Annual Report 2004

INVESTMENTS FOR THE FUTURE ANNUAL REPORT 2004

CONTENTS

Financial calendar 2005 INVESTMENTS 2—4 Foreword by the Chief Executive Officer 18 February Year-end Report VATTENFALL 5—7 The year in brief End of March Annual Report 26 April Three-month Report 26 April Annual General Meeting FOR THE FUTURE Vattenfall’s strategies 28 July Six-month Report 10—11 The challenges of 2004 27 October Nine-month Report

ANNUAL REPORT 2004 12—13 Long-term challenges Investor Relations Vattenfall’s world Klaus Aurich, [email protected] 16—18 The European energy market Monica Edblad, [email protected] 20—23 The competition Susanna Hjertonsson, [email protected] Telephone +46 8 739 50 00 25—29 Pricing 30—32 Trust and responsibility 33—35 Renewable energy sources Other publications September Corporate Social Responsibility Report December Electricity Market Report Vattenfall’s markets All reports can be ordered from 38—40 Nordic countries Vattenfall AB, SE-162 87 Stockholm, Sweden 42—44 Germany Telephone +46 8 739 50 00, e-mail [email protected] 46—47 Poland See also www.vattenfall.com 48 Facts about Vattenfall’s markets 49 Vattenfall Trading Services

Vattenfall’s organisation 52—55 Employees and competence 55—61 Corporate governance 62—63 The Board of Directors and management

Financial information 64—65 Administration report 66—72 Consolidated accounts 73—77 Risk management 78—97 Notes to the consolidated accounts 98—104 Parent company’s accounts including notes 105 Proposed distribution of profits 105 Audit report 106 Key figures 107 Seven-year review Vattenfall AB (publ) SE-162 87 Stockholm, Sweden 108 Glossary Telephone +46 8 739 50 00 109 Energy terms Corp. id. no. 556036-2138 www.vattenfall.com INVESTMENTS FOR THE FUTURE ANNUAL REPORT 2004

CONTENTS

Vattenfall’s organisation 52—55 Employees and competence 55—61 Corporate governance 62—63 The Board of Directors and management

Financial information 64—65 Administration report 66—72 Consolidated accounts 73—77 Risk management 78—97 Notes to the consolidated accounts 98—104 Parent company’s accounts including notes 105 Proposed distribution of profits 105 Audit report 106 Key figures 107 Seven-year review Vattenfall AB (publ) SE-162 87 Stockholm, Sweden 108 Glossary Telephone +46 8 739 50 0 0 109 Energy terms Corp. id. no. 556036-2138 www.vattenfall.com ABOUT ENERGY

Energy terms Units of power Power is energy per unit of time THIS IS VATTENFALL Power is expressed in Watts (W) 1 kW (kilowatt) = 1,000 W 1 MW (megawatt) = 1,000 kW 1 GW (gigawatt) = 1,000,000 kW Vattenfall is Europe’s fifth largest generator of electricity and the largest generator of Sales and operating profit Returns Total electricity generation1 Net sales, EBIT, Units of energy heat. The Group’s sales amount to SEK 113,366 million. Vattenfall’s vision is to be a SEK million SEK million % TWh Energy is power multiplied by time 125,000 20,000 25 75 1 kWh (kilowatt—hour) = 1 kW expended over an hour leading European energy company. The Group currently has operations in Sweden, 1 MWh (megawatt—hour) = 1,000 kWh 46% 100,000 16,000 20 60 43% 1 GWh (gigawatt—hour) = 1,000,000 kWh Finland, Germany and Poland. Vattenfall acts in all parts of the electricity value chain 1 TWh (terawatt—hour) = 1,000,000,000 kWh 37%

— generation, transmission, distribution and sales. Vattenfall is also active in electricity 75,000 12,000 15 45 36% Voltage 1 kV (kilovolt) = 1,000 volt (V) trading and generates, distributes and sells heat. The Group has about 33,000 employ- 50,000 8,000 10 30 ees and the parent company, Vattenfall AB, is wholly owned by the Swedish State. 20%

18% Energy units in practice 25,000 4,000 5 15 1 kWh is enough to run a standard Swedish car heater for about an Operations in the electricity is sold at market price, hour or an 11 W low energy light bulb for almost four days. Vattenfall’s generation per market, TWh 2004 0 0 0 0 Nordic countries either to Vattenfall’s sales units or 2000 2001 2 200300220042003002 2004 2000 2001 2002 2003 2004 2003 2004 1 MWh is enough to heat a small house for a couple of weeks and is Generation. Generates roughly marketplaces such as EEX through Vattenfall Trading Services. generated in about 20 minutes by Vattenfall’s largest wind power 20 per cent of the electricity con- ■ Net sales ■ Return on equity ■ Fossil fuel-based power park in windy conditions. sumed in the Nordic countries. Transmission. Owns and operates ■ EBIT ■ Return on net assets ■ Nuclear power ■ Most generation takes place in the transmission grids in eastern Hydro power 1 GWh is enough to meet the energy needs of an average Swedish 1) These volumes include windpower, 88 eight nuclear reactors and in Germany and Hamburg. town with a population of 100,000 for eight hours and can be gener- biofuel and waste totalling 0,2 TWh approximately 100 hydro power Distribution. Distributes electrici- for 2003 and 0,6 TWh for 2004. ated in one hour by the Harsprånget hydro plant or in 20 minutes by stations. Generated electricity is ty to 3.4 million customers, prima- the Forsmark nuclear power plant. sold at market price, either to rily in Berlin and Hamburg. Vattenfall’s sales units or market- 1 TWh is enough to run two large news print machines for a year. It’s Sales. Sells electricity and energy- Key figures places such as Nord Pool through also enough to power all of Sweden’s railways, underground railways related services to domestic cus- Vattenfall Trading Services. 1 and trams for five months. Ringhals nuclear power plant can generate tomers, resellers, the industrial 2004 2003 2004 this power in twelve days. 8 Distribution. Distributes electrici- sector and other companies. Net sales, MSEK 113,366 111,935 12,586 MEUR ty to 1.3 million customers in Swe- Heat. Produces and sells heat. Operating profit (EBIT), MSEK 19,607 15,296 2,177 MEUR Nordic countries den and Finland. Operates district heating systems, Profit before tax and minority interests, MSEK 17,359 12,360 1,927 MEUR 76 Sales. Sells electricity and energy- two of the largest systems in West- Net profit, MSEK 11,776 9,123 1,307 MEUR related services to domestic cus- ern Europe, in Berlin and Ham- Earnings per share, SEK 89.42 69.27 10 EUR tomers, energy companies, the burg. Return on equity, % 22.4 20.2 industrial sector and other compa- Return on net assets excl. items affecting comparability, % 15.2 12.1 nies. Total assets, MSEK 256,915 264,965 28,524 MEUR 11 Operations in Poland Heat. Owns and operates heating Equity/assets ratio, % 27.8 23.4 16 3 Distribution and Sales. Vattenfall installations in the Nordic coun- Funds from operations (FFO), MSEK 24,159 18,804 2,682 MEUR owns 75 per cent of Poland’s Poland tries and in the Baltic States and is Investments, MSEK 12,601 11,356 1,399 MEUR largest privately-owned network Germany responsible for sales of district Electricity generation, TWh2 167.1 155.8 company, GZE, which has 1.1 mil- heating and so-called thermal Heat production, TWh 34.5 35.6 lion customers, primarily in the heat. Average employees in the Group 33,017 35,296 southern part of the country. Services. Conducts consulting, 1) Exchange rate 9.007 SEK/EUR. Hydro power Nuclear power Heat. Vattenfall owns 75 per cent contracting and R&D activities 2) Of electricity generation, Vattenfall has 70 TWh (61) of its disposal, and the remainder goes to minority owners. of EW, a company that also gener- Fossil fuel-based power Heat generation within the energy, infrastructure ates electricity. The company has External net sales per market, MSEK EBIT per market, MSEK Net assets per market, MSEK and industrial sectors. 2004 2003 2004 2003 2004 2003 about 27 per cent of the Polish heat market. Nordic Countries 39,899 41,520 Nordic Countries 11,543 8,535 Nordic Countries 57,415 56,367 Operations in Germany Germany 66,046 62,570 Germany 7,487 6,318 Germany 58,350 62,171 Mining & Generation. Generates VATTENFALL ANNUAL REPORT 2004 Joint Group operations Poland 7,421 7,845 Poland 589 443 Poland 7,187 6,270 roughly 17 per cent of the electrici- Vattenfall Trading Services, Total 113,366 111,935 Total 19,6073 15,296 Total 122,952 124,808 ty consumed in Germany. Most gen- Vattenfall Treasury and Vattenfall eration takes place in modern, Insurance are central support Nordic Countries 39,899 (35%) Nordic Countries 11,543 (59%) Nordic Countries 57,415 (47%) large-scale lignite-fired plants and, functions to manage the Group’s to a certain extent, in jointly-owned Germany 66,046 (58%) Germany 7,487 (38%) Germany 58,350 (47%) risks and offer market access. nuclear power plants. Generated Production: Vattenfall AB and Intellecta Communication AB. Photos: Bruno Ehrs, Getty Images, Poland 7,421 (7%) Poland 589 (3%) Poland 7,187 (6%) Vattenfall AB (Hans Blomberg and Ralf Grömminger). Printed by: Tryckindustri Information AB. Copyright 2005, Vattenfall AB, Stockholm.

3) Incl. eliminations of —12 MSEK.

