mission of Eesti Energia Group

To provide customers with reliable and convenient energy supply solutions

Main strategic goals of Eesti Energia Group for 2005-2009

1. To bring operations fully into line with the conditions of the free market for electric and thermal power

2. To enhance significantly the quality of services and customer service

3. To strengthen the financial position of Eesti Energia Group

4. To adhere to the EU environmental requirements

1341 1345 1555 1688 The first written record Waldemar IV Atterdag, the King of Denmark, The first record Samuel Waxelberg’s map of Tallinn depicts eight of a windmill in Estonia. grants permission for construction of three of a watermill watermills on Härjapea River – the foundation watermills on the Tallinn moat – in front of Harju, in Keila-Joa. for the town’s industry. Karja and Viru gates. 4 Annual Report 2004/05 Eesti Energia

Letter from the Chairman of the Management Board

The Holgersson Effect or the alternative of being small

At first Nils Holgersson could not believe that he had been turned into Any problem can be viewed as an opportunity, or challenge. Accession a dwarf. ”Surely, this is a dream and a figment of my imagination”, to the European Union in May 2004 opened our eyes to many of these thought the character from Selma Lagerlöf’s beloved children’s book new opportunities and challenges. In the near future, we must end the when he discovered how tiny he had become. Nils’s further adventures, use of old technology for producing oil shale electricity – under the however, taught him the importance of being small, consideration conditions of an opening electricity market, we must be able to join up towards the weak, respect for one’s surroundings and the significance with the Nordic power networks, while the tightening economic of alliances. Let us call this the Holgersson Effect – a phenomenon competition forces us to choose partners wisely. faced by all companies from time to time, when they discover that they are no longer that big or unique. Last spring and summer, we brought the Eesti Energia Group structure into line with the EU Electricity Directive and the Estonian Electricity To all intents and purposes, Eesti Energia, too, feels like a dwarf in the Market Act. This involved the establishment of independent legal new and bigger European market, which has opened up, revealing big entities – OÜ Põhivõrk was established in April and OÜ Jaotusvõrk in and powerful competitors. Perhaps the only difference is that we have July. A second power unit utilising the new oil shale burning technology foreseen the inevitability of the Holgersson Effect for several years, and was put into operation in Narva power plants. In the financial year, have made the necessary preparations while eagerly awaiting it. In the one-fifth of the total volume of electricity consumed in Estonia was meantime, we have learned to think long-term, and to think big, while produced by power units that comply with all the EU environmental paying more attention to our surroundings and seeking out partners requirements. EU environmental laws also conditioned wide-scale work with similar interests. on modernising the ash removal system of the Narva power plants.

The Estonian power system is currently among the smallest in the Eesti Energia raised the price of electricity last year so as to continue our European Union – we outrank only Cyprus and Malta. On the investment programmes and reconstruct power networks. To pave the European map, Eesti Energia is minute – dozens of times smaller than way for the price increase, the company held the most intense and subs- our direct competitors. As a result of the decreasing importance of tantial negotiations with the Energy Market Inspectorate ever. At the state borders as well as the opening of markets, we will soon lose our same time, we took a big step towards enhancing efficiency and cutting monopoly status. The only way for us to prove ourselves is to do a network losses. The best financial results in the company’s history were good job as well as to ensure quality and internal efficiency. also facilitated by record-breaking electricity exports and shale oil sales.

1725 1744 1771 The first written record of oil shale in Estonia. For the first time in history, Russia starts research The first written record of Estonia’s biggest windmill The globetrotter J.A. Gültenstädt mentions in his journals into electrical technology under the supervision on Tõnismägi in Tallinn. The windmill at Delhio square that local shepherds near Jewe (present-day Jõhvi) of Georg Wilhelm Richmann, who was born in on Tõnismägi is purchased, together with the house burn certain rocks for fuel. Pärnu and educated in Tallinn. and the garden, by Johann Georg Tiersch, a mechanic and master builder. Annual Report 2004/05 Eesti Energia 5

One of the most significant events was the establishment of the Nordic The current environmental policy of Eesti Energia Group fully complies Energy Link for the purpose of implementing Estlink, the undersea cable with the requirements of the international ISO 14001 standard. By the to be set up between Estonia and Finland on Eesti Energia’s initiative. end of the last financial year, the respective environmental management This project would never have come into being without extensive systems were implemented in the majority of the group companies. preliminary work, and without our key partners – Latvian, Lithuanian AS Eesti Põlevkivi and OÜ Põhivõrk were additionally awarded the and Finnish power companies. The original project undertaken by OHSAS 18001 occupational health and safety management system certi- Estonia and Finland has become a true partnership between the Baltic ficate. This serves to validate our continual development and desire to States and the Nordic countries. set the bar even higher.

The Holgersson Effect involves a change of viewpoint or perspective. At the end of the book, Nils becomes an ordinary boy again. As it hap- We now have the opportunity to experience the world from both the pens, a much better boy. Eesti Energia, too, is becoming an ordinary point of view of the dwarf and from the back of a flying goose. Changes European power company. Still, we have a lot of growing and impro- in perspective also help us to evaluate the actual environmental effect of ving to do. Today’s Eesti Energia does not strive to be big, but we do power production more objectively in various countries. Eesti Energia is our utmost to be significant: in Europe; in Estonia; within the company; not merely committed to oil-shale-based power production; the company at home and on the streets. also continues to contribute to the development of renewable energy.

Once again, we were the biggest producer of renewable energy in Estonia last year. After extensive restoration, the Keila-Joa hydroelectric power plant started generating power this winter. The 16th century mill was turned into a power plant in 1928. The power plant underwent extensive renovation, reclaiming its original exterior. We reconstructed the saddle stone and pedestrian bridges. We also built a visitor platform from which to observe the waterfall. The power plant was provided with a study room as well as a permanent exhibition on the Gunnar Okk history of hydro energy in Estonia. Chairman of the Management Board

1827 1835 1842 1855 The first steam engine Moritz Hermann Jacoby, inventor of the electric The first Estonian steamboat – A physics textbook is issued is put into operation motor, electric torpedo and electric measuring the Julianne Clementine – for students of Estonian schools, at the Joala paper instruments, starts researching electromagnetism is built. introducing “matters of electricity” plant in Narva. and galvanic elements at the University of Tartu. and the “might of electricity” for the first time. The Eesti Energia management board and the Kiisa command centre, which allows monitoring of one of Europe’s smallest electrical systems. From the left: Eesti Energia management board members Mati Jostov, Lem bit Vali, Marko Allikson, Gunnar Okk and Sandor Liive. Opening Europe’s electricity market is a new challenge and opportunity for our team. 8 Annual Report 2004/05 Eesti Energia

Summary of the financial results

Overview

The following were the three most significant events in the economic activities of Eesti Energia in the financial year 2004/2005: the launch of the new fluidised bed technology-based power unit, the introduction of new electricity tariffs in the service areas of Eesti Energia power network companies, and the completion of preparatory work for construction of the undersea cable connecting the Baltic States and the Nordic countries. Enhanced domestic sales of electrical energy and the optimisation of production expenses also contributed to the positive results. Both turnover and profit margin increased.

Economic environment Similarly to December, the economic analysts polled by the Estonian Institute of Economic Research gave Estonia’s overall economic situation 7.9 points (on a 9-point scale) in March 2005. This result surpassed the poll results for the previous three quarters, and exceeded the historical average by nearly one-third. plant (1,300 MW) and the conclusion of the construction agreement Real GDP growth in the fourth quarter of the calendar year 2004 was on the Estonian-Finnish undersea cable (350 MW). Five parties are invol- 5.9%, while the current real growth for the four quarters amounted to ved in the project – Eesti Energia, Latvenergo (Latvia), Lietuvos Energija 6.2%. According to the Ministry of Finance, the economic growth was (Lithuania), Pohjolan Voima (Finland) and Helsinkin Energia (Finland). generated by the increase in domestic demand, which in turn was based According to the preliminary estimates, the project will cost a total of on low interest rates, favourable loan terms and growth in disposable 110 million euros. The commercial project was launched as a result of income. The relatively high economic growth was facilitated by a con- the exception made by the European Commission on April 27, allowing servative inflation rate and positive developments in the labour market. the project to be financed by the customers who use the cable, rather The real growth of Estonian GDP still surpasses the economic growth than at the expense of the local consumer. On 29 April 2005, the partners of the EU-25. concluded a construction agreement with the Swedish-Swiss group ABB. Construction is scheduled to be completed by the end of 2006. The sig- The most significant events in the Baltic power market in the financial nificance of the project lies in uniting of the Baltic electric energy sys- year included the shutdown of a unit of the Ignalina nuclear power tems with the Nordic systems. The benefits can be measured in several

1857 1868 Two 360-horsepower water wheels are mounted in the spinning plant The water wheels at Narva Kreenholm Manufactory are replaced of Narva Kreenholm Manufactory to power the spinning machines. with a 1,300-horsepower hydro turbine whose 30-blade wheel generates 60 revolutions per minute. With a diameter of nearly 10 meters and a weight of one hundred tons, the metal water wheels generated 4 full revolutions per minute – the most powerful water It remained the world’s most powerful turbine for 27 years, until the upper wheels in the history of the world, surpassing the New York water wheel hydroelectric power station was put into operation on the Niagara. by 80 horsepower. Manufactory inNarva toprovide lightforthepremises. in the Wiegand factoryinTallinnin theWiegand andintheKreenholm ned a94%marketshare oftheEstonianopenmarketforelectricpower. proven itscompetitiveabilityintheopenmarket–companyhasobtai- market). 35%ofthemarketwillbeopenedon1 who consumeinexcessof40GWhperyear(i.e.14%theelectricity 2004/05. Theelectricpowermarketiscurrently opentothosecustomers increased salesbyanestimated1.3millioneuros inthefinancialyear domestic consumptionandthedemandforelectricenergyexports. euros (a14.5%increase). Thenewtariffs appliedfrom 1 euros (a4.5%increase), andsalestoeligiblecustomers14.0million Sales ofelectricitytotheregulated marketamountedto270.3million (+4.9%, or13.4millioneuros, compared tothefinancialyear2003/04). Domestic salesofelectricpower increased by308GWh(+4.0%)to7,983GWh. results ofEestiEnergiaGroup. TheelectricpowersalesoftheGroup Sale ofelectricpower Economic activities 2004/2005 tofinancialyear2007/2008. in thenetworksaveraging70millioneuros from thefinancialyear võrk and6.9%byOÜPõhivõrk.Theregulator hasapproved investments ofoperatingprofitearning ontheinvestedcapital–7.4%byOÜJaotus- the specificsofEstonianeconomicenvironment. Tariffs enablethe ofcomparableenergycompanies,bytakingintoaccount on thereturns depends ontheinvestedcapital.Operatingprofit iscalculatedbased expenses approved bytheregulator, plustheoperatingprofit, which are calculatedbasedonamethodwhere thetariff iscomposedofthe New electricitytariffs were establishedon1March 2005.Thetariffs Tariffs Required fortheemissionofcarbondioxide (CO of theEUareas thatdirectly affect thepowerproduction sector. Aimed atreducing environmental pollution,environmental policyisone Emission trading various systemservices(loadbalancing, the BalticandNordic markets;andthirdly, the secondly, thecablewillprovide theoptionofpowertradingbetween dimensions: first,thereliability oftheBalticsystemwillbeenhanced; 46.7 milliontonsofCO allocatedemissionallowancesforatotalof the Estoniangovernment applications ofthispolicy. Onthebasisofanationalallocationplan, theemissionallowancesserveasoneof during oilshaleburning, whole marketwillbeopenedon1 The firstarticleonthe practicaluseofelectricityis The firstgeneratorsandarc lampsare installed published inthedaily Tartu EestiSeitung. 1882 2 wasthebiggestcontributortofinancial toEestiEnergiaforthepurposeofcovering st ofJanuary2013.EestiEnergiahas increased to284.3millioneuros emergency cable will also provide cable willalsoprovide 2 st ) intotheatmosphere back up,black-start). ofJanuary2009;the “gas lanterns in theneighbourhoodare“gas lanterns blindedbyelectricity”. The dailyRevalische Zeitungstatesthatthelightingsetup by st ofMarch 2005 Street lightsare powered withelectricityinTallinn. industrialist Chr. Rotermannissobrightthat upr evcs 6 40 379 46 397 320 263 133 58 117 325 264 138 112 62 Consolidated revenue Eliminations (549) Support services Sales andcustomerservice Distribution ofelectricpower Transmission ofelectricpower Power production Oil shaleproduction (551) Revenue 1883 (inmillionsofeuros) 2004/05 2003/04 Wöhrmann tobacco factoryinTartu, Annual Report2004/05EestiEnergia and outdoor lampsofthefactory. of asteamengineanddynamo powering the180electric lamps is putintooperation atthe A powerstationconsisting 1892 9

Management Report Management Report Inadditiontotheraw flourmill,thepowerplant gas prices,whichhasraisedthepriceofheavyfueloil,shaleoil’s main Shale oilhasremained competitiveduetotheglobalincrease inoiland consumers ofEestiEnergia’s shaleoilare smallEstonianboilerhouses. growth inthesalesvolumeto113thousandtons(+38.6%).Themain Shale oil decrease hashadnomaterialeffect onEestiEnergia’s operatingprofit. sales compriselessthan20%oftotaloilshalesales.Therefore, the customer resolving toopenamineofhisown.Extra-group oilshale heating value.Thedecrease inextra-group saleswasconditionedbya Estonian oilindustriesthatpurchase enrichedoilshalewithahigh decrease inthesalesvolume.Thecompany’s maincustomerswere those to thefinancialyear2003/2004.Thisdrop wasbasedonthe10.1% Oil shale who madethebestbidoffourbidssubmitted. a publicauction.TheJärvedistrictproperty Õlitööstus, wassoldtoASViru network inthesecondquarter. Thesaleofassetswasconductedthrough was duetothedisposalofJärvedistrictpowerplantandheating Järve Soojus.Nearly90%ofthesalesdrop ofASKohtla-JärveSoojus 63 GWh(5.0%)inIruPowerPlant;and122(38.2%)ASKohtla- heat salesdropped by6GWh(1.0%)inASNarvaElektrijaamad; the financialyear2004/05.Thevolumedropped to1,977GWh(-8.8%): The salesof the electricityatapricewhichdidnotcontainfuelexpenses. into electricity:thecompanyimportedoilshalefree ofcharge,andsold essentially involvedprovision oftheservice reprocessing oilshale The transactionconcludedwiththeRussianenergycompanyLenslanets Russia dropped to645GWh(-9.6%),compared tolastfinancialyear. the importofLatvianelectricpower. Atthesametime,exportsto GWh (+10.5%),whileEestiEnergiaobtaineda50%marketshare in increased to2,036GWh(+3.2%);exports Latviareached 1,391 33.7 millioneuros (+8.0%,i.e.2.5millioneuros). Theexportvolume Eesti Energia’s revenue from was only0.1degrees higherthanthatofthe financialyear2003/04. change inelectricitysaleswasrelatively small–theaveragetemperature local demandforelectricenergy. Theeffect oftemperature onthe by 7.4%.Economicgrowth isthemotivepower behindtheincrease in customers by3.7%,salestohouseholds4.3%andresellers 5,947 GWh(+4.3%).Salesgrew inallthree segments:salestocorporate As regards volume,domesticsalesofelectricpoweramountedto The firstindustrial200kWpowerplant isputintooperation 10 starts poweringthe hoisting craneatKundaportviaatwo- hydroelectric powerplant intheBalticStatesandRussia. in Port-Kundacement factory–themostcontemporary Annual Report2004/05EestiEnergia salesdropped by8.9%inthefinancialyear2004/05 compared salesincreased by42.7%(3.8millioneuros) –mostlydueto kilometre overhead transmissionline. heat dropped by3.7millioneuros to30.4millioneuros in 1893 electric powerexports amountedto generator ismounted inthe Dvigatel factoryinTallinn. Estonia’s first450kWAC 1899 2.7 millioneuros (+30.6%). (+53.0%); andrepair andconstructionservices, whichamountedto of telecommunicationservices,whichincreased to2.6millioneuros year. Thebiggestcontributorstothesaleofservicesincluded year 2004/05–a49.2%increase compared tothesameperiodlast The saleof equipment. euro drop inthedomesticsalesofASEnergoremont powerproduction year. However, thedecrease wasmostlyconditionedbythe2.1-million- increasing by0.4millioneuros (9.5%)to5.2millioneuros inthefinancial was thebiggestcontributortosaleofotherproducts andgoods, last year. TheexportofASEnergoremont powerproduction equipment in thefinancialyear–a9.2%decrease compared tothesameperiod The salesofother was boostedbythehighoilpriceandenhancedproduction efficiency. capacity exploitationintheOilPlantofASNarvaElektrijaamad.Revenue competitor. Theincrease insalesvolumewasmadepossiblebyenhanced cable fixedcostsdropped to170.5millioneuros (-4.3%). revenue increase rate (+4.8%).Itshouldbepointedoutthatinfluen- though theexpenseincrease ratewassignificantlylowerthanthe having increased by6.4millioneuros (2.0%)duringthefinancialyear, Financial yearoperatingexpensesamountedto336.1millioneuros, Operating expenses services products andgoods of electricpower. Wood scrap,chipsandpeatare used forfuel. amountedto11.4millioneuros inthefinancial in Pärnu. With 108kWofcapacity, With in Pärnu. theplantisdesignedfor The firstnationalpowerplantisputinto operation powering street lightsandforcommercial sales amountedto8.9millioneuros 1907 at Soolastreet bytheriverEmajõgi, increase inthedomesticsaleof The results forthefinancialyear2004/05were affected mostbythe of 61.4millioneuros. operating profit forthefinancialyear2004/2005amountedtoatotal operations andtheprofitability oftheinvestmentsmade.Thecompany’s relatively smallgrowth ofexpensesreflect theefficiencyofcompany’s recent quarters),theinflationrate(approximately 4%peryear)andthe the speedofgrowth oftheaveragesalaryin Estonia(over7%inthe Comparison oftheaboveeffects withthegrowth inproduction volume, factor isthe2.1%decrease inpersonnelexpenses. company tosaveanestimated50GWhofelectricalenergy. Thefourth work lossescompared tothefinancialyear2003/2004, enablingthe operationswasthe0.9%decreaseof internal inthedistributionnet- The third mostimportanteffect oftheinvestmentsandreorganisation ments madeinthenewfluidisedbedtechnology-basedpowerunits. year. Secondly, thedecrease infuelexpensesasaresult oftheinvest- ciation –depreciation increased by4.5millioneuros inthefinancial operating results. Firstly, therapidincrease ininvestmentsanddepre- Four factorsshouldbebrought outwithrespect toinvestmentsand Operating profit 4.7 millioneuros (13.3%),compared tothesameperiodlastyear. Operating profit from electricityandheatproduction increased by units (477,000tons). second theoilshaleoutsourced duringthetestingofnewpower enabled thecompanytosave300,000tonsofoilshalefuel;and technology-ba factors: sales. Thedecrease inintragroup saleswasconditionedbytwo conditioned bythedrop inbothintragroup andextragroup oilshale euros (22.8%),compared tothelastfinancialyear. Thisdecrease was Operating profit from oilshaleproduction decreased by2.4million ributed 0.1%totheROICincrease. 4.7% to5.5%.Itisestimatedthattheone-monthpriceincrease cont- ting profit increased oninvestedcapitalrose by24.0%,thereturn from invested capitalincreased by5.4%from 31March 2005.Whileopera- (+2.0%) by2.8%,whereas theinflationratereached 4%.Average Revenue increase (+4.8%)exceededtheincrease ofoperatingexpenses generating 124kW of capacity. Tartu PowerPlantiscompleted first the implementation of the new and efficient fluidised bed first theimplementationofnewandefficientfluidisedbed 1910 sed oilshaleunitsintheNarvapowerplants,which electrical energyand an 18-kilometre powernetwork. Electricityisproduced of theGreat CoastGatebythesea,andconnected to Tallinn PowerPlantisput intooperationinfront by three coal-powered 166kW ACgenerators. cost management. 1913 of electricpowerandtheenhancedefficiencyenergyproduction. This considerableincrease wasconditionedbytheincrease inthesale in thelastfiveyears. clearly beendecreasing –from 17.4%to10.2%oftheelectricalenergy in electricpowerconsumption.Lossesdistributionnetworkshave networks results were basedonthedecrease inpowerlossandgrowth from distributionofelectricpowergrew by0.9millioneuros. Thepower million euros, compared tothelastfinancialyear, whileoperatingprofit Operating profit from transmissionofelectricpowerincreasedby 2.0 Power networks 9.9 millioneuros to42.9millioneuros. by 0.8millioneuros, thenetprofit forthefinancialyearincreased by in theaverageloanburden. Whileothernetfinancialincomedecreased in thearea of18and18.5millioneuros, inspiteofthe7.6%increase Backed bylowinterest rates,current interest expenseshaveremained osldtdntpot 29 33.0 42.9 49.6 61.4 2.3 1.5 (17.7) (18.4) Consolidated netprofit Consolidated othernetfinancialincome Consolidated interest expenseson Consolidated interest onborrowings Operating Profit Net profit upr evcs . 0.6 0.7 49.6 (12.5) 35.9 61.4 (6.3) 10.4 11.8 40.7 3.4 8.0 12.6 Consolidated operatingprofit 5.4 Eliminations 0.3 Support Services Sales andcustomerservice Distribution ofelectricpower Transmission ofelectricpower Power production Oil shaleproduction Operating profit 0.1 (in millionsofeuros) of Rakvere-Jõhvi railway. tests Thefirstpulverized oilshaleburning is discovered inthecourseofgeologicalsurveys conductedunder are conductedattheAsserin andPort-Kundacementfactories. the supervisionofN.F. Pogrebov ina40km A veinofover3billionpoods(1pood= 16.38kg)ofoilshale (in millionsofeuros) 2004/05 2003/04 provisions 2004/05 2003/04 Annual Report2004/05EestiEnergia 1916 (1.6) (1.2) 2 area inthevicinity 11

Management Report National grid development department project manager Innar Kaasik and the 330 kV Balti-Kiisa aerial line set for completion in late 2006. The line is an important link in raising supply reliability of Tal linn, central and western Estonia. Today’s decisions must ensure supply of electricity for the future as well. Management Report Gottfried HackerbecomesthefirstEstonian engineertodesignahigh-voltage(15kW) Investments a combined-28.9millioneuros ofadditionalvaluein2004/05. were theelectricpowertransmissionanddistributionsegments,with amounting to3.1millioneuros. Thebiggestnegativevaluecreators segment wasthebiggestcreator ofadditional value,withEVA As regards segments,theelectricandthermalpowerproduction amounted to-32.3millioneuros inthefinancial year2004/05. 0.1 billioneuros. Consideringthecapitalcosts, EestiEnergia’s EVA year 2004/05amountedto1.1billioneuros, withcapitalcoststotalling The averagecapitalinvestedbyEestiEnergiaGroup inthefinancial methods formeasuringandenhancingthevalueofacompany. demonstrated thatEVA is,inthelongrun,oneofmosteffective and debt).Theexperienceoftheworld’s leadingcompanieshas operating profit withthevolumeandcostof investedcapital(equity the balancedscorecard inthefinancialyear2004/2005.EVA compares the conceptofeconomicvalueadded(EVA) inadditiontotheuseof For strategicmanagementpurposes,EestiEnergiastartedapplying EVA new powerunitsamountingto8.4millioneuros. Thebiggest million euros inthefinancialyear2004/05,withinvestments Investments inelectricandthermalpowerproduction totalled41.4 Production of electricpowertothetransmissionanddistributionpower. change offocusEestiEnergia’s investment planfrom theproduction increased by37.3millioneuros inthefinancialyear. Thisreflects the ments intheelectricpowertransmissionanddistributionnetworks with investmentsdecreasing by68.1millioneuros. Combinedinvest- butor tothisdecrease wasthe electricityandheatproduction segment, decreased by38.6millioneuros inthefinancialyear. Thebiggestcontri- power transmissionnetworkintheTallinn-Narva direction. Investments investment planare associatedwiththedevelopmentofelectric million euros. Inthemediumterm,mostsignificantprojects ofthe In thefinancialyear2004/05,EestiEnergiainvestedatotalof159.9 transmission linetoconnecttwosettlements. Inthesameyear, the60kWpower 14 Annual Report2004/05EestiEnergia plant inKunda-Aro peat bog isconnectedwithRakvere town. Industrial oilshalemining islaunchedinKohtla. 1918 tariff period. We aimtoachieveapositiveEVA bytheend ofcurrent three-year additional valuecompared tothefinancialyear 2003/04. constant, EestiEnergiasucceededincreating 4.6millioneuros more On apositivenote–regardless ofthefactthattariffs remained financial year2004/05.Thesecondunit(BaltiPowerPlant11) (Eesti PowerPlantunit8)produced 1.1TWhofelectricpowerinthe The firstofthetwonewfluidisedbedtechnology-basedoilshaleunits and reserve boilerhouseintheNarvapowerplantsat14.6millioneuros. investment project ofthesegmentwasconstructionpeak oa netet 199 198.5 6.3 159.9 0.8 109.3 45.7 21.6 41.4 15.6 61.3 16.1 40.4 2003/04 Total 2004/05 investments Other; eliminations Distribution ofelectricpower Transmission ofelectricpower Power production Oil shaleproduction (in millionsofeuros) Investments oa 8.7%(32.4)(36.9) (14.7) 5.7 (7.8) (14.2) (15.3) 3.1 (15.2) 8.9% Total 11.9%(1.9)(2.0) (13.7) Support 7.4% 8.4% Sales andcustomerservice 6.9% 2003/04 Distribution ofelectricpower services 2004/05 Costofcapital Transmission ofelectricpower 9.7%3.13.4 Power Oil shaleproduction production (in millionsofeuros) EVA in NationalPortFactoryTallinn. First Scottish andFrench oilshaleistested from oilshalefollowingthe example of Germanbrown coalprocessing. attempts are madetoproduce oil 1919 The Riigikogupassesalaw independent legalperson. granting nationaloilshale industry therightsof an 1922 The1,000kWpeat-fuelled UlilaPowerPlant,whichisdesigned to The 1,400kWpeat-fuelledEllamaaPower Plantisdesignedandconstructedunder the supervisionofEstonian engineersAleksanderKinkand GottfriedHacker. the summer/autumnof2006).OÜPõhivõrkisalsoorganising reconstruction oftheBaltisubstation(scheduledtobeoperationalin strategy includereplacement oftheVeskimetsa switchyard and substation (1.4millioneuros). Future milestonesoftheinvestment 330kV Paideswitchyard (2.3millioneuros) andthe110/10kVJärveküla Rakvere substation(2.9millioneuros) aswellconstructionofthe euros). Othermajorprojects includedthereconstruction ofthe330kV during thefinancialyear)and330kVHarkusubstation(6.6million tion ofthe330kVHarku-Kiisaline(with3.8millioneuros invested of themedium-terminvestmentplanOÜPõhivõrkwere thecomple- made intheelectricpowertransmissionnetwork,mainmilestones in theproject duringthefinancialyear. Asregards theinvestments in theBalticStates.OÜPõhivõrkinvestedatotalof11.1millioneuros year wasthereconstruction oftheBalti330 kV substation–thebiggest strategic Tallinn-Narva direction. Thebiggestinvestmentproject ofthe financial year2004/05.OÜPõhivõrkcontinueditsmajorprojects inthe A totalof40.4millioneuros wasinvestedin the NationalGridin Transmission ofelectricpower financial year2004/05. generated 0.4TWhofelectricityduringthetestsconductedin power theKarlovadistrict inTartu, iscompleted. 1923 With adailycapacityof200tonsoilshale,theGreat Oil FactoryiscompletedinKohtla. With Estonian locomotives andwarshipsstartusingoilshalefuel forpoweringtheirengines. (1.5 millioneuros). (6.7 millioneuros) andtransitionofthe3x220Vnetworkto3x400 reconstruction ofthedistributionpoints35-330 kVsubstations network, andthevoltagequalityprogramme (10.7millioneuros), projects ofOÜJaotusvõrkalsoincludedreconstruction ofthe0.4-20kV In additiontoconnectionsthepowernetwork,majorinvestment (both apartmenthousesandprivatehouses). development-related increase inthedemandforconnectionservices growth andfavourableloanterms,aswell thereal estate has beenfacilitatedbythereal estatemarket, enhancedbyeconomic investments ofOÜJaotusvõrk).Growth inthe numberofconnections invested 24.7millioneuros intheproject (42%ofthetotalvolume biggest investmentproject. Duringthefinancial yearOÜJaotusvõrk For severalyearsnowbuildingconnectionstothegridhasbeen A totalof61.3millioneuros were investedintheDistributionNetwork. Distribution ofelectricpower scheduled tobecompletedinthesummer/autumnof2006. connection oftheEstonian-Finnishunderseacable.Thisproject isalso Ellamaa PowerPlant startspoweringtheTallinn-Pääsküla electricalrailwayviathefirst 35 kVtransmission line inEstonia. 1924 Annual Report2004/05EestiEnergia 15