109 ABOUT ENERGY

— generation, transmission, distribution and sales. Vattenfall is also active in electricity 75,000 12,000 15 45 36% Voltage 1 kV (kilovolt) = 1,000 volt (V) trading and generates, distributes and sells heat. The Group has about 33,000 employ - 50,000 8,000 10 30 ees and the parent company, Vattenfall AB, is wholly owned by the Swedish State. 20%

18% Energy units in practice 25,000 4,000 5 15 1 kWh is enough to run a standard Swedish car heater for about an Operations in the electricity is sold at market price, hour or an 11 W low energy light bulb for almost four days. Vattenfall’s generation per market, TWh 2004 0 0 0 0 Nordic countries either to Vattenfall’s sales units or 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2003 2004 1 MWh is enough to heat a small house for a couple of weeks and is Generation. Generates roughly marketplaces such as EEX through Vattenfall Trading Services. generated in about 20 minutes by Vattenfall’s largest wind power 20 per cent of the electricity con- Net sales Return on equity Fossil fuel-based power park in windy conditions. sumed in the Nordic countries. Transmission. Owns and operates EBIT Return on net assets Nuclear power Most generation takes place in the transmission grids in eastern Hydro power 1 GWh is enough to meet the energy needs of an average Swedish 1) These volumes include windpower, 88 eight nuclear reactors and in Germany and Hamburg. town with a population of 100,000 for eight hours and can be gener- biofuel and waste totalling 0,2 TWh approximately 100 hydro power Distribution. Distributes electrici- for 2003 and 0,6 TWh for 2004. ated in one hour by the Harsprånget hydro plant or in 20 minutes by stations. Generated electricity is ty to 3.4 million customers, prima- the Forsmark nuclear power plant. sold at market price, either to rily in Berlin and Hamburg. Vattenfall’s sales units or market- 1 TWh is enough to run two large news print machines for a year. It’s Sales. Sells electricity and energy- Key figures places such as Nord Pool through also enough to power all of Sweden’s railways, underground railways related services to domestic cus- Vattenfall Trading Services. 1 and trams for five months. Ringhals nuclear power plant can generate tomers, resellers, the industrial 2004 2003 2004 this power in twelve days. 8 Distribution. Distributes electrici- sector and other companies. Net sales, MSEK 113,366 111,935 12,586 MEUR ty to 1.3 million customers in Swe- Heat. Produces and sells heat. Operating profit (EBIT), MSEK 19,607 15,296 2,177 MEUR Nordic countries den and Finland. Operates district heating systems, Profit before tax and minority interests, MSEK 17,359 12,360 1,927 MEUR 76 Sales. Sells electricity and energy- two of the largest systems in West- Net profit, MSEK 11,776 9,123 1,307 MEUR related services to domestic cus- ern Europe, in Berlin and Ham- Earnings per share, SEK 89.42 69.27 10 EUR tomers, energy companies, the burg. Return on equity, % 22.4 20.2 industrial sector and other compa- Return on net assets excl. items affecting comparability, % 15.2 12.1 nies. Total assets, MSEK 256,915 264,965 28,524 MEUR 11 Operations in Poland Heat. Owns and operates heating Equity/assets ratio, % 27.8 23.4 16 3 Distribution and Sales. Vattenfall installations in the Nordic coun- Funds from operations (FFO), MSEK 24,159 18,804 2,682 MEUR owns 75 per cent of Poland’s Poland tries and in the Baltic States and is Investments, MSEK 12,601 11,356 1,399 MEUR largest privately-owned network Germany responsible for sales of district Electricity generation, TWh2 167.1 155.8 company, GZE, which has 1.1 mil- heating and so-called thermal Heat production, TWh 34.5 35.6 lion customers, primarily in the heat. Average employees in the Group 33,017 35,296 southern part of the country. Services. Conducts consulting, 1) Exchange rate 9.007 SEK/EUR. Hydro power Nuclear power Heat. Vattenfall owns 75 per cent contracting and R&D activities 2) Of electricity generation, Vattenfall has 70 TWh (61) of its disposal, and the remainder goes to minority owners. of EW, a company that also gener- Fossil fuel-based power Heat generation within the energy, infrastructure ates electricity. The company has External net sales per market, MSEK EBIT per market, MSEK Net assets per market, MSEK and industrial sectors. 2004 2003 2004 2003 2004 2003 about 27 per cent of the Polish heat market. Nordic Countries 39,899 41,520 Nordic Countries 11,543 8,535 Nordic Countries 57,415 56,367 Operations in Germany Germany 66,046 62,570 Germany 7,487 6,318 Germany 58,350 62,171 Mining & Generation. Generates VATTENFALL ANNUAL REPORT 2004 Joint Group operations Poland 7,421 7,845 Poland 589 443 Poland 7,187 6,270 roughly 17 per cent of the electrici- Vattenfall Trading Services, Total 113,366 111,935 Total 19,6073 15,296 Total 122,952 124,808 ty consumed in Germany. Most gen- Vattenfall Treasury and Vattenfall eration takes place in modern, Insurance are central support Nordic Countries 39,899 (35%) Nordic Countries 11,543 (59%) Nordic Countries 57,415 (47%) large-scale lignite-fired plants and, functions to manage the Group’s to a certain extent, in jointly-owned Germany 66,046 (58%) Germany 7,487 (38%) Germany 58,350 (47%) risks and offer market access. nuclear power plants. Generated Production: Vattenfall AB and Intellecta Communication AB. Photos: Bruno Ehrs, Getty Images, Poland 7,421 (7%) Poland 589 (3%) Poland 7,187 (6%) Vattenfall AB (Hans Blomberg and Ralf Grömminger). Printed by: Tryckindustri Information AB. Copyright 2005, Vattenfall AB, Stockholm.

3) Incl. eliminations of —12 MSEK.

109 In 2004, Vattenfall succeeded in meeting all targets established at Group level for value creation. The Group’s best ever result exemplifies this. Many challenges remain, however. 2004 was also a year of investments. Investments in all our markets and — most of all — in our common future. Investments in order to ensure a safe and reliable power supply, a good environment, improved service to our customers and improved relations with the societies in which Vattenfall operates. We consider them investments towards our vision of becoming a leading European energy company.

Investments have been made in all markets and within different areas. Among other things, Vattenfall has begun consolidating the brand within the Group and investments have been made in increased security of supply in electricity networks, power plant optimisation, customer satisfaction and the carbon dioxide- free power plant. Together, these investments shall ensure the Group’s continued success.

1 TO Vattenfall has in several cases a strong local presence in local presence cases a strong has in several Vattenfall During the 1990s,we think glob- learnt must that we acting in an open energy company viable However,a Major investment programmes are now underway in underway now are programmes Major investment areas with weak local economies,such with weak areas as Norrbotten in Sweden,Lausitz in Germany in Poland.Via and Silesia Act globally — think locally think — globally Act essentially local.ElectricityOur operations are and heating systems supply energy to millions of users.As markets been opened up,solutions and environmental have borders. no longer restrictedimpact are by primaryally and act locally.The three driving forces glob- all gaining an increasingly behind energy supply are al dimension.Here I am referring to environmental impact,in particular the greenhouse effect,to the primary energy supply and to technologicaldevelopment. within which the framework create these three Together local needs and conditions can be balanced out with good solutions. this equation the other to work how know must market to cre- act globally in order must as well.We around way ate the resources,human financing that are capital and necessary and then use these to think locally. additional resources in the future.We have taken advan- taken have in the future.We additional resources opportunitiestage of the new that the reformed Euro- a posi- established pean electricity offers and have market conditions. good future that will provide spiral tive both electricity generation and electricity distribution customer efforts being made to improve are and extensive service.The financial position has improved company’s cash to use the strong has been possible considerably.It debt.The to repay flow is near consolidation programme further steps take can now completion and Vattenfall ener- becoming a leading European the vision of towards growth. profitable through value that creates gy company ‘Number one’for shall be means that we be leading To the customer and for the environment,that will growth solutions. attractive our ability to offer increase FUTURE READY READY THE FOR

Through growth we create resources that can be used resources create we growth Through Net profit after tax increased by 29.1 per cent to by after tax increased Net profit Operating profit increased by 28.2 per cent to by increased Operating profit Net sales increased by 1.3 per cent to 1.3 by Net sales increased SEK 11,776 million SEK 19,607 million SEK 113,366 million for future-oriented investments,which in turn can create Growth creates resources creates Growth that Vattenfall’s accounts show annual set of The strong in the in unison with development strategy to grow is the correct path to follow.This market European use of effective more to make Vattenfall enables growth be borne costs to a greater vol- and allows by resources base knowledge a broader ume.This also provides growth efficient solutions,morefor more and processes efficient customer offerings. improved Lower electricity pricesLower led to only a marginal in increase sales in 2004.The in operating profit increase substantial electricity increased substantially is explained in part by hedging advantageous in part and by generation volumes outcomes.Electricity countries in the Nordic generation in generation exceptionally well,withwent levels record plants and greatly power in our nuclear and availability generation.The power cost-cutting pro- hydro increased gramme in German operations,the which is to aim of success- savings,has annual considerable proved provide ful.When completed at the end of was the programme 2004,the exceeded and the goal had been established amount to EUR 519 million (almost savings annual to SEK 4.7 billion).Operations continued have in Poland operations streamlined positively.Highly very develop led to a considerable have and substantial cost-reductions in profit. improvement • • • Strong set of annual accounts annual of set Strong for Vattenfall.Financial year record a new 2004 was segments in all Vattenfall performance improved With continued profitable growth, Vattenfall can create the necessary resources for resources necessary the create can Vattenfall growth, profitable continued With security improved and generation electricity both within investments future-oriented service. customer improve to made being also are investments Major supply. of INVEST INVEST VATTENFALL VATTENFALL Foreword by the Chief Executive Officer Executive Chief the by Foreword

VATTENFALL ANNUAL REPORT 2004 2 Foreword by the Chief Executive Officer

Vattenfall,conditions are created in these areas that enable them to compete in a European market.We think locally and act globally.

The greenhouse effect The most overshadowing environmental problem of our time is the ongoing climate change.The climate problem is by its the very nature global and long-term.If we do not take control of our emissions,we will be forced to make drastic changes to the conditions under which we – and more so our children and grandchildren – live.Economics, energy and the environment are intertwined and,in my opinion,it would be irresponsible not to take this problem most seriously.Ending the use of fossil fuels,however,is not a viable solution – neither globally nor on a European level.We must solve the problem with emissions from the combustion of fossil fuels both technically and economically.The emission-free coal-fired power plant must become a reality! The world is completely dependent on this form of energy and this will continue to be the case for a very long time.Fossil fuels are a prerequisite for growth in developing countries.Investments in research and development must be focused and greatly increased in order to develop new technologies and techniques.The climate issue will most likely bring to the table reassessment and further development of nuclear power.Gradually,the transport sector will make the transition to carbon dioxide- free engines,probably via hybrid vehicles to fuel cells using different energy sources.To create a global price for emissions is a prerequisite if we are to see positive development. tant societal functions are dependent on the constant Trading in emissions is an important step,but this alone is availability of electricity.Vulnerability has increased con- not enough to solve the problem. siderably faster than the reliability of electricity networks. Vattenfall works intensively with climate issues and At the beginning of January 2005,parts of Sweden were our growth allows us to participate and influence devel- hit by a terrible storm.Even if this was the worst storm for opment in Europe.We are pushing for the creation of 100 years,the consequences we witness when electricity sustainable pricing for carbon dioxide emissions.We are networks are put out of operation are unacceptable.If we working with development.We are working with renew- combine all the effects,the total costs are absurd.We must able energy.We are working to create the necessary con- reconsider and make our networks significantly more

ditions for our customers to use our products in an effec- robust. VATTENFALL ANNUAL REPORT 2004 tive manner.One prerequisite for our success is that we The storms of recent winters have had much impact have the resources and can continue to work along the on how we at Vattenfall reason and act.We have initiated positive spiral that we have established. an extensive investment programme to rectify the problems and we have made a good deal of progress.At the Electricity networks same time,we have introduced a disruption guarantee to Society has developed at a fast pace,and today all impor- compensate our customers.We are doing what we can

3 By taking advantage of the possibilities that an of the possibilities By taking advantage A company with plentiful resources (considerably more (considerably resources with plentiful A company energy. to renewable regards with A leader in Sweden An international company. than when incorporated to compete in in 1992) able arena. the European expertise on electricity centered has broad Vattenfall and heat. increasingly open European electricity offers,Vat- open European market increasingly set of annual strong a very tenfall to present is able strength;strengthaccounts for 2004.Growth provides for the future. use in lasting investments that we President and Chief Executive Officer Executive Chief and President Vattenfall plays an important role in opening up for com- in opening an important role plays Vattenfall petition and efficiency.Experience has in Sweden gained streamlining, a solid foundation for considerable provided attained in the good profitability in the which is reflected to knowledge German market.By applying Vattenfall’s in neighbouringopen markets countries,technical and has contributed old to breaking know-how market efficient electricitymonopolies and to a more supply in the intentions of the – completely in line with Europe innovative internal represents market.Vattenfall EU’s energy sector. thinking in the European Josefsson G Lars Vattenfall is willing and willing is Vattenfall future the for invest to able in tandem with and development growth Vattenfall’s results.Today is beginning to show development market is: Vattenfall • • • tion.Open stringent place markets demands on both the upgrading of knowledge. of systems and the updating In Sweden,Finland and Germany,the authorities The considerable expansion of wind power in Ger- expansion of wind power The considerable have introduced – or plan to introduce – new models for – new – or plan to introduce introduced have tariffs.New network regulating and collabo- approaches the vulner- to reduce are efforts necessary are we if rative ability of our electricity networks.This places major demands on combining the local and global perspectives fashion.Itin a sensible also places stringent demands on to mobilise sufficient resources. being able many has led to the need for extensive development in development for extensive has led to the need many the German electricity has decided networks.Vattenfall by network to expand the capacity of its high-voltage EUR of approximately 3,000 MW with an investment billion). SEK 2.3 260 million (approximately Vattenfall was the first Swedish electricity the first to Swedish company was Vattenfall household customers in arrears for invoicing discontinue have ago.We electricity than one year consumed more meters in in remote-readable to invest also continued forcibly forward moving are and Finland.We Sweden 1.3 million so that all of Vattenfall’s with this work remote with customers provided are network Nordic reading.Incharges can be abolished and this way,advance of actual electricity consump- with invoicing replaced Customised solutions Customised within the current framework,but looking at existing this will not be sufficient.We requirements and future upgraded are throughout that the networks ensure must of functionality based on a user per- with a higher level made good progress.At have spective.And too we here a fur- the beginning of 2004,Vattenfall to invest decided in reliability operational ther SEK 2 billion in improving networks,bringingits Swedish to the total investment period.Moreover,com- a five-year SEK 10 billion over households losing to Swedish increased pensation was all of almost disruptions.We invest due to network power operating profit,that is,profitDistribution Sweden’s and tax,in financial expenses before net- our Swedish operations. work Foreword by the Chief Executive Officer Executive Chief the by Foreword

VATTENFALL ANNUAL REPORT 2004 4 VATTENFALL ANNUAL REPORT 2004 5 t i- ing 2004 ement. ement The v w has . v y o vings and o than b ear icity gener- 2003 e million y erly million billion t oland contr b ement in oper- ed Cost sa v o quar mor as , 2002 ed ofit is explained in ing the y olumes and in par antageous hedg e 55.4 y substantially y 0 The Year in Brief in Year The ofit in P as eased electr debt b t b t e 19,607 11,776 ly dur uted to this impr y adv 80,000 60,000 40,000 20,000 incr 100,000 MSEK a significant impr in pr b Ne The impr ating pr par incr ation v b outcomes. ed SEK it f 0 incr o % 90 60 30 SEK t SEK o 150 120 y debt. it o o f educ pr t t erly 2004 r epa 2004 t o t % , iod of consolidation and cash flo t pr as ne quar ent ent Ne , billion , 2003 c w educed considerab c it 2003 f atio o s r as r s y pr as in a per per per ating 2002 11.5 2002 debt equit debt edne VATTENFALL / debt 0 ating t al 0 t t o oup w Ne T Debt 8,000 6,000 4,000 2,000 80,000 60,000 40,000 20,000 10,000 MSEK Indebt Oper MSEK Ne SEK (66.9) Oper 28.2 (15,296). 29.1 (9,123) Net debt w Gr mainly been used to r 100,000 FOR ease s ices led y 2004 b s tment s e inal incr 2003 v ed in icity pr tment s (69.27) e s e v as o 2002 in t e enanc tment wth er electr 0 s o ed e w Maint Gr v incr 89.42 50,000 40,000 30,000 20,000 10,000 In MSEK to only a marg in sales in 2004. Lo (11,606) e RESULT RESULT SEK amount 2004 shar 2004 e o erly t million w t ating enanc per flo 2003 quar 2003 , oper ent 1 maint c w s . om s s lo fr f le ash s w 2002 2002 c 15,684 flo tment ash per s c 0 0 e v ash ee arnings activitie in C ee r 8,000 6,000 4,000 2,000 r —2,000 50,000 40,000 30,000 20,000 10,000 MSEK 1) F Net sales, quarterly sales, Net MSEK E 29 STRONG STRONG F SEK Sales increased by 1.3 per cent to cent per 1.3 by increased Sales (111,935) million 113,366 SEK e- d e r . mal y , efer alue cr le wner d esult etain y with ement, eation for etained the o under nor equir y If the r S&P all r alue cr . ement is r AAA AA+ AA AA— A+ A A— BBB+ BBB BBB— een the v y equir attenf V usiness unit can look for s ambition is to r ement set b polic shall equal one thir ence betw . all’ vidend which, the b equir In 2004, m di attenf vidual targets for v en to close the gap V esult is less than the r 00 01 02 03 04 le outlook. The differ ement, edit rating in the Single A categor cumstances, ating A1 A2 A3 arget: Aaa ation Aa1 Aa2 Aa3 Baa1 Baa2 Baa3 Rating Moody’s Dividend The intention is to maintain a stab long-ter cir of net income R T a cr Outcome: its ratings in the Single A categor a stab If the r ofitability r e equir . usiness unit and this r ust be tak cr le expansion possibilities. the b es m s The pr usiness unit. y s ecalculated to indi a oup’ alue ofitab arget: ofit- this is le equi- to as the Gap measur exceeds the r pr V T is r each b ated b atio ement, r m pr le equity after equir age er s goal is that the s long-ter n on net assets, v 2004 y n on visib o c etur ofitability r n on consolidated net assets wner’ wner’

Recalculated to the Gr t erage ratio shall be 3.5 to 5. e tax. v s Retur The outcome for 2004 w alent of a yield of about 11 per abilit m pr v e it Retur The o The o r f est co essed as r e o after tax. arget: arget: bility goal is 15 per cent on visib y T inter Outcome: 5.3 (3.4). Int the equi cent befor Outcome: tax for 2004 amounted to 22.4 per cent (20.2). excluding items affecting comparability amounted to 15.2 per cent (12.1). Pr T a t long-ter expr 2003 x, x, a a t t 040200989694 er er 2004 s aft aft nt e y y s c alue s v 2003 alue per er equit equit time v t , 15 ar atio e r y - -quar 2002 visible visible urn, age t e our our on on er r f f

v t o e c 2001 2002

urn urn 2001 t g t t 0 s r e e e a olling olling r T R r R r e 0 2 4 6 8 0 6 3,000 6,000 Targets and outcomes and Targets 10 —9 000 —9 12 18 24 30 ‘GAP’, MSEK ‘GAP’, Räntetäckningsgrad Räntetäckningsgrad Int Returns, % Returns, The Year in Brief in Year The —6,000 —3,000