Management Report Management Report Eesti Energia’s financialstrength. We aimtomaintaintheseratings via have assignedthecompanyA-andA3ratingsrespectively, toreflect The world’s leadingratingagencies,Standard &Poor’s andMoody’s, decreased from 27.0% to26.9%. The capitalstructure isrelatively conservative–debt(debt+equity) plant andequipmentmakeupthemajority(91%)ofassets. of EestiEnergiaremained stableinthefinancialyear2004/05.Property, shareholders oftheassociatedcompany. Thebalancesheetstructure euros). Theloanshavebeensecured withpro rataguaranteesbythe ments withNIB(53millioneuros) andSEBEestiÜhispank(31million operation oftheEstonian-Finnishunderseacable)signedloanagree- (AS Nordic EnergyLinkisacompanyestablishedforconstructionand On April29,EestiEnergia’s associatedcompany ASNordic EnergyLink cover seasonalworkingcapitalneeds. Finnish marketinthebeginningofnextfinancialyearorder to interest rates.Thecompanyplanstoissuecommercial papersonthe The European financialmarketscurrently offer loanswithverylow loans intheportfolioare fixed. have beenfixedbytheinterest swap.Theinterest ratesof91%the loan andthe15-million-euro loanfrom theNordic InvestmentBank issue wasfixedat6%.Theinterest ratesofthe50-million-euro syndicate in thefinancialyear. Theinterest rateforthe200millioneuro bond floating ratebankloanswasEURIBOR+0.58%-a7-base-pointdecrease As at31.03.2005,theweightedaverageinterest rate ofEestiEnergia’s The euro istheunderlyingcurrency forEestiEnergia’s borrowings. the European InvestmentBank. year. Thisincrease wasmostlyfinancedbya15-million-euro loanfrom 2004/05, amountingto268.7millioneuros by theendoffinancial Eesti Energia’s netdebtgrew by19.0millioneuros inthefinancialyear and thecompany’s mainfocusliesininvestmentpowernetworks. financial year2003/04.Thepowerunitsare in apost-constructionstage and equipment–i.e.a39.1-million-euro decrease compared tothe The companypurchased 161.1millioneuros worthofproperty, plant Cash flowfrom investmentactivitiesamounted to-143.9millioneuros. operating activitiesamountedto125.2millioneuros (+7.7millioneuros). year 2004/05,havinggrown by13.4millioneuros. Total cashflowfrom Funds from operationsamountedto127.5million euros inthefinancial Cash flowandfinancing The trademark“Estobituumen” isregistered 16 construction forthefirsttimeinEstonia. Oil-shale-based asphaltisusedforroad Annual Report2004/05EestiEnergia for thepurpose. 1926 The stategrantstheengineerMeyendorff amill a concession toturn into apowerplant. The oldmillwouldstillbeused,together with The Keila-Joahydroelectric powerplantisput intooperation. the pisciculture facilitiesand thepowerplant. 1928 from 57.5%inMarch 2004to79.9%duringthefinancialyear. strong financialresults, thecurrent FFO/investmentsratioincreased Backed bythedecrease inthegeneralvolumeofinvestmentsand strengthened bythenewelectricitytariffs establishedinMarch 2005. the decreasing interest rates,thecompany’s financialpositionwas also ments, theinterest coverratioisincreasing somewhat.Inadditionto Regardless oftheincrease intheloanburden resulting from majorinvest- institutions. a strong andreliable partnerforcustomers,suppliersandfinancial efficient economicactivitiesandpurposefulinvestmentstoremain Ulila PowerPlantstartspowering the town of Viljandi viaanew the townofViljandi 15 kVtransmission line. 1929 this growth tofallbetween5.5%and6.0%in2005,withsome Estonian GDPhasbeen6%inthelastfourquarters.Analystsforecast replaced withpositiveexpectationsofthefuture. Theactualgrowth in indicator amongindustrialcompaniesattheendofyearhasbeen points from December2004.Theseasonalrecession oftheconfidence situation forthenext6monthsare positive,havingimproved by0.3 inMarch 2005revealed thattheexpectationsofgeneraleconomic A surveyconductedbytheEstonianInstituteofEconomicResearch price increase). price increase (theeffect willprobably lastforupto6monthsafterthe factor beingatemporarydecrease inconsumptionas aresult ofthe should continueinthefinancialyear2005/06,withapotentialnegative is nearingitslong-termgrowth estimate(approximately 3%).Thistrend eliminated from actualconsumptiondata,electricpower power increased. Analysesreveal thatiftheeffect oftemperature is financial year2003/04.Nevertheless,domesticconsumptionofelectric The averagetemperature wasonly0.1degrees higher, thanthatof the electric power. ming themostimportantfactorsinfluencinglong-termdemandfor gement. Economicgrowth andthestructure oftheeconomyare beco- from theincrease inthesaleofelectricalenergyaswellcostmana- The positivefinancialresults forthefinancialyear2004/05resulted Short-term forecast AS Virumaa Elekter completesthe3,520KWNarvahydroelectric ASVirumaa The oil-shale-basedcrackedgasolinefactory isputintooperationinKohtla- power plantandEstonia’s first55kVlineon the75kmsectionbetween Järve, capableofprocessing 60tonsofpetroleum intogasolineperday. Narva andKiviõli. 1931 The Committeeisassigned thetaskofresearching sources ofpowerandpropagating ties willbesupportedbynewelectricitytariffs. regulatory framework).Inthefinancialyear2005/06,aboveactivi- high productivity oninvestedcapital(giventhe andanadequatereturn well-planned investmentshavefacilitatedthecompanyinmaintaining in thesalesofelectricpower, optimisation ofoperatingexpensesand energy inEstoniarecent years.Despiteinflationarypressures, increase Economic growth hasincreased consumptionandsalesofelectrical EBITDA margin. and expecttheresults tobereflected bythecontinuedgrowth of focus onthesuccessfulapplicationofcompletedmajorinvestments the reconstruction ofpowernetworksandproduction capacity. We will medium-term investmentplan.Atthecore oftheinvestmentplanare In thecomingquartersEestiEnergiawillcontinuetoimplement power lossestodrop below10%bytheendoffinancialyear. plan andenhancingco-operationbetweenbusinessunits.We expect the financialyear2005/06byimplementingameticulousinvestment recent years.Thecompanywillcontinuetoreduce networklossesin Distribution networklossesdropped to10.2%,thelowestlevelin consumption ofelectricpower. economy issufficientlystrong tosupportalong-termincrease inthe acceleration in2006.Thepresent levelandstructure oftheEstonian its uses,aswelldeveloping aplanforproviding thecountrywithelectricity and The Riigikogupassesalawontheestablishment of theEstonianNationalPowerCommittee. monitoring hazardous power equipment. 1935 Annual Report2004/05EestiEnergia 17

Management Report Narva Elektrijaamad senior inspector Andrei Jermolajev and the first renovated block at Eesti Power Plant. Producing electricity from oil shale is now more efficient and environmentally friendly. We adopt the best possible technology. Management Report Electricity priceregulationinEstonia OC returnoninvestedcapital;operatingprofit dividedbyinvestedcapital – fundsfrom operations;operating cashflows,excl.changesinworkingcapital – EBITDAdividedbyinterest ondebt debtlesscashandequivalents – – before earnings interest, taxes,depreciation andamortisation interest coverageratio equityplusdebt – – ROIC FFO Invested capital Net debt EBITDA Glossary limit andtheactualweightedaveragepricewillbecompared onan within whichthecompanywillestablishsuitableprices.Theprice approve specificcharges,butrathertheweightedaveragepricelimit As regards electricenergy, theEnergyMarketInspectoratewillnot weighted averagecostofcapital(WACC). invested capital.Therateofthereasonable isthe company’s return assets +5%oftheextragroup revenue ofthecompanyasbeing Inspectorate willdeemtheaveragenetbookvalueofnon-current reasonable returnontheinvestedcapital.Asarule,EnergyMarket arising from legalactsandtheconditionsoflicense,ensure a consider theexpensesthatenablecompanytofulfilobligations In approving theaboveprices,EnergyMarketInspectoratewill available forreview onthewebpageofEnergyMarketInspectorate. lished methodsforpricecalculation.Thesehavebeenmade In order toapprove theprice,EnergyMarketInspectoratehasestab- • regulated marketcustomers; • jaamadtotheregulated market; • forproduction ofheatandelectricalenergy; • Pursuant tothelaw, theEnergyMarketInspectorateapproves: customers bytheelectricitymarket. will beopenandthepriceofelectricityestablishedforall By 1stofJanuary2013atthelatest,Estonianelectricitymarket for customerswhopurchase over40GWhof electricityperyear. energy, thepriceofwhichisalready establishedontheopenmarket made betweenthemonopolynetworkservicetariffs andelectric already appliedbytheopenelectricitymarkets. Adistinctionhasbeen lishment oftheelectricitypriceintolinewithmechanisms Act. TheElectricityMarketActbrought theprocedures fortheestab- Electricity pricesare establishedonthebasisofElectricityMarket thenetworktariffs. theweightedaveragepricelimitsforelectricpowertobesold thepricelimitsforelectricpowertobesoldbyASNarvaElektri- thepricelimitsforoilshaletobesoldASNarvaElektrijaamad 20 Estonia’s firsthigh-frequency-impulse-based switchsystemforremote streetlight management and double-tariff electricitymetersinTallinn. With adailycapacityof320tons oilshale,thesecondshale With The EstonianengineerHelmuthFreymuth designs andconstructs Annual Report2004/05EestiEnergia factory isputintooperation inKohtla-Järve. 1936 The oil-shale-based 3,740 kWPüssiPowerPlantiscompleted. Thestationusesa55kV transmission linein parallel withtheNarvahydroelectric powerplant.Sinceit produces come intoforce on1 are multipliedbytheadjustmentfactor. Theadjustmentfactorconsiders: with thechangesinspecificparameters:onceayear, allnetworkcharges years. Every12monthsthenetworktariffs are adjustedinaccordance Thereafter thetermoftariff periodmaybeextendedtofourorfive force on1 certain periodoftime.Forinstance,networktariffs thatentered into As regards networkservices,thespecifictariffs are establishedfora a newpricelimit. changed circumstances require thefilingofanapplicationtoestablish effect untilthecompanyorEnergyMarket Inspectoratefindsthat have beenestablishedforthepricelimits–priceswillremain in allowed minimum,thesalespricescanbeadjusted.Noexpiryterms company d for the price whichishigherthanthelimit,companymustcompensate annual basis.Ifthecompanyhassoldelectricenergyatanaverage tariffs willbepublishedby30 (setuponpriceapproval); • Energy MarketInspectorateby30 Eesti Energiawillsubmitthecalculationofadjustmentfactorto relatively stable. for toleratingnetworkfacilities),thechargesshouldremain price ofrenewable energyandpossiblefeestobepaidlandowners controllable expenses(e.g.changeinthepurchase amountandthe change intheabovecomponents.Ifweneglectnon- (1-2%), andnetworktariffs canalsobereduced dependingonthe In general,theadjustmentsmadeinnetworktariffs are small changeincapitalcostandreasonable return. • • energy, orcompensationtherefor); • inflation fortheprevious 12months(CPI)andincrease inefficiency(X); thechangeinsalesvolumecompared totheprevious period investmentsinthepreviously agreed volume,andtheconsequent thechangeinnon-controllable expenses(e.g.purchase ofrenewable The World PowerConference inParisaccepts Estoniaasthefullmember excess byestablishingalowerpriceforthenextyear. Ifthe cheaper electricity, Narvabears themajorityofburden. st iscovers thattheweightedaveragepriceislowerthan ofMarch 2005havebeenapproved forathree-year period. of theWorld EnergyCouncil. st ofMarch 2006. th November2005atthelatestandwill 1937 th October 2005. The adjusted network October2005.Theadjustednetwork

390 people. As attheendoffinancialyear, the Supply sectionemployed (1.39 TWh)andprepared forthelaunchofEstlinkproject. Wholesale departmentalsobroke therecord forsalestoLatvia at theexpenseofdoubtfulreceivables. expenses decreased by2%,compared tothelastfinancialyear–primarily of theoperationswasalsoimproved: nominalcustomer serviceoperating losses –primarilyattheexpenseofcommercial losses.Thecost-efficiency In co-operationwithOÜJaotusvõrk,customerservicereduced network faction withcustomerserviceto83pointsona100-pointscale. with theaccountsettlementprocedures rose to94points,andsatis- of thetariff changeprocess forthecustomers.Customersatisfaction tion, EestiEnergia’s mostimportantachievement wasthesmoothness year (i.e.onequeryper20,000customers).Asregards customersatisfac- EestiEnergiadecreased by28%duringthefinancial torate concerning Estonian ConsumerProtection Board andtheEnergyMarketInspec- mer hasyieldedexcellentresults. Thenumberofqueriessenttothe ofthestructureModernisation oftheSupplyandfocusoncusto- energy –customerservicemustbesimple,comprehensible, andquick. The missionoftheSupplydivisionEestiEnergiaistosavecustomers Supply andCustomerservice The EstonianNationalPowerCommittee prepares theplanforproviding With adailycapacityof650tons, the third oilshalefactoryisputinto With • • • • •

Tallinn PowerPlantachievesacapacityof19,200 kW, effectively Iru PowerPlant AS NarvaElektrijaamad OÜ Põhivõrk OÜ Jaotusvõrk Supply andCustomerservice the entire countrywithelectricitybetween1938 and1947. becoming Estonia’s mostpowerfulplant. operation in Kohtla-Järve. 1938 Fields ofactivity • • • • •

AS Elpec AS Elektriteenused AS EestiPõlevkivi Renewable EnergyBusinessUnit AS Kohtla-JärveSoojus OÜ Jaotusvõrk med Following thecertificationauditconductedinNovember, auditorsdee- tors forninebigtransformers. also madeenvironmental protection investmentsbysettingupoilcollec- Paide, Järva,Elektrijaama,EndlaandOtepääsubstations.Thecompany investment itemsincludethedistributionboards ofHarku,Järveküla, The company’s totalinvestmentsamountedto61.3millioneuros. Major significantly shortened. malfunctions wasreduced by10%.Thetermforsubscriptionswasalso power lossesto10.2%inthefinancialyear. Thenumberofre-occurring tions andover60,000kilometres ofpowerlines.OÜJaotusvõrkcut Estonian companies.Thecompanymanagesmore than18,000substa- The customerbaseofOÜJaotusvõrkisonethebiggestamong of managingthesenetworks. consumer viathe35kVlow-voltageandmedium-voltagenetwork OÜ Jaotusvõrkisassignedthetaskofdistributingelectricitytofinal connection withtheexposure oftheelectricitymarkettocompetition. by theEuropean Uniononthemanagementofpowercompaniesin as anindependentcompany, adheringtotherequirements established On 1July2004,OÜJaotusvõrk(DistributionNetwork)startedoperating Electricity Centre –thepredecessor ofpresent-day EestiEnergiaAS.Thedirector Veerus –isappointedtheChairmanof theManagementBoard ofthe company. The Riigikogupassesalawontheestablishment ofthepubliclimitedcompany of theEstonianNational PowerCommittee–engineerJohannes Voldemar the OÜJaotusvõrkmanagementsystemtobeincompliancewith • • • • •

Supporting developmentinEstonia Personnel AS Elektrikontrollikeskus Televõrgu AS AS Energoremont 1939 Annual Report2004/05EestiEnergia 21

Management Report Management Report centres andareliability guaranteeinthesituationwhere adispersed system. TheprincipalchangesinvolveabiggerdispersalofSCADA management system(SCADA)soastoenhancethereliability ofthe We alsolaunchedtheprocurement ofanupdatetothepowersystem a totalof41.4millioneuros inthefinancialyear. line aswellthe330/110kVHarkusubstation.OÜPõhivõrkinvested Otepää andcompletedthe330kVHarku-Kiisaoverheadtransmission financial year. substationsinPaikuse and Thecompanysetupmodern Several importantprojects were completedbyOÜPõhivõrkinthe end ofthefinancialyear2004/2005,OÜPõhivõrkhad13customers. change helpsustoensure theequaltreatment ofcustomers.Asatthe Market Inspectoratewere implementedincustomerservice. Thismajor The newstandard networkserviceconditionsapproved bytheEnergy of 330kVlines.OÜPõhivõrkoperates142substationsinEstonia. ding 3,395kmof110kVlines,439220linesand1,297 OÜ Põhivõrkhasatotalof5,193kmhigh-voltagepowerlines,inclu- keeps capacitybalancedandmanagesthepowersysteminreal time. The powersystemmanagementcentre thatthecompany operates, and isresponsible forthecontinualandreliable operationofthesystem. unites theEstonianpowersystemwiththoseofneighbouringcountries ducer tomajorconsumersanddistributionnetworks.OÜPõhivõrkalso voltage powernetwork–i.e.totransmitelectricfrom thepro- The maintaskofOÜPõhivõrkistorender networkservicesviahigh- Grid inaccordance withtherequirements oftheElectricityMarketAct. Eesti Energiathefunctionofnetworkserviceprovision viatheNational The aimoftheestablishmentOÜPõhivõrkwastoseparatefrom pany onthebasisofEestiEnergiaASbusinessunit1April2004. OÜ Põhivõrk(theNationalGrid)wasestablishedasanindependentcom- OÜ Põhivõrk As attheendoffinancialyear, OÜJaotusvõrkemployed993people. nal CouncilonLargeElectricSystems)organisation. Since 2004,thecompanyhasbeenamemberofCIGRE(Internatio- the requirements oftheOHSAS18001:1999standard. health andsafetymanagementstandard system whichcomplieswith The companyhaslaunchedtheimplementationofoccupational and theenvironmental managementsystem standard ISO14001:1996. the requirements ofthequalitymanagementstandard ISO9001:2000 Power plantsinTallinn and Ellamaaare blown upbythe(Soviet)Russianarmy. 22 Annual Report2004/05EestiEnergia 1941 Ulila PowerPlantisdestroyed by theGermanarmy. 1944 of Energetics–EestiEnergia.TheUSSR West RegionCoalIndustryMinistryestablishes As attheendoffinancialyear, OÜPõhivõrkemployed143people. nisation offivecountries:Estonia,Latvia,Lithuania,RussiaandBelarus. tem Operators(ETSO)andafullmemberofBRELL,theco-operationorga- OÜ PõhivõrkisanassociatememberoftheEuropean Transmission Sys- OHSAS 18001:1999. with therequirements oftheoccupationalhealthandsafetystandard dards. Inthelastfinancialyear, thecompanywasalsodeemedcompliant with therequirements oftheISO9001:2000and14001:1996stan- OÜ Põhivõrk’s qualityandenvironmental managementsystemcomplies of thepowergenerated. power lossesinthefinancialyear2004/2005onlyamountedto2.87% tage was3.36%(in1999)andtheaverageremained around 3.6%, than inprevious periods.Whileinprevious yearsthelowestlosspercen- OÜ Põhivõrk’s powerlosseswere smallerinthefinancialyear2004 dispatcher board, thecapacityandoptionsof whichare outofdate. centre isincapableoffulfillingitstasks.We alsoplantoreplace the AS NarvaElektrijaamad compared tothelastyear. Thisisarecord forthecompany. year. Thecompanysold114,000 tonsofshaleoil–a37%increase Shale oilproduction andsalesincreased significantlyinthefinancial installed heatenergycapacityis505MWand84MW, respectively. Plant with1,615MWandBaltiPower1,090MW. The capacity ofNarvaPowerPlantsamountsto2,705MW–Eesti As oftheendfinancialyear2004/2005,totalelectrical and managingsoilacidity). ral purposes(alkalisoilamendmentforthepurposeoffertilizingfields be usedinthemanufacture ofconstructionmaterialsandforagricultu- company produces andsellsshaleoilaswellash,whichcan Latvia. Theplantsalsousedtoprocess Russianoilshale.Inaddition,the and thecityofNarvawithheat,aswellexportingelectricpowerto AS NarvaElektrijaamadprovides Estonianconsumerswithelectricity Plant waslaunchedin1959,andtheEestiPowertenyearslater. the traditionalcentre forEstonianpowerproduction –theBaltiPower oil-shale-based powerplantsintheworld.TheNarvahavebecome the BaltiPowerPlantandEesti–theseare thebiggest thereof. ThecompanyownstwopowerplantsinthevicinityofNarva– production ofelectricalandthermalpowerfrom oilshale,andthesale The mainactivityofASNarvaElektrijaamad(NarvaPowerPlants)isthe The USSRCommissariatofPowerPlants establishestheEstonianNationalBoard the integratedplant EestiPõlevkiviforthepurposeofmining foroilshale. 1945 The first12MWgeneratorisputintooperation systems ofthegenerators. rogen electrolytic devicewaspurchased forfeedingthegascooling ted itsfire control and compressed airsystems.Afullyautomatic hyd- itscablelinesandreconstruc-various risks.IruPowerPlantmodernised The investmentpolicyfocusedonenhancingreliability andhedging wer were produced inthefinancialyear. Thesalespricedidnotchange. A totalof414GWhelectricpowerand1,201thermalpo- pite thedecrease inproduction volume,causedbythewarmweather. The financialyear2004/2005proved successfulforIruPowerPlant,des- the ASTallinna Kütedistrict-heatingnetwork. tely 50%)andMaardu (nearly100%).Thermalpower wassuppliedvia biggest marketshare oftheTallinn districtheatingmarket(approxima- biggest electricalpowerproducer inEstonia2004.Theplanthadthe Iru PowerPlantwasthebiggestthermalpowerproducer andthethird 190 MW, andheatcapacity648MW(398incombinedmode). fuels providing back-up.TheelectricalcapacityofIruPowerPlantis outside Tallinn. Naturalgasisthepredominant fuelused,withliquid Iru PowerPlantisacombinedpowerandheatenergyplantlocatedjust Iru PowerPlant As attheendoffinancialyear, thecompanyemployed1,855people. laboratoryqualitysystemISO17025. the international ratory oftheplantswere deemedcompliantwiththe requirements of dard lastyear. Theelectricity, automatedmachinery, andchemicallabo- deemed compliantwiththerequirements oftheISO14001:1996stan- The environmental managementsystemofAS NarvaElektrijaamadwas and lay-offs. programmes, thusalleviatingtheeffect ofstructuralreorganisations financing theformerpowerplantemployees’socialandretraining the ASNarvaElektrijaamadSocialFund,establishingprinciplesfor In 2004asocialplanwassignedbetweenASNarvaElektrijaamadand house inthefinancialyear2004/2005. company launchedtheconstructionofagas-powered back-upboiler- the reconstruction oftheBaltiPowerPlantand duringpeakhours,the In order toguaranteethermalpowersupply to thecityofNarvaduring from oilshaleevenmore efficientandenvironment-friendly. energyblockshavemadeelectricityproduction plants. Thetwomodern implementation ofthenewfluidisedbedtechnologyinpower The year’s mostimportanteventforASNarvaElektrijaamadwasthe in Kohtla-Järvethermalpowerplant. 1949 The first110kVhigh-voltage powerlineissetupbetween The first22.5MWgeneratorisputinto operation in Ahtmethermalpowerplant. Ahtme andTallinn. 1951 number ofemployeeswascutby30%-i.e.to110. changed soastoincrease thecompetitiveness ofthecompany. The the corporatestructure andtheemployees’fieldsofresponsibility were In thecourseofoptimisingitsprocesses and enhancingefficiency, ment EMAS(environmental managementand auditingsystem). project withtheaimofbecomingfirstEstonian companytoimple- is alsoinvolvedinanenvironmental management system-related pilot for thecertificationofitsqualitymanagementsystem.IruPowerPlant in thefinancialyear. Inaddition,IruPowerPlantiscurrently applying med compliantwiththerequirements oftheISO14001:1996standard The environmental managementsystemofIru PowerPlantwasdee- As attheendoffinancialyear, the company employed128people. projects includedtheinstallationofpre-insulated pipesandheatmeters. The companyinvested0.3millionkroons inthefinancialyear. Major significantly improved andin-houseoverviewofdebtorsenhanced. issue ofjointinvoices.Asaresult, receipt ofpaymentsforinvoiceswas services wasterminatedandthecompanymadeatransitionto heating period–theprovision ofin-housethermalpowerdistribution The companychangeditssalesstrategyatthebeginningof approximately 40%. liabilities andstaff tothenewowner, thusdownsizingthecompanyby tion concludedon5July2004,thecompanytransferred theassets, thesalestransac- electric powertotheJärvedistrictofKohtla-Järve.With related totheproduction, distributionandsalesofthermalpower The highlightofthefinancialyear2004/2005wassaleassets of thermalpowerand30.5GWhelectricpower. In thefinancialyear2004/2005,ASKohtla-JärveSoojussold204.1GWh mal powerlines,ofwhich73kmare ownedbyASKohtla-Järve Soojus. Järve andJõhvitown.Theseareas are servedviaatotalof98kmther- networks. ThecompanysuppliesheattotheAhtmedistrictofKohtla- combined powerproduction plant,andtheassociatedthermalpower ownsthe30MWoil-shale-basedAhtme is locatedinIda-Virumaa, AS Kohtla-JärveSoojus(Kohtla-JärveDistrictHeatingNetwork),which AS Kohtla-JärveSoojus Energia Group. ThecompanyhassucceededincompletingtheVirtsu operation ofpowerplantsprocessing renewable energyintheEesti The RenewableEnergyBusinessUnithandlestheestablishmentand Renewable EnergyBusinessUnit Annual Report2004/05EestiEnergia installed betweenAhtmeandTartu; the Tartu substationiscompleted. High-voltage powerlinesare 1953 23

Management Report Eesti Energia sales representative Ma rika Vomm and ETV’s studio, which like every part of our information society, could not do what it does without electricity. We want to deserve the trust of every client. Management Report lion euros andsixToro shovelloadersatatotalcostof1.8million euros. of 1.5millioneuros, three Komatsubulldozersatatotalcostof1.2mil- ments includeelevendumptruckswitha42-toncapacityattotalcost technology.The biggestinvestmentswere madeinmodern Majorinvest- 150.1 hectares ofquarries. year. In2004,oilshalewasextractedfrom 188.4hectares ofminesand euros –i.e.an5.4millioneuro decrease compared tothelastfinancial tons ofoilshale.Thecompany’s amountedto112million turnover In thefinancialyear2004/2005,ASEestiPõlevkivimined13.3million and amachinebuildingmetalprocessing company. and twoquarries),ASEestiPõlevkiviownsarailtransportundertaking diaries. Inadditiontotheminingcompany(incorporatingtwomines AS EestiPõlevkiviconsistsoftheparent companyandthree subsi- in1916. mining beganinIda-Virumaa in Estonia,andtheinitiatorofrelated research. Industrialoilshale shale production andsales.EestiPõlevkiviisthefatherofoilshalemining Thecompanymainlyhandlesoil important employersinIda-Virumaa. AS EestiPõlevkivi(EstonianOilShaleCompany)isoneofthemost AS EestiPõlevkivi ruction ofarenewable energy-basedthermalpowerplant. field 2inNarva,andcarriedoutpreliminary surveysrelated totheconst- the companystarteddesigningwindparkforBaltiPowerPlantash thehelpofECaidprogramme,hydroelectric powerplant.With plant, andthepreparatory workfortherestoration ofthePõltsamaa The companyalsocontinuedthebuildingofRuhnuwindmill/diesel 6.5 GWh–hadstoodsince1925. to 8.4GWh(previously estimatedaverage:6.9 GWh).Thelastrecord – Due totherainysummerandautumn,annualcapacityamounted The Linnamäehydroelectric plantbroke allrecords inthefinancialyear. currently thebiggestrenewable energyproducer inEstonia. wable EnergyBusinessUnit’s share was10.4GWh.EestiEnergiais produced atotalof37.5GWhelectricpower, ofwhichtheRene- In thefinancialyear2003/2004,Estonianrenewable energycompanies annual capacityofthepowerplantis2.5GWh. the powerplantwasenhancedfrom 250kWto365kW. Theplanned thereconstruction,2005, afterafive-yearbreak. thecapacityof With plant. Electricalpowerproduction wasresumed inKeila-JoaJanuary electric plantwithacapacityof1.1MW, andtheKeila-Joahydroelectric windmill withacapacityof0.6MW, reconstructed theLinnamäehydro- 26 Ahtme thermalpower capacity at72MW. plant achievesfull Annual Report2004/05EestiEnergia 1955 In additiontoelectricity, Tallinn PowerPlantstarts Balti PowerPlantstartsgeneratingelectricity providing thecitywiththermal power. at thecapacityof100 MW. 1959 4,361 people.Thenumberofemployeesdecreased by222duringtheyear. As attheendoffinancialyear, ASEestiPõlevkiviemployedatotalof as lowpossibleforlongpossible. The mainstrategicgoalforthecompanyistokeepoilshaleprice ning, andtoevaluatestaff qualification. the employeequalificationrequirements, toascertaintheneedfortrai- developed professional standards fortheminingindustrysoastospecify In co-operationwiththeEstonianQualificationAuthority, thecompany environmental managementsystems. and safetymanagementsystemcomplieswiththeexistingquality management principlesofASEestiPõlevkivi.Theoccupationalhealth and receipt oftherelevant certificateonApril25.Thisimproved allthe ment systeminaccordance withtheOHSAS 18001:1999 requirements, included implementationoftheoccupationalhealthandsafetymanage- Major improvements intheASEestiPõlevkivi workingenvironment port. Thefulltransitiontoroad transportwill be madeinOctober2005. operation, enablingcostlyrailtransporttobereplaced withroad trans- efficiency. ThecompanyalsoputtheslopeshaftofEstoniamineinto sives –anewoilshaleminingtechnologywhichisboundtoenhance The companylaunchedunderground testingofsaferemulsionexplo- As attheendoffinancialyear, the company employed359people. the ISO14001:1996environmental managementsystemstandard. The operationsofASElektriteenusedcomplywiththerequirements of liant withtherequirements ISO9001:2000standard. oftheinternational The managementsystemofASElektriteenusedhasbeendeemedcomp- the company’s relevant competencewascentred on a singleunit. ment sectors from 1July2004onwards. Inthefieldofhigh-voltageequip- reorganised thestructure ofitsmediumandlow-voltageconstruction To enhanceitsflexibilityontheconstruction market,ASElektriteenused prepared afive-yearstrategicdevelopmentplanasresult. AS Elektriteenusedactivelyanalyseditsstrategyduringtheyear, and requirements. electrical installations,andevaluationofadherence totherelated construction, maintenanceandrepairof ofpowernetworks, inspection The mainfieldofactivityASElektriteenused(ElectricalServices)isthe AS Elektriteenused enhancing powersupply toTallinn, andWestern Estonia.Thefirst 220kV Northern Estonia’s largest,22kVVeskimetsa substationisputinto operation,significantly and diagnostics,thecompanymainlyfocusedonconstruction– power line issetupbetween Balti PowerPlantand Veskimetsa substation. The powernetworksAgriculturalElectricity andUtilityElectricity are incorporatedunderEesti Energia. 1961 set upbetweenBalti PowerPlantandRiga The first330kVhigh-voltagepowerline is pany succeededinexpandingitscustomerbaseby10%. Although anincrease inthemetalpricetightenedcompetition,com- belts andelevators.Thefinishingplantstartedoperatingatfullcapacity. new products, includingpressure equipment,ventilators,conveyor servicesandstartedproviding The companylaunchedcomplexturnkey financial year2004/05. AS Energoremont’s amountedto13.4millioneuros turnover inthe • equipment • qualificationofwelders • • Supply) include: The mainactivitiesofASEnergoremont (EquipmentMaintenanceand AS Energoremont to thelastfinancialyear. financial year, ASElpecemployed74people–a30%increase compared with theISO9001:2000requirements in2003.Asattheendof The qualitymanagementsystemofASElpecwasdeemedcompliant ted aperformancepaysystem. the formerEestiEnergialandserviceunit.Thecompanyalsoimplemen- the financialyearonbasisofemployeescompanyand a unifiedteam–structuralreorganisation wascarriedoutintheendof the structuralreorganisation ofthecompany, andtheestablishmentof The mostsignificantachievementofASElpecinthefinancialyearwas the Tõnismäe-Endlacablelineanddesignworkonseveralsubstations. the BaltiPowerPlant-Kiisapowerline,Estlinkunderwatercable The companyhandledseveralimportantprojects inthefinancialyear– võrk isalsocontinuallyincreasing, especially as regards landservices. of themforOÜJaotusvõrk.Thevolumeservicesrendered toOÜPõhi- Approximately 4,000landagreements are concludedeveryyear;75% tion ofthecompanyandexpansionrangeservicesoffered. euros. Thisincrease wasmostlybrought aboutbythestructuralreorganisa- times compared totheprevious period,from 0.8millionto2.6 ofASElpecgrewIn thefinancialyear2004/2005,turnover many power companies,andthetimelyperformanceofprojects. projects, theprovision ofsolutionstolanduse-related problems of The mainactivityofASElpecistheimplementationelectrical AS Elpec themaintenanceandrepair ofpowerproduction equipment theinspectionofmetalandweldedaccessories;training thedesign,manufacture andinstallationofmetalproducts themaintenanceandrepair ofelectricalinstallationsandautomatic (Valmiera-Salaspils). 1962 Saaremaa isconnectedtothe mainland powernetwork via underwater cablelines. 1964 580 people. As attheendoffinancialyear, ASEnergoremont employed Estonian Accreditation Centre) standards. Akkreditierungssystem Prüfwesen)andENISO/IEC/17024 (accreditor: compliant withtheENISO/IEC17025(accreditor: Deutsches year. Theoperationprocedures ofthesubsidiaryhavebeendeemed A newsubsidiary–OÜERTest Service–wasestablishedinthefinancial As attheendoffinancialyear, thecompanyemployed42people. environmental andqualitymanagementstandards. with therequirements oftheISO14001:1996and9001:2001 In March 2005,theoperationsofTelevõrgu ASwere deemedcompliant the companyalsorenders out-of-housecommunicationservices. Televõrgu ASexploitstheexistingcommunication maintothemaximum– and Estonia’s telephoneandcomputernetwork. biggestgovernmental the operationalradiocommunicationnetworkofentire country Televõrgu ASoperatesoneofthebiggestcommunicationmainsinEstonia, in caseofcrisis,andcuttingthegroup’s communication-related expenses. customers, whilealsoguaranteeingthereliability ofthepowersystems purpose ofensuringthequalityandsafetyservicesrendered to provision oftelecommunicationservicestopower companiesforthe The mainactivityofTelevõrgu AS(Telecommunications Network)isthe Televõrgu AS As attheendoffinancialyear, the company employed33people. EU directives onthemainactivitiesofcompany. environment thatarose from theamendmentofandentryintoforce of ness environment andtriedtoadaptthechangesinbusiness Jõgeva subunit.Thecompanymadepreparations forjoiningtheEUbusi- Among otherthings,ASElektrikontrollikeskus liquidatedtheunprofitable composition oftheservicesoffered intolinewiththemarketrequirements. on maintainingservicevolumestabilityandbringingthestructure and In general,theyear2004wasquitedemanding–companyworked involved inthefieldofelectricity. tence ofandorganisationenrichmenttrainingforsoleproprietors compliance withtherequirements, andtheassessmentofcompe- are theinspectionofelectricalinstallationsandevaluationtheir The mainactivitiesofASElektrikontrollikeskus (PowerControl Centre) AS Elektrikontrollikeskus achieves theworld’s greatest capacity– The oil-shale-basedBaltiPowerPlant 1,624 MW. 1966 Annual Report2004/05EestiEnergia Power Plantisputinto operation. With acapacityof200MW,With Eesti 1969 27