VATTENFALL ANNUAL REPORT 2004 6 VATTENFALL ANNUAL REPORT 2004 7 The Year in Brief in Year The Elektroenergetyczny (GZE) was Elektroenergetyczny ad ł ski Zak ą l ś rno ó Storm caused major network disruptions network major caused Storm At the beginning of 2005,Sweden a widespread hit by was storm with hurricane-force winds.The damage to forests costs for elec- enormous.Vattenfall’s and infrastructure was tricity repairs,disruption network guarantees and additional SEK 500 million. estimated at approximately are work The considerable development of wind power in Germany of wind power development The considerable expansion in the German has led to the need for extensive electricity to expand capac- has decided networks.Vattenfall 3,000 MW with an invest- by network ity in its high-voltage billion). EUR 260 million (SEK 2.3 ment of approximately regulation network for models New In Sweden,Finland intro- and Germany,the authorities have models for regulating – new duced – or plan to introduce tariffs.network GZE Polish in holding Increased distribution sales and Ownership company Polish in the G customer the for Simplicity electricity the first to dis- Swedish company was Vattenfall household customers in arrears for invoicing continue ago.Vattenfall electricity than one year consumed more meters in Swe- in remote-readable to invest has continued net- 1.3 million Nordic den and Finland.All of Vattenfall’s such meters installed.By customers will have work the end of 2004,105,000 such meters had been installed. Elsam Danish for bid announced Vattenfall in announced its interest At the end of the year,Vattenfall Elsam. company acquiring the Danish power Investments in new German new in Investments assessed plants power In Germany,additional electricity generation capacity 2020. by in the amount of 40,000 MW will be required plant in- power examining possible is therefore Vattenfall find a com- we vestments.Among projects concrete more a lignite- and plant (CHP) in Hamburg bined heat and power eastern plant in providing Germany,together power fired 1,410 MW. grid transmission German the Strengthening increased from 54 per cent to 75 per cent. from increased sebäck 2 is to be IMPORTANT EVENTS IMPORTANT Major investment in wind power wind in investment Major plant,Olsvenne 2,was largest wind power com- Sweden’s operation in June.Vattenfall’s missioned for commercial technol- generation of wind power the new plant represents in an off- SEK 1.5 billion also plans to invest ogy.Vattenfall park in Öresund,off wind power the coast of Skåne in shore the south of Sweden,which is expected to become opera- wind tional in 2007.This Swedish will increase investment 40 per cent. generation by power At the beginning of 2004,Vattenfall decided to invest a fur- At the beginning of 2004,Vattenfall decided to invest electricity to its Swedish ther SEK 2 billion in improvements a networks.In total,SEK over 10 billion is to be invested period.Compensationfive-year disruptions was for network power suffered households that have for Swedish increased loss.Further,Vattenfall SEK 6 billion to has decided to invest power nuclear newest output of the five the power increase a total of 750 MW and SEK 0.5 billion to reactors by plants. power generation in hydro increase Nuclear power generation record generation power Nuclear plants was power nuclear Swedish in Vattenfall’s Availability generation power in 2004 and nuclear level at record with 2003. cent compared almost 12 per by increased networks, electricity in invests Vattenfall power hydro and power nuclear In October,the Swedish government decided to suspend In October,the government Swedish operators power nuclear negotiations with the Swedish and in Sweden power the phasing out of nuclear regarding to close the Barsebäck reactor.In 2 nuclear December,the announced that government Swedish Bar 2005. 31 May closed by Barsebäck 2 to close to 2 Barsebäck Business Group Nordic established Nordic Group Business gathered countries units in the Nordic The business were organised Nordic.The is now under Business Group Group Business Groups;oneinto two countries for the Nordic a separate and one for Continental Europe.Poland remains unit. business INVESTMENTS IN SECURITY OF SUPPLY

VATTENFALL ANNUAL REPORT 2004 “WE ARE WORKING TO PROTECT THE NETWORKS FROM BAD WEATHER"

8 Vattenfall initiated an extensive investment programme to rectify Within five years, Vattenfall expects — in principle — to be rid of prob- the problems after the much publicised power disruptions in Sweden lems wherein major disruptions knock out entire areas. Until that a couple of years ago. Those working within the programme include time, as contingency organisation has been appointed with the task Per-Olof Olofsson, whose task is to identify and take measures in pri- of ensuring that power failures are kept as short as possible and dis- VATTENFALL ANNUAL REPORT 2004 oritised areas. In practice, this means areas where power lines run ruption guarantees will be offered to customers. through forests, which involves about 60 per cent of the lines, and However, it is not only an issue of reducing disruptions. In the lines that are very exposed to wind and slush. long-term, it also has to be easier and more economical to maintain “In the most exposed areas we run the power lines underground. the network. Where the use of underground lines is difficult, we insulate them with “In the long run, we will also reduce maintenance requirements electricity posts. In those places where the power lines are in rela- for power lines and pylons and, of course, reduce troubleshooting tively bad condition, we replace them with insulated lines, which can costs,” says Per-Olof Olofsson. cope with falling trees.”

Our objective is that Vattenfall shall become the benchmark company benchmark the become shall Vattenfall that is objective Our Parallel to this, we will continue our work to strengthen the Group’s Group’s the strengthen to work our continue will we this, to Parallel We shall continue our current profitable growth. Growth shall mainly shall Growth growth. profitable current our continue shall We At the end of 2004, Vattenfall had achieved all previously established previously all achieved had Vattenfall 2004, of end the At environment and to be an attractive employer. attractive an be to and environment also continue the work to become ‘Number one’ for the customer and the and customer the for one’ ‘Number become to work the continue also success. of measure a as and example good a as sees industry our that Group projects are already underway for this express purpose. We shall We purpose. express this for underway already are projects Group synergies across national borders and establishing ‘One Vattenfall’. Joint Vattenfall’. ‘One establishing and borders national across synergies the next step in the integration work with the acquired units — realising — units acquired the with work integration the in step next the competitive edge. During 2005 and thereafter, Vattenfall will continue to continue will Vattenfall thereafter, and 2005 During edge. competitive own generation capacity. generation own take place through acquisitions, but also through the expansion of our of expansion the through also but acquisitions, through place take sive consolidation work has been conducted with the acquired operations. acquired the with conducted been has work consolidation sive company. energy European leading a become to vision the towards phase lowed up through the Close the Gap programme. In Germany, comprehen- Germany, In programme. Gap the Close the through up lowed next the for ready therefore is Vattenfall work. consolidation for targets Group consolidation. Profitability in the Group and business units has been fol- been has units business and Group the in Profitability consolidation. ago, recent years have been characterised by financial and operational operational and financial by characterised been have years recent ago, After the extensive acquisitions that Vattenfall initiated about five years five about initiated Vattenfall that acquisitions extensive the After REALISING OUR VISION OUR REALISING WELL ON THE WAY TO TO WAY THE ON WELL Vattenfall’s strategies: The challenge of 2004 strategies: of challenge The Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 10 VATTENFALL ANNUAL REPORT 2004 11 Active role to improve the environment the improve to role Active the public,politiciansDemands from and customers greater in society are development sustainable regarding increase the EU formal from than ever.Even requirements the demands on energy generation,through,for example, planstrading in emission allowances.Vattenfall to invest electricity generation by of renewable within the areas park in Öresund, wind power a large off-shore building off the coast of Skåne in the south of Sweden.Vattenfall out- the power sums in increasing considerable also invests plants,gener- power – and hydro put of existing nuclear ation that causes almost no emissions. the for one ‘Number continue efforts customer’ Being ’Number one for the customer’is one of the most important challenges for Vattenfall.Since 2002,a pilot and Finland for in Sweden has been underway project service, customer satisfactionincreasing with improved quality and customer care.Among other things,easier to and remote-read- introduced electricityread bills were electricity installed.Anable meters were end to invoicing household customers in arrearsSwedish for electricity of a ago and the introduction than a year consumed more other investments are in Sweden Customer Ombudsman position. the customer’s intended to strengthen Increased investments in security of supply of security in investments Increased the secu- to improve hard During 2004,Vattenfall worked and rity investment of supply.In Sweden,a five-year totalling SEK 10 billion is under- maintenance programme to,among order in other things,runway under- cables and insulate them.Inground has begun to Germany,work to cope in order network the high-voltage strengthen generation. wind power with the input from success.At Vattenfall,risk management is performed on major changes an ongoing basis and among the more of a joint during the creation can mention 2004 we Services,head- trading unit,Vattenfall Trading Group quartered Hamburg. in Vattenfall’s strategies: The challenge of 2004 strategies: of challenge The Vattenfall’s Continued reinforcement of risk management risk of reinforcement Continued has placed new of the energy markets The deregulation demands on energy companies’riskand increased management.The electricity price risk is one of the most central in this market,although the management of other risks,such as political risk,environment risk and operational risk,is continued also important for the company’s Vattenfall’s core business encompasses the entire value encompasses the entire business core Vattenfall’s generation to sale.Operationschain from that do not within electricity activities belong to core and heating,or require- the profitability not expected to achieve that are time,mayments within a reasonable be divested.In 2004, in A-train,as sold all shareholdings as the well Vattenfall Chi- Mosenergo and the in the Russian company shares Generation. Hebei Hanfeng Power nese company Focus on core activities core on Focus Integration of acquired operations acquired of Integration in the acquisitions in Germany and Poland Through than tripled2000–2003,Vattenfall more its sales.At the time of the acquisitions,profitability units in the acquired re- profitability than Vattenfall’s poorer much very was initiated. was consolidation work and intensive quirement In 2004,the integration in both Germany and process exceed- positively.Germany develop to continued Poland for the year.Profitability in ed its target operating profit target,but operations is still below im- our Polish profit in 2004,much markedly cost due to continued proved reductions. Follow-up of the challenges of 2004 of challenges the of Follow-up closing Gap has conducted a profitability years,Vattenfall three For the Gap’.The called ’Close programme to is gap referred our long-term of a between requirement the difference return return. on net assets of 11 per cent and our attained units the business then split between are The requirements based on the criteria each unit.The to relevant profitabili- in greatly a success and resulted has been ty programme units business cash flow.Most costs and improved reduced their targets in 2004.Asreached a whole,the ful- Group filled the goal of reporting a total return of 15.2 per cent. The next step in development is therefore to fully is therefore The next step in development eco- are expects to realise The synergies that Vattenfall exchange within the knowledge to increase In order So far,work with acquisitions has mainly been Customers, the environment and our employees our and environment the Customers, customer’ the for one ‘Number six million customers. has approximately Today,Vattenfall dependent on their trust.InAll of our operations are the countries,forNordic example,the energy sector entire distrust much from been met by has for some time now utilise the available possibilities in terms cross of both utilise the available know- and the use of collective economies of scale border ledge within the Group.The goal is that each segment as a bench- to serve be able operations shall of Vattenfall’s mark within our industry. nomies of scale,such and IT infra- as within purchasing structure,and base advantages,such knowledge as within risk management and maintenance.Several programmes Ser- Trading in these areas.Vattenfall underway already are risk one example of how management in vices provides generation and sales can be optimised.Within of the area maintenance,a with the ambition is underway programme ongoing pro- efficiency and quality.Other of improving grammes include the centralisation of fuel management,a of functions and the development of administrative review purposes. for comparative figures key joint Group been initiated, have benchmarking projects Group,several such as within electricity and heating operations. networks were trebled.Size,however,iswere only one aspect of being leading.Leading being the benchmark com- also means with which other companies in the measure pany,the industry themselves. compare costs per generated unit by focused on attaining lower incorporating,optimising in the and concentrating units is almost complete.ForGroup.This work Vattenfall’s part,the greater use to make challenge remains major of the substantial synergies found in our operations.

Generation and sales of electricity and being active We expect our expansion to continue in both our expansion to continue expect our We Vattenfall’s vision is to be a leading European energy vision is to be a leading European Vattenfall’s in advantage is an importantcompany.Size competitive to utilise economies of to be able in order our market scale.With the acquisitions in Germany and Poland,a sales this vision when Vattenfall’s towards taken step was Business performance: performance: Business industry the of Benchmark within the entire value chain for heat will continue to be chain for heat will continue value within the entire also consider gas to be an interesting our focus areas.We in is expected to exceed that of the market as growth area contributegeneral and gas will increasingly to electricity generation and heat production.In to gain a good order edge within gas,thecompetitive capacity to purchase is required,solarge volumes large size will be a prerequi- too. site in this area current primary neighbouring and in the markets countries,such as Norway,Denmark,Benelux,France, Switzerland,Austria Republic.Even and the Czech if company, to be an integrated still strives power Vattenfall possibilities to increase stance towards a positive take we has a strong already our generation capacity.Vattenfall position within electricity produc- generation and heat our position and additional expansion could strengthen expect acqui- tion in the wholesale link of the chain.We the majority of growth,butsitions to provide also plan to plants. expand existing production Continuing with profitable growth profitable with Continuing in the share Our long-term our market goal is to increase and Norway (EU 25 market energy integrated European to cut pressure expect continued and Switzerland).We prices within the industry.Through further expansion, intends to meet the demand for price-cutting Vattenfall cost synergies to realise and strengthening continuing by our posi- our position in the market,thereby improving our competitors. tion as regards

Even if 2004 was in many ways a record year for Vattenfall, there is still much to do on the on do to much still is there Vattenfall, for year record a ways many in was 2004 if Even companies acquired with integration and expansion Profitable vision. our towards path employees, our and environment the customers, our with work the will As continue. will benchmark. industry the become to work our in role central a have which of —all 2005 AND BEYOND AND 2005 Vattenfall’s strategies: Long-term challenges Long-term strategies: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 12 VATTENFALL ANNUAL REPORT 2004 13 We continue our work to optimise our plants,to our work continue We An attractive employer attractive An an important have Dedicated and competent employees development.Our ability to attract, in Vattenfall’s role and competence that the employees develop and involve prioritised a highly need is therefore we area.Especially with consideration for the fact Vattenfall that many the next ten years.Vattenfall over will retire employees with both managerial intensively to work will continue and competence development.At present,a of number a project underway,including are projects joint Group a common idea of leadership. intended to create This,however,is not sufficient.Within the EU,far- measures,basedreaching protocol,have on the Kyoto emissions carbon dioxide long been planned to reduce and at the beginning of 2005,trading in emission began. allowances increase the use of energy sources with low or no emis- with low sources the use of energy increase of the sions and to be a driving in the development force plant to strengthen power coal-fired carbon dioxide-free issues,inour position on environmental line with our ‘Number one for the environment’. ambition to become Vattenfall’s strategies: Long-term challenges Long-term strategies: Vattenfall’s ‘Number one for the environment’ the for one ‘Number of our time,the problem The most serious environmental ongoing climate change,is is a global problem.Vattenfall and our ambition the environment to improve working is to become the industry leader within environmental our operations.Our by covered issues within the areas generation plants in Germany among the coal-fired are most modern and provide,with the exception world’s of carbon dioxide,limited emissions to the atmosphere. Almost half of our total electricity generation comes from energy sources,suchrenewable as hydro,or nuclear emis- low very power,generation which generally have practically no greenhouse gases. sions and release consumers.If our business, to develop to be able are we our customers. and solid trust from gain broad must we to will continue this end,over we the coming years To in becoming ’Number one for the Customer’. invest and experi- knowledge extensive Based on Vattenfall’s markets,withence of deregulated their demands for high to will continue of service and accessibility,we levels to become the first choice for energy aggressively work customers. Be the employer of choice of employer the Be Continued profitable growth profitable Continued Become ‘Number one’ for the for one’ ‘Number Become Business Performance: Performance: Business customer and the environment the and customer Be the benchmark of the industry the of benchmark the Be • • • •

INVESTMENTS IN COSTUMER SATISFACTION COSTUMER IN INVESTMENTS

CONSUMPTION IN REAL-TIME." IN CONSUMPTION ENABLE US TO MEASURE CONSUMER MEASURE TO US ENABLE

“ “THE NEW ELECTRICITY METERS ELECTRICITY NEW “THE

VATTENFALL ANNUAL REPORT 2004 14 As a part of ’Number one for the Customer’ in Finland, Vattenfall has “Customers have contacted us to see if the system is already available. collaborated with TeliaSonera on developing a system for the collection They have also been active and given us many new ideas regarding of consumption data, based on the mobile telephone system. With additional services for the system,” says Aarne Sievi. VATTENFALL ANNUAL REPORT 2004 remote reading of electricity consumption in real-time, we will be able to It is not, on the other hand, only Vattenfall’s customers that will be bill actual consumption instead of estimated consumption as has previ- able to benefit from the system. Vattenfall’s operations will also gain ously been the case. further refined tools. Aarne Sievi has led the project from Vattenfall in Tammerfors, Finland. “We will have more exact information about electricity network per- “Pilot installations of electricity meters have already been made and formance, such as information about transmission losses. This informa- in May 2005 we will begin to install remote readers for all of Vattenfall’s tion will make it easier to develop and maintain the electricity networks 360,000 network customers in Finland,” says Aarne Sievi. than it was before and improve network efficiency,” says Aarne Sievi. Reactions so far have been very positive.

15 Vattenfall’s world: The European energy market

THE EUROPEAN ENERGY MARKET

The European energy market is going through comprehensive restructuring. From having been national monopoly markets, the entire European market will now be open to competition by 2007. Market actors are adapting themselves to this new market. Of Vattenfall’s primary markets — the Nordic countries, Germany and Poland — the Nordic countries and Germany are deregulated while the Polish market is still regulated.

Historically,the energy sector has been strictly regulated, much and more than two thirds of our employees are but for the last 15 years a wave of change has swept over found in Germany and Poland. the world’s energy markets.In Europe,deregulation began in England and Wales.Today,several electricity The price of electricity markets are completely open to competition,see map reflects a functioning market page 17.In accordance with the EU’s electricity market Unlike as in a regulated market,prices in a competitive directive,all countries shall have deregulated their mar- market are determined by supply and demand.Electricity kets to 100 per cent by 2007 at the latest.The advent of producers sell their electricity in a market where actors, market mechanisms has brought greater efficiency and an including consumers,can make active choices to hedge increased customer focus.Deregulation has given con- themselves against price increases and take advantage of sumers the opportunity to freely choose their electricity price decreases.Price variations depend,to a large degree, suppliers and has brought increased ability to customise upon which type of energy dominates in the power system. price and risk profiles.For electricity providers,the In the Nordic countries,hydro power makes up a major requirement of market levels in returns on assets has,in portion of the electricity supply,while coal-based power many cases,led to privatisation and the public listing of dominates in Germany and Poland.In the Nordic coun- companies.The changes have also brought pressure to cut tries,prices are directly affected by the water supply,which prices and costs,lower margins and increased competi- makes the Nordic market very volatile,since the water sup- tion.Market development has stimulated the capital ply depends on the amount of rainfall.However,during intensive energy companies within the energy sector to periods of low water supply,Nordic electricity prices are grow,in particular through mergers and acquisitions also affected by coal-fired power plants and thereby indi- across national borders.Vattenfall has also followed this rectly by price developments in the coal market. development and expanded its operations throughout Europe.Five years ago,Vattenfall had almost all of its Deregulation in generation and sales operations in Sweden.Today,turnover is four times as As a rule,in the old monopoly structure,the entire value chain,consisting of generation,transmission,distribution and sales,belonged to the same company.After deregula- Vattenfall’s market position tion,generation and sales have been opened to competition while transmission and distribution,which are natu- Sweden Finland Germany Poland ral monopolies,will remain strongly regulated even in the

4 4 1

VATTENFALL ANNUAL REPORT 2004 Generation 1 1 37future.This regulation shall,according to the EU,be Electricity trading Top 34 Top 34 Top 3 — administrated by an independent regulator and may be Distribution 2 2 4 62 implemented in accordance with different models. Sales 1 2 3 62 District heating 44 44 113 1) Fourth market position if only privatised companies are included. New role for network operators 2) First market position if only privatised companies are included. in deregulated market 3) Only heat generation. 4) In the Nordic countries. The role of network operators has changed with deregu-

16 Vattenfall’s world: The European energy market

The European electricity market (Consumption1 2004, TWh)

87 121

146 82 Completely deregulated. 62 Partially deregulated. Expected 27 36 to be deregulated 2004—2006. 112 377 No or some deregulation. 107 Expected to be deregulated 2007. 131 89 526 The degree of deregulation is based upon the 7 62 European Commission’s estimation of the 26 portion of the total energy volume (based on 66 64 consumer consumption) for which the market 41 is deregulated. In the diagram, completely 484 522 deregulated is the equivalent of 100 per cent 142 of the volume being available on a deregulat- 41 ed market, partially deregulated is the equiv- 242 362 alent of over 40 per cent, and so on. 333

EU country 54 142 EU candidate country

1) Source: IEA (International Energy Agency). 2) Consumption 2002.