Management Report Management Report the changesthatneedtobemadeforouractionsreflect ourvalues. language ofactions.Theauditvaluesprovides uswithinformationon the process. To keep thevaluesalive,wemust“translate”theminto We haveincludedemployeesofvariouscompanies,areas andlevelsin our mainorganisationalvaluesbysettingstrategicgoalsforthefuture. our visionandmissionreviewing In 2004,westartedmodernising Eesti Energiahasconsciouslyhandledvalue-related issues since1998. Audit ofvalues by supportingouremployees’health-andsport-related initiatives. employees’ workresults. Inaddition,wepromote ahealthywayoflife labour market.We consideritimportanttoacknowledgeour ledge, andskillsexperience,aswellonthewagelevelsin work tasks,scopeofresponsibility, theemployee’s contribution, know- nies. Remunerationisestablishedonthebasisofcomplexity training andtraining-related co-operationbetweenthegroup compa- on thebasisofprofessional goals.We attachimportancetoin-house motivation ofemployees.Theneedfortrainingisdecided,aboveall, sibilities ofdirect managersforthedevelopment,evaluationand honest andopeninformationexchange.We havespecifiedtherespon- and betweenthegroup companies,as emphasis ontheimportanceofco-operation yees withnewchallengesandsomespaceforgrowth. We laymore personal characteristicstofillvacantjobs–weaimatproviding emplo- ment. We prefer in-housecandidateswiththerequired know-howand yees are alsoprovided withequalopportunitiesforworkanddevelop- aware oftheirrole intheeffort toachievethecorporategoals.Allemplo- human resource employmentanddevelopment.Allemployeesmustbe arrangement andmanagementprinciplesaswelltheregulations for in more detailthaninthepolicytodate.We havestipulatedthework Many principlesregarding thenewpersonnelpolicyhavebeenspecified alism, opennessandcustomer-friendliness. of anorganisationalculture whichpromotes co-operation,profession- group. Adherence tothepersonnelpolicyfacilitatesdevelopment employees andharmonisedhumanresource managementintheentire Our personnelpolicyprovides theprerequisites forequaltreatment of refreshed therulesandregulations forhumanresource-related work. A newpersonnelpolicywasestablishedinthegroup in2004.We also Personnel policy Personnel significantly enhancing reliability ofthepowersupply 28 Eesti PowerPlantachievesacapacityof 1,610MW. The 330kVKiisasubstation isputintooperation, Annual Report2004/05EestiEnergia between Tallinn andWestern Estonia. 1973 well asonthesignificanceof between thee mployees Iru PowerPlantstartsproviding Lasnamäe district inTallinn withheat. evaluation process thaneverbefore. basis oftheevaluation.More first-linemanagerswere involvedinthe the companyimplementedanadditionalremuneration systemonthe We alsocontinuedtheevaluationofourservicestaff. Forthefirsttime, co-operation. professional skillsandknowledgesignificantlyenhancingmutual võrk andthecustomerservicewashighlyimportant,improving The jointdevelopmentprogramme forfirst-linemanagersofOÜJaotus- developing thenewemployeeprimarytrainingprogramme. of trainingisvitalfordevelopingpartnerships.We alsocontinued managers ininteractionwiththeemployees’representatives, thissort gue withtradeunionstoanewlevelandspecifiedtherole ofcorporate succession andotherimportantissues.Sincewehavetakenthedialo- wage market,systemprinciples,jobevaluation,professional a thorough overviewofourstrategy, economicresults, labourand trade unionsforthefirsttime.Thetrainingservedpurposeofgiving We alsoorganisedthetrainingofheads and representatives of practical knowledgeforperformingthisrole. to clarifytheemployer’s role andresponsibility, andgivetheoretical and have beengrantedtheauthorisationofanemployerthemselves,soas For thefirsttimeincompany’s history, wetrainedemployeeswho Major traininganddevelopmentprojects and bringingtheworkarrangementintolinewithcorporategoals. Structural changesservethepurposeofeveningorganisationsout involved EestiEnergiaAS’s IruPowerPlantandASKohtla-JärveSoojus. establishment ofOÜPõhivõrkandJaotusvõrk.Reorganisationalso The biggeststructuralreorganisation inthefinancialyearinvolved Structure andworkarrangement pated inthe“KeytoFuture” fair. ment ofprofessional standards forelectricians,and,onceagain,partici- with theNationalExaminationandQualificationCentre) intheestablish- aboutsuccession. Thisyear,concerned wewere involved(inco-operation As thebiggestemployerinEstonianenergysector, weare naturally Professional succession 1978 extracted inEstonia–atotalof31million tons. The biggestamountofoilshaleinhistory is 1980 Iru PowerPlantcombinestheproduction for thebestprojects. Examplesofprojects thathavereceived support companies. EestiEnergiaoffers 6400euros (100,000kroons) ofsupport in eitherhouseholdsortheactivityoforganizations,institutionsand conservation. Entriesmustbetargetedatpromoting heatconservation zes acompetitionforprojects thatpropagate thephilosophyofenergy city consumers(especiallyhouseholds). goal ofthewebpageistoraiseefficiencyenergyuseforelectri- mation onenergy-savingproducts, technologiesand measures. The home andcorporateconsumerstogetclear, simpleanddiverseinfor- on theinitiativeofEestiEnergiaisfirstopportunityforbusiness, supporter ofitsactivity. Tallinn ScienceandTechnology Centre (EnergyCentre) andaloyal Tallinn UniversityofTechnology’s DevelopmentFund. to studyintheirfield,EestiEnergiaisalong-termsupporterofthe Energia. Wanting peopleworkingtoward adegree inatechnicalfield with agoodandbroad educationare anundisputedassetforEesti Estonians aspossible. Therefore, wesupportvariousinitiativesandprojects tohelpasmany wishes tomakeacontributionsocialdevelopmentingeneral. In additiontotakingbusiness-related responsibility, EestiEnergia also Supporting developmentinEstonia companies. fields ofactivity, andcreate additionalvalueforalltheparticipating theremunerationmaking fairdecisionsconcerning policyinourmain year onEestiEnergia’s initiative.Thesetypesofsurveysare required for The wagesurveyoftheenergysectorwaslaunchedinfinancial Wage survey • • • • Conservationproject competition.Eachyear, EestiEnergia organi- Energyconservationportal.TheConservationPortalcreated TheEnergyCentre. EestiEnergiaisoneofthefounders Tallinn UniversityofTechnology DevelopmentFund.Young people of electricandthermal power. 1982 between Narvaelectric powerplantand 330 kVpowerlinesare setup Kiisa substation. 1987 energy conservationamongschoolchildren. are anenergyconservationgameandaprogramme ofpromoting to theeducationalestablishmentsthattrainspecialistsinfield. ved inthepreparation ofstudyprogrammes byintroducing EestiEnergia of powerproduction incomprehensive schools,andbecomemore invol- actively handlesuccession-related issues.We plantointroduce thefield enhancement ofprofessional andmanagerial competence.We willalso development ofmaterialandnon-materialmotivationsystemsthe The personnel-related prioritiesforthenext financial yearincludethe Future priorities nents. We offer ourcustomerstheoptionofe-invoicestosavepaper. planting, ordisposingofpaper, oldbatteriesand computercompo- being engagedinvarioussociallybeneficialinitiativessuchastree- • project ”TheGreen BicycleTour”. the supporters,promoters andparticipantsintheFundforNature and sustainabledevelopment.Amongothers,EestiEnergiaisoneof Eesti Energiasupportsprojects inthefieldofnature, nature education working withtheEstonianFundforNature, intheframeworkofwhich provided fortheNõmmeskitrail. and inTartu intheSupilinnsportspark,and additionallightingwas lighting wasinstalledinTallinn onJõulumäe, onthePirita path, inPärnu Põlevkivi, partoftheEestiEnergiagroup. Inthelastfinancialyear, new Culture, theskiassociationandnumerous otherfirms,suchasEesti making machines.Theproject isalsosupportedbytheMinistryof the purchase ofmaintenanceandtrailbuildingmachinerysnow- paths andpartiallycarriesoutconstruction,Hansapankfinances Eesti Energiaisresponsible forlighting,whileMerkoEhitusdesignsthe and makingthemmore functional.Whenupgradingtrailsandpaths, Merko Ehitusinitiatedaproject forlightingsuitablesportinglocations • • Internal initiatives.EestiEnergiacompanieshaveatraditionof Internal EstonianFundforNature. From 2000,EestiEnergiahasbeen Trails andfootpaths.EestiEnergiatogetherwithHansapank State enterprisesEestiEnergiaand Eesti Põlevkiviare established. 1991 Annual Report2004/05EestiEnergia Estonia restores itsmembership with theWorld EnergyCouncil. Eesti EnergiaASisestablished. 1998 29

Management Report We try to find the best environmentally friendly solutions for producing electricity from renewable energy sources.

Eesti Energia Renewable Energy operations manager Raimo Pirksaar and the thoroughly revamped Keila-Joa hydro plant, where environmentally friendly electricity production began back in 1928.

32 Annual Report 2004/05 Eesti Energia

Environmental Report

Environmental policy of Eesti Energia

1. We analyse the environmental impact of our operations in advance and take precautionary actions to reduce this impact in every way possible. 2. We follow all relevant domestic and international environment-related legal acts. 3. Waste prevention, waste re-utilization and improved efficiency of the power system are our contribution to sustainable development in Estonia. 4. Human health and safety is of paramount importance in our operation. 5. We apply the best available technology (BAT) for reducing the negative environmental impact of energy production and transmission. 6. We co-operate with scientific research establishments to achieve our environmental goals. 7. We use and develop an environmental management system which complies with the requirements of the ISO 14001:1996 standard. 8. We keep all stakeholders informed about the environmental impact of our operation; the Eesti Energia environmental policy is made available to the public. 9. Under equal conditions, we prefer subcontractors and suppliers who have established a certified environmental management system.

Environmental aspects of Eesti Energia

The specifics of power production and transmission in Estonia include:

1. Emission of pollutants generated by the use of fossil fuel – nitrogen dioxide (NOx), sulphur dioxide, carbon monoxide, particulates and volatile organic compounds – into the atmosphere (Narva Elektrijaamad (Narva Power Plants), AS Kohtla-Järve Soojus (Kohtla-Järve District Heating Network) and Iru Power Plant). 2. Emission of carbon dioxide gas generated by the use of fossil fuel (Narva Elektrijaamad, AS Kohtla-Järve Soojus and Iru Power Plant). 3. Water used for oil shale mining, and sulphate pollution in water pumped out from the mines (AS Eesti Põlevkivi). 4. Large amounts of hazardous waste generated during the hydro-transportation of oil shale ash; and the depositing of such waste in violation of the requirements (Narva Elektrijaamad and AS Kohtla-Järve Soojus). 5. Land use and the risk of oil pollution from the oil switches and transformers used in power transmission (OÜ Põhivõrk (National Grid) and OÜ Jaotusvõrk (Distribution Network)). 6. Network losses (Põhivõrk and Jaotusvõrk) 7. The impact of electromagnetic fields on living organisms (Põhivõrk, Jaotusvõrk and Televõrk (Telecommunications Network)) Annual Report 2004/05 Eesti Energia 33

Environmental objectives of Eesti Energia

1. Certifying the environmental management systems of Eesti Energia’s production units and network companies in accordance with the ISO 14001:1996 standards by the end of 2005 2. Transitioning oil shale power plants’ to fluidised bed technology 3. Increasing the renewable energy production capacity 4. Reducing network losses 5. Bringing those oil facilities which are in violation of the requirements into compliance with legal acts: by 2012 in the Põhivõrk and by 2015 in the Jaotusvõrk 6. Shutting down ash field no. 2 of Balti Power Plant by 2006. 7. Transitioning Ahtme Power Plant to environmental friendly solution by 2009. 8. Preparing the applications for integrated environmental permits for Eesti Energia’s power plants by the end of 2005. 9. Implementing the new oil shale ash removal technology by 2009. 10. Conducting the oil shale electricity life cycle assessment (LCA) in accordance with the methods set forth in the ISO 14041-14044 standards by the end of 2005, and preparing the environment product declaration (EPD) for oil shale electricity in accordance with the ISO 14024-14025 standards by 2007. 34 Annual Report 2004/05 Eesti Energia

Highlights and major environmental investments

The 2004/2005 financial year was undoubtedly a special one for several reasons. All activities took on a new, broader dimension in connection with Estonia’s accession to the European Union as of 1 May 2004. Estonia’s entire environmental sphere began to be influenced by a European approach to natural conservation and markedly more stringent pollutant regulations and environmental regulations. Although negotiations secured transition time for resolving some of the issues, the deferral is temporary and intended for making up lost ground. Every energy-related change is

costly. The developing issue of CO2 commerce/quotas, which received wind under its wings in 2004, merits separate mention; theoretical discussions became a realistically functioning system. Ecological tax reform continued to develop, establishing new principles for the field of environmental Environmental Report regulation. Both as dictated by European Union member status as well asand in the framework of domestic changes, Eesti Energia continued environment-related activities in every area it touched.

Most of the changes in the natural environment are associated with Mining impact studies continued, including studies on the effect of the mining of natural resources. The allocations for environmental mining work on the cultivation value of cropland, forest growth protection expenditures by the group ensure the existence of the conditions and the state of groundwater. The effect of mining on bird necessary investments for improving the state of the environment. populations was also studied. We cannot make the effect of mining on the environment non-existent, but we can soften and lessen the blow. Another important stage before electricity reaches the consumer is the production of electricity from the burning of oil shale. Estonia is the As of 1 May 2005, there are 510.9 million tons of active oil shale only country in the world that covers its basic power needs by burning reserves in the areas belonging to Eesti Põlevkivi companies (including oil shale. There are those who consider this Estonia’s great fortune and reserves of 25.5 million tons in the inactive Tammiku and Sompa mines). positive side, but there are those who feel that this is a great misfor- tune for Estonia in the environmental sense. Eesti Energia on its behalf Groundwater has risen to pre-mining levels in mines closed in previous does all it can to mitigate the environmental effects of producing years. In connection with long mild spells in December 2004 and electricity from oil shale. In the 2004/2005 financial year, two energy January 2005, the amount of water removed from mines and quarries blocks based on the new fluidised bed technology were launched, one rose significantly. A total of 238 million m3 of water was pumped out, at the Eesti and the other at the Balti Power Plant. This is undoubtedly 25 million m3 more than in previous financial years. 0,46 million euros Estonia’s largest environment-related investment in the protection of was invested into alternative drinking water supplies for villages in the the atmosphere, and exceeds the volume of all projects implemented mining area. As a result of the project, a new supply of water confor- so far and to be implemented in Estonia in the coming years. The advan- ming to all European Union requirements has been ensured. 182 tage of the new energy blocks over the dust furnace technology is the hectares of slag heaps and 121 hectares of mined area were levelled. minimal atmospheric discharge for sulphur, nitrogen and ash. The grea- ter efficiency of the blocks allows fuel expenditures to be reduced

The new oil shale-based boiler house erected on the industrial territory about 20%, as a result of which the amount of CO2 discharged will be of the Viru mine contributed to reductions in atmospheric pollutants. reduced and likewise the amounts of solid waste generated. Compared to the technology that has been in use so far, the new boiler house significantly reduces the amount of air pollutants and the Based on ever more stringent laws, Narva Elektrijaamad is building amount of waste produced. a monitoring system in order to assay its waste products. The system installed on the new smokestacks allows major classes of substances

Rail transport at the Estonia mine began to be replaced with road discharged into the air (SO2, NOX, ash) to be measured in real time. transport. The transition to road transport allows expenditures to be In terms of the size of Estonia neighbouring states, this is a large project, reduced and allows savings on the wagons used for conveying the and the size is already dictated by the capacity of the devices of Narva sleepers, struts, copper wiring and mineral raw material used to Elektrijaamad. The new system being implemented, the installation of construct railways. In addition to reducing monetary expenditures, which at Eesti Power Plant is already in the testing phase, allows a better we also use natural resources more wisely. overview to be gained regarding the dynamics of discharge and makes reporting easier as well. In the 2004/2005 financial year, Eesti Põlevkivi paid the state and

municipalities a total of 6,6 million euros in environment usage fees, Besides CO2 discharge, solid waste is one of the more serious problems including 5,6 million euros for use of natural resources and a pollution associated with producing electricity from oil shale. We looked all year fee of 1 million euros. long for solutions to the problem of bringing Narva Elektrijaamad ash and thereby reduce thedanger tive oftheworkissignificantlytor maintenance worktobeperformedonoperationalashfields.Theobjec- was submitted,which,inadditiontoanewashdisposalsystem,outlines long-term solutions,anofficiallyconfirmedcomprehensive program for thetechnicalstructure andexploitationofthesystem.Asaresult of tions continuedwiththeMinistryofEnvironment overtheconditions factory nature ofthesolutionssubmitted.At thesametime,consulta- med forthispurposehadtobedeclared unsuccessfulduetotheunsatis- tenderproclai- will beimplementedinsummer2009.Theinternational disposal systemintoconformitywiththerequirements ofthelaw, which plant, where gasisusedfor thatpurpose.Eventhoughgasis Co-production ofelectricityandheatalsotakesplaceatIrupower operating onpeatandbiofuel. technology-based oilshaleplantwith anew, power plant modern project was alsoprepared whose objectiveistoreplace thecurrent old- talled fordeterminingthesolidparticulatecontentofsmoke.Alarge ping systemwassupplementedwithnewpumpsandadeviceins- plant operatingonoilshale.In2004theexistingashfieldleachatepum- of NarvaElektrijaamad;Ahtmeiscurrently theoldestelectricalpower Kohtla-Järve SoojusoperatesAhtmePowerPlantasthesmallersibling addition tocertificationoftheenvironmental managementsystem. under waytoapplyforothernecessaryenvironmental permitsin legal actsbrought intoconformitywithEUrequirements, efforts are conforming totheISO14001:1996standard. PursuanttoEstonian 2005 inthecertificationofanenvironmental managementsystem at NarvaElektrijaamad.Thisactivityculminatedthebeginningof determining andresponding toenvironmental impactswasimproved time thattechnicalsolutionswere developed,theprocedures for for petroleum products were brought into conformity. Atthesame ling andcleaningofwastewaterwasreorganized, andstoragetanks Power Plant’s industrialwastedumpwasalso cleanedup,thechannel- In additiontosolvingtherefuse problems ofBaltiPowerPlant,Eesti ponding aidproject tobelaunched. cient foralarge-scalewindparktobeerected there, withacorres- According totestresults, thewindconditionsonashfieldare suffi- ing newdumpwillbeconstructedontopoftheashfieldtoclosed. no 2,theplant’s industrialwastedumpwas closedandthecorrespond- should becompletedin2006.Alongwiththeclosingofashfield which wouldproduce alkalinewater. According toplans,thework and precipitation willbeprevented from makingcontactwiththeash, The inactiveashfieldwillbeclosedinconformitywithrequirements menced, andthisisalsobeingfundedbytheEuropean Union. approach, theclosingofBal Aside from theashproblems, whichrequire acomprehensive ting tofindingasolutiontheproblem. 50% co-financedbytheEuropean UnionCohesion Fundiscontribu- ning of2005.Inadditiontothetests,technicalassistanceproject Corresponding newteststoimplementthesystem beganatthebegin- ti PowerPlantashfieldno2wascom- the systemposesto educe theamountof the environment. circulating water tations withobsoleteoilcollectionsystemsisdecreasing yearbyyear. and renewed. ThenumberofOÜJaotusvõrkandPõhivõrksubs- and thattheobsoleteoilcollectionsafetysystemsberenovated that largeandoil-reliant devicesbereplaced withothertechnologies From thestandpointofenvironmental conservation,itisimportant procurement proceeding supplemented. veral interested parties,andtherequirements ofthecorresponding quality oftheclearancesunderaerials,negotiationswere heldwithse- older substationsandtransmissionlinesbegan.Inorder toimprove the us. Lastyear, renovation ofboththeOÜPõhivõrkandJaotusvõrk transmission cablesandtransformersubstationsthatelectricityreaches sinceitisthroughof electricityalongsideoilshaleminingandburning, As regards environmental impact,weshouldalsomentiontransmission to dispelsuspicionsaswhetheritisharmfultheenvironment. dealing withenvironmental protection andrenewable energyinorder trademark were specifiedatmanyround tablesmadeupofplayers ria forelectricityfrom renewable resources soldundertheGreen Energy contribute totheuseandpopularisationofrenewable energy. Thecrite- production oftheKeila-Joahydroelectric facilityismodest,itwillstill on thehistoryofhydro-energy andrenewable energy. Even thoughthe its powerwasincreased. TheKeila-Joapower plantalsohasanexhibit 2005. Thepowerplantbuildingwasrestored initsoriginalform,and Keila-Joa’s historicalhydroelectric powerplantatthebeginningof sources ofrenewable energy. EestiEnergiacompletedrenovation of Electricity canbeproduced from wind,water, biomassandother other environmental certificates. standard wascertifiedandprogress isbeingmadeinthedirection of mental managementsystem’s conformitytotheISO14001:1996 required levels,waslaunched.Inaddition,IruPowerPlant’s environ- reduce NO technical assistanceforamajorfuture project, thegoalofwhichisto mental regulations. Attheendof2004,aprocess forobtaining be implementedatIruPowerPlantinorder tocomplywithenviron- considered anenvironmentally friendlyfuel,additionalmeasures must X componentsintheexhaustgasesofIruPowerPlantto Annual Report2004/05EestiEnergia 35

Environmental Report 36 Annual Report 2004/05 Eesti Energia

Last year, the Põhivõrk renovated many substations, which are impor- Besides its main activity, Eesti Energia pursues a number of other tant from the point of view of ensuring a reliable supply, in the course activities that may have an effect on the environment. The communica- of which the environmental security of those substations increased. In tions firm Televõrgu AS has continually developed optical communica- addition, a contemporary substation was built at Harku for the future tions systems on 110/330 kV lines, which will replace the previous Estlink cable. We continue to seek to join with possible electricity system based on radio waves. AS Energoremont - Equipment Mainte- producers who use renewable energy (primarily wind). nance and Supply - invested in making its component processing more environmentally friendly, and renovating the painting plant, which One of the environmental activities of the Jaotusvõrk is the reconstruc- consists of a paint chamber and shot cleaning facility. In order to deal tion of poles with nesting storks and the construction of new nest more systematically with environmental issues, environmental Environmental Report supports. In 2004, relocation of storks’ nests continued in critical areas management systems have been created and certified at nearly all of to avoid accidents and technical problems caused by nesting birds. Eesti Energia’s companies.

The environmental impact of energy in Estonia

In assessing the environmental impact of energy, three major areas of action should be examined, from production of electricity to the way it is delivered to the consumer.