Important events 1989—2007

1989 UK electricity 1995 Finnish electricity 1998 German market 2003 The EU’s new electricity market direc- 2005 Trading in market deregulated market deregulated deregulated tive with regulations concerning, among emission allowances other things, the separation of operations. begun in the EU ’Green certificates’ introduced in Sweden 1991 Norwegian 1996 Swedish market 1999 Danish market 2004 Market open- 2007 Market opening for electricity market deregulated and EU’s first deregulated ing for non-house- household customers deregulated electricity market directive hold customers lation.Network operations are a natural monopoly since it • Enable network access for all users. would not be economically feasible from a societal point • Provide operators a reasonable return on invested capital. of view to introduce market competition by,for example, • Provide network operators the possibility and incentive building parallel sets of power lines.Fees for using the net- to increase efﬁciency and security of supply. works are therefore monitored and regulated by an inde- • Protect the customer from being abused by the monopoly. pendent authority.The principles governing regulation vary between countries.In certain cases,fees and network In Germany,Finland and Sweden,network pricing mod- tariffs are approved directly by the authority in advance, els are currently being developed.In Sweden,a calcula- so-called ex ante regulation.In other cases,the network tion model,the ’Performance Assessment Model’,has operators set the fees and the network authority checks been developed.This model estimates the beneﬁt to the them subsequently,so-called ex post regulation.Models consumer and,in accordance with the model,a reason- can also be cost-based or incentive-based. able cost for the network area in question.This cost is

As a rule,cost-based regulations do not provide then used as the basis by the regulator when evaluating a VATTENFALL ANNUAL REPORT 2004 incentives for the network companies to reduce costs.In company’s network tariffs. In Finland,a new regulatory other models,the network company’s income is regulated model was introduced in January 2005.In Germany,the instead,which motivates companies to reduce costs. government has decided on the main points of the network regulations within the scope of the new energy law Common to all legislation and monitoring models,how- (EnWG). Until now,the parties in the German electrici- ever,is that they must: ty market have themselves voluntarily formed the rules,

17 Despite harmonisation within the EU,the work progress made in deregulation varies greatly made in deregulation between progress countries.Forthat reason,the Commission and European of to push for the deregulation other bodies continue borders.At and integration across energy markets the beginning 2004,the of Commission estab- European the internal market lished guidelines for how energy in the medium-term.Amongshould be developed other things,the trade should be border EU states that cross competition,and to increase in order stimulated thereby economic efficiency,in the energy sector. mar- National shall be integratedkets to form larger regional markets. New EU countries will countries EU New influence great have eventually 2004,anOn 1 May granted additional ten countries were membership the EU.These into thereby countries have their energy markets. agreed to open up and deregulate Their combined electricity 300 consumption totals around TWh,which electrici- means that the combined European 2,900 (EU 25) TWh.Even- totals approximately ty market tually,integration great impact of these countries will have entry into energy market.Poland’s European on the future example,opened to the EU in May,for market the Polish other EU countriesactors the import eliminating from by and export monopolies.New trade border rules for cross countries. trade between will lead to increased The Nordic countries are seen as having the most well countriesThe Nordic seen as having are regional market.Onedeveloped the Euro- which area pean Commission identified as lagging behind consider- is the natural gas mar- it comes to deregulation when ably date,itket.To is difficult to speak in terms of a relatively price market for gas.One is that representative problem access to transport on equal terms varies,which is an gas market. for a transparent important prerequisite ing basis.At an internal the same time that it is creating energy market,the has to deal with increased EU also requirements,inenvironmental part to the in response of global climate changes.Thethreat protocol Kyoto emissions itself to reduce means that the EU has obliged 2008/2012 a total of 8 per cent by of greenhouse gases by with 1990.Ascompared a result,trading in carbon diox- in 2005. introduced was ide emission allowances Vattenfall’s world: The European energy market energy European The world: Vattenfall’s The internal market will continue to develop to continue will market internal The has had a major impact on the Union The European competition in energy increased towards development been that have the so-called directives through markets leg- into national be introduced must passed and thereby islation.Additional on an ongo- legislation is introduced Changes in the European energy offering energy European the in Changes demand in Generation capacity still exceeds consumer Europe.Over time,this excess capacity will disappear,in part and in part as aging because con- facilities retired are all of Europe. throughout sumption is expected to increase the highest growth, Southern is expected to show Europe 2.5 to 3 per cent a year,while Northernat approximately growth. lower to show expected are Europe and Western In Eastern Europe,growth is estimated to be approximately 1.8-2 per cent a year.In Sweden,there is a political at present power,which agreement stating that nuclear half of all electricity generated, approximately provides shall be phased out.In Germany,there is an agreement and the government producers power the nuclear between and,in power the phasing out of nuclear addi- regarding tion,major parts of fossil-based energy generation in 2020.Assuming before needs to be replaced Europe that place,weno changes in these agreements take face a capac- an estimated 350,000 MW will need to be ity gap where 2030. (EU 25) by in Europe replaced The fact that envi- same being tightened at the are requirements ronmental poses a major time as capacity is scheduled to be lowered challenge since,according to predictions,capacity in the less to represent energy sector will continue renewable than 15 per cent during this time period. which has made it difficult to achieve transparency in transparency to achieve which has made it difficult tariffs.Regulationnetwork to start is expected in mid- 2005.A model is to transition to some form of incentive of regulation.In years place within two take Poland, been have market a deregulated important steps towards network of an independent with the establishment taken operator,PSE Operator,which is a subsidiary of the Pol- ish national grid operator PSE.The next step in the Pol- involves,among other things, process ish deregulation regional distribution companies,which separate dis- must the middle of 2007. tribution by sales activities and

VATTENFALL ANNUAL REPORT 2004 18 VATTENFALL ANNUAL REPORT 2004 19 The bus shelters are only part of the brand introduction in Poland, in introduction brand the of part only are shelters bus The Piotr positive,” very been have public the from reactions “The com- a such done has company energy an time first the is “This “We wanted to do something other than the usual print campaign, print usual the than other something do to wanted “We but have been very much appreciated. much very been have but continues. Kedzierski as serves also it many for so Poland, in campaign brand prehensive sector.” energy the to introduction an understanding of what they can expect from Vattenfall. Part of this of Part Vattenfall. from expect can they what of understanding heat- infrared installing Vattenfall entailed brand the to introduction Silesia. in and Warsaw around shelters bus in lights extra and ing socie- to contributes it how and business our showed that something project. the on worked who Kedzierski, Piotr says ty,” BRAND COMMON ONE IN This is not only a question of developing consumer awareness consumer developing of question a only not is This introduction its began brand Vattenfall the example, for Poland, In regarding Vattenfall, but is also very much a question of, for example, for of, question a much very also is but Vattenfall, regarding regard with transparency and platform cultural common a creating be should stakeholders region, of Regardless groups. stakeholder to intro- the addition, In Vattenfall. from expect to what know to able advantages. efficiency considerable provides brand a of duction an given literally been also have consumers There, 2004. during Today’s international Vattenfall has primarily grown through the through grown primarily has Vattenfall international Today’s years. five past the during out carried been have that acquisitions these integrate to then since underway been has work Intensive edification the is work this of part One another. one with operations cohesive common, a of introduction the and Vattenfall’ ’One of brand. INVESTMENTS A FEELING OF ENERGY” OF FEELING A “ “WE WANTED TO PROVIDE PROVIDE TO WANTED “WE Vattenfall’s world: The competition

CONSOLIDATION AND FOCUS ON CORE BUSINESS

For a number of years, the prevalent strategy among the major European energy utilities was growth through the acquisition of companies outside their own domestic markets. But since 2002/2003, large utilities have instead focused on consolidation and integration of acquired companies, divesting non-core operations and reducing debt.

The changes in the major European actors’strategies that • Utilities that have attained strong positions in regional began during 2002 continued during 2004.From having markets,like Enel in Italy,Fortum in the Nordic coun- invested in rapid international growth during a succes- tries,Iberdrola in Spain,Essent and Nuon in Benelux, sion of years,primarily through debt-ﬁnanced acquisi- EDP in Portugal,Scottish Power and Scottish and tions,which resulted in dramatically weakened balance Southern Energy in Great Britain. sheets,these actors have changed focus.Now they focus • Multi-utility companies,such as French Suez and Veo- on the consolidation and integration of acquired compa- lia,with several product areas in addition to electricity nies, cash ﬂow improvement, divestment of non-core and gas,such as water,waste disposal and transport,and business and debt reduction. with operations in several geographical markets.The British gas and electricity supplier Centrica can also be Actors can be roughly divided into the following four considered part of this group. categories: • Other utilities,such as the municipality-owned German • Vertically integrated utilities that have invested in Stadtwerke,specialised utilities such as French gas sup- growth outside their respective domestic markets, plier Gaz de France,British transmission and gas net- like French EDF,German RWE and E.ON,Swedish work company National Grid Transco,Norwegian Vattenfall and Spanish Endesa. hydro power producer Statkraft,and a number of more- or-less local actors,such as German EnBW and EWE, Spanish Union Fenosa,Belgian Electrabel (half owned European actors, electricity generation by Suez) and others. capacity in Europe 2003, GW1 Strong earnings trend during 2004

Statkraft, 11 Fortum, 11 In general,companies have succeeded well with the desired restructuring,helped by rising energy prices and

Vattenfall, 33 effective price hedging strategies that led to increased Scottish Power, 5 proﬁtability.Several companies have also been able to Elsam, 4 improve their debt proﬁle by amortising their debt, British Energy, 12 Nuon, 4 extending the maturity of their debt portfolio,taking E.ON, 54 Essent, 5 advantage of lower interest rates and renegotiating credit Electrabel, 29 EnBw, 15 facilities.During the year,the rating agencies upgraded RWE, 45 CEZ, 12 more energy companies than they downgraded,unlike recent years where the downgrades outnumbered the Verbund, 8

VATTENFALL ANNUAL REPORT 2004 EDF, 123 upgrades.Prudent ﬁnancial strategies have beneﬁted Iberdrola, 20 Enel, 47 bond investors and other lenders.At the same time,however,shareholders’demands for increase in value have led EDP, 11 Endesa, 29 Edison, 6 to several of the major utilities announcing more gener- Union Fenosa, 6 ous dividend distributions and even buying back shares.

1) The circles represent each actor’s total European generation capacity At the same time that large utilities have indeed expressed and have been placed in each actor’s ’home market’. a will to grow more,they have also more or less uniform-

20 VATTENFALL ANNUAL REPORT 2004 21 h — — — — 0 2 7 1 3 2 4 TW v- oland tum om P or ation, 48.9 y The at v F e , the go ily the H Suez ened olume E.ON and V imar Compagnie de Suez de Compagnie Lyonnaise des Eaux des Lyonnaise Merged with Suez eak Tractebel Tractebel Electrabel) (+ . y t — — — — 8 5 France • • Belgium eate a large nation- • s le acquisitions in 17 12 18 4 u Smaller acquisitions it is pr c which has caused tur- Gaz de France ork operations be sepa- ies, y wned gas compan German wth is high. . ith this goal as moti o million tr r In the Netherlands, W ion b ing 2004. Dis g s. ~40 RWE e dic countr ambition is to cr . Elsam. made considerab s Transgas Innogy Water Thames VEW Merged with RWE rated utilities, t — — — 7 3 7 , ing and g y 11 12 1 5 s, akia dur y that can meet the competition fr Czech Republic Czech • Germany • UK • • ted the state-o v cus oposed that netw Finland . nment’ uctur et which is subject to consolidation. r tr national actor e In the Nor million Vattenfall’s world: The competition The world: Vattenfall’s v estr suppor Dis and Slo e y v om the integ 2.2 s attempt to merge itself with the largest Danish WE. icity compan among other been made in this r e Fortum y ha . v nment has pr — — — — — t 0 7 6 ulence as this is expected to lead to a w 2 17 1 4 Birka Energi Birka Gullspång major inter the Dong’ electr er rated fr b tion and r Enel, Hungar ha and R Danish mark Danish go al energy compan cus eden Sweden • • w S . tr million Dis 5.2 As a E.ON h y — — — — els. 9 7 7 v 2 16 11 3 TW Graninge Sydkraft Ruhrgas Veba Powergen Europe TXU Viag Viag Merged and name changed to E.ON 490 Germany Sweden • • • • • UK • • German Gen. olume V h — — 8 4 ealistically high le el. 21 1 11 43 EDF 2,4 v TW Gen. no intention of inﬂating bid e v dic London Electricity London Distribution EPN SEEBOARD 380 also committed to maintaining a e UK • • • Nor y ha v vious unr e olume V um rating le gi aft e ed that the at Ener dkr t all y f S aft S the utilities ha m Vattenfall , en u Those markets which are now next in line for consol- now are which Those markets Those power generators whose production assets are generators whose production Those power W tain minim E t t t r atkr Bewag HEW Laubag VEAG EW GZE ON/ W olish a t ule

idation are located primarilyidation are in Eastern and Rus- Europe sia.In these areas,the energy sector is subject to deregula- less sensitive to rising fuel prices,suchless sensitive power, as nuclear and lignite-based plants,have gained power hydro margins in electricity generation due to the improved pricesfact increased,as that market for electricity have a of dramatic risesresult in oil and coal prices and other factors.Parallel to this,their costs have production own almost unchanged. remained ly declar amounts to the pr r cer E. R Fo S Helsinki EnB P Other Market share, % share, Market V Major structural deals in the European energy market since 1999 since market energy European the in deals structural Major Germany • • • • Poland • •

Acquired actors Acquired Buyers Vattenfall’s world: The competition

ﬁnancial position.But this has also created expectations to partially privatise Europe’s largest electricity utility, regarding consolidation and changes in ownership struc- EDF,and the gas utility Gaz de France.The decision to tures.In Spain,the government has indicated that it looks list EDF during 2005 has been preceded by widespread positively upon consolidation among the Spanish actors. protests from employees,who fear worsened employment and retirement conditions.Intensive discussions between Preparations for new privatisation company management and the French government have During the year,no extensive privatisations took place. taken place regarding the necessary capitalisation and all On the other hand,the French government has decided signs indicate that the government will take over EDF’s

Competition overview (As of 30 September 2004 unless otherwise stated)

Net sales Operating profit (EBIT) Operating margin Operative cash flow

MEUR MEUR % MEUR

Vattenfall Vattenfall Vattenfall Vattenfall E.ON E.ON E.ON E.ON RWE RWE RWE RWE EnBW EnBW EnBW EnBW EDF EDF EDF EDF Enel Enel Enel Enel Fortum Fortum Fortum Fortum Endesa Endesa Endesa Endesa

0 20,000 40,000 0 1,500 3,000 4,500 6,000 7,500 0 5 10 15 20 25 0 6,000 12,000 1,000 30,000 50,000 3,000 9,000 15,000

Vattenfall E.ON RWE EnBW

Country Sweden Germany Germany Germany

Listed Not listed Listed Listed Listed (EDF owns 45%) 100% state-owned

Electricity sales, TWh 203 (2003) 387.6 (2003) 300 (2003) 127 (2003) Number of customers 5.8 million Electricity: 27 million Electricity: 21 million, 4.5 million Gas: 17 million Gas: 11 million, Water: 70 million (population served)

Primary products Electricity, heat Electricity, gas Electricity, gas, water Electricity, gas, water Primary markets The Nordic countries, Central Europe, the UK, the Germany, the UK, the USA, Germany Germany, Poland USA, the Nordic countries, Eastern Europe Eastern Europe

Strategies • Focus on electricity and • Focus on electricity and • Multi-utility • Refocusing on electricity heat in the Nordic coun- gas — take advantage of operations in Germany • Take advantage of syner-

VATTENFALL ANNUAL REPORT 2004 tries, Germany and Poland synergies gies between electricity • Improve profitability and • Realise synergies across • Integration under the and gas restore financial balance national borders and motto “One E.ON” with substantial cost-cut- • Continued consolidation — create “One Vattenfall” ting • Continued expansion reduce costs and improve • Continued value creating — focus on Central — and financial position • Continued divestment of growth in neighbouring Eastern Europe non-core operations areas

22 Vattenfall’s world: The competition

very large pension obligations.In Italy,the government uncertainty regarding the scope of regulation and exces- has reduced its ownership in Enel from 61.3 per cent to sively high pricing.In the Netherlands,privatisation of 42 per cent during the year and in Finnish Fortum,oil national grid operator TenneT and integrated utilities operations will be separated from the group during the like Essent and Nuon is being discussed.In Portugal, spring of 2005.In new EU member state Poland,it is the EDP’s attempt to take over the state-owned Gás de Por- government’s ambition to continue its privatisation of the tugal has been rejected by the EU’s anti-trust authority. energy sector,even if interest from potential foreign investors has been limited,partially due to the current

Interest coverage ratio EBIT/Capital employed Capital employed Debt/equity ratio, net

Times % MEUR %

Vattenfall Vattenfall Vattenfall Vattenfall E.ON E.ON E.ON E.ON RWE RWE RWE RWE EnBW EnBW EnBW EnBW EDF EDF EDF EDF Enel Enel Enel Enel Fortum Fortum Fortum Fortum Endesa Endesa Endesa Endesa

0246 810 0 3 6 9 12 15 0 30 000 60 000 0 50 100 150 200 250 15 000 45 000 75 000

EDF Enel Fortum Endesa

France Italy Finland Spain

Not listed, Listed. 42% state-owned Listed Listed but planned for 2005/2006 59.3% state-owned (Dec. 2004)

519 (2003) 152 (2003) 44.7 (2004) 132 (2004)

42 million Electricity: 30 million, 1.4 million (network customers) 11 million Spain (of which 27 in France) Gas: 1.9 million, 11 million Latin America Telecom: 28.3 million

Electricity Electricity, telecom, gas Electricity, oil, gas, heat Electricity, gas, telecom

France, the UK, Germany Italy, Spain, (Slovakia) The Nordic countries, Spain, Portugal, Latin America, (Italy, Spain, Latin America) the Baltic States Italy, France

• Preparing for privatisation • Regional expansion but focus on • Expansion in the Nordic countries, • Shifted focus from multi-utility to Italy and Eastern Europe and Russia core operations electricity and gas • Widen product portfolio to

(possible telecom divestment) VATTENFALL ANNUAL REPORT 2004 include gas and energy services, • Focus on core operations — energy • Separate oil operations for example (electricity, gas) • Consolidation of assets in Spain and Latin America • Improve profitability • Divest telecom operations (WIND) • Investments in new production • Divest non-core operations capacity (CCGT & renewable energy) Rolling 12-month values as of 30 September 2004 for all except EDF (June 2004). Main source: Barclays Capital. Sources for Products/Primary markets/Strategies: Moody’s, S&P, Vattenfall. Definitions: Capital Employed (Total Capital) = interest-bearing debt + equity incl. minority interests. Operative cash flow = FFO +/— changes in working capital.