These areas are the mining and transport of oil shale, the main fuel The mineral obtained in mines and Aidu quarry undergoes enrichment. used to make electricity; the production of electrical and heat energy; Waste rock is cast off into dump heaps. In 2004, 4.3 million tons of and the transfer of energy. All of these stages have an effect on the waste rock accumulated in heaps at mines. At Narva quarry, limestone environment, as described below. The necessary environmental permits sediments are cast off into heaps during the mining process. At Aidu have been obtained for all of Eesti Energia’s units, and certified environ- quarry, waste rock obtained during enrichment is sent back to the mental management systems that conform to the ISO 14001:1996 stan- quarry heaps. Over the years a total of over 180 million tons of dard have been set up at all mining, manufacturing and grid companies. production surplus has accumulated into the “hills“ of waste rock that characterize the terrain of Ida-Viru County. Part of the material is used Environmental impact of oil shale mining to produce gravel and filler for road construction use. Oil shale comprises 95% of the fuel necessary for production of electricity. Mining of oil shale is the province of the Eesti Energia com- The area mined in oil shale quarries is predominantly levelled and pany AS Eesti Põlevkivi, which consists of the parent company and replanted. In 2004, 121 hectares of mined area were reforested. three subsidiaries. In addition to Põlevkivi Kaevandamise AS’s two In restoring mined areas, fields have been created and small ponds mines and two quarries, the group also includes a railway transport retained. A total of 11,400 hectares of land has been restored in company and a machining-metallurgical company. AS Eesti Põlevkivi quarries since the beginning of operations, including forested area of a total of 10,200 hectares and 169 hectares of As of 1 May 2005, there are 510.9 million tons of active oil shale agricultural land. reserves in the areas belonging to Eesti Põlevkivi companies, which at current production volumes will be enough for thirty years. In 2004, In the mining process, the ground water level is lowered to below the 13.1 million tons of commercial oil shale was mined. Since 1916, level of the oil shale layer. The water pumped out is routed through nearly 1 billion tons of oil shale has been mined in Estonia, and there ditches and rivers to the Gulf of Finland and some to Lake Peipsi as will be enough of this combustible mineral for more than a hundred well. In connection with long mild spells in December 2004 and more years. January 2005, the amount of water removed from mines and quarries rose significantly. A total of 238 million m3 of water was pumped out, Up to 30 meters in depth, oil shale is quarried (open-pit mines). In under- 25 million m3 more than in the previous financial year. Mining water ground mines, room-and-pillar mining is used, where the “ceiling“ is undergoes filtration (primarily of suspended solids) in settling pools. held up by column-shaped pillars. Shrink in open-pit mining is 8.9%, and Mining water does not have a major impact on natural water 27.6% in room-and-pillar mines. Mining methods where the integrity composition, with only sulphate concentrations increasing significantly. of the surface of the earth is compromised are no longer used today. whichmaybedestroyed. mayhaveanespeciallyseriousimpactonsensitive plantspecies, aneffect onforests alongwithotherpartsoftheenvironment, and • considered: regardWith toairpollution,thefollowingmajorpollutantsshouldbe solid residuals. atmospheric pollution,butanimpactisalsofeltduetothestorageof fuels. Thegreatest environmental effects ofthestageare related to of heat.Theprocess issimilarforbothfossilfuelsandrenewable bio either transformedtoelectricityordelivered toconsumersintheform cation andcombustion.Asaresult oftheprocess, theheatderivedis Energy isusuallyderivedfrom solidandliquidfuelsbywayofgasifi- Power Plantproduces onlyelectricity. means theyproduce heataswellelectricitysimultaneously. Eesti Balti, IruandAhtmepowerplantsworkin“combined“mode,which mäe andKeila-Joahydroelectric plants,andthewindturbineinVirtsu. based AhtmePowerPlantoperatedbyKohtla-JärveSoojus,theLinna- Plant, BaltiPowerPlant),thegas-basedIruoil-shale- Elektrijaamad withitstwooil-shale-basedpowerplants(EestiPower Energy (heatandelectricity)are produced atEestiEnergiabyASNarva Environmental effectsofenergyproduction mining inthevicinityofnaturalpreserves andNatura2000areas. protected areas, whichprimarilylookedatthefeasibilityofoilshale ontheverysalienttopicofminingand municipality governments, have workedwiththefirmandenvironment officials from countyand for itscompanies’environmental employees, scientificinstitutionsthat In May2004ASEestiPõlevkiviorganizedatraditionalenvironment day lished fordrinkingwater. decrease insulphateconcentrations,evento belowthelevelsestab- observation. Water samplestakenfrom oldminesshowamarked area, withover100drilledholesandground waterlocationsunder pre-mining level.Amonitoringnetworkhas been setupinthemining deposit, thelevelofgroundwater hasrisen, approaching thenatural partofthe Following theclosingofexhaustedminesinnorthern the border ofthepreserve. constructed, allowingmaximumexploitationofoilshare reserves on is dividedintosmalllots,andseepagebarriersinfiltrationpools Narva quarrywillbecontinuedaccording to a specialproject. Thework levels oftheKurtnapreserve, districtof miningworkintheViivikonna To prevent miningfrom havinganimpactonthegroundwater andlake drinkingwatersupplyarrangements. spent onalternative have beenlaidanddeepwellsdrilled.In2004,0.5millioneuros was the minelevelhavegonedry. To supplyvillageswithwater, waterpipes Wells intheimmediatevicinityofminingwork thatare higherthan increase acidityofprecipitation andcreate acidrain.Acidrainhas SO 2 emissions.Ahighatmosphericcontent ofsulphurdioxidecan lowcompared tosimilarcoal-basedplants • in EestiEnergia Electric andthermalpowerproduction total of68,782tonsSO In thefinancialyear2004/05,Eesti Energiapowerplantsreleased a onereason whythere County. isnoacidraininIda-Viru dischargeof anthracite-coal-basedpowerplants.Thisisapparently toneutralizeacidicsoils.Inaddition,itworksthe useoilshale asafuelis,however, alkaline.Alkalineflyashworks acidicburden ontheenvironment. Theflyashofpowerplantsthat afuelhaspredominantly acidicproperties andposesanadditional powerplant. Flyashfrom powerplantsthatuseanthracite coalas impactofflyashdependsingreat measure onthefuelusedby theground islimited,includingthatofflyash.Theenvironmental Theconcentrationofsolidparticulatesinthelayeraircloseto thenakedeye,causesrespiratory disorders andlungdiseases. • keepingupwiththeamountofCO isabsorbedbymajorbodiesofwater. CO • pheric naturallevel.Inthelastfewdecades,asignificantriseinatmos- CO when concentration beginstoincrease incomparison tothe production ofnewbiomass.Inaddition,acertainamountCO isasignificantcomponentintheprocess ofphotosynthesis,the atmospherictemperatures. CO andcauseagreenhouse effect, resulting inaraiseaverage in alloftheprimarypollutantsdischarged intotheatmosphere. we takeintoaccounttheincrease inproduction, thisyear sawadrop solid particles.Inabsoluteterms,these are significantquantities.Butif levelofNO hasaneffect onthediversityandqualityofbodieswater. The eutrophication (proliferation ofvegetationinwaterbodies),which butadditionallynitrogen isasignificantfertilizerandcancause

Flyash,theonlyatmosphericpollutantthatcanbemadeoutwith CO NO 2004 2003 2002 2001 2000 1999 1998 1997 x 2 emissionshaveanimpactsimilartothatofSO emissionscreate acarbondioxidesurplusintheatmosphere ,0 W 2,392GWh 2,593GWh 2,657GWh 2,219GWh 9,005GWh 2,613GWh 8,912GWh 2,424GWh 7,403GWh 2,742GWh 7,351GWh 2,974GWh 7,389GWh 7,235GWh 7,409GWh 8,046GWh 2 hasbeendetected,aclearsignthatnature isnot x emissionsfrom oil-shale-basedpowerplantsisvery 2 , 11,578tonsofNO Electricity Heat 2 isnaturallypresent intheairand 2 Annual Report2004/05EestiEnergia beingreleased. 2 becomesaproblem X and16,624tonsof 2 emissions, 37 2

Environmental Report Kukruse “hill”, now a popular tourist attraction, features concrete steps to make the ascent easier. We find new ways to use production surpluses. 40 Annual Report 2004/05 Eesti Energia

The currently most problematic group, SO2, has decreased around closed systems are used for ash disposal: the transport water is 6,500 tons compared to the previous financial year. Solid particles have re-circulated and does not come into contact with the environment.

decreased around 4,100 tons from the previous financial year, NOX by Surpluses of water created by precipitation are neutralized and proces-

around 1,300 tons and CO2 by around 380,000 tons. The main reason sed as required, then rerouted to an environment that conforms to the for the drop is the launch of two new fluidised bed technology-based terms and conditions specified in the environmental permits. Taking

boilers at Narva Elektrijaamad. The new boilers have reduced SO2 to into account the large amounts of water that circulate in the system, practically zero. The new technology is also more effective, since it uses the risk of environmental contamination with basic water is a persistent less fuel and consumes less electrical energy. Along with the lower one in the event of an accident or technical problem. Under require- decomposition rates of the carbonates (limestone) found in oil shale, ments deriving from European Union legal acts, the current ash dispo-

Environmental Report the technology makes the new boilers give off less CO2. Thanks to new sal system will have to be replaced. To this end, it is planned to convert and more modern exhaust filtering equipment, the amount of fly ash ash disposal to a new semi-dry fine pulp technology and clean up the released into the atmosphere is also less. Based on all of the above current ash fields. The changes will markedly decrease the quantities of results, the new blocks−based on the circulating fluidised bed techno- circulating water and new bodies of water created by precipitation. logy and running on oil shale−are in line with all EU environmental This in turn will make the whole system more secure. requirements. On the strength of data received in the course of the renovation of the first boiler, it is possible to continue the renovation of Oil shale ash can also be put to other uses, and Narva Elektrijaamad is the other major oil-shale-based combustion chambers in order to signi- involved in developing such applications. Oil shale ash obtained from ficantly reduce the burden placed on the environment while preserving the production of electricity can be used in the construction materials optimal productivity. Thus we will be able to comply with our obliga- industry as a raw material, for example, as an additive in the manufac- tions to the European Union, which will be fully implemented after the ture of cement, in producing construction materials and as a filler end of the transitional period in 2016. material. Since oil shale ash has alkaline properties, it is also used to neutralize acidic soils. Iru Power Plant is currently running on 100% natural gas, which is currently considered the most environmentally friendly and efficient Water is used in power plants as a cooling liquid as well as to conduct non-renewable type of fuel. Based on the smaller production volumes, heat in combined-mode plants. Natural surface water from nearby but the cleaner fuel as well, the amounts of exhaust gas given off by bodies of water is used in all power plants. When cooling water is used, the Iru plant are smaller, and there is no sulphur or solid particulate the environmental effects include a rise in the temperature of surface problem. Yet the equipment at Iru plant require renovation, since today water in connection with rerouting the water used for cooling back

the amount of NOX discharged is nearly twice as high as the norms into the environment. The cooling water used by Narva Elektrijaamad established by the European Union. raises the temperature of surface water up to an estimated 7 degrees per year. The new fluidised bed technology will also reduce the amount Alongside air pollution, the treatment of solid waste is the most impor- of water necessary for cooling. tant environmental issue associated with energy production. With the exception of natural gas, ash or mineral waste is formed to a greater or Lately there has been much discussion over whether the production lesser extent whenever any fuel is burned. A unique feature of oil shale units that use renewable sources of energy have an impact on the is its high level of mineral substances; around 45-50% of the original environment, and if so, what the effects are. Wind energy is seen by mass is left following combustion. The ash formed at Narva Elektrijaa- some as a danger to birds and bats. Wind turbines also have an mad and Ahtme Power Plant is deposited in ash fields next to the aesthetic effect–such installations may not grace every landscape–and power plants. Hydro transport is used to convey the large quantities of create low-frequency noise. Wind turbines used by Eesti Energia should ash. The situation is made more complicated by the fact that the oil conform to the current environmental and health safety requirements. shale ash contains a high concentration of CaO–unslaked lime, which Environmental effects in the case of hydro plants involve ground reacts with the transport water and renders it alkaline. For this reason, problems arising from blocking and swelling bodies of water and

Atmospheric emissions

2004 2003 2002 2001 2000

Sulphur dioxide (t) 67,966 81,618 65,640 69,655 74,447 Nitrogen dioxide (t) 11,606 13,524 11,008 11,149 10,323 Particulates (t) 17,111 21,736 25,082 46,056 47,841 Carbon monoxide (t) 11,800 12,393 10,967 8,897 8,209 withregard totheireffects, butnoconclusiveanswerastothe andsubstationequipment. Manystudieshavebeenconducted created intheimmediatevicinityofhigh-voltagetransmissionlines • locatedinthevicinity ofaeriallinesorsubstations. Noisebecomesaproblem especiallywhenresidential areas are componentsofaeriallines,produce noiseinthesurrounding area. • naturalsettingsignificantly. doexcavationworkinorder tobuildthese,whichreshapes the visuallyunappealingandoftenitisnecessarytocutdownforest or • thestorminearly2005. isnecessarytoensure safetyandreliability, aswesawvividlyduring Theconstructionofsecurityzonesthatare sufficientlyfree oftrees related tolinemaintenancecrop upfrom timetotime. maintainedandkeptfree ofhigherplantcover. Forestry issues missionlines.Thearea underlinesandthesurroundings shouldbe • The followingenvironmental influencesshouldbenoted: this effect isdifferent from thoseofthe other stagesdescribedsofar. Electrical networks,too,haveaneffect ontheenvironment, although 5,200 kmofhigh-voltageaeriallinesandaround 140substations. 18,000 substations.ThePõhivõrkhasanadditionalapproximately a totalofaround 53,000kmofaerial,8,000 kmburiedcablesandover required foreachconsumertouseelectricity. TheJaotusvõrk alonehas we donotrealize howmanydifferent typesofdevicesandcablesare reaches everyconsumerthrough highandlow-voltagelines.Inreality picture incomplete.Transfer ofelectricityisimportantsince considering theeffect ofelectricaltransmission wouldbeleavingthe Discussing theenvironmental impactoftheenergy industrywithout of electricity Environmental impactoftransmission environmental actionontheriversaffected. course ofconstructionworkhavebeencompensatedwithcorrective been renovated inlinewithallrequirements. Anydisruptionsinthe dams andcatchmentpondshavenotbeenbuiltexistingones has beeninvolvedonlywithrestoring existing oldhydro plants−new hindering themovementoffishes,especiallyrare species.EestiEnergia Electromagnetic fieldsthatmayaffect manyaspectsoflifeare Thedevicesinsubstations,mainlytransformersandthemain Inadditiontousagerestrictions, aeriallinesandsubstationsare distributionandtrans- Restrictionsonuseofthelandunderneath high-voltagedevicesandcables. beenestablishedondevelopmentinthepossibledangerzoneof hasbeenreceived. To reduce thepossibleeffects, restrictions have precise effect theelectromagnetic fieldshaveonlivingorganisms been investedtoremedy thesituation. every dayweworktoreduce theeffects, andmajorsumshave Eesti Energia’s activitiesnaturallyaffect the environment, but PCB devicesare beingremoved according toacoordinated schedule. maintenance costs.Thefewremaining andseparately-accounted-for optimised endresult notonlyfrom thestandpointofsecuritybut tors. Indevelopingandconstructingsafetysystems,wetrytofindthe systems are builtintheformofsafetypools,oilseparatorsandcollec- mentally safersolutions.Ifthisisnotpossible,thenecessarysecurity As fordevicesthatuseoil,here, too,ashiftisbeingmadetoenviron- devices isfavoured,reduces whichinturn thebulkofsubstations. latter. Inbuildingsubstations,theuseofmore compactandquieter cable. There are stillcertainrestrictions onlanduseinthecaseof To reduce unsightlinessandnoise,ashiftisbeingmadetoburied in order tofindandimplementsolutionsthatsatisfyalloftheparties. In addition,negotiationshavebeenheldwithvariousinterest groups for workinmaintaininglinesandclearingforest hasbeen adopted. mental effects described.Amore stringentandthorough setofrules Constant, systematicworkisperformedtoalleviatealloftheenviron- tobehandledaccordingly. worthyamountofrefuse isproduced (primarilyposts)whichneeds • according torequirements by2010atthelatest. thePCB-andPCT-containing devicesshouldbefinallyremoved andare accountedforseparately. According tocurrent plans, acquired whenformerSovietarmysubstationswere repossessed containingtransformersintwoplacestheJaotusvõrk. Theywere haveneverbeenusedinthePõhivõrk.There are stillPCB-andPCT- asPCBsandPCT. Oilsandtransformerscontainingtheseelements are alsoassociatedwithsuchenvironmentally harmfulsubstances contaminationofthesurfaceandgroundwater. Transformer oils oilwillcomeintocontactwiththeenvironment andcause substations.Incaseofleakoraccidentthere isapossibilitythatthe • Inrepairing, renovating orliquidatingtransmissionlines,anote- Speciallubricantsortransformeroilsare usedasaninsulatorin Annual Report2004/05EestiEnergia 41

Environmental Report 42 Annual Report 2004/05 Eesti Energia

Energy conservation activities

Compliance with the energy conservation information plan launched by the supervisory council of Eesti Energia on 29 September 2001 continued in 2004. Energy conservation in the broader sense is a holistic approach that ranges from fuel production and delivery (manufacturing/mining of resources, transport, storage, transformation into energy, distribution) to rational and conservationist consumption. Energy conservation also helps reduce environmental pollution.

Environmental Report To propagate energy conservation, Eesti Energia in cooperation with was to instil a conservationist ethos in the youth of the town and AS Enprimo Esti vo launched in autumn 2004 the Internet-based energy region of Põltsamaa, and a project from MTÜ Virumaa Teabekeskus, conservation portal www.kokkuhoid.energia.ee, which contains autho- “Forming consumption habits at school and at home”, which was ritative and well-presented information on pertinent products, techno- aimed at young people living outside Tallinn. Both of the projects will logies and measures. be realized during 2005.

The website offers both household and industrial consumers reliable In addition, there was active cooperation with the Estonian Green information on changing their consumption habits, views and values. Movement on the project “The bicycle became a power plant”, which The portal has a feedback page for viewer comments, suggestions and gave students of Tallinn’s secondary schools information on the produc- energy conservation-related questions. tion and nature of electricity, and on the necessity and impact of energy conservation. The Ministry of the Environment recognized this project In 2004, Eesti Energia continued the traditional energy conservation at the end of 2004 as a significant environmental action. Cooperation contest for non-profit organizations. Interest in the contest was great has also taken place in the field of distributing energy conservation- and 13 projects were received, of which the jury selected the two best related information together with the Energy Centre in Tallinn. and the project that would receive support. The criteria for the selection were the extent of the project and the effectiveness of the measures The issue of energy conservation is becoming more important with for developing energy conservation measures and raising consciousness each passing year, since growing energy consumption can no longer be as well as achieving realistic energy conservation. The total support covered by increased production volumes. Both industrial and private fund was 6400 euros (100,000 kroons). consumers must start using energy more thriftily and thereby contri- bute to slowing the growth of energy consumption. Eesti Energia will The following projects shared the fund in the 2004 competition: the continue its activity in this field in the future as well. Juventus youth movement’s “Conservation Mosaic”, the goal of which

ISO 14001 and Eesti Energia

From 2002 on, the Eesti Energia group has systematically been engaged in introducing environmental management systems, which conform to the ISO 14001:1996 standard. One of Eesti Energia’s primary environmental goals is to introduce environmental management systems that conform to ISO 14001 in all of the group’s manufacturing companies and units.

The International Standards Organization (ISO) standard 14001:1996 friendly. Nor need the certificate mean that a company does not have describes the requirements to which a company’s environment-related any environmental problems. Still, a certificate is a sure sign that the management is subject. Conformity to the requirements of the standard company is conscious of its relationship with the environment, has is assessed by independent auditors accredited for that purpose by accre- outlined its environmental policy, identified important environmental ditation organizations. In the event that the auditors do not find any con- aspects and is involved in improving the situation. ISO 9001:2000 and flicts between the requirements of the standard and the actual events at its outgrowth, the ISO 14001:1996 standard, are united by the the company, the company is issued a corresponding certificate. principle of continual improvement and preventive actions, which have been recognized as effective in environmental protection and the right The environmental management system certificate does not directly approach to solving problems. prove that the products produced by a company are environmentally restored aswell. tric powerplantalsoresumed electricityproduction atthebeginningof2005.In thefuture, thePõltsamaahydroelectric power renewable sources. EestiEnergiacurrently administersEstonia’s largesthydroelectric powerplantatLinnamäe.Inaddition,th In additiontoproducing electricityfrom oilshaleandnaturalgas,inthe2004/2005financialyearenergywasalsoproduced at (1.7 GWh)ofthetotalelectricityproduced from wind (7.7 GWh). windturbineaccountedfor22% 35% (or8.2GWh).TheVirtsu Estonian hydroelectric plantoutput(23.1GWh),EestiEnergiaprovided 10.4 GWhofelectricityinthe2004/2005 financialyear. Ofthetotal financial year. Alltold,EestiEnergia’s renewable energyunitproduced of 6.9GWh,8.4GWhelectricalenergywasproduced inthe2004/2005 breaking. Compared totheprojected annualaverageproduction volume production attheLinnamäehydroelectric powerplantwasrecord- Due tothelastfinancialyear’s rainysummerandautumn,electricity increase evenfurtherinthefuture. the amountofelectricityproduced from renewable sources should Ahtme PowerPlantandadaptittopeatbiofuelbecomesareality, Plant ashfield,whichistobeclosed.Whentheplanrenovate the studies are underwaytobuildalargewindparkontheBalticPower power plantisplannedtobebuilton Awindturbine-diesel Eesti EnergiaalsousesonewindturbineatVirtsu. Besides hydroelectric energy, thepotentialforwhichislimitedinEstonia, Renewable energyandGreenEnergy on 4September2004byLloyd`sRegisterQualityAssuranceLtd. AS Energoremont’s environmental managementsystemwascertified ronmental managementandauditsystem(EMAS). Iru PowerPlantisalsotakingpartinthepilotproject forEurope’s envi- ficate wasissuedtoIruPowerPlanton30June2004byASMetrosert. Following this,anenvironmental management systemconformitycerti- 5 May2003. mines, AiduandNarvaquarry)−wascertifiedbyDetNorskeVeritas on nika andPõlev in theEstonianOilShaleCompany–ASPõlevkiviRaudtee,Mäeteh- The environmental andqualitymanagement systemforthecompanies tems ofthegroup’s other was activelyadoptedindesigningtheenvironmental managementsys- by Bu Põhivõrk’s environmental andqualitymanagementsystemwascertified back inspring2002achievedsuccesson17December2002,whenthe gement systemsintheEestiEner 2004 wasabreakthrough yearinimplementingenvironmental mana- reau Veritas (BVQI).Theexperiencegained QualityInternational ki vi Tootmise AS(production unitstheEstoniaandViru companies andpreparing themforcertification. gia concern. Thepilotproject gia concern. launched the islandofRuhnu . Preparatory and statusproduct, whichshowstheenvironmental consciousness of Green Energy, primarilyproduced from windandwater, isanimage Green Energy kilowattsoldisinactualitycovered with renewable energy. standard−was formulated. policy−in conformitywiththerequirements oftheISO14001:1996 gement systemin2004,theEestiEnergiagroup’s newenvironmental In additiontosuccessfulimplementationoftheenvironmental mana- to go. management systemcoveringtheentire group. There isstillalongway of ISO14001:1996shouldbethecreation of aunifiedenvironmental environmental managementsysteminconformity withtherequirements where ithasnotyettakenplace.Thefinalgoal ofimplementingan tion ofthesystemissure tobecontinuednext yearinthosecompanies the manufacturingcompaniesofEestiEnergiagroup. Implementa- ment systemhadbeenimplementedandcertifiedinamajorpartof By theendof2004/2005financialyear, theenvironmental manage- of NarvaElektrijaamadon14April2005byMetrosert Ltd. Eesti Energiaattainedanewlevelwiththecertificationofsystem by LRQA.Implementationoftheenvironmental managementsystemat tal andqualitymanagementsystemswere certified on21March 2005 was certifiedbyBVQIon2December2004.Televõrgu ASenvironmen- (LRQA OÜJaotusvõrkenvironmental andqualitymanagementsystem sold viatheEestiEnergiaJaotusvõrk. Thus Energy soldperyeardoesnotexceed is keptregarding the quantitiesofGreen Energy–theamountof Green cal energyproduced from oilshale.Atthesametime,precise accounting lied toasinglenetworkanditreaches theconsumeralongwithelectri- Energy isconceptual.Renewableenergyfrom variousproducers issupp- Due tothephysicsofdeliveryelectricity, consumptionofGreen adoption ofrenewable energysources inEstonia. ble sources ofenergy(wind,orwater)andthereby supportthewider energy. BuyersofGreen Energyuseelectricityproduced from renewa- porters. Itisastakeholderschemeto with EestiEnergia,theEstonianFundforNature andhundreds ofsup- sources, theGreen Energyproject waslaunchedin2001conjunction To supportandpromote theproduction ofelectricityfrom renewable support andpromote the amountofre Annual Report2004/05EestiEnergia it isguarant e Keila-Joahydroelec- EestiEnergiafrom plantistobe eed thatevery newable energy renewable 43

Environmental Report 44 Annual Report 2004/05 Eesti Energia

buyers and their sense of social responsibility. In the 2004/2005 In 2004, cooperation with educational institutions increased in order to financial year, Eesti Energia sold 2,626,800 kWh of Green Energy. introduce environmentally friendly production of electricity and conser- vational consumption and this will be one of the primary priorities in Green Energy certificates were sold as follows: years to come. • RE I category certificate, 120,000 kWh renewable energy per year – 5 All buyers of Green Energy also made their contribution to the reno- • RE II category certificate, 60,000 kWh renewable energy vation of the Keila-Joa hydroelectric power plant, which was comple- per year – 14 ted in spring 2005. Revenue from the sale of Green Energy was chan- • RE III category certificate, 6,000 kWh renewable energy nelled into cooperation with the Estonian Fund for Nature to promote

Environmental Report per year – 157 the adoption of renewable energy and environmental conservation. • RE home client certificate, 1,200 kWh renewable energy per year – 190.

Ecological Laboratory of Eesti Energia

The company performs systematic and regular monitoring in order to evaluate the company’s environmental effectiveness. Pursuant to current legislation, a major part of Eesti Energia’s companies must have dedicated monitoring equipment and those that do not must conduct regular assays for various polluting substances. Pollutant readings are a basis for calculating pollution fees, and they are also necessary for gauging the company’s effectiveness in the environmental field. For the optimal and flexible organization of monitoring, there is an ecological laboratory at the environment department of Eesti Energia Support Services.

The ecological laboratory was founded in August 1992 to measure individuals besides the companies of the Eesti Energia group. To ensure objectively the amount of environmentally deleterious waste dischar- an impeccable standard for the readings, the laboratory was accredited ged into the atmosphere by Eesti Energia companies and thus gain a by the Estonian Accreditation Centre on 3 July 2001 and accreditation better understanding of the impact the group has on the environment. certificate no. L052 has been issued as verification. In addition to taking direct readings, the laboratory is charged with managing the methods used in measuring the waste generated by For the more flexible and efficient organization of work, technicians Eesti Energia companies and testing new or reconstructed measure- have access to a mobile laboratory that allows quality measurements to ment and monitoring equipment. From 1994 the laboratory has been be made throughout the entire country. taking both pollutant and workplace readings for other companies and appropriate protective clothingandotherequipment. To ensure safeworking conditions,employeesare equippedwith servingtheseblockswas replaced withsaferalternatives. andinsulationcontaining asbestosintheoldpipesanddevices powerplants,weavoided insulationcontainingasbestosentirely, • whenrepairing alternatives equipment; • monitoringtheirperformance; • factors establishedinriskanalysis: We implementmanymeasures toreduce thehealthrisksfrom risk detected invatrepair areas. dust thatisseveraltimesgreater thantheallowablelimitshasbeen ratory diseasewhentheyare released intotheair. Aconcentrationof used toinsulatevatsandturbinecomponents,whichcancauserespi- asbestos. Inyearspast,insulatingmaterialcontainingasbestoswas city plants−employeesare exposedtooilshaledust,ashand severe anddeleteriousworkingconditionsare thoseatoilshaleelectri- vibration, chemicals,airtemperature, draftsandmoisture. Themost The mainriskfactorsatelectricityplantsare dustcontentinair, noise, Working environment discharge. • patingin,comparativeinter-laboratory measurements • arrangementsandforoptimisingthecombustionprocess • contractors mentsoftheworkingenvironment atcompaniesandprivate • The current procedures are withinthescopeoflaboratory: difficult, withphysical,chemical,biological,physiologicalandpsychologicalriskfactors. Electricity plantsandgridcompanieshavemanydifferent professions andworkplaceswithconditionsthatare harmfultohealth

InconstructingthenewfluidisedbedblocksforBaltiandEesti Replacementofinsulationcontainingasbestoswithsafer Improving thetechnicalconditionofequipmentandcontinually Maintenance andcalibrationofmonitoringdevicesforgaseous Determining thesulphurcontentoffuelbymaking,orpartici- Consultations forreducing harmfuldischarge fortestedboiler Environmental protection measurements atcompanies,measure- standard, performedbycomparativemeasurements (QAL2). measurement systemsandqualitymanagement asdictatedbythe devices. Asaresult, thelaboratoryfocusedon calibratingautomated reduced numberofperiodicmeasurements withregard tothesevery ing formajorcombustiondevices,2004wascharacterizedbya accession totheEuropean Unionproviding compulsoryfixedmonitor- In connectionwithnewenvironmental requirements establishedon declared worthyofanOHSAS18001:1999conformitycertificate. by thecompanies.In2004,OÜPõhivõrkandASEestiPõlevkiviwere with theOHSASstandard 18001:1999hasbeguntobeimplemented An occupationalhealthandsafetymanagementsysteminconformity ruleshasbeendevised. a setofinternal and operationalconnectionsinorganizingworkuseofequipment, occupational safety, andtakingintoaccountEestiEnergia’s structural Pursuant tolegislativerequirements inthearea oftheworkplaceand lished bylaw. Employeesundergohealthcheckupsasrequired bylaw. ted. Itperformstechnicalinspectionsinaccordance withprocedure estab- a consistencyandworkingenvironment departmenthasbeenaccredi- To inspectthesafetyandtechnicalsituation ofelectricalinstallations, appropriate protective clothing,footwear, toolsandsafetydevices. high voltageisquitestressful. Here tooemployeesare provided the since workinoutsideconditions(climate,highplaces,ticks)andwith The workingconditionsforelectricalgridemployeesare quitedifficult, Annual Report2004/05EestiEnergia , dangerous or 45

Environmental Report We must find a compromise between the environment and people’s needs. We must be the stewards of hope, passing it on to future generations undimmed. 48 Annual Report 2004/05 Eesti Energia

Financial statements

Declaration of the Management Board

The Management Board confirms the correctness and completeness of the financial statements of Eesti Energia AS (the parent company) and the consolidated financial statements of the parent company and its subsidiaries (the group) which have been prepared for the period 01.04.2004−31.03.2005 and set out on pages 48−82, and declares that, to the best of its knowledge:

• the financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS); • the financial statements give a true and fair view of the financial position of the parent company and the group, and the results of their operations and cash flows; • any known material circumstances that became evident before the date of preparation of the financial statements have been appropriately accounted for and presented in the financial statements.

According to the Management Board, Eesti Energia AS and its subsidiaries are able to continue as a going concern.

These financial statements have been approved for issue by the Management Board on 31 May 2005.

Gunnar Okk Sandor Liive Lembit Vali Mati Jostov Marko Allikson Chairman of the Member of the Member of the Member of the Member of the Management Board Management Board Management Board Management Board Management Board Annual Report 2004/05 Eesti Energia 49

Balance sheet

in thousands of euros Group Group Parent Parent Note company company 31.3.2005 31.3.2004 31.3.2005 31.3.2004

ASSETS Current Assets Cash and cash equivalents 40,301 45,110 40,301 45,110 4 Available-for-sale financial assets 0 354 0 350 5

Trade receivables 49,891 46,046 40,471 37,607 6 Financial statements Other receivables 85 85 248,749 163,647 7 Accrued income 2,194 1,742 1,358 1,362 8 Prepayments 1,716 916 420 346 9 Inventories 18,312 16,592 50 474 10 Total current assets 112,499 110,845 331,348 248,896

Non-current assets Investments in subsidiaries 0 0 580,518 274,322 11 Investments in associates 2,701 2,756 128 614 12 Trade receivables 0 0 285,681 0 31 Property, plant and equipment 1,199,979 1,128,979 50,188 681,838 13 Intangible assets 2,494 2,494 2,485 2,485 14 Total non-current assets 1,205,175 1,134,230 919,000 959,259

Total assets 1,317,674 1,245,075 1,250,348 1,208,155

LIABILITIES Current liabilities Borrowings 2,374 1,192 2,364 1,182 16 Trade and other payables 89,982 85,886 99,774 75,940 17 Derivative financial instruments 2,672 4,468 2,672 4,468 18 Provisions 6,016 5,884 35 39 19 Deferred income 618 45 0 45 20 Total current liabilities 101,661 97,475 104,845 81,675

Non-current liabilities Long-term borrowings 306,602 293,498 306,600 293,486 16 Provisions 18,593 20,186 261 270 19 Deferred income 50,709 38,468 0 38,468 20 Total non-current liabilities 375,903 352,152 306,861 332,224

Total liabilities 477,564 449,627 411,706 413,899

SHAREHOLDERS’ EQUITY

Capital and reserves attributable to the Company’s equity holders Share capital 464,900 464,900 464,900 464,900 21 Share premium 259,833 259,833 259,833 259,833 Statutory reserve 41,692 40,020 41,692 40,020 Hedging reserve (2,137) (3,930) (2,137) (3,930) 18 Retained earnings 31,762 0 31,762 0 Net profit for the period 42,594 33,433 42,594 33,433 Total capital and reserves attributable 838,643 794,256 838,643 794,256 to the Company’s equity holders

Minority interest 1,468 1,192 0 0

Total shareholders` equity 840,110 795,448 838,643 794,256

Total liabilities and equity 1,317,674 1,245,075 1,250,348 1,208,155 50 Annual Report 2004/05 Eesti Energia

Income statement

in thousands of euros Group Group Parent Parent Note company company 1.4.2004 - 1.4.2003 - 1.4.2004 - 1.4.2003 - 31.3.2005 31.3.2004 31.3.2005 31.3.2004

Sales 394,726 377,113 343,465 329,838 22 Other revenue 2,512 2,024 910 1,446 23 Government grant 181 120 51 83 24

Changes in work-in-progress and finished goods (1,120) 3,020 0 0

Financial statements, continued Materials, consumables and supplies (121,391) (120,485) (314,773) (245,758) 25 Other operating expenses (36,933) (38,571) (8,121) (12,977) 26, 27 Payroll expenses (87,879) (89,789) (11,666) (20,432) 28 Depreciation and impairment of fixed assets (87,618) (83,094) (10,530) (49,184) 13, 14 Other expenses (1,114) (705) (380) (210) 29

OPERATING PROFIT/LOSS 61,365 49,633 (1,044) 2,806

Financial income and expenses Share of results of subsidiaries 0 0 11,772 37,876 11 Share of results of associates 827 1,121 0 (112) 12 Net interest expense (19,459) (17,707) 31,714 (7,054) 30 Foreign exchange gains (3) 27 (5) 31 Other financial income and expenses 140 (115) 157 (113) Total financial income and expenses (18,495) (16,675) 43,638 30,627

NET PROFIT FOR THE PERIOD 42,870 32,958 42,594 33,433

Attributable to: -Equity holders of the Parent Company 42,594 33,433 42,594 33,433 -Minority interest 275 (475) 0 0 Annual Report 2004/05 Eesti Energia 51

Statement of changes in shareholders’ equity

in thousands of euros Capital and reserves attributable to the Company’s equity holders Share Share Statutory Hedging Retained Minority TOTAL Note capital premium reserve reserve earnings interest

Balance as at 31.3.2003 464,900 259,833 23,489 (4,474) 16,532 1,668 761,946

Transfer to statutory reserve 0 0 16,532 0 (16,532) 0 0 Revaluation of cash-flow hedges 0 0 0 544 0 0 544 18

Net profit for the period 0 0 0 0 33,433 (475) 32,958 Financial statements, continued

Balance as at 31.3.2004 464,900 259,833 40,020 (3,930) 33,433 1,192 795,448

Transfer to statutory reserve 0 0 1,672 0 (1,672) 0 0 Revaluation of cash-flow hedges 0 0 0 1,793 0 0 1,793 18 Net profit for the period 0 0 0 0 42,594 275 42,870 Approximation 0 0 0 0 0 0 1

Balance as at 31.3.2005 464,900 259,833 41,692 (2,137) 74,356 1,468 840,110

Additional information about share capital, share premium and statutory reserve is provided in Note 21.

52 Annual Report 2004/05 Eesti Energia

Cash flow statement

in thousands of euros Group Group Parent Parent Note company company 1.4.2004 - 1.4.2003 - 1.4.2004 - 1.4.2003 - 1.3.2005 31.3.2004 31.3.2005 31.3.2004

Cash flows from operating activities Net profit for the financial year 42,870 32,958 42,594 33,433 Adjustments Depreciation and impairment 87,618 83,094 10,530 49,184 13, 14 Amortisation of connection fees (1,545) (1,288) (324) (1,288) 20 Profit from sale of property, plant and equipment (373) (562) (151) (510) 23, 29 Profit from sale of business unit (449) 0 0 0 3, 23 Group’s share of associates’ profit (827) (1,121) (11,772) (37,763) Other profit from investments (209) 0 (209) 0 Profit from sale of financial investments (1) (6) 0 (6) Financial statements, continued Exchange gain from borrowings in foreign currency (1) 0 (1) 0 Interest expenses on borrowings 18,362 17,734 19,353 18,159 30 Interest income (510) (1,198) (51,086) (11,098) Adjusted net profit 144,935 129,611 8,935 50,111

Net change in current assets relating to operating activities Loss from doubtful receivables 676 1,773 436 769 6 Increase in trade receivables (4,482) (1,596) (3,888) (968) Change in inventories (1,745) (4,991) (74) 122 Net change in other current assets relating to operating activity (1,282) 8,030 (3,123) 51 Net change in current assets relating to operating activities (6,834) 3,216 (6,649) (27)

Net change in liabilities relating to operating activities Change in provisions (1,790) 2,030 39 309 Change in trade payables 3,596 (2,737) (996) (730) Net change in other liabilities relating to operating activities 2,765 925 29,285 1,557 Net change in liabilities relating to operating activities 4,571 218 28,328 1,136 Interest and loan fees paid (17,951) (16,910) (18,732) (16,994) Interest received 514 1,407 50,633 11,307

Net cash flow from operating activities 125,235 117,542 62,515 45,533

Cash flows from investing activities Purchase of fixed assets (161,133) (200,329) (18,182) (68,643) Proceeds from connection fees 13,786 10,316 2,261 10,316 20 Proceeds from sale of fixed assets 663 2,199 408 853 Proceeds from sale of business units 1,945 0 578,805 0 3 Finance lease principal payments received 0 0 4,940 0 3 Dividends received from associates 1,009 1,139 0 0 12 Purchase of long-term financial assets (128) 0 (293,994) (128) 11, 12 Proceeds from sale of financial investments 5 6 614 6 Change in overdraft to the subsidiaries 0 0 (367,722) (57,045) 31 Loan repayments from subsidiaries 0 0 0 83 31 Net cash used in investing activities (143,852) (186,669) (92,871) (114,557)

Cash flows from financing activities Proceeds from long-term bank loans 15,000 20,000 15,000 20,000 16 Repayment of long-term bank loans (1,182) (1,055) (1,182) 0 16 Finance lease principal payments (11) (12) 0 0 16 Change in the overnight deposit received from subsidiaries 0 0 6,807 2,442 31 Change in the overnight deposit received from associates 0 0 128 0 Short term loans received from subsidiaries 0 0 15,019 32,211 31 Repayment of short term loan from subsidiaries 0 0 (10,226) (2,556) 31 Net cash used in financing activities 13,808 18,933 25,546 52,097

Net increase/(decrease) in cash and cash equivalents (4,809) (50,193) (4,810) (16,927) Cash and cash equivalents at the beginning of period 45,110 95,303 45,110 62,037 4 Cash and cash equivalents at the end of period 40,301 45,110 40,301 45,110 4 Change in cash and cash equivalents (4,809) (50,193) (4,810) (16,927) Annual Report 2004/05 Eesti Energia 53

Notes to the financial statements

1. Accounting Policies

Eesti Energia AS (hereinafter the Company or the Parent Company) is a com- to the new standards the amortisation of goodwill shall be ceased and from pany incorporated under the laws of the Republic of Estonia on 31 March the adoption year onwards, goodwill will be annually tested for impairment. 1998. The consolidated financial statements for the year ending 31 March 2005 include the financial information in respect of the Company and its No early adoption has been made for the standards IAS 27 (revised 2003), subsidiaries (hereinafter the Group) and the Group’s participation in associa- IAS 28 (revised 2003), IAS 32 (revised 2003) and IAS 39 (revised 2003). The ted companies. In order to comply with the Estonian laws and regulations, adoption of these standards becomes obligatory for the Group from 1 April the financial statements of the Parent Company have also been presented. 2005. The adoption of IAS 27 (revised 2003) and IAS 28 (revised 2003) will result in the termination of using the equity method of accounting for invest- Basis of preparation ments in subsidiaries and associates in the stand-alone financial statements The consolidated financial statements of the Group and the financial state- of the Parent Company. According to estimations, the value of investments ments of the Company have been prepared in accordance with Internatio- in subsidiaries will decrease by 36 million Euros. The adoption of IAS 32 (re- nal Financial Reporting Standards (IFRS). vised 2003) and IAS 39 (revised 2003) may cause limited changes to the ac- The consolidated financial statements have been prepared under the histori- counting and disclosure of financial instruments. cal cost convention, except for certain financial assets and derivatives, which have been accounted for at fair value. Neither has there been an early adoption of IFRIC 3, developed by Interna- Group companies use the same accounting principles in all material aspects. tional Financial Reporting Interpretations Committee, which covers the In case the accounting principles are changed, the comparative data from emission rights of greenhouse gases calculation and IFRS 6, which covers previous periods is also changed retrospectively. the accounting for expenses of new mine facilities. The adoption of IFRIC 3 becomes obligatory from1.4.2005 and the adoption of IFRS 6 from Functional and presentation currency 1.4.2006. (a) Functional currency The Parent Company and its subsidiaries use the currency of their primary According to IFRIC 3, the company must recognise pollution quotas of economic environment – the Estonian kroon – as the functional currency. greenhouse gases as intangible assets. Pollution quotas allocated by the (b) Presentation currency State shall be recognised at fair value and recorded as government grant. For the convenience of the users, these financial statements have been pre- Government grant will be amortised to income proportionally to the issued sented in euros, rounded to the nearest thousand, unless stated otherwise. emission in the reporting period. Emissions made shall be recorded in the As the Estonian kroon is pegged to euro at the fixed exchange rate of accounting period at the current market value as an expense in the income 1 euro = 15,6466 Estonian kroons, no currency translation differences arise statement and as a provision in the balance sheet. According to IAS 38, the from the translation of kroons to euros. Group has a choice between recording the intangible asset at historical cost or revaluation method. According to the initial estimates of the Group, the Changes in accounting principles adoption of IFRIC 3 will result in an increase of assets and liabilities of The following standards revised during 2003 have early been adopted for around 194 million euros. the preparation of the financial statements of the Group and the Company: IAS 1 (revised 2003) Presentation of Financial Statements Consolidation IAS 2 (revised 2003) Inventories (a) Subsidiaries IAS 8 (revised 2003) Accounting Policies, Changes in Accounting Estimates Subsidiaries, which are those entities, where the Group has control over the and Errors financial and operating policies of the entity, are consolidated. The existence IAS 10 (revised 2003) Events After the Balance Sheet Date of control is assumed when the Group’s share in the subsidiary is more than IAS 16 (revised 2003) Property, Plant and Equipment 50%. IAS 17 (revised 2003) Leases Subsidiaries are consolidated from the date on which control is transferred IAS 21 (revised 2003) The Effects of Changes in Foreign Exchange Rates to the Group and are no longer consolidated from the date when control IAS 24 (revised 2003) Related Party Disclosures ceases. The purchase method of accounting is used to account for the acquisition The adoption of all abovementioned standards was first applied in prepara- of subsidiaries, except for the transactions between entities under common tion of the financial statements for the period ending 31.3.2004. These control. The excess of the cost of the acquisition over the fair value of the abovementioned standards shall become obligatory for the Group for the net assets of the subsidiary acquired is recorded as goodwill. financial year beginning on 1 April 2005. The early adoption of the above In preparing the consolidated financial statements, the financial statements standards caused no significant changes to the existing recognition and of the parent and its subsidiaries are combined on a line-by-line basis. Intra- measurement policies and had no impact on the profit of the Group or the group balances and intragroup transactions and resulting unrealised profits Company. However, the adoption of the above revised standards has resulted and losses are eliminated in full. in certain changes in the disclosure and presentation of financial information. In the Parent Company’s financial statements the investments in subsidiaries The Group has adopted for the first time in this financial period the stand- are accounted for using the equity method. Under this method the unreal- ards IAS 36 (revised 2004), IAS 38 (revised 2004) and IFRS 3, which became ised gains and losses on transactions between the Group and its subsidiaries obligatory for the Group from 1 April 2004. The main impact of the adop- are eliminated to the extent of the Group’s interest in the subsidiaries. tion of these standards is related to the accounting for goodwill. According The current accounting treatment will be changed from 1 April 2005, when Notes to the financial statements, continued terms ofreceivables. Long-termaccountsreceivable are recorded atthe Group willnotbeableto collect allamountsdueaccording totheoriginal trade receivables isestablished whenthere isobjectiveevidencethatthe made forimpairmentofthesereceivables. Aprovision forimpairment of Trade receivables are carriedattheoriginal invoiceamountlessaprovision Customer Receivables The Group hasnoinvestmentsinheld-to-maturitysecurities. ment date. Purchases andsalesoffinancialinvestmentsare recognised atthesettle- ried atcostlessanyimpairmentwrite-downs. for-sale investmentscannotbedeterminedreliably, theinvestments are car- statement asfinancialincomeorexpenses.Ifthefairvalueofavailable- ried attheirfairvalue.Changesinthevalueare recorded intheincome Investments heldfortradingandavailable-for-sale assetsare normallycar- as long-term. ments thatare expectedtobeheldformore thanoneyearare considered investments dependingontheestimatedtimingoftheirrealization. Invest- by usingtheequitymethod)are presented eitheras short-term orlong-term ies orassociatedcompanies,whichare eitherconsolidatedoraccountedfor Investments inshares andsecurities(exceptfortheinvestmentsinsubsidiar- Investments inSharesandSecurities recorded intheincomestatementasfinancialprofit orloss. their highliquidity. Thedifference betweenthecostandmarketvalueis market valueandare regarded ascashandequivalentsbecauseof funds inorderinterest toearn income.Theholdingsinfundsare carriedat The spare cashisinvestedintohighlyliquidmoneymarketandinterest rate - Holdingsinhighlyliquidmoneymarketandinterest funds. - Short-termdepositsinbanks(withtheremaining maturityofupto3months); - Bankaccountbalancesandcashintransit; - Cashinhand; Cash andcashequivalents(monetarystock)include: Cash andcashequivalents garded asnon-current. course ofthenormaloperatingcycle.Allotherassetsandliabilitiesare re- due tobesettledorare expectedtobesettledwithinoneyearorinthe the normaloperatingcycle.Theliabilitiesare regarded ascurrent iftheyare ised, orare heldforsaleorconsumptionwithinoneyearinthecourseof current. Theassetsare regarded ascurrent iftheyare expectedtobereal- In thebalancesheet,assetsandliabilitiesare classifiedascurrent ornon- The Current/Non-currentDistinction counted foreitheratcostorfairvalue. Company’s financialstatements,theinvestmentsinassociatesshallbeac- ny appliesIAS28(revised 2003).Underthatrevised standard, intheParent accounting treatment willbechangedfrom 1April2005,whentheCompa- In thestand-alonefinancialstatementsofParent Company, thecurrent terest intheassociates. the Group anditsassociatesare eliminatedtotheextentofGroup’s in- Under thismethodtheunrealised gainsand losses ontransactionsbetween Group’s aswelltheParent Company’s financialstatements. Investments inassociatesare accountedforbytheequitymethodin counted forfrom thedatewhensignificantinfluenceceases. which significantinfluenceisobtainedbytheGroup anditisnolongerac- Group’s share intheassociates’results isaccountedforfrom thedateon in theentityis20-50%. ing policies.SignificantinfluenceisassumedtoexistwhentheGroup’s share indirect significantinfluence,butnotcontrol overthefinancialandoperat- An associateisaninvestment,overwhichtheParent Companyhasdirect or (b) Associates ments insubsidiariesshallbeaccountedforeitheratcostorfairvalue. in thestand-alonefinancialstatementsofParent Company, theinvest- the CompanyappliesIAS27(revised 2003).Underthatrevised standard, 54 Annual Report2004/05EestiEnergia expenses. been previously writtendownisaccountedforasareduction ofoperating years’ experienceonimpairment.Thereceipt ofthereceivables thathave characteristics andare collectivelyassessedfor impairment,usingprevious impairment are classifiedintogroups ofreceivables withsimilarcredit risk are assessedindividually. Receivablesthatare notindividuallyassessedfor due tothelargenumberofindividualbalances,onlysignificantdebtors dual basisforeachcustomer. Incaseindividualassessmentisnotpossible The estimatedcollectibilityofaccountsreceivable isassessedonanindivi- come overtheperioduntilaccountreceivable iscollected. nal valueandthepresent valueofthereceivable isrecognised asinterest in- present valueoftherecoverable amount.Thedifference betweenthenomi- penses are notcapitalised. duction expenses.Marketing,non-production overheadandfinancialex- average production costthatiscalculatedbasedondirect andindirect pro- chase. Theacquisitioncostofwork-in-progress andfinishedgoodsisthe chase price,transportationcostsandotherdirect costsrelated tothepur- Raw materialsare recorded attheacquisitioncostconsistingofpur- method. as anoperatingexpense.Costisdeterminedusingtheweightedaverage penses. Thewritedownofinventoriesisrecorded intheincomestatement the ordinary courseofbusiness,lessthecostscompletionandsellingex- or netrealisable value.Netrealisable valueistheestimatedsellingpricein Inventories are statedinthebalancesheetat thelowerofacquisitioncost Inventories * Average acquisitioncostofthefixedassetsinuse/depreciation ofthereporting period The usefullivesforPPEusedbytheGroup are asfollows: ged, resulting inachangethedepreciation expense offuture periods. from theprevious estimation,theremaining usefullifeoftheassetischan- development plans.Iftheestimatedusefullifeofassetmateriallydiffers annual counts,incaseofrenovations andasaresult ofmaterialchangesin useful lifeoftheasset.Estimatedlivesare regularly reviewed during Depreciation iscalculatedusingthestraight-linemethodoverestimated (b) Depreciation Borrowing costsare notcapitalised. ware) are accountedforingroups. similar usefullives(e.g.electricityandheatingnetworks,software andhard- components are depreciated asseparateitems.Homogenousitemswith If anitemofPPEconsistscomponentswithdifferent usefullives,these vices andworkforce. cost oftheself-constructeditemsPPEincludesmaterials,ser- and otherdirect expensesrelated to theacquisitionorimplementation.The The costcomprisesofthepurchase price,transportationcosts,installation, (a) Cost impairment. sheet atthenetcarryingamount,whichiscostlessdepreciation and operations withausefullifeofover1year. PPEare presented inthebalance Property, plantandequipment(PPE)are tangibleitemsthatare usedin Property, plantandequipment te xdast 31 er 55yas 6.3years 5.5years 31March 2004 8.8years 1April2003- 31March 2005 20.9years 15.8years 31.0 years 1April2004- 26.3years 3-10years 17.5years 9.3years 18.5years 15.9years 29.2years 26.9years 17.8years Other fixedassets 10-30years 3-20years 7-20years 25-40years Other machineryandtools 33-60 years 7-25years Power plantequipment Transmission equipment Other facilities Electricity lines ofnewfixedassets Buildings

sfllf Derived actual Useful life averageusefullife* -thecostofasset canbemeasured reliably. the assetwillflowtotheGroup; -it isprobable thatthefuture economicbenefitsthatare attributableto -the assetiscontrolled bythecompany; conditions are met: Intangible assetsare recognised inthebalancesheetonlyiffollowing Intangible Assets the leaseterm. other similarassets.Rentalincomeisrecognised onastraight-line basisover are accountedforusingthesameaccountingprinciplesasin caseof Items ofproperty, plantandequipmentleasedoutunderoperatingleases The Group hasnoassetsleasedoutunderthetermsoffinance lease. (b) AGroup companyisthelessor odic rateofinterest onthe remaining balanceoftheliabilityforeachperiod. to theincomestatementoverleasetermsoasproduce aconstantperi- other long-termpayables.Theinterest elementofthefinancecost ischarged The corresponding rental obligations,netoffinancecharges,are includedin as toachieveaconstantrateonthefinanceleasebalanceoutstanding. Each leasepaymentisallocatedbetweentheliabilityandfinancechargesso depreciated overtheshorterofusefullifeassetorleaseterm. ments. Theproperty, plantandequipmentacquired underfinanceleasesare fair valueoftheleasedassetorpresent valueoftheminimumleasepay- Finance leasesare capitalisedattheinceptionofleaselower (a) AGroup companyisthelessee leases. Allotherleasetransactionsare accountedforasoperatingleases. connected withtheownershipofassetare accountedforasfinance Lease transactionswhere thelesseeretains allthematerialrisksandrewards Leases repair andmaintenancecostsintheincomestatement. only restore theinitiallevelofperformance,are expensedandpresented as mance oftheexistingasset,willflowtoGroup. Expenditures, which economic benefits,inexcessoftheoriginallyassessedstandard ofperfor- Expenditure isaddedtothecostofassetifitprobable thatfuture (d) Improvements, repair andmaintenance The writedownisrecorded together withdepreciation inthebalancesheet. ment, thewritedowncanbepartiallyorwhollyreversed. changed, thetestwouldberepeated. According totheresults oftheassess- If aftertheimpairmenttestthere are indicationsthatconditionshave dependent ofthecashinflowsgeneratedbyotherassetsorgroups ofassets. of assetsthatgeneratescashinflowsfrom continuingusethatare largelyin- (cash generatingunit).Acash-generatingunitisthesmallestidentifiablegroup Impairment testsare performedeitherforan individual assetorgroup ofassets -theactivitiesofacashgeneratingunitare planned tobeterminated. unitare lowerthanexpected; -therevenues andcashflowsgeneratedbyanassetoragenerating -thephysicalconditionofassetshasconsiderablyimpaired; -marketinterest rateshaveincreased; theassetswilldecrease; ned,andtherefore itislikelythatthefuture cashflowsgeneratedby -thegeneraleconomicenvironment andthemarketsituationhaveworse- -themarketvalueofsimilarassetshasdecreased; ment exist: Impairment testiscarriedoutwhenanyofthefollowingindicatorsimpair- asset totheirpresent value. calculated bydiscountingtheexpectedfuture cashflowsgeneratedbythe the recoverable valueoftheassetisitsinuse.Theuse In casethenetrealisable valueoftheassetcannotbedeterminedreliably, -Value inuse. -Netrealisable value; the asset’s: lower thanthecarryingamount.Therecoverable amountisthehigherof The assetsare writtendowntotheirrecoverable amountincasethelatteris (c) Impairmentofassets 5 years. using thestraight-linemethodoverusefullifeofassetnotexceeding table tothemwillflowtheGroup. Theseintangibleassetsare depreciated talised ifitisprobable thatthefuture economicbenefitsthatare attribu- Expenses related topatents,brandnames,licensesandcertificatesare capi- (c) Otherintangibleassets not capitalised. for collectingnewscientificortechnicalinformationandtrainingcostsare Expenses related tostartingupaneweconomicentity, research carriedout project andthefuture revenues from theintangibleassetcanbedetermined. Development costsare capitalisedincaseascheduleexistsforutilisingthe tation ofresearch findingsfordevelopingnewspecificproducts orservices. Development costsare expenditures thatare incurred duringtheimplemen- (b) Development,establishment,research andtrainingcosts be subjecttoannualimpairmenttesting. Beginning 1April2004,goodwillwillbenolongeramortised.Instead,it ate atthedateofacquisition. lue oftheGroup’s share inthenetassetsofacquired subsidiary/associ- Goodwill represents theexcessofcostanacquisitionoverfairva- (a) Goodwill larly totangibleassets,whenrespective indicationsexist. The intangibleassetsare writtendowntotheirrecoverable amount,simi- useful lifeoftheassetnotexceeding20years. Intangible assetsare depreciated usingthestraight-linemethodover Borrowings andissuedbonds The Group’s results are affected bythefollowingtaxes: (b) Othertaxes dividends are paidfor. declared, regardless oftheactualpayment dateortheperiodforwhich dividends isaccountedforasanexpenseintheperiodwhenare net dividendpaid).Thecorporateincometaxarisingfrom thepaymentof ject toadividendtax(24/76ofnetpaid,until1.1200526/74 Instead oftaxingthenetprofit, thedistributionofretainedissub- earnings ferences betweenthetaxbasesandcarryingvaluesofassetsliabilities. by enterprisesisnolongertaxed.Thusthereit earned are notemporarydif- According totheIncomeTax ActoftheRepublicEstonia,annualprof- (a) CorporateIncomeTax Taxes date ispresented inthebalancesheetasaccruedexpenses. the incomestatement.Theunpaidaccruedinterest atthebalancesheet interest expenses.Interest expensesare recognised onanaccrualbasisin the transactioncostsisrecognised intheincomestatementtogetherwith the current netcarryingamountofthefinancialliability. Theamortisationof counts theexpectedstream offuture cashpaymentsthrough maturityto the effective yieldmethod.Theeffective yieldistheratethatexactlydis- Borrowings andissuedbondsare subsequently statedatamortisedcostusing tion costsincurred. Borrowings are recognised initiallyattheproceeds received, netoftransac- ofoilshalemined tonnageandtypeofwaste water, soilandwastestorage,is basedon Water utilization charges employeesandofthefringebenefits Resource tax Pollution charges Fringe benefitstax Unemployment tax Social insurancetax Tax Tax rate fue rudwtr ofusedground water 0.332euros (5.20 kroons) perton Paidforcontaminating theair, water, ground 24/76ofthefringebenefitstoemployees 0.5%ofthepaidpayroll to theemployees 33%ofthepaidpayroll to the 0.002-0.07euros perm Annual Report2004/05EestiEnergia 3 (0.03-1.17 kroons/m 55 > 3 )

Notes to the financial statements, continued Notes to the financial statements, continued nised intheincome statementasinterest expenses. hedging reserve inequity. Therealised changesinthemarketvalueare recog- exchanges. Thechangeinthemarket valueofderivativesischargedtothe swap contractsisderivedfrom stock pricequotationsoftheinternational in accordance withIAS39 ascash-flowhedges.Themarketvalueofthe pense onloanswithfloatinginterest rates.Thecontractsare accounted for The Group has2effective interest rateswapcontractstofix theinterest ex- specific transactionandthehedgeishighlyeffective. ting rulesare appliedwhenderivativesare usedforhedgingtherisksof a tives withthenegativevaluesare accountedforasliabilities.Hedge accoun- with thepositivemarketvaluesare accountedforasassetsandthederiva- Derivative financialinstrumentsare statedattheirfairvalue.Thederivatives Derivatives the priorexperience. opinions regarding theamountandtimingofexpected outflowsand The amountoftheprovision isdeterminedtakingintoconsideration experts’ mental damages. expectation onthepartofthoseotherpartiesthatitwillliquidateenviron- quired bythelegislationorGroup byitspastpracticehascreated avalid mining areas are recognised tocoverenvironmental damageswhenitisre- Environmental provisions andprovisions forrestoration andrehabilitation of habilitation ofminingareas (b) Environmental provisions andprovisions forrestoration andre- court orders overtheestimatedperiodofsuchanobligation. lated tofuture compensationpaymentstoformeremployeesaccording to Provisions forinjurycompensationare recognised tocoverexpenditure re- obligation andtheestimatedamountofpeopleeligibleforcompensation. respective provision isrecognised. Theprovision isbasedonthetermsof former employees(e.g.basedoncollectiveagreement withtradeunions),the ver, if theCompanyhas taken anypost-employmentobligationstowards its The Group doesnotrunanyregular post-employmentbenefitplans.Howe- work-injuries (a) Provision forpost-employmentbenefitsandcompensation lised onlyforcoveringexpenseswhichtheywere initiallymade. rest expenseovertheperioduntilprovision isrealised. Provisions are uti- the nominalvalueandpresent valueoftheprovision istakenupasinte- Long-term provisions are carriedatthepresent value.Thedifference between as operatingexpensesintheincomestatement. and estimates.Theexpensesincurred withtheprovisioning are recorded Provisions are reviewed annuallytoaddress possiblechangesinconditions number ofemployeessubjecttocompensation. plan forrestructuring, identifyingtheexpenditure andtheapproximate Employee terminationbenefitsare recognised onlyifannouncedadetailed is greater than50%. A provision isrecognised whentheprobability thattheobligationwillrealise gement’s estimates.Ifrequired, anindependentexpertmaybeinvolved. the amountcanbemade.Theprovisions are recognised basedonthemana- sources willberequired tosettletheobligation,andareliable estimateof tive obligationasaresult ofpastevents,itisprobable thatanoutflowofre- Provisions are recognised whentheGroup hasapresent legalorconstruc- Provisions (until 31.12.20040.326euros (5.10kroons) pertonofoilshalemined. (until 31.12.2004theratewas26/74)andsodidoilshaleusetax During thefinancialperiod,fringebenefitandincometaxhanged (50-3,640kroons/quarter) pertruck tobusinessactivities activities 0.1-2.5%ofthetaxablevaluelandperannum not related tobusiness 24/76oftheexpensesnotrelated Income taxonexpenses 3.20-232.6euros perquarter Tax onheavytrucks Land tax Tax Tax rate 56 Annual Report2004/05EestiEnergia recorded intheincomestatementasfinancialandexpenses. calculated usingtheeffective interest rate.Interest incomeandexpensesare Interest incomeandexpensesare recognised ontheaccrualbasisand (d) Interest incomeandexpenses ded asaccruedincomeinthebalancesheet. incurred inrendering theservice.Unbilled butrecognised revenue isrecor- the revenue from rendering theserviceisrecorded inproportion tothecosts nised byusingthestageofcompletionmethod.According tothismethod, Revenue from unfinishedandfinished,butundelivered servicesisrecog- (c) Revenuerecognition underthestageofcompletionmethod the balancesheetaslong-termdeferred income. connect theclienttonetwork.Deferred connectionfeesare carriedin income evenlyovertheusefullifeofunderlyinginfrastructure builtto a network.Therevenue from connectionfeesisdeferred andrecognised as based ontheactualcostsofinfrastructure tobebuiltinorder toconnect When joiningtheelectricitynetwork,clientsmustpayaconnectionfee (b) Recognitionofconnectionfees more precise estimationoftheactualconsumptionandsaleelectricity. not reported orincorrectly reported bythebalancesheetdate,resulting ina ditionally, estimatesare maderegarding thepotentialimpactofreadings either ter reading Ad- systems,orestimatedbasedonpastconsumptionpatterns. customers. Meterreadings are reported bycustomers,read byremote coun- Sales are recorded, basedoninvoiceissuedaccording tometerreadings of (a) Salesofelectricity cant risksandrewards ofownershipare transferred tothebuyer. value-added tax,rebates anddiscounts.Revenueisrecognised whensignifi- Revenue comprisestheinvoicedvalueforgoodsandservicessoldnetof discounted toitspresent value. vable. Ifthepaymentisdeferred formore than12months,thereceivable is Revenue ismeasured atthefairvalueofconsiderationreceived orrecei- ciples, i.e.whentheyoccurandnotcashisreceived orpaid. Income andexpensesare recognised basedonaccrualandmatchingprin- Recognition ofrevenueandexpenses sheet andare disclosedinthenotestofinancialstatements. the amountcanbemade.Contingentliabilitiesare recognised off balance outflow ofresources islessthan50%orforwhichnoreliable estimateof Contingent liabilitiesare possibleobligationswhere theprobability ofthe Contingent liabilities to risksandreturns thatare different from those of otherbusinesssegments uct oraservicegroup ofrelated products orservicesandthatissubject component ofanenterprisethatisengaged inproviding anindividualprod- Electricity MarketActofEstonia.Abusiness segmentisadistinguishable Segment reporting forbusiness segmentsiscarriedoutaccording tothe porting Standards. one geographicalsegmentfrom FinancialRe- theviewpointofInternational As mostoftheactivitiesGroup takeplaceinEstonia,itis regarded as Segment Reporting moment ofannouncingthedividends. Dividends paidare recognised asareduction ofretained atthe earnings Dividends statements. TheGroup hasnotreceived anygrantsrelated toassets. Information aboutsuchassistanceisdisclosedinthenotestofinancial mated (e.g.free consultations),itisnotrecognised grants. as government assistancecannotbereliablyon asystematicbasis.Ifthegovernment esti- match themwiththerelated costs,whichtheyare intendedtocompensate, ditions. Grantsare recognised asincomeovertheperiodsnecessaryto the grantwillbereceived andtheGroup willcomplywithallattachedcon- grantsareGovernment recognised whenthere isreasonable assurancethat Government grants term liabilitiesandelectricityexportcontracts are alsoquotedineuros. exchange raterisks,allforeign contractsare concluded ineuros. Alllong- are considered to befree ofanyexchangeraterisks.Inorder tomanage Those liabilitiesandassetsoftheGroup, whichare denominatedineuros, (d) Exchangeraterisk a 9%-floatinginterest rate. Group’s borrowings hadafixedinterest rate(incl.aninterest rateswap)and amount of64millioneuros. Asattheendoffinancialyear, 91%ofthe rest rateswapagreements withmaturityinsummer 2006 inthebase a fixedinterest rate.To hedgetherisk,Group hasentered intotwointe- risk. According totheGroup’s policy, over50%ofborrowings shouldhave interest rateincreases. Sensitivityanalysisisusedfor assessinginterest rate in theriskthatborrowing interest paymentssignificantlyincrease whenan Interest rateriskemergesfrom floatinginterest rateborrowings, resulting (c) Interest raterisk diversified inthree different banks siting, derivativetransactions,andasinsurancepartners.Cashbalancesare Only financialinstitutionswithahighcredit ratingare usedforcashdepo- In thecaseoftenders,background ofsuppliersisthoroughly examined. agency. Specialagreements are inthejurisdictionofspecialcredit committees. city network.Afterthat,acollectionpetitionisfiledatcourtorcollecting thatifnotpaidtheywillbeswitchedoffwith thewarning from theelectri- systemsendsmessagestocustomersaboutoverdue der andwarning invoices checked intheirrespective divisionsonadailybasis.Theautomatedremin- inability tofulfilltheirobligations.Theoverdue debtsoftheclientsare Credit riskisthethatarisingfrom thecustomers’andbusinesspartners’ (b) Credit risk have group bankaccountlimits. and EestiÜhispank(EstonianUnionbank).ThecompaniesoftheGroup Financial, andthegroup bankaccountsopenedinHansapank(HansaBank) Risk managementissupportedbytheGroup’s financialsoftware, Oracle Liquidity ismanagedbothonadailybasisandoverlongertimehorizon. have ahighinvestmentrating. ment thatcashmaybeinvestedonlyintothosefinancialinstruments terms andconditionsofspare cashinvestment.There isamajorrequire- regulated bytherespective group internal instructions,whichstipulatethe the amountof40millioneuros. Theinvestmentofthespare cashfundsis As attheendoffinancialyear, theGroup hadspare cashbalancesin of 195millioneuros. As at31March 2004thegroup hadundrawnloanfacilitiesintheamount Finnish market.UntilnowEestiEnergiahasnotissuedthesecommercial papers. agreement inNovember2004fortheemissionofcommercial papersinthe To covertheshortageofoperatingcapital,EestiEnergiaconcludedan In March 2004,Moody’s raisedEestiEnergiaAScredit ratingtoA3. moment oftheissuewashigherthanratingRepublicEstonia. Standard&Poor’s andMoody’s respectively asA-byandA3,whichatthe and Moody’s ratingagenciesin2002.Thebondissuewasratedby achieved theA-stableandBaa1credit ratingsfrom Standard&Poor’s To decrease thelevelofinterest rateonborrowings, EestiEnergia signed two15-yearloanagreements intheamount of150millioneuros. bondintheamountof200millioneurosissued a7-yearinternational and In order tofinanceanextensivecapitalinvestmentprogram, theGroup has other borrowings. through theuseofdifferent financialinstrumentssuchasloans,bondsand and investmentneedsduetoinsufficientcashflows.Liquidityriskismanaged Liquidity riskisthearisingfrom theGroup’s inabilitytocoveritsexpenses (a) Liquidityrisk Group level. pany managestheliquidity, interest rateandexchangerisksatthe cial performanceoftheGroup. TheTreasury departmentoftheparent com- financial risksandseekstominimisepotentialadverseeffects onthefinan- The Group’s overallriskmanagementprogram focusesonthemitigationof Financial RiskManagement ration ofthesefinancialstatements. The followingare themostcriticalaccountingestimatesusedinprepa- timates are recognised intheprofit orlossoftheperiodchange. differ from thoseestimates.Theeffects ofchangesinthemanagement’s es- best knowledgeofcurrent eventandactions,actualresults mayultimately nancial statements.Althoughtheseestimatesare basedonmanagement’s and thedisclosure ofcontingentassetsandliabilitiesatthedatefi- and assumptionsthateffect thereported amountsofassetsandliabilities, The preparation ofthefinancialstatementsrequires theuseofestimates Accounting estimatesandusedassumptions which theexpensesrelated totheinsuranceoccurred term. Insurancecompensationsare recorded asincomeoftheperiodin they are takenupasanexpenseonastraight-linebasisovertheinsurance Prepaid insurancepremiums are accountedforasprepaid expensesand in theamountof50millioneuros. In additiontoproperty insurance,theGroup’s operationalrisksare insured 50 millioneuros perincident. away from thesubstation)are insured withthecompensationlimitof Põlevkivi, Kohtla-JärveSoojus,andtransmissionlinesmore than 1000feet construction riskinsurance.OtherassetsoftheGroup (exceptforEesti risks ofnewpowerblocksinNarvaPowerPlantare mitigatedbyspecial additional expenseshavebeeninsured inpowerplants.Theconstruction In additiontoassets,thepossibilityofinterruptioninoperationsandrelated insured withthecompensationlimitof200millioneuros perincident. operating risks.Theproperty ofNarvaElektrijaamadandIruis Insurance contractsare used,amongothermeasures, inorder tominimize Operational riskmanagement There were nowrite-downs duringthecurrent reporting period. the previously recognised impairmentcouldbepartiallyorfullyreversed. changes inthefuture, either additionalimpairmentcouldberecognised, or environment, consumption andthesalespriceofelectricity. Ifthesituation growth rates.Theestimates are basedonforecasts ofthegeneraleconomic nance, andrepairs oftheassets, aswellinrespect oftheinflationand mates forthecashflowsarisingfrom theuseofassets,sales,mainte- sary. When carryingoutimpairmenttestsmanagementusesvariousesti- to thesetestsassetsare writtendowntotheirrecoverable amounts,ifneces- The Group regularly performsimpairmenttestsforfixed assets.According (c) Estimatingtherecoverable amountoffixedassets restore environmental damages,andexpenditure covered bythird parties. possible changesinlegislativenorms,technologyavailablethefuture to tual expenditure maydiffer from theprovisions recognised alsoasaresult of and discountrates,thetimingofrealisation oftheexpenditure. Theac- of theprovisions, includingtheamountoffuture expenditure, inflation assumptions andestimateshavebeenusedtodeterminethepresent value and timingoftherealisation oftheseobligationsisuncertain. A numberof euros (asat31March 2004:26millioneuros; seeNote19).Theamount pensation, andpost-employmentbenefitsinthetotalamountof25million tal obligations,restoration andrehabilitation ofminingareas, injurycom- As at31March 2005,thegroup hadrecognised provisions forenvironmen- (b) Recognitionandmeasurement ofprovisions by about8.8millioneuros. the annualdepreciation chargewoulddecrease andthenetprofit increase parative period;seeNote13).Ifthedepreciation ratesare reduced by10%, tion chargeoftheperiodwas88millioneuros (82millioneuros inthecom- lue of1.2billioneuros (asat31March 20041.1billioneuros), thedeprecia- estimates. Asat31March 2005,theGroup hadfixedassetsinnetbookva- has shownthattheactualusefulliveshavesometimesbeenlongerthan mate regarding theperiodduringwhichassetwillbeused.Experience The estimatedusefullivesoffixedassetsare basedonmanagement’s esti- (a) Estimatingtheusefullivesoffixedassets Critical accountingestimates Annual Report2004/05EestiEnergia 57

Notes to the financial statements, continued Notes to the financial statements, continued Business segments‘incomestatementsfortheperiod1.4.2004-31.3.2005 vrg ubro mlye 460 ,8 14 7 46 ,6 9,754 1,261 9,784 9,676 406 9,542 1,270 service 1,244 1,283 415 9,284 976 401 9,784 403 1,264 1,270 group Total 988 966 services 390 144 987 415 Support customer Salesand 141 ofelectricity 993 and 162 988 ofelectricity 2,287 142 Distribution heat Transmission ofelectricity Production mining 2,290 143 2,286 4,680 141 2,211 Oilshale 4,680 2,133 4,617 2,290 4,516 4,361 4,680 Average numberofemployees Number ofemployeesat31.3.2004 Number ofemployeesat1.4.2003 Average numberofemployees Number ofemployeesat31.3.2005 Number ofemployeesat1.4.2004 Business segments´numberofemployees financial incomeandexpenses. activities whoseresults are recorded asotherrevenue andexpenses;oras Other activities(incl.financingandinvestingactivities)are considered asside the mainactivitiesofGroup inthefinancialstatements. oil andashesfrom oilshaleandallsupportingactivitiesare considered as Management Board Electricityandheat,oilshale,production andsaleof pricesareprices. Ifnomarketpricesexist,theinternal affirmedby the EstonianEnergyMarketInspectorate,orifnotavailable,onmarket The pricingofinter-segment transfersisbasedonthepricesapproved by invoicing. on internal Operating revenues andexpensesare allocatedtodifferent segmentsbased rate accountingforelectricityproduction, transmission,distributionandsales. Market ActofEstonia.TheElectricityEstoniarequires sepa- reporting structure andstatutoryrequirements stipulatedintheElectricity are management dividedintobusinesssegmentsbasedontheinternal For segmentreporting purposes,thegroup’s businessunitsandsubsidiaries 2 Segmentreporting in thousandsofeuros e rfi o h eid 42,870 827 (19,322) (1,114) 17 61,365 258 (422) (87,618) 188 727 (44) (1,120) (3,355) (221) (87,879) (6,321) 3,330 (82) (194) 0 2,693 12,623 (14,931) 272 (36,933) (143) 10,925 (23,669) (3,717) (13) (121,391) 535,040 5,407 0 (7,444) 0 40,271 287 (18,826) (20,650) (10,582) 0 (5,400) (322,159) 527,614 (210) 40,667 (25,035) 697 (2,335) (85,205) 0 (121,391) (691) (5,938) 7,426 6,159 (14,904) 8,004 969 (31,026) (360) 354,455 (20,280) 191 (18,135) 0 (318,440) (2,416) 27,737 (154,072) (3,720) (73,757) (39,364) 0 Net profit fortheperiod 0 Otherfinancial income andexpenses (45,142) (23,276) (11,448) 6,519 128 (25,853) Share ofresults ofassociates service (3,383) Operating profit/loss (5,173) 265,009 (99,756) 0 (403) 0 394,726 510 374 Depreciation group 19,799 (9,118) (549,293) (54,317) Other expenses 32,741 eliminations services (496) Payroll expenses 12,678 31,750 2,557 (36,024) Other operatingexpenses 745 5,603 customer 292,746 118,110 and supplies 19,799 Total ofelectricity materials, consumables 58,652 45,298 consumables andsupplies 262 and ofelectricity 3,066 heat purchasedInternally materials, ofelectricity 212,668 consumables andsupplies 15,275 mining 95,371 purchasedExternally materials, 50,901 and finishedgoods 15,537 Change inwork-in-progress Other revenue Intra-group incl.export sales incl.Estonia External sales Sales 58 Total 110,908 263,569 61,718 137,909 324,496 45,419 (549,293) 394,726 Annual Report2004/05EestiEnergia i hl Pouto Tasiso Dsrbto Slsad upr Itagop Total Intra-group Support Salesand Distribution Transmission Production Oilshale administration unit. Televõrgu AS,ASElektrikontrollikeskus, othersupportservicesand Support services-ASEnergoremont, ASElektriteenused, ASElpec, Sales andcustomerservice-Klienditeenidus(Customerservice); Distribution ofelectricity-Jaotusvõrk(DistributionNetwork) Transmission ofelectricity-Põhivõrk(NationalGrid); district CHP);Renewableenergy; AS Kohtla-JärveSoojus(NarvaPowerplants,IruPowerplant, Production ofelectricityandheat-NarvaElektrijaamad,IruElektrijaam, Oil shalemining-EestiPõlevkivi(EstonianShale); divided intothefollowingbusinesssegments: For segmentreporting purposes,thecompanies andbusinessunitsare activities ofthegroup takeplaceinEstonia. No informationongeographicalsegmentsispresented, asallsignificant uiessget’blneset so ..033..04 Business segments’balancesheetsasof1.4.2003-31.3.2004 2 Segmentreporting(continued)

uiessget’blneset so 1320 in thousandsofeuros Business segments’balancesheetsasof31.3.2005 in thousandsofeuros oa iblte 477,564 309,103 2,701 32,958 (17,796) 1,121 599 Total liabilities Bonds andborrowings 3,020 2,102 to 91,107471,380298,357410,167 42,691 909 miningof 81,396 Liabilities related tooperatingactivities (77,424) electricity of Non-current 6,90217,746 Total operating (0) Current 19,46761,939 incl.shares inassociates 303 1,317,674 35,382 electricity of 63,267430,564291,396393,301 6,96016,866 0 (38,571) 26,344 0 8,9519,2956,638 27,84040,816 1,205,175 group 47,154 269 Non-current 24,163 42,388 services electricity customer 28,41871,23413,54164,899 (112) assets eliminations 10,354 liabilities (3,005) activities Current(66,440) liabilities 55,052 35,382 37,017 99,159 0 (77,424) 69,301 assets 24,432 0 (6,646) 112,499 0 (69,445) assets (5,661) 168,461 (120,485) 532,809 4,730 0 340,096 (6,028) and 5,459 (752) 0 (14,714) 1,234 0 (2,557) 24,644 (320,933) Net profit fortheperiod (2,485) 0 (72,684) Other financialincomesandexpenses (1,312) 0 Share ofresults ofassociates 149 heat 0 (9,403) 6,144 (24,303) Operating 0 310 (226) (12,846)(22,070)(20,245)(23,711) (24,687) 3,37511,762 (3,258) (82,046) 10,37235,927 264,965 Impairment 264 (3,730) 110 (4,618) service (12,530) 582 618 Depreciation 578 5,129 profit/loss (103,758) (6)(89) Other (506)142 (42,225) (1,048) (30) (21,058) (2,116) (9,172) (48,610) Payroll (159,139) (29,305)(82,087) (55,381) (9,996) (3,496) Other operatingexpenses 49,633 (228) 11 3,251 6,183 (323,418) 1,533 and (13,795) 2,072 (38,614) (705) (15,465) expenses expenses Total materials,consumables 537,540 (89,789) consumables andsupplies supplies (120,485) 44,788 0 Internally consumables andsupplies Externally 15,820 and finishedgoods Change inwork-in-progress purchased Other 413 191 7592 miningof purchased 751 incl.exports electricity of 53,697 127,480 incl.Estonia 100,522211,926 641 29,940 Intra-group electricity of 0 revenue 27,767 materials, (19) group services electricity customer (551,332) eliminations Sales sales 2,144 materials, 15,820 External 50,972 3,8325,278 289,609 0 sales 11,602 377,113 and heat service oa iblte eae Total liabilities related 57,529132,758 116,342262,897 319,549 39,369 (551,332) 377,113 Total i hl Pouto Tasiso Dsrbto Slsad upr Itagop Total Intra-group Support Salesand Distribution Transmission Production Oilshale Total Intra-group Support Salesand Distribution Transmission Production Oilshale

Annual Report2004/05EestiEnergia 59

Notes to the financial statements, continued Notes to the financial statements, continued Business segments’balancesheetsasof31.3.2004 2 Segmentreporting(continued)

in thousandsofeuros Business segments’cashflowsfortheperiod1.4.2003-31.3.2004 in thousandsofeuros Business segments’cashflowsfortheperiod1.4.2004-31.3.2005 in thousandsofeuros Business segments’capitalexpenditure in thousandsofeuros e ahflw 253 11 (2) () 90 (,6) (4,809) (6,462) (920) (2) 0 13,808 125,235 service (128) (163) (300,526) (326,984) 449,627 171 (143,852) (8,813) 39,530 294,227 294,690 356,384 8,929 286,534 2,533 198,481 296,637 (118) 8,593 and 60 (2,891) heat (364,978) 2,513 (299,278) 0 service group 6,035 mining of (41,830) of electricity 44,892 2,756 services eliminations electricity of 243 customer (18,409) electricity 20,942 Net cashflow 58,654 45,705 Cash flowsfrom financingactivities Cash flowsfrom investingactivities 0 Cash flowsfrom operatingactivities 15,559 and heat 96,283 109,323 277 (60,589) group 21,556 mining of of electricity services 54,827 eliminations electricity of 0 customer electricity 11,844 154,936 8,109 107 4,304 (3,646) 40,36361,256 37,270 16,09641,410 159,891 (60,589) Period 1.4.2003-31.3.2004 Period 3,721 service 1,245 55,104 614 11,844 1.4.2004-31.3.2005 60,584 110,845 9,786 1,245,075 (35,259) (35,259) 45,379 80,128 54,230 17,786 37,082 36,690 10,075 4,966 359,907 667 272,111 and 444,850 70,371 heat 843 86,258 2,142 Total liabilities Bonds andborrowings 27,861 29,518 group Total liabilitiesrelated tooperatingactivities mining of of electricity Non-current liabilities 24,156 services eliminations electricity of Current liabilities customer 0 electricity Liabilities related tooperatingactivities 1,134,230 Total 391 25,898 assets incl.shares inassociates 271,268359,240 62,102415,331 Non-current Current assets assets e ahflw (195 (2 18 () 1,7) 242 (50,193) (2,442) (15,876) (6) 0 18,933 (32,225) service 117,542 128 (18,932) 225 (186,669) 16,317 29,558 8,359 (42) 8,036 (4,980) (7,367) (246) (16,077) (31,955) and 28,235 52,781 heat (36,594) 24,031 (16,536) 0 group mining of of (108,871) electricity 56,048 services eliminations electricity of customer (48,999) electricity 17,044 Net cashflow Cash flowsfrom financingactivities Cash flowsfrom investingactivities Cash flowsfrom operatingactivities 60 Annual Report2004/05EestiEnergia Olsae rdcin rnmsin itiuin ae n Spot nr-ru Total Intra-group Support Salesand Distribution Transmission Production Oilshale Total Intra-group Support Salesand Distribution Transmission Production Oilshale Olsae rdcin rnmsin itiuin ae n Spot nr-ru Total Intra-group Support Salesand Distribution Transmission Production Oilshale i hl Pouto Tasiso Dsrbto Slsad upr Itagop Total Intra-group Support Salesand Distribution Transmission Production Oilshale

in thousandsofeuros Information aboutsalestransactions External transactions Information aboutsalestransactions 3 Disposalofbusinessunits oa uiesui’ omntr sesadolgtos 1,495 449 of itwasonlyaninsignificantpart thewholegeographicalarea inwhere thegroup operates. According tothemanagement estimates,thedisposalofoperatingactivitiesinJärvedistrictshould notbeaccountedforasdi Profit from salesofoperatingactivitiesinJärvedistrict(Note23) Total businessunit’s nonmonetaryassetsandobligations Provisions Trade andotherpayables Property, plantandequipment Inventories Accrued income Trade Business unit’sreceivables nonmonetaryassetsandobligations Expenses related tosale Other income Selling price The salesbargainincludedthetranactionofallassetsandliabilities92employeesrelated toJärvedistrictoperatingac AS Kohtla-JärveSoojusconcludedanagreement ÕlitööstusforthesaleofbusinessactivitiesinJärve on5.7.2004withASViru nr-ru rnatos in thousandsofeuros were concluded.Thesalestransactionswere madeincash. The leaseagreements betweenEestiEnergiaASandOÜPõhivõrk,Jaotusvõrkwere terminatedon30.3.2005andthecorrespondin Both bargainswere recogised asfinanceleases. of thebusinessunitJaotusvõrk. According totheagreement concludedon1.7.2004,ASEestiEnergialeasedtoOÜJaotusvõrkofallassets,rightsandobligation of thebusinessunitPõhivõrk. According totheagreement concludedon1.4.2004,ASEestiEnergialeasedtoOÜPõhivõrkofallassets,rightsandobligations In thereporting periodthesubsidiariesofEestiEnergiaAS-OÜPõhivõrkandOÜJaotusvõrk;startedasindependentlegalentit Intra-group transactions oa uiesui’ omntr sesadolgtos 2707 1,2 316,727 17,626 2,196 267,017 18,445 2,744 Additional informationaboutPõhivõrkandJaotusvõrkcanbefoundinNote2. All abovementionedtransactionsare intra-group restructuring andtherefore donoteffect consolidatedfigures. Profit from sales Total businessunit’s nonmonetaryassetsandobligations Deferred income Provisions Trade andotherpayables Property, plantandequipment Inventories Accrued income Other receivables Trade receivables Business unit’s nonmonetaryassetsandobligations Selling price Received financeleaseinterest (Note30) Received financeleaseprincipalpayments

Põhivõrk Jaotusvõrk 271,268 364,574 264,273 314,531 (1,245) (39,160) (3,721) (9,450) 1,665 1,933 (116) (109) 571 18 123 89 31 (3) 14 25 22 210 0 0 0 (52) 0 498

tivities. Annual Report2004/05EestiEnergia scontinued operationsbecause district inKohtla-Järvetown. e. ies. including 138employees s including983employees g salesagreements 61

Notes to the financial statements, continued Notes to the financial statements, continued 6 Trade receivables 5 Investmentsandothersecurities 4 Cashandcashequivalents okvlea f3..05 0 0 (350) (350) 350 0 350 354 354 AS Elektrikontrollikeskus andKrediidipank were statedatcost. alone financialstatementsoftheparent companytheseinvestmentsare accountedforusingtheequitymethod.Inprevious pe Beginning 1.4.2004,ASElektrikontrollikeskus isconsolidatedonaline-by-linebasis,asthetimeofitsdisposalcannotbee Reclassified (Note11) Book valueasof31.3.2005 Sold Changes intheperiod1.4.2004-31.3.2005 Book valueasof31.3.2004 Book valueasof31.3.2003 in thousandsofeuros Changes ininvestmentsandothersecurities in thousandsofeuros in thousandsofeuros oa netet n te euiis 0 5 0 350 0 0 0 350 31.3.2004 31.3.2005 354 0 37 8 4 31.3.2004 31.3.2005 29 0 41 40,016 14 350 45,110 0 2,467 2,540 37,940 40,301 49 37 933 0 8 1,336 40,016 31.3.2004 45,110 2,467 31.3.2005 41 29 2,540 Total investmentsandothersecurities 14 37,940 31.3.2004 Investment inKrediidipank (6,600shares) 40,301 933 Investment inASElektrikontrollikeskus (37,000shares) 31.3.2005 1,336 49 Accrued interest onbankdepositsisdisclosed inNote8. The effective interest ratesontimedepositswere between1.9-2.4%(2003/2004 Total cashandequivalents Upto3monthsdeposits Shares inmoneymarketandinterest funds Overnight depositsinbanks Time deposits Cash intransit On-demand depositsinbanks Cash inhand Ohr 134 (6) 17 (55) (1,342) (117) 37,607 1,089 (1,856) (1,312) 3,748 (3,254) (1,629) 378 (660) 40,471 (7,669) 36,024 4,030 (3,057) (1,856) (1,364) 39,120 6,870 (7,244) 46,046 13,338 (1,629) 31.3.2004 (10,186) 36,024 6,971 31.3.2005 49,891 13,088 (10,237) 40,068 31.3.2004 31.3.2005 TotalTotal allowancefordoubtfulreceivables short-termtradereceivables Other Heat Electricity Allowance fordoubtfulreceivables for Other Heat Electricity Accounts receivable for Short-term tradereceivables 62 oa consrcial 018 621 358 40,861 43,528 56,231 60,128 Total accounts receivable

Annual Report2004/05EestiEnergia Group Group Parent Parent Group Group Parent Parent Group Group Parent Parent

. .%.Dpst’dedtswr rm1t 8dy. 1.2 -3.5%).Deposits’duedateswere from 1to98days. Company Company Company Company Company Company (4) 0 Group Company Parent

stimated reliably. Inthestand- riods investmentsin

8 Accruedincome 7 Otherreceivables 6Trade receivables(continued) inthousandsofeuros Construction contractsandlong-termprojects inthousandsofeuros inthousandsofeuros uigtepro 747 ,4 8,641 44 7,467 (324) 1,362 75 31.3.2004 40 8,061 1,358 31.3.2005 (1,269) 1,318 44 31.3.2004 (630) 7,406 (79) 705 1,742 31.3.2005 1,318 78 0 0 31.3.2004 (2,184) 163,647 40 Construction contractsandlong-termprojects are related totheproduction ofvariouspowerequipmentand 2,105 2,194 1,318 Total costsincurred fortheconstructioncontracts 8 31.3.2005 248,749 during theperiod 18 0 Total revenue from theconstructioncontractsrecognised Profit recognised from workinprogress 31.3.2004 163,569 Aggregate amountofcostsincurred andrecognised 85 0 31.3.2005 1,318 Progress Recognisedrevenue from theworkinprogress 84 billing 1 248,723 381 31.3.2004 Work inprogress bytheendofreporting period 1,188 0 0 85 0 31.3.2005 66 836 19 606 Total accruedincome Interest receivable 0 31.3.2004 26 related tounsubmittedmeterreadings 0 Estimated accruedsalesofelectricity (2,794) Gross amountduefrom customersforconstructioncontracts 31.3.2005 1,228 2,025 (2,054) 31.3.2004 0 (5) 629 1,619 31.3.2005 (5,414) Total otherreceivables (3,674) Other short-termreceivables Receivables from associates 0 Receivables from subsidiaries(Note31) 3,640 (3,444) (3,254) 2,768 (9,641) Handedoverwithsaleoftradingunit(Note3) Reclassified(Note5) Receivableswrittenoff (10,186) Receiptofreceivables writtendowninprevious periods Allowancemadeduringtheperiod Allowancefordoubtfulreceivables atbeginningofperiod in thousandsofeuros loac o obflrcialsa n fpro (027 (016 (,5) (3,254) (3,057) (10,186) (10,237) Allowance fordoubtfulreceivables atendofperiod rs mutdefo utmr 86 381 836 Gross amountduefrom customers Group Group Group Group Group Group Parent Group Parent Parent Group Parent Parent Parent Company Company Company Company Company Company construction anddesignofnetworks.

Annual Report2004/05EestiEnergia 63

Notes to the financial statements, continued Notes to the financial statements, continued inthousandsofeuros 11 InvestmentsinSubsidiaries inthousandsofeuros 10 Inventories inthousandsofeuros 9 Prepayments i 0320 1tosn uo) 0 474 0 0 0 0 50 0 0 0 0 0 45 16,592 969 70 0 755 0 147 18,312 31.3.2004 566 4,902 287 31.3.2005 346 209 1,894 346 43 31.3.2004 11 238 4,736 0 83 420 31.3.2005 1,637 0 135 408 As at31.3.2005,inventorybalancescontainedmaterialscarriedthefairvalueintotalamount 47 0 (in 2003/200431thousandeuros). 916 During thefinancialyearGroup wrote downdamagedandslow-movinginventoriesinthetotalamount 31 84 Total inventories 382 Prepayments tosuppliers 31.3.2004 356 38 Other 31.3.2005 1,716 Shale oil 73 Finished goods(atcost) 961 31.3.2004 Other 299 Strippingworksinquarries 0 Extractedoilshale 31.3.2005 Work inprogress (atcost) Materials 10,593 Total prepaid expenses Other Prepayments forservices Insurance premiums Other prepaid expenses 7,956 Other Prepaid VAT Prepaid taxes 50 474 SEetiotolksu 64 0 2,725 3,708 2,915 604 0 274,322 3,229 5,525 2,959 580,518 128 374 149,274 87,534 119,365 1,051 96,621 176,707 201,075 Total investmentsinsubsidiaries AS Elektrikontrollikeskus AS Elpec AS Kohtla-JärveSoojus(KohtlaJärveDistrictHeat) AS Elektriteenused AS Energoremont Televõrgu AS AS EestiPõlevkivi(EstonianOilShale) OÜ Põhivõrk(NationalGrid) OÜ Jaotusvõrk AS NarvaElektrijaamad(NarvaPowerPlants) 64 oa nse od 74 ,1 0 0 0 0 0 1,014 7,552 714 11 6,719 335 0 420 847 69 Total finishedgoods Total workinprogress 1,643 74 Total otherprepaid expenses Total prepaid taxes Annual Report2004/05EestiEnergia

ru Gop aet Parent Parent Group Group Parent Parent

ru Gop aet Parent Parent Group Group Company Company Company Company 816 231 31.3.2005 Company 31.3.2004 Company f8tosn uo a f3..041tosn uo) of 8thousandeuros (asof31.3.20041thousandeuros). of 19thousandeuros

SEsiPlvii soi Olsaemnn 100.0 100.0 100.0 100.0 100.0 100.0 59.2 100.0 Designandengineeringofenergysystems 100.0 100.0 Control ofelectricalequipment Maintenance,repair andconstructionofnetworks Telecommunication services Estonia Production ofmetalproducts Oilshalemining Distributionofelectricity Network-andtransitservicesthrough themaingrid Generationofelectricityandheat Estonia Estonia Estonia Estonia Estonia Generationofelectricityandheat Estonia Estonia Estonia Subsidiaries ofASEestiPõlevkivi Subsidiaries belongingtothe ASElektrikontrollikeskus ASElpec Estonia ASElektriteenused ASEnergoremont Televõrgu AS ASKohtla-JärveSoojus ASEestiPõlevkivi OÜJaotusvõrk OÜPõhivõrk ASNarvaElektrijaamad opn Lcto Cr ciiy Stake(%) Subsidiaries ofASNarvaElektrijaamad Core activity Location Subsidiaries belongingtotheParent Company Company 11 InvestmentsinSubsidiaries(continued) h wesi ntesbiire eanducagddrn h eotn eid 100.0 66.0 100.0 Welding control andmetalqualitytests Salesanddistributionofheat Estonia Equipmentassembling Estonia The parent company’s poweronOÜPõhivõrkandJaotusvõrk islimitedbyElectricityMarketActandtheEUdirective governing The ownershipinthesubsidiariesremained unchangedduringthereporting period. OÜ ERTest Service starteditsoperatingactivitieson1.8.2004. Estonia OÜ ER Test Service ASER BalticElectrotechnics andautomation Subsidiaries ofASEnergoremont ASNarvaSoojusvõrk SPlviiRute soi Tasot 100.0 100.0 100.0 Miningmachineryrepair Transport Estonia Oilshalemining Estonia Estonia ASMäetehnika ASPõlevkiviRaudtee PõlevkiviKaevandamiseAS inthousandsofeuros Changes ininvestmentsSubsidiaries Changesduring1.4.2003-31.3.2004 Book valueasof31.3.2003 Changesduring1.4.2004-31.3.2005 Book valueasof31.3.2004 Share ofresults Purchase oflong-termfinancial investments In thecurrent period,EestiEnergiaASpaidincashaspaid-incapital159,779thousandeuros toOÜJaotusvõrkand134,087tho Book valueasof31.3.2005 Share ofresults Revalued Reclassified(Note5) Purchase oflong-termfinancial investments

Annual Report2004/05EestiEnergia usand euros toOÜPõhivõrk. s. Company 236,318 274,322 580,518 293,866 37,876 11,772 Parent 128 209 350 65

Notes to the financial statements, continued Notes to the financial statements, continued Changes during1.4.2004-31.3.2005 Book valueasat31.3.2004 Dividends Share intheresult received Changes during1.4.2003-31.3.2004 Book valueasat31.3.2003 inthousandsofeuros Information aboutassociates inthousandsofeuros Changes intheinvestmentsassociates 12 Investmentsinassociates 1420 ..03- 35.0 (%) 1.4.2003- 2,992 1.4.2003- Loss 33.3 31.3.2004 12,802 31.3.2004 Stake Income (340) 31.3.2004 611 35.0 100.0 Profit/ 1,553 31.3.2004 (%) 1.4.2004- 0 2,771 6,758 33.3 167 31.3.2004 Operating 1.4.2004- Loss 11,827 (250) Liabilities 2,021 0 Estonia Stake Income Assets 1,615 1,285 31.3.2005 Latvia Profit/ 31.3.2005 214 0 31.3.2005 7,320 Location Orica Eesti OÜ Operating 31.3.2005 1,707 Associate belongingtothesubsidiary 31.3.2005 128 Liabilities Estonia DC Associate belongingtothecompany Baltija Assets Latvia Company Estonia Location Orica EestiOÜ DC Associate belongingtothesubsidiary ASNordic EnergyLink Baltija Associate belongingtothecompany Company After thefoundationofOÜPõhivõrkparticipationparent comapnyinDCBaltijaswassold toOÜPõhivõrkfor614thou As at31.3.2005,ASNordic EnergyLinkhadnotyetstarteditsoperatingactivities(Note35). AS Nordic EnergyLinkisaccountedforasanassociate,becauseafterthecapitalenlargement,ASEestiEnergiawillhavea39. The purposeofASNordic EnergyLinkistheordering andsubsequentmaintenanceofEstonia-FinlandunderwatercableESTLINK. Eesti EnergiaASfoundedNordic EnergyLink on11.6.2004andpaid128thousandeuros aspaid-incapital. Book valueasat31.3.2005 Sales Purchase oflong-terminvestments return Dividends Share intheresult received in thousandsofeuros 66 Annual Report2004/05EestiEnergia

9% stake. Company (1,139) 0 (1,009) 0 sand euros. Group Parent 2,756 614 1,121 (112) 2,774 727 2,701 128 128 827 0 0 (614)

13 Property,plant,equipment(PPE) PPEoftheGroup 445 1,013,735 183,456 1,746,730 1,229 3,429 0 (292) 0 854,424 491,485 239 756,913 0 147,471 455,158 411 127,323 329 02,789 92,521 (106) 17,176 61,225 4,642 (10,558) 159,891 0 The impairmentwascausedbythedecrease inthenumberofcustomers andpoorpaymentdiscipline, 0 (1) (1,665) 0 The recoverable amountof theassetswasdeterminedonbasisof5yearcash-flowprojections discounted at16%. 18,808 424 259 4,638 During theprevious reporting periodthecarryingamountofheating systeminAhtmedistrictbelongingtoKohtla-JärveSooj 92,481 (1) 246,818 thousandeuros). 10,469 0 equipment 34 (177) Construction inprogress balancesinclude119,293thousandeuros oftherenovation 46,473 costof tions 0 854,937 (368) 273,071 (301,755)(362,939) (66,098) (2,199) (732,995) as provion atthepresent valueof444thousandeuros. Thisprovision was 20,172 (9) (4) The usufulliveofthemajoritemsplantandequipmentwere assesed25year. Future estimatedexpedinture to 1,518,649 1,065 0 During theperiodfinalisedconstructionandtestingof8-thpowerblock inNarvaPowerpalntwasfinalised. 2,518 0 341 (1,127) 676,379 356,146 719,574 256,087 (169) 442,457 (29,514)(53,142) (589) (87,618) (4,371) Constructionandrenovation inprogress 115,875 (3) (1,048) 13,883 Openingnetbookvalue 50,967 4,303 Prepayments 0 0 Cost 3,100 Accumulated 1,237 171526 8 4,301 0 971 Balance asat31.3.2005 0 266 depreciation 113,976 0 Provision fordismantling(Note19) 0 290 Reclassification 936 (997) Other (277,116)(320,233) Disposalof businessunit’s fixedassets(Note3) (64,909) (1,453) (663,712) disposals equipment (1) 104,180 1,015,004 837,225 tions 176,541 18 (51) Acquisitions (1)(1,644) Depreciation 3,423 (95)(1,131) 775 Changes during1.4.2004-31.3.2005 775 1,431,065 0 (390) 1,924 (27) 0 645198,481 21 508,580 33,425154,137 622,000 6,044 342,608 10,207 Construction andrenovation inprogress 66 Openingnet bookvalue 165,035 693,467 453,089 441,896 (28,909)(48,826) (355) (81,813) (3,723) Prepayments 261 109,405 (1) 39 11,175 Cost Accumulated 48,031 47,678 Opening balanceasat31.3.2004 4,268 depreciation 332 4,529 4,268 PPEoftheGroup 0 Total changesduring1.4.2003-31.3.2004 (251,571)(279,392) (61,728) (1,149) (593,840) 0 Impairment charge Disposals Depreciation Changes during1.4.2003-31.3.2004 Additions Total balanceasat31.3.2003 Prepayments Constructionandrenovation inprogress Openingnetbookvalue Cost Accumulated Opening balanceasat31.3.2003 depreciation inthousandsofeuros inthousandsofeuros oa aac sa 1320 486 003 7,4 6147 ,2 1,199,979 1,229 641,477 472,343 80,033 71,000 4,896 164 28,718 1,128,979 15,831 1,065 25,958 612,760 Total balanceas at31.3.2005 456,512 329 54,075 4,568 Total changesduring1.4.2004-31.3.2005 Total balanceasat31.3.2004

Land Buildings Land Construc- Buildings Plant Construc- and Plant Other and Total Other Total

nlddit oto h oe lc. included intocostofthepowerblock. the NarvaPowerPlants’11-thpowerblock(asat31.3.2004: which isinherent intheregion thecompanyoperatesin. dismantle theplanthavebeenrecognised Annual Report2004/05EestiEnergia us was partiallywrittendown. 67

Notes to the financial statements, continued Notes to the financial statements, continued 13 Property,plant,equipment(PPE)(continued) Assets leasedoutundertheoperatinglease inthousandsofeuros Assets leasedunderthefinancelease(Groupaslessee) AS Kohtla-JärveSoojusrents specialequipmentandcomputersunderthefinanceleaseterms.Thewillexpire on30.5.2006. PPEoftheParent Company Peamns 0 0 2 0 0 2,165 48,021 78,544 0 134 0 568 (258) 41,390 21,484 0 0 935 270 11,065 14,979 (30,523) 7,214 (84) 29 0 (434) (10,530) 25,397 145 2 (19,906) (95) 5,330 0 19,065 4 125 (3,851) (6,043) 7,638 1,084 18,192 124 (3,331) (6,332) 663,375 0 (165) (635,841) 1,028,487 0 1,982 228 814 (28) 0 (1) (1,061) (350) (9) 364,284 1 227,968 0 (212,696) (1) 7,940 (1) 625,939 261 (411,775) 404,745 (365,112) (18) (585) 10,082 33,329 Prepayments 266 Construction andrenovation inprogress 66,565 0 (7,091) (136,316) Openingnet bookvalue 26,314 (48,965) 4,121 145 0 (221,194) 171 Accumulated (97) 0 depreciation Cost (4,252) 35,811 4,120 (7,015) Balance asat31.3.2005 (23,319) 13,749 27,466 (301) 0 (1) 650,578 Other (24,408) 0 Disposalof buinessunit’s fixedassets(Note3) disposals 975,397 0 181 Depreciation 3,081 687 (30) (1,140) Acquisitions Changes during1.4.2004-31.3.2005 334,830 6,099 217,338 0 62 (1) 605,018 Prepayments Construction andrenovation inprogress (324,819) 404,385 Openingnet bookvalue (505) 7,384 30,767 261 Accumulated (117,492) depreciation Cost 24,579 4,095 Opening balanceasat31.3.2004 (200,632) 265 (6,188) 4,094 PPEoftheParent Company 0 0 Disposals Depreciation Acquisitions Changes during1.4.2003-31.3.2004 Prepayments Constructionandrenovation inprogress Openingnetbookvalue Accumulated depreciation Cost Opening balanceasat31.3.2003 e okaon ,1 347 ,9 17,161 Company 8,699 Company 3,447 25 31.3.2005 31.3.2004 3,316 (23) 31.3.2005 31.3.2004 0 31.3.2005 0 (2,858) (9) (2,982) (9) (1,609) 0 0 (1,660) 34 31.3.2004 (15) The abovenumbers includeonlytherespective proportion ofthecostand depreciation inrespect oftheassets, Net bookamount Depreciation Accumulated depreciation inthebeginningofperiod Cost Net bookamount ccumulated depreciation Cost (203) 48 5,179 (209) 0 5,265 (415) 0 12,097 (1,247) 0 21,266 48 68 in thousandsofeuros in thousandsofeuros in thousandsofeuros oa aac sa 1320 17 019 ,5 2,1 14 50,188 134 22,419 7,359 20,149 127 (631,650) 681,838 (94) 228 (213,492) 235,911 (407,468) 414,827 Total balanceasat31.3.2005 (6,335) 26,485 17,250 (4,260) 4,386 47 664,588 Total changesduring1.4.2004-31.3.2005 12,474 181 3,058 223,437 Total balanceasat31.3.2004 411,769 1,640 24,844 31 4,356 Total changesduring1.4.2003-31.3.2004 Total balanceat31.3.2003 Annual Report2004/05EestiEnergia tos qimn equipment tions tions equipment Rsda Rcie Dpeito Coe Residual Closed Depreciation Received Residual Group Group Parent Parent

Land Buildings Construc- Plant and Other Total Land Buildings Construc- Plant and Other Total

value lease value which are partiallyleasedout.

srcnue folsae 2,494 2,494 9 2,721 9 17 15 15 24 2,470 2,470 2,680 No impairmentwasidentified. the oldpowerblockofNarvaElektrijaamad. (210)(9)(7) Growth rateof2-3%hasbeenadjustedinsomecasesfortheestimatedinfluenceopening user consumerofoilshale. (226) Cash flowprojections are basedonhistoricaldata,energyconsumtptionforecasts andtheassumptionthat the estimatedusefullifeofASNarvaElektrijaamadpowerblocks. The recoverable amountofthenetassetswasdeterminedonbasiscashflowprojections for2005-2021 During thereporting periodtherecoverable amountofnetassetssubsidiarieswascompared to theirbookvalue. (263)(29)(28) Since 1.4.2004goodwillisnotamortisedandshallbeannuallytestedforimpairment. (319) As at31.3.2005thegoodwillinParent Companywas2,485thousandeuros (asat31.3.2004also2,485thousandeuros). Net bookamount31.3.2005 Net bookamount31.3.2004 (53)(20) Accumulated (93) Cost Balance asat31.3.2004 Amortization Movements during1.4.2003-31.3.2004 Net bookamount amortization Accumulated Cost Balance asat31.3.2003 amortization The operatingleasecontractswhere theGroup acts as alesseeare cancellablebyashort-termnotice. 15 Operatinglease inthousandsofeuros 14 Intangibleassets inthousandsofeuros inthousandsofeuros Group’s intangibleassets - er 94 7 94 573 3,436 944 5,391 3,436 573 4,152 178 6,571 5,391 944 815 175 560 754 4,152 405 1 1,958 1,026 272 1.4.2003- 6,571 31.3.200531.3.2004 1,490 1.4.2004- 605 31.3.2004 532 1,314 206 251 1.4.2003- 1,549 1,959 636 1,825 270 1.4.2004- 236143 143 738 Total future operatingleasereceivables >5years 2,000 >1-5years 31.3.200531.3.2004 Future operatingleasereceivables 31.3.2004 906 non-cancellableoperatingleasecontracts <1 2006324 Total expense from operatinglease(Note26) 33 Motor vehicles Buildings year Operating leaseexpenses Total revenue from operating lease(Note22) Constructions Other Buildings Revenue from operatinglease equipment Future minimumleasereceivables under

Group Group Parent Parent ..04- 1420 ..04- 1.4.2003- 1.4.2004- 1.4.2003- 1.4.2004-

Group Group Parent Parent Company Company Põlevkivi Soojusvõrk goodwill SEsi SEpc SNra Total ASNarva ASElpec AS Eesti 2,732 4437 2,814 2,732 4437 2,814 Goodwill Company Company the Estonianelectricitymarketandeffect ofclosing AS NarvaElektrijaamadwillremain asthemain discounted at8%.Theperiodisbasedon Annual Report2004/05EestiEnergia 69

Notes to the financial statements, continued Notes to the financial statements, continued inthousandsofeuros Principle amountofloansandmaturity inthousandsofeuros Changes inborrowings inthousandsofeuros Borrowings atamortisedcost 16 Borrowings 2006 2017 2012 2017 0 2009 0 0 0 0 0 0 2006 40,000 2019 2017 0 90,000 130,000 2012 2017 0 0 50,000 2009 20,000 0 0 0 98,000 0 0 1,182 0 15,000 1,182 13,000 50,000 60,000 65,000 40,000 195,000 228,000 0 90,000 0 15,000 90,000 13,000 50,000 15,000 20,000 111,818 0 15,000 Total 11,818 long-termbankloans 50,000 Nordic InvestmentBank 80,000 60,000 308,000 Kreditinstalt fürWiederaufbau Syndicate loan Nordic InvestmentBank 15,000 90,000 Nordic InvestmentBank 13,000 Creditor Total long-term bankloans European InvestmentBank Nordic InvestmentBank Kreditinstalt fürWiederaufbau Syndicate loan Nordic InvestmentBank Nordic InvestmentBank Creditor mriain ftedfeec ewe h oia mutadcs fbns 5 359 359 0 338 0 294,668 0 338 95,666 308,964 0 12 108,421 1,182 294,690 197,821 Amortisationofthedifference betweenthenominalamountandcostofbonds Paidloanfees 198,179 Amortisationofloanfees 95,666 Repaymentoflong-termbankloans 2,364 1,182 Long-termbankloanstaken 11 31.3.2004 308,975 197,821 1 31.3.2005 Movements fortheperiod Amortised costasat31.3.2004 Repaymentfinanceleaseprinciple 2,364 Newfinanceleasecontracts 1,192 108,421 31.3.2004 Amortisationofthedifference betweenthenominalamountandcostofbonds 198,179 Amortisationofloanfees Repaymentofshort-termbankloans 10 Long-termbankloanstaken 31.3.2005 1,182 Movements fortheperiod 2,374 Amortised costasat31.3.2003 2,364 Total borrowings Financeleaseliabilities Long-termbankloans Bonds issued Long-term borrowings Total short-termborrowings Financeleaseliabilities Current portionoflong-termbankloans Short-term borrowings Foreign exchangeloss Paidfinance leaseliabilities in thousandsofeuros 70 oa ogtr orwns 3662 9,9 3660 293,486 Amortised costasat31.3.2005 306,600 293,498 306,602 Total long-termborrowings Annual Report2004/05EestiEnergia available drawn undrawn Repaid settlement available drawn undrawn Repaid settlement Total amount Total amount Group Group Parent Parent

Company Company Asat31.3.2005 As at31.3.2004 Final Final 308,975 308,964 294,690 294,668 275,214 274,127 (1,182) (1,055) 0 15,000 20,000 Group Parent (11) 0 (96) 216 (12) 0 203 (1)

2 0 Company

aktvle 1,4 219,485 197,821 0 219,940 198,179 (1) 197,260 560 197,260 200,000 200,000 919 The bondsare listedontheLuxembourgStockExchange. Eesti Energiaissued7-year, 6%fixedinterest ratebondsinJuly2002. Market value Balance Currency exchangeloss the nominalvalueandcostofbonds Amortisation ofthedifference between Proceeds from issue Nominal valueofthebonds inthousandsofeuros Finance leaseliabilities(principalamount) inthousandsofeuros Bonds issued inthousandsofeuros Maturities oflong-termbankloans(principalamounts) by 7.11.2006. from Nordic shouldbemadeby30.9.2006andregarding InvestmentBankandKreditinstalt fürWiederaufbau theloanfrom theEuro The typeofinterest rate(fixedorfloating)onundrawnloanfacilitieswillbedecidedthereceipt oftheloan.Thedecision Those ratioshavenotbeenexceeded. The loanagreements concludedbytheGroup setcertainfinancialratiostheGroup shouldcomplywith. Considering theeffect ofderivativeinstrumentstheweightedaverageinterest rateasat31.3.2005was4.9%(31.3.2004:5.3%). Bank loanintheamountof234,699thousandeuros are fixedusinganinterest rateswap,havingtheweightedaverage interest ra The floatinginterest ratesofthesyndicateloaninamount782,330thousandeuros (untiltheendofloanperiod)and 2.6-5.1% (Asat31.3.20042.8-5.2%)andtheweightedaverageinterest ratewas6monthEuribor+0.6%(31March 2003:6months All loansare denominatedineuros. Interest ratesare floating,basedon6monthEuribor. Asat31.3.2005,theinterest ratesf 16 Borrowings(continued) eadprin 2) (1 0 (37) 31.3.2005 48 0 12 0 0 (11) as 0 at contracts 0 (11) paid 0 0 contracts (26) 31.3.2004 98,000 as 27,299 at 1,182 48 69,520 111,818 33,250 22 2,364 76,205 Carrying amountofleaseliabilities Repaid portion Original leaseliabilities According tothemanagement’s estimates,themarketvalueofloansdoesnotmateriallydiffer from theirbookvalue. Total > 5years 1 -5years < 1year 1320 31.3.2004 48 22 (225) 0 as at 0 contracts (12) paid 2 2 contracts 31.3.2003 as at 272 33 0 (12) 225 As at31.3.2005theinterest ratesofthefinanceleasecontractswere between5.1-5.%(4.8-5.1%asat31.3.2004). (239) (26) Carrying amountofleaseliabilities Repaid Original leaseliabilities portion inthousandsofeuros

31.3.2005 31.3.2004 Balance New Principle Terminated Balance Blne e rnil Triae Balance Terminated Principle New Balance 31.3.2005 31.3.2004 Annual Report2004/05EestiEnergia regarding theusageofloans or loansrangedfrom te of5.8%(seeNote18). oftheNordic Investment

pean InvestmentBank Euribor +0.7%). 71

Notes to the financial statements, continued Notes to the financial statements, continued iac es iblte 51 4.8% 3.3% 5.1% 3.2% 17 Trade andotherpayables Finance leaseliabilities Bonds Long-term bankloans Weighted averageinterestratesofborrowings inthousandsofeuros The exposureoftheGroup’s borrowingstointerest-ratechangesandthecontractualrepricingdatesisasfollows: inthousandsofeuros 6.3% Maturities offinanceleaseliabilities(principalamounts) 16 Borrowings(continued) 6.3% te aals ,4 121 ,2 1,185 0 6 4,714 1,127 1,237 44,634 128 5 9,321 5,657 12,553 1,995 75,940 1,281 78,267 19 9,257 2,627 162 10,257 99,774 980 57 12,556 1,344 0 3,001 12,848 3,812 9,321 1,657 20,804 85,886 819 14,658 9,827 134 4,333 6,410 31.3.2004 937 2,627 0 9,257 20 31.3.2005 19,672 89,982 396 10,395 51,026 31.3.2004 3,001 11,198 totalled 22,006thousand euros (asat31.3.2004: 25,246thousandeuros). 10% ofthecontractpaymentsare retained untilthe 31.3.2005 According tothecontract for therenovation ofpowerblocksbetween NarvaElektrijaamad(NarvaPowerPlants) 37,201 53,354 Total short-termtradeandotherpayables Other payables 0 14,394 Customers advancepayments Liabilities toassociates Liabilities tosubsidiaries(Note31) Tax 35,959 liabilities 294,690 0 294,690 Total accruedexpenses Other accruedexpenses 0 197,821 Accrued interest 308,975 Payables toemployees 197,821 Accrued expenses 308,975 Total short-term tradepayables 0 Other payablesforgoodsandservices 0 0 0 Payables forfuel 23 Payables forproperty, plantandequipment 64,738 Trade payables 64,738 (1) 12 96,870 0 64,815 198,179 262,993 (64,738) 32,132 (0) 22 0 0 110,797 (64,815) 45,982 12 12 0 0 (0) 2 0 Effect ofinterest rateswap Total balanceasat31.3.2004 12 (0) Borrowings 12 As at31.3.2004 (1) Effect ofinterest rateswap Total balanceasat31.3.2005 10 1 Borrowings As at31.3.2005 (0) 11 10 Future financechargesonlease Present valueoffinanceleaseliabilitiesasat31.3.2004 Minimumleasepayments As at31.3.2004 Future financechargesonlease Present valueoffinanceleaseliabilitiesasat31.3.2005 Minimumleasepayments As at31.3.2005 in thousandsofeuros 72 Annual Report2004/05EestiEnergia

er er >5yas Total >5years Group 1-5years Total <1year Group >5years 1-5years Parent <1year Parent launch ofthepowerblocks.As 31.3.2005,theretained amountincludedin payablesforproperty 31.3.2005 31.3.2004 Company Company and FosterWheelerEnergiaOy(contractor),

3..04 31.3.2005 (2,672) 1,930 (133) (640) (2,032) asat 4,468 1,474 456 31.3.2004 settlement fairvalue Fairvalue (102) (32) 65,000 Cash asat (3,405) Changein (1,063) amount 50,000 Fairvalue 15,000 date Notional 13.6.2006 16.6.2006 Maturity Movements during1.4.2003-31.3.2004 Total 2) 21.6.2002 1) 17.6.2002 date Signing inthousandsofeuros 19 Provisions in thousandsofeuros Hedging reserve in thousandsofeuros 18 Derivatives rvso o 445 0 18,593 1,133 0 6,016 businessunit 2,120 792 (116) 308 ofsale 0 14,895 0 (2,651) 4,915 (15) Long-term Short-term 0 1,607 (101) asaresult (687) (319) (301) 445 121 (1,645) 178 26,070 inprovisions 1,308 0 272 charge 20 (1,038) andchanges 31.3.2004 2,219 21,285 2,566 31.3.2004 Total provisions Provision fordismantling Provision forinjurycompensations post-employment benefits Provision for termination provisions Environmental andmining asat (1,063) (3,405) 414 1,331 settlement 31.3.2003 fairvalue Fairvalue (1,025) (311) Cash asat (3,711) Changein (1,167) amount Fairvalue 50,000 15,000 date Notional 13.6.2006 16.6.2006 Maturity Recognisedintheincomestatement(Note30) Changeinthefairvalueofswapagreements Movements during1.4.2003-31.3.2004 Balance asat31.3.2003 Total 2) 21.6.2002 1) 17.6.2002 date Signing 65,000 (4,878) (1,336) 1,745 (4,468) Recognisedintheincomestatement(Note30) Changeinthefairvalueofswapagreements Movements during1.4.2004-31.3.2005 Balance asat31.3.2004 h aktvlei ae nWsdush adsakGrznrl’ oain. The marketvalueisbasedonWestdeutsche LandesbankGirozentrale’s notations. Balance asat31.3.2005 in thousandsofeuros Movements during1.4.2004-31.3.2005 interest rate.Agreements were signedon3.4.2002,andtheymeetthecriteriafor TheGroup hasentered intotwointerest rateswapagreements withWestdeutsche LandesbankGirozentrale toswapafloatinginter Total movementsduring1.4.2003-31.3.2004 Total movementsduring1.4.2004-31.3.2005

sa Rcgiin neet Uiiain Reduced Utilisation Interest Recognition Asat

ahflwhde. cash flowhedges. Annual Report2004/05EestiEnergia Balanceasat31.3.2005 est rateforafixed (4,474) (3,930) (2,137) (1,336) 1,880 1,926 1,793 (133) 544 73

Notes to the financial statements, continued Notes to the financial statements, continued rnsrcie rmLF niomn rga 11 131 131 Deferred connectionfees asat31.3.2003 Accumulated amortisation Connection feesasat31.3.2003 Long-term deferred income Total short-term deferred income31.3.2005 Grantsreceived from ISPA fund(Note19) Recognisedasincome(Note24) Movements during1.4.2004-31.3.2005 Total short-term deferred income31.3.2004 Recognisedasincome(Note24) Grantsreceived from LIFEEnvironment program Movements during1.4.2003-31.3.2004 grants Government Short-term deferred income inthousandsofeuros 20 Deferredincome inthousandsofeuros 19 Provisions(continued) rvso o 0 Provisions are discountedby8%rate. 20,186 The provision fordismantlingdiscountedtopresent valuewasaddedtothecostofplant(Note13).Theprovision isestima 0 5,884 During thereporting periodaprovision wassetupforfuture dismantlingoftherenovated 2,237 powerblocknumber8intheamount o 1,523 businessunit Statistical 328 decisions regarding theamountspayableandestimatesregarding 696 theexpectedremaining 0 livesofinjured employees(basedon cover compensationspayabletoformeremployeeswhowere injured whilefulfillingworkduties.Theprovision hasbeendetermined 0 16,426 ofsale During thereporting period,aprovision wasrecognised EestiEnergia,NarvaElektrijaamad, EestiPõlevkivi,Energoremont andK Office). 0 0 who retired 4,859 between1.04.2001-31.12.2006.Nopensionswillbepaidafter1.01.2007. (1,967) 1.4.2001- 31.12.2006.Paymentswillbemadeuntil1.1.2007.InEestiPõlevkivithisincludesalsothecompany’s pensionpayable (53) of Group companies.Theprovision alsocoverspensionspaidbyASEestiPõlevkivi.Pensionswillbeaccordingly tothosee Long-term 0 A provision forpost-employmentbenefitshasbeenrecognised inrespect ofconstructiveobligationsarisingfrom thecollective 1,179 Short-term (29) (451) asaresult the employeesasnodetailedplansforterminationofmininghavebeenannouncedyet. 0 2,818 The miningterminationprovision doesnotinclud The provisions related totheterminationofminingworkswithin17years. Long-term environmental provisions willrealise inEestiPõlevkivi2006-2010, Kohtla-JärveSoojus2008-2013andNarvaElektr 103 (1,433) 11 Total grantsreceived duringthereporting periodwere 618thousandeuros (Note20). 0 inprovisions powerstation ashfieldNo.2willbecovered from theEUISPA funds.AlltheconditionssetbyISPA fundhavebeenmetby31.1.20 1,064 24,039 AS NarvaElektrijaamadandtheEuropean Commission,84%(7,106thousandeuros) 647 ofthecostsrelated totheclosingandre-culti charge 2,583 The amountofenvironmental andminingterminationprovisions takesintoaccountthefactthatinaccordance withthefinancial (412) - andchanges - 53 - restoring thecontaminatedwatersupplyasaresult ofminingactivities; 31.3.2003 1,920 0 - liquidating 22,066 - closing Environmental andminingterminationprovisions are establishedfor: cleaning asbestos Total provisions restoring landfills Provision forretraining allowances Provision forinjurycompensations contaminated in post-employment benefits land and Provision for termination provisions land power Environmental andmining damaged utilising surface; plants. by waste; mining; 74 Connection feesreceived up todate Annual Report2004/05EestiEnergia

sa Rcgiin neet Uiiain Reduced Utilisation Interest Recognition Asat

32,040 29,440 (2,600) Group Parent Company mployees whohaveleftin ted torealize within30years. 618 0 618 0 (45) (86) agreement withtradeunions ohtla-Järve Soojusinorder to ijaamad 2006-2015. 45 e terminationpaymentsfor tocertainformeremployees 5 05. memorandum between datafrom theEstonian

f 445thousandeuros. vating oftheBaltic Balanceasat31.3.2004 basedonthecourt l 27100sae sudaeflypi sa 1320. 22 Sales AS EestiEnergiashallpay6,199thousandeuros asdividendsin2005,theManagementBoard hasproposed topay6,199thousande Considering thatinstateownedprivateentities’dividendsare andthataccording determinedbytheGovernment toregulation N (31.3.2004 :8,258thousandeuros). Thusitwouldbepossibletopay54,892thousandeuros (31.3.2004:23,501thousand euros) The maximumpossibletaxliabilitywhichwouldbecomepayable,iftheremaining retained were earnings fullydistributedamount As at31.3.2005,theGroup shalltransferatleast2,130thousandeuros from retainedtothestatutoryreserve earnings (31.03. the statutoryreserve andshare premium mayonlybeusedtocoverretained lossesandtoincrease share capital. level hasbeenattained,companieshavetotransferthereserve 1/20oftheirnetprofit forthefinancialyear. Inaccordance The Commercial Coderequires companiestoestablishastatutoryreserve. Theminimumamountofthe reserve All 72,741,000shares issuedare fullypaidasat31.3.2005. of EconomicAffairs. of theshares andtheproxy oftheshareholder’s rightsis the (682) Eesti EnergiaAShas72,741,000registered shares. Theparvalueofashare is100kroons. Thesoleshareholder 21 Sharecapitalandsharepremium (682) Connection feesasat31.3.2004 Amortisedtoincome Chargedtoincomecoveroperatingexpensesrelated toconnections Connectionfeesreceived Movements during1.4.2003-31.3.2004 inthousandsofeuros 20 Deferredincome(continued) oncinfe r mrie oicm vr2 3yas (286) (769) Connection feesare amortisedtoincomeover20-33years. Total deferred income Accumulated Connectionfeesreceived uptodate amortisation Connection feesasat31.3.2005 Amortisedtoincome Transfer onsaleofbusinessunits Chargedtoincomecoveroperatingexpensesrelated toconnections Connectionfeesreceived Movements during1.4.2004-31.3.2005 Accumulated Connectionfeesreceived uptodate amortisation Sales byactivity

te 272 ,2 284 927 2 0 1,314 0 1,970 2,824 585 0 33 1,024 1,959 0 0 609 0 0 0 210 511 738 2,712 0 18,072 409 1,970 199 0 0 0 1.4.2003- 306,555 2,032 262 16,442 1,660 906 31.3.2004 601 2,314 8,980 462 34,111 1.4.2004- 321,009 14,526 7,358 2,540 2,654 31.3.2005 1.4.2003- 302,103 12,814 30,428 31.3.2004 13,239 5,305 1.4.2004- 317,998 31.3.2005 Other Leasing ofpremises (Note15) Transport services Connection fees(Note1) Telecommunication Repair andconstructionservices services Saleofservices Oilshaleash Other Power equipment Shale oil Oil shale Heat Electricity inthousandsofeuros eerdcneto esa t3..05 5,0 0 50,709 38,468 38,468 Deferred connectionfeesasat31.3.2005 Deferred connectionfeesasat31.3.2004 Sale ofgoods oa aeo evcs 1,8 764 ,3 4,798 5,937 324,627 7,634 337,451 11,387 367,686 380,847 Total saleofservices Total saleofgoods

Group Group Parent Company Parent Company

Ministry ofEconomicAffairs. Atthegeneralmeeting,Ministryisrepresented bytheMinister is theRepublicofEstonia.Theadministrator is 1/10oftheshare capital.Untiltherequired (1,288) 10,998 51,327 0 (5,433) 0 56,142 0 (1,545) (324) 14,555 2,547 (3,888) 42,356 Annual Report2004/05EestiEnergia 2004 :1,672thousandeuros). Group Parent Company withtheCommercial Code, s to 17,334 thousand euros euros s to17,334thousand (40,405) 0 o. 161of21.3.2005

sntdvdns as netdividends. uros asdividends. 75

Notes to the financial statements, continued Notes to the financial statements, continued te 129 9 0 0 215 516 0 0 0 24,644 25,160 304,463 27,737 695 4,832 315,727 6,556 27,737 24,934 1,229 4,940 340,096 5,971 28,131 31,180 354,455 33,688 incl.exportofelectricityandtransmissionservices Other Finland Russia Latvia Export Estonia ..04- 1420 ..04- 1.4.2003- 1.4.2004- 31.3.2004 31.3.2005 1.4.2003- 31.3.2004 1.4.2004- 31.3.2005 77 329,838 20 343,465 377,113 208 394,726 592 Total netsales Other ae feetiiy 1,264,512 1,201,185 1,259,149 5,920,808 2,168,186 1,391,079 6,654,303 1,977,139 1,972,709 5,701,636 2,036,049 5,946,735 Sales ofheat Export Salesofelectricity Estonia Energy salesinquantitativeterms Sales bymarket Other sales Sales byactivity 24 Governmentgrants inthousandsofeuros 23 Otherrevenue 22 Sales(continued)

ylPa Ü 1 83 1 0 51 86 (4) 1.4.2003- 46 0 1 57 120 1.4.2004- 1,446 4 0 7 1 181 86 1.4.2003- 37 910 1.4.2004- 1.4.2003- 0 (4) 513 98 272 27 875 1.4.2004- Foundation ofEnvironmental InvestmentCentre (KIK) 2,024 EestiEnergiaASand theFoundationofEnvironmental InvestmentCentre (KIK)signedacontracttobuildnests will takeplacein3years. 191 55 Elektrijaamad acquired therighttoreimburse thepollution charges. 0 1.4.2003- 669 Elektrijaamad committedtorenovate thepowerplant’s 712 Inaccordance withtheagreements concludedbetweentheMinistryofEnvironmental Affairs andASNarva 2,512 CyclePlan OÜ. is 662thousandeuros. The partnersintheproject for EestiEnergiaare theFinnishEnvironmental Institution 1.4.2004- life-cycle analyses”byusing50% On 17.9.2003,ASEestiEnergiasignedacontractwiththeEuropean Commission according towhichthelatter 751 449 Total grants 1,000 Other grants Centre ofEnvironmental Investments(Estonia) Ministry oftheEnvironment 416 European Commission 978 31.3.2005 Total otherrevenue Other revenue Gains onsaleofproperty, plantandequipment Gains onsaleoftradingunit Fines received forlatepaymentsandpenalties 31.3.2005 1.4.2003- 1.4.2004- 31.3.2004 31.3.2004 31.3.2005 1.4.2003- 31.3.2004 1.4.2004- 31.3.2005 31.3.2004 31.3.2005 31.3.2005 31.3.2004 31.3.2004 inthousandsofeuros inthousandsofeuros MWh 76 oa xot 021 707 777 25,375 329,838 27,737 343,465 377,113 37,017 394,726 40,271 Total netsales Total export oa ae feetiiy 79274 ,7,4 80532 7,179,957 8,045,382 7,674,345 7,982,784 Total salesofelectricity Annual Report2004/05EestiEnergia ca ea 190 ,8 5 336 413 57 77 1,585 1,793 1,900 2,492 Group Total saleofgoods Scrap metal Group Parent Company Parent Company

ru Gop aetCmay Parent Company Parent Company Group Group Group Group Parent Group Company Group Parent Parent Company Company Parent Company LIFE-Environment funds,whichare administered bytheEnvironmental Directorate. Theoverallcostoftheproject gedt rwu h edrdcmnso lsn h s edn.2 agreed to drawupthetenderdocumentsof closingtheashfieldnr. 2. electrostatic filtersandto reduce theairpollutiontoagreed extent. According totheagreement from 3.12.2003thereimbursement of pollutioncharges

Elektrijaamad (NarvaPowerplant),AS Narva SYKE andanenvironmental consultingcompany for storks.ASNarva Elektrijaamadandthe will financetheproject „Oilshaleelectricity In exchange,ASNarva uiestae 43 8 19 250 0 528 488 155 1,020 129 12,977 0 202 310 968 81 8,121 434 485 740 2,871 1,026 1,215 964 (412) 38,571 1,394 386 404 2,226 1,195 387 1,075 433 605 1.4.2003- 199 1,845 778 36,933 (1,038) 1,412 1,005 2,052 1.4.2004- 712 603 31.3.2004 1,654 506 1,744 1,825 1,066 239 31.3.2005 1.4.2003- 2,881 31.3.2004 1,834 2,102 755 621 2,000 9,139 1.4.2004- 14,750 31.3.2005 2,709 1,714 Total otheroperating expenses 7,513 termination provisions (Note19) 16,423 Recognition/reversal ofenvironmental andmining Miscellaneous chargesandduties Business travel Public relations andinformationmanagement Training (Note27) Office supplies IT expenses Telecommunications expenses Loss from doubtfulreceivables Operating lease(Note15) Research andconsultations(Note27) Miscellaneous officeexpenses Security, insuranceandwork safety Environmental pollutioncharges ea die 1 35 2 238 292 126 286 1,683 1,195 296 912 335 603 495 67 2,798 1,834 211 502 303 2,718 1,714 115 Total research anddevelopmentcosts Training 1,005 Total research andconsultations Other consultations Business andmanagementconsultations Legal advice inthousandsofeuros 27 Researchanddevelopmentcosts 964 310 26 Otheroperatingexpenses 488 inthousandsofeuros 25 Materials,consumablesandsupplies ehia oslain 85 0 14 370 1.4.2003- 124 1.4.2004- 31.3.2004 31.3.2005 702 1.4.2003- 31.3.2004 1.4.2004- 31.3.2005 885 0 5 159 1 Technical consultations 39 0 124 143 134 28 1,539 5 31 877 245,758 47 691 83 0 1,908 383 789 314,773 4 17,497 39 892 820 17 192 0 79 120,485 1,671 22,081 15,232 2,300 7,462 466 20,288 0 647 6,007 121,391 5,350 948 16,345 18,759 17,497 1.4.2003- 872 4,756 293 7,626 16,557 6,981 1.4.2004- 0 7,939 173 31.3.2004 18,809 15,291 35,977 5,504 31.3.2005 1.4.2003- 1,174 3,418 Total materials,consumablesandsupplies Write-down ofinventories 31.3.2004 1,423 Goods sold Heat, steam,water 1.4.2004- 1,916 34,243 Tools, otherequipmentandfixtures 5,038 27,875 31.3.2005 Sub-contracting 1,425 1,680 Other services Electricity 6,756 1,713 Fuel formachineryandtransportvehicles Tax foruseofnaturalresources 23,897 Other production-related materials Repair supplies Othertechnologicalfuel Oil shale Technological fuel Total maintenanceandrepair Liquidationofstormdamages Machineryandtransportvehicles 1,599 Disassemblyandwastemanagement Buildingsandpremises Core activityfacilitiesandequipment 4,327 Maintenance andrepair relating to: 3 293,519 35 205,275 in thousandsofeuros oa ehooia ul 222 287 522 17,497 15,232 22,847 22,272 Total technologicalfuel ru Gop aetCmay Parent Company Parent Company Group Group ru Gop aetCmay Parent Company Parent Company Group Group ru Gop aetCmay Parent Company Parent Company Group Group

Annual Report2004/05EestiEnergia 77

Notes to the financial statements, continued Notes to the financial statements, continued inthousandsofeuros 29 Otherexpenses in thousandsofeuros Payroll expenses Number ofemployees ..04- 1420 ..04- 1.4.2003- 1.4.2004- 1.4.2003- Parent Group Parent Company Company 1.4.2004- Group 31.3.200431.3.2005 31.3.2005 28 Payrollexpenses − ots aay 0 0 20,432 0 (135) 11,666 0 0 107 324 (45) 89,789 (15) 308 (160) 35 0 (214) 137 169 416 87,879 (5) 20,613 (2,453) 228 (219) 117 2 282 (293) 5,055 (54) 854 105 11,686 (2,870) (821) 110 468 71 84 60 376 2,908 363 1,162 250 (74) 93,277 296 586 (961) 220 614 585 39 322 22,267 0 14,548 138 92,002 3−6 months’salary. 58 In thecaseofexpiryorterminationservicecontract,membersmanagementboards are entitled 296 317 433 Total Total payroll expenses covered withprovisions 630 22,732 8,262 324 334 Socialtaxandunemploymentinsurance premiums 1,879 13,852 2,583 Wages andsalaries 647 Covered 1,658 withminingterminationprovision 1,886 Socialtaxandunemploymentinsurance tax 66,008 1,024 546 1,022 7,724 Wages andsalaries 48 37 41 329 46 20 1,888 Capitalised inthecostofself-constructedassets: 272 676 2,627 67,298 Social 9,754 63,916 tax 556 Salaries 1,886 Incl. remunerations tomanagementandsupervisoryboards (incl.subsidiaries): Total 9,784 payroll expenses Income taxonfringebenefits 63,646 9,542 Fringe Fringe benefits 9,676 Non-recurring contractor’s fees Other benefits Provision forpost-employmentbenefits(Note19) 9,284 Provision forinjurycompensation(Note19) Unemployment insurancepremiums benefits Social tax 9,784 Total disbursementstoemployees Termination benefits Other paymentstoemployees Average monthlywages(euros) Wages, salaries,bonusesandvacationpay Average numberofemployees Numberofemployeesatendperiod Numberofemployeesatbeginningperiod o-uiesepne 77 6 23 111 82 1.4.2003- 4 263 1.4.2004- 38 663 1.4.2003- 40 1.4.2004- (303) 767 189 151 43 31.3.200431.3.2005 31.3.2005 decreased by468thousand euros. 705 380 210 1,114 As aresult ofthecancellation ofthesocialtaxinterest payableinASKohtla-JärveSoojus, therespective expenses Total Other Fines forlatepaymentsandotherpenalties Loss from saleofproperty, plantandequipment Non-business expenses other expenses 78 oa aiaie mut 381 (,7) 2) (180) (20) 472 (3,274) 590 (3,831) 1,184 1,584 Total capitalisedamount Total remunerations toboard members Annual Report2004/05EestiEnergia

ru Group Parent Company Parent Company Group

153 157 39 13 153

to anindemnificationequaltheir for latepaymentsandotherpenalties were Parent company’s transactionswithrelatedparties addition totheaforementioned entities. For thepurposeofpreparation oftheParent company’s financialreport, thesubsidiariesandtheirboard membersare also management board, For thepurposeofGroup’s financialstatements,therelated partiesincludethe 31 Relatedpartytransactions inthousandsofeuros 30 Netinterestexpense A le 7 20 173 102 0 711 87 105 0 199 383 149 18 1,244 9,773 0 287 31.3.2004 4,317 311 8,922 31.3.2005 17,516 Total operational expenses AS Elektrikontrollikeskus AS ASKohtla-Järve Soojus Elpec Energoremont Televõrgu AS AS Elektriteenused OÜ (7,054) Põhivõrk OÜ (502) 0 Jaotusvõrk Narva Elektrijaamad Goods andservicespurchased from: 0 31,714 (992) AS 0 Elektrikontrollikeskus AS 0 Elpec Energoremont 0 Televõrgu ASKohtla-JärveSoojus AS (9) (17,707) (19) AS (1,880) 11,105 Elektriteenused Narva 0 Elektrijaamad OÜ 0 (3,429) Põhivõrk Eesti 0 Põlevkivi (12,349) OÜ 0 (1) (19,459) (1,926) 51,086 Jaotusvõrk Sales to: 7 (1,179) 10,246 (4,087) (12,348) 0 0 0 (66) 1.4.2003- (1,880) 1,205 (1) 14,529 (1,607) 851 0 (3,429) (12,349) 1.4.2004- 31.3.2004 36,070 (1,926) 9 510 0 31.3.2005 0 3 486 1.4.2003- (12,348) (4,087) 7 Net interest expense 31.3.2004 Interest expenseonprovisions (Note 19) 0 1.4.2004- 31.3.2005 Other Interest expenseonfinancelease 0 0 1,195 Interest expenseonshort-termbondsandloans Lossoninterest rateswaps(Note 18) 0 Interest expenseonlong-termbank loans Interest expenseonlong-termbonds 0 Interest expenseonliabilities 501 Interest expense Total interest income Otherinterest income Interest incomeoffinancelease from subsidiaries(Note3) Interest incomefrom loanstosubsidiaries Interest incomefrom tradereceivables Interest incomefrom discountedreceivables placementstomoneymarketandinterest funds Interest incomefrom bankdepositsandshort-term Interest income inthousandsofeuros oa ae 191 12,407 31,911 (18,159) Total sales (18,159) (19,372) (19,353) (18,912) (17,734) (19,969) (18,362) Total interest expense Total interest expense

uevsr or n te niiul h aehdsgicn nuneoe h ru. supervisory board andotherindividualswhohavehadsignificantinfluenceovertheGroup. ru Gop aetCmay Parent Company Parent Company Group Group ..04- 1.4.2003- 1.4.2004-

associates ownedbytheGroup, themembersofparent company’s considered related partiesin Annual Report2004/05EestiEnergia 293,278 12,237 182,809 200,170 19,456 0 87,182 0 1,267 7,403 652 1,066 993 1,109 880 2,519 33 139 5 0

79

Notes to the financial statements, continued Notes to the financial statements, continued 31 Relatedpartytransactions(continued) oa aetcmaysln-emrcialsfo h usdais 2561 0 285,681 163,569 248,723 Total Overdraft toOÜ Põhivõrk parent company‘s long-termreceivables from thesubsidiaries Overdraft toOÜJaotusvõrk Long-term receivables Total parent company‘sshort-termreceivables from thesubsidiaries (Note 7) AS Elektrikontrollikeskus AS Elpec Televõrgu Energoremont AS ASKohtla-JärveSoojus AS Elektriteenused OÜ Põhivõrk Eesti Põlevkivi Narva Elektrijaamad OÜ Jaotusvõrk Receivables forgoodsandservicesfrom: Overdraft toASElektriteenused Overdraft toEnergoremont Overdraft toASKohtla-JärveSoojus Overdraft toNarvaElektrijaamad Overdraft toOÜPõhivõrk Overdraft toOÜJaotusvõrk Short-term receivables inthousandsofeuros Parent company’s receivablesfromthesubsidiaries inthousandsofeuros ASKohtla-JärveSoojus Televõrgu AS Energoremont AS Elektrikontrollikeskus AS Elpec AS Elektriteenused Purchase ofproperty, plantandequipmentfrom: Sale ofproperty, plantandequipmentto: Energoremont AS Elektriteenused AS Elpec OÜ ASKohtla-JärveSoojus Jaotusvõrk Eesti Põlevkivi Televõrgu AS AS Elektrikontrollikeskus AS Elpec AS Elektriteenused Energoremont ASKohtla-JärveSoojus Narva Elektrijaamad OÜ Jaotusvõrk OÜ Põhivõrk Financial incomeand(expenses)from: 80 oa eevbe o od n evcs 536 2,243 5,356 Total receivables forgoods andservices Total loanstothe subsidiaries Total purchase ofPPE Total saleofPPE oa nnilicm n epne) 963 9,758 49,613 Total financialincomeand(expenses) Annual Report2004/05EestiEnergia

..04- 1.4.2003- 1.4.2004 - 31.3.2005 31.3.2004 31.3.2005 31.3.2004 161,608 157,263 243,367 161,326 130,801 0 154,880 0 34,493 0 44,750 0 11,567 9,923 19,901 0 18,849 0 1,548 6,184 1,793 251 3,001 0 (908) (478) 723 3,743 579 0 131 336 158 0 257 382 978 5,460 988 1,108 635 959 (44) (1) (10) 0 163 249 22 3 19 67 19 10 34 47 67 46 (4) (2) 94 42 0 69 2 4 0 9 6 0 1 0 16 0 4 2 0 3 25 1 0 2 21

During thereporting periodservicesintheamountof25,925thousandeuros were intermediated. services andproducts (connectionproducts, circuit connectingtransactions,counterchangeetc.) According totheagentagreement betweenEestiEnergiaASandOÜJaotusvõrk,intermediatesthesalesof inthousandsofeuros 31 Relatedpartytransactions(continued) ..04- 1420 ..04- 1.4.2003- 471 1.4.2004- 0 1.4.2003- 1.4.2004- 11,682 10,563 All othertransactionsare carriedoutatmarketprices,orifnopriceexists,thenegotiatedpricesare used In thecaseofsaleselectricity, thepricesare setbytheEstonianEnergyMarketInspectorate. 31.3.2005 31.3.2004 31.3.2005 Remunerations ofthemembersSupervisoryandManagementBoardsare disclosedinNote28. 503 399 234386 have significantinfluence 40,971 39,098 35,46734,712 Purchases from companieswhere Board membersoftheGroup 4,019 4,027 2,2031,938 Operating Purchases from companieswhere thestatehasmaterialinfluence Operating Operating Operating 20 Transactionsexpenses withassociates 33 0 expenses income Operating expenses income inthousandsofeuros Parent company’s payablestothesubsidiaries oa aetcmayspybe otesbiire Nt 7 7,6 44,634 78,267 29,655 34,448 2,622 9,428 Total parent company‘spayablestothesubsidiaries(Note17) AS Elektrikontrollikeskus AS Elpec Televõrgu AS AS ASKohtla-JärveSoojus Elektriteenused Energoremont OÜ Põhivõrk Eesti Põlevkivi OÜ Jaotusvõrk Narva Elektrijaamad Payables forgoodsandservicesto: Payables toEestiPõlevkiviforshort-termdeposits Total deposits payablestothesubsidiariesforovernight AS Elektrikontrollikeskus AS ASNarvaSoojusvõrk Elpec OÜ Põhivõrk Energoremont AS Elektriteenused Televõrgu AS Eesti Põlevkivi deposits) Amounts duetosubsidiaries(overnight Total payablesforgoodsandservices ru Group Parent Company Parent Group Company

31.3.2005 31.3.2004 34,391 12,357 18,352 9,898 14,614 0 Annual Report2004/05EestiEnergia network servicesanditsrelated 1,105 0 2,831 865 3,829 1,297 116 129 121 53 510 0 581 0 466 4 190 19 427 310 542 339 57 221 74 1,526 4 0 1 190 0 128

81

Notes to the financial statements, continued Notes to the financial statements, continued Powerplant) fortheyears2002-2006,andhasextendedtransition of Estonia,whichincludeinvestmentplansNarvaElektrijaamad(Narva The EUhasacceptedtheenvironmental measures takenbytheGovernment of theEuropeanUnion Requirement tocomplywiththeairpollutionlimits network serviceinthearea. administer thenetworkinawaythatensures acontinuousandsatisfactory According totheElectricityMarketAct,anetworkcompanyisobligated Network developmentobligation be agreed uponbefore 2013. for businessclientsby2013.Thedateopeningupthewholemarketwill open uponethird ofitselectricitymarketby2009,andthewhole According totheagreement withtheEuropean Union,Estoniaisobligedto the closedmarketare setbytheEstonianEnergyMarketInspectorate. distribution ofelectricityintheEstonianmarket,prices’upperlimitsfor As theGroup hasamonopolyontheproduction, transmissionand Electricity Prices 33 ContingenciesandCommitments with maturitydateupto27.12.2006). reporting period19contractsinthetotalamountof446thousandeuros euros withthelatestmaturitydateof25.5.2008(atendprevious warranty contractswithHansapankinthetotalamountof549thousand 2) Asat31.03.2005,theGroup’s subsidiaryASEnergoremont had18active 31.12.2006 Elektrijaamad andtheMinistryofFinance.Theguaranteeisvaliduntil the agreement ofISPA consolidatedfinancingproject betweenASNarva liabilities intheamountof1,137thousandeuros, whichmayarisefrom 2) On29.1.2003EestiEnergiaASgaveaguaranteeinrespect ofpossible the launchoftwopowerblocks. the agreement, theamountof22,006thousandeuros, whichiskeptuntil As at31.03.2005,ASNarvaElektrijaamadhadnotyetpaid,according to AS NarvaElektrijaamadinthetotalamountofabout256millioneuros. The abovecontractwassignedfortherenovation oftwopowerblocksat from thecontractbetweenlatterandFosterWheelerEnergiaOY. respect oftheliabilitiesGroup’s subsidiaryNarvaElektrijaamad arising 1) EestiEnergiaAShasissuedaguaranteetoFosterWheelerOYin As at31.3.2005,thefollowingwarrantieswere valid: Group’s financialindicators.Thoselimitshavenotbeenexceeded. The loanagreements concludedbytheGroup setcertainlimitsonthe 32 PledgedAssets,CollateralsandGuarantees 82 Annual Report2004/05EestiEnergia environmental regulations by16.7.2009atthelatest. oil shaleashesprocessing andstoragemustbeincompliancewiththeEU According totheaccessionagreement betweentheEUandEstonia, pollution limitsuntil2016. period forbringingtheoilshalefired power plants intocompliancewithair 2005-2007. Group received 46,730,352tonsofgreenhouse gasesquotasfortheperiod According decree tothegovernment No.14of27.1.2005EestiEnergia 152 milliontons(Asat31.3.2004:174tons). 355 milliontons(Asat31.3.2004:375tons),surfacequarries- reserves (Asat31.3.2004:549milliontons),incl.underground mines- As at31.3.2005,EestiPõlevkivihad507milliontonsofactiveoilshale 34 Off-BalanceSheetAssets 51,516 thousandeuros). acquisitions intheamountof54,656thousandeuros (Asat31.3.2004: As at31.3.2005,theGroup hadliabilitiesfrom future fixedassets Construction agreements in theElectricityMarketAct. purchase allelectricitygeneratedfrom renewable sources atthepricestated In accordance withtheElectricityMarketAct,maingridisobligedto Renewable EnergyPurchaseObligation entity. Energia’s structuralunitIruElektrijaamwillbespunoff asaseparatelegal On 10.5.2005,atEestiEnergia’s Board meetingitwasdecidedthatEesti guarantees was0. with themaximumof36.9millioneuros. At31.12.2004,thevalueof of loanconditions.Theguaranteeamountdependsonthebalance, case thebanksrequire repayment oftheloansarisingfrom non-fulfilment and SEBEestiÜhispanktoguaranteetheliabilitiesat39.9%amount,in agreements betweenASNordic EnergyLinkandNordic InvestmentBank On thesamedate,EestiEnergiaisseudaguaranteeinrespect ofloan capital, EestiEnergiaowns39.9%inASNordic EnergyLink. of theshareholders 13.2millioneuros. Aftertheenlargementofshare Eesti Energiapaidthecomplementarysumof8.6millioneuros andtherest On 29.4.2004,ASNordic EnergyLinkincreased itsshare capital,whereby 35 SubsequentEvents Annual Report 2004/05 Eesti Energia 83

Profit Distribution Proposal

Net profit of Eesti Energia AS for the financial year 2004/05 is 666,453,223 kroons (42,594,124 euros).

According to §10 section 1 of State’s Participation In Private Entities Act the Government shall confirm, at the proposition of the Minister of Finance, the sum paid out as dividends by state owned legal entities. According to Government regulation number 161 of 21.3.2005, Eesti Energia shall pay 97,000,000 kroons (6,199,430 euros) dividends in 2005.

Taking into account the continuous need for capital investments financing the Management Board recommends to the General Meeting of Shareholders to allocate the remaining net profit as follows:

1) 33,322,661 kroons (2,129,706 euros) to be transferred to statutory reserve; 2) 536,130,562 kroons (34,264,988 euros) to be transferred to retained earnings.

Signatures of the Management Board and Supervisory Board to the Annual Report

The Annual Report of Eesti Energia AS and the Group for the financial year ended on March 31, 2005, consists of the management report, financial statements, the auditor’s report and the profit distribution proposal. The Management Board of the Company has prepared the management report, financial statements and profit distribution proposal. The Supervisory Board of the Company has reviewed the annual report and approved it for submission to the annual general meeting.

Management Board 31.05.2005

Chairman of the Management Board Members of the Management Board

Gunnar Okk Sandor Liive Lembit Vali Mati Jostov Marko Allikson

Supervisory Board 08.06.2005

Chairman of the Supervisory Board Members of the Supervisory Board

Urmas Sõõrumaa Meelis Atonen Värner Lootsmann Toomas Luman Janno Reiljan

Mihhail Stalnuhhin Tiit Tammsaar Heido Vitsur 84 Annual Report 2004/05 Eesti Energia