23 INVESTMENTS IN TECHNOLOGY FOR REDUCED EMISSIONS “IF WE TAKE CLIMATE ISSUES SERI- OUSLY, WE HAVE TO DO SOMETHING.”

Lars Strömberg works at Vattenfall with the development of the carbon fired power plants with low or no emissions. Carbon dioxide and the dioxide-free power plant. This is part of Vattenfall’s work with manag- other combustion by-products are collected and the carbon dioxide ing the environmental impact its own operations. Another important is liquefied and pumped down into the bedrock. The goal is to have VATTENFALL ANNUAL REPORT 2004 part is Vattenfall’s work with renewable energy sources, see page an initial large-scale demonstration facility ready by 2015, and the 33—35. Of current world energy consumption, a little over 13 per cent construction of a smaller pilot facility will begin in 2005. is derived from renewable sources while more than 80 per cent comes “We don’t need to invent anything new; it’s more a matter of from fossil fuel. The International Energy Agency (IEA), the Interna- developing and adapting,” says Lars Strömberg. tional Energy Agency, predicts that renewable energy sources, such as “Initially, storage will take place in the same geological formations wind power, will continue to represent less than 15 per cent of world where gas and oil have been stored for millions of years. The technol- consumption for another 20 to 30 years. ogy for storing carbon dioxide in this way has already been tried on a For this reason, work is underway on methods for creating coal- large scale and the risk of leakage must be judged as very small.”

24 Vattenfall’s world: Pricing

PRICING IN VATTENFALL’S MARKETS

Electricity prices are still set on a regional level to a large extent. Within Vattenfall’s markets, the Nordic countries have progressed the furthest towards a well functioning market. In Ger- many, development is towards increased transparency and greater liquidity. In Poland, development has only just begun.

The price of electricity is still,to a large extent,dependent sion allowances is expected to be reduced,and a certain upon local generation conditions.In central Europe, portion to be auctioned off to the highest bidder.Trading where fossil-based power is predominant,the price of in emission allowances is then expected to clearly affect electricity is mainly determined by fuel prices,primarily the electricity markets with increased prices,especially in coal and gas,and generation capacity.In the Nordic coun- those countries which have a high proportion of fossil- tries,where hydro power stands for a very large portion of based energy generation.One problem is that different power generation,it is the water supply that has the largest countries apply different principles in connection with impact on price trends.The price of coal is also influen- the allocation of these rights,which may lead to decreased tial.During 2005,trading in emission allowances was efficiency and unfair competition. introduced in Europe,which in the long term is expected to drive the price of electricity up.As the allocation of The price of electricity is emission allowances on a national level for the first trading based on the last generated unit period of 2005–2007 covers – for the most part – the In a well functioning market,it is the marginal cost,in demand,no dramatic price increase is initially expected. other words,the variable cost for the last generated unit, Emission allowances for the first trading period have been which determines the market price.In the Nordic coun- distributed free of charge to power producers.For the sec- tries and in Germany,wide scale trading takes place on ond trading period,2008–2012,the total volume of emis- the NordPool and EEX electricity exchanges,which

Electricity prices and taxes in Sweden Taxes on household electricity (VAT/other fees not included)

Öre/kWh Tax (Eurocent/kWh) */** Deregulation 120 3.0

100 2.4

80 1.8 60

1.2 40

0.6 20 VATTENFALL ANNUAL REPORT 2004 0 0 1980 1985 1990 1995 2000 2005 02010099989796959493929190 03

Network tariffs Electrical energy Tax + green certificate Germany*** Poland**** Sweden Finland Electricity price trend in 1990 monetary values for a small, electri- *) Prices in EUR to facilitate comparison, cally heated house in Sweden before and after deregulation, 1 eurocent = approximately SEK 0.09. expressed in öre/kWh (100 öre = SEK 1). **) During the years 1990—1998, the conversion factor from national currencies to ECU has been used to attain prices in EUR. Source: Svensk Energi. ***) Energy tax on electricity introduced in 1999. ****) Energy tax on electricity introduced in 2002. Source: Swedpower.

25 Vattenfall’s world: Pricing

quote market prices daily.Production facilities are brought the Nordic countries,market prices are used as a refer- online in accordance with a prioritisation system which is ence in connection with sales to end-customers.In Ger- usually called ’merit order dispatch’and which means that many,many contracts are still traded outside the energy the facility which has the lowest variable cost is put in use market,on the so-called OTC market (Over The first.When demand rises,increasingly expensive types of Counter).In practice,however,there is currently no price generation are brought into operation.This also explains difference seen between the German electricity exchange why the electricity prices on the Nordic market are affected prices and OTC prices for long-term standard contracts. so strongly by water levels.When water levels are low,more In certain markets,it is still not uncommon not to use costly forms of energy must be used to a larger extent or the market price as a reference in connection with sales electricity must be imported,which is immediately reflect- to end-customers.This makes it difficult for new actors ed in rising prices on NordPool.The price for the last gen- to establish themselves in these markets. erated unit represents market equilibrium,that is,the point where supply meets demand.This market price is then used Squeeze on profitability in sales for all delivery since the spot market is designed as an auc- and electricity network operations tion market.In the forward market,the price is also set as a Despite the fact that the household market is still charac- function of supply and demand,but the price applies only terised by low customer mobility,deregulation led to to the individual contract.Forward prices reflect the mar- intense competition between electricity suppliers with ket’s expectation concerning the future price of electricity. regard to price and product offerings.This led to margins Deregulation of the different markets has brought more in sales operations being squeezed to low levels. effective pricing. Network operations are regulated and authorities In those countries where deregulation has progressed pressure network operators to reduce network tariffs, the furthest and where trade is well developed,such as in which squeezes profitability and risks dampening the

Vattenfall and the electricity value chain

Market pricing Marketplaces Electricity is traded on electricity ex- Marketplaces (Electricity Other sales companies changes or in the OTC market. Actors exchanges, OTC) Export/Import such as producers, resellers and very Vattenfall End- large industrial companies trade on the Generation Own sales units customers electricity exchanges. Some major actors are both producers and suppliers, Resellers and act as both buyer and seller on the electricity exchanges. In the OTC market, which is outside the exchange, actors Generation Electricity trading Sales trade directly with one another. Pricing in The generation of electricity from hydro Vattenfall and other actors sell electricity via Private persons and industries sign the OTC market often reflects expecta- power, nuclear power, fossil fuel and a marketplaces to sales companies or to major delivery agreements with the different tions regarding the electricity exchange’s smaller proportion of wind power, biofuel resellers. A certain portion of Vattenfall’s gener- actors at the sales stage. Prices are market price. The import and export of and waste. Vattenfall’s generation con- ation goes directly to Vattenfall’s sales units. regulated via various types of agree- electricity over national borders take sists of hydro power (20%), nuclear The price paid by the sales units is determined ment between sales companies and place depending on the differences in power (37%) and fossil fuel (43%). in the marketplaces. customers. market price between the countries.

Distribution chain

VATTENFALL ANNUAL REPORT 2004 National grid Regional network Local network

Transmission Distribution The national grids are the large high-voltage networks that Regional and local electricity networks transport electricity to end-customers. Vattenfall transport large volumes of electricity over longer distances. and other large actors share the market with regional and local network companies. National grids are for the most part state-owned in the Nordic countries and Poland, while in Germany they are owned by the electricity companies. Vattenfall owns national grids in Eastern Germany and the Hamburg region.

26 Vattenfall’s world: Pricing

Volumes

Vattenfall’s electricity generation Vattenfall’s electricity sales

Internal generation and electricity input Sales TWh 2004 2003 TWh 2004 2003

Hydro power 33.6 28.1 Sweden 45.2 44.8 Nuclear power 62.4 56.5 Finland 6.2 5.7 Fossil-based and wind power 71.1 71.2 Germany 82.3 87.0 Total internal generation 167.1 155.8 Poland 12.0 12.0 Other countries 7.3 9.8 Purchased power 43.2 47.3 Spot market 33.4 24.9 Spot market 8.8 10.4 Total electricity sales 186.4 184.2 Total electricity input 219.1 213.5 Deliveries to minority owners 19.5 17.9 Internal consumption —12.2 —10.7 Other 1.0 0.7 Total 206.9 202.8 Total 206.9 202.8

incentive to invest.From a customer perspective,it is Kraftnät in Sweden and Statnett in Norway.The market important that the regulation models provide an incen- area covers Sweden,Norway,Finland and Denmark.Nord- tive to invest and maintain good quality. Pool comprises two marketplaces.The first – the spot market – is an auction-based trading place where different Electricity suppliers are the link between the actors can purchase and sell physical deliveries of electricity electricity exchange and the end-customer on an hourly basis for the coming day.In addition to the Most customers,regardless of whether they are private indi- spot market,there is also a market for trade in standardised viduals or industrial customers,use an electricity supplier to financial contracts,in which futures or forwards are traded purchase their electricity.Electricity suppliers are responsi- up to three years ahead of time.NordPool’s trade and liq- ble for acquiring electricity,normally through the purchase uidity are good.More than 300 actors traded during 2004, of electricity on exchanges,and packaging it for the end- trading 167 TWh on the spot market,an increase of 40 per customer.Dependent upon the demands and risk profile cent compared with 2003.Total electricity consumption in the consumer desires,different forms of contracts are the Nordic countries in 2004 was 391 TWh.The volume offered,such as variable rate or fixed prices for various time of NordPool’s financial market in 2004 was 590 TWh,an periods.Without an electricity supplier,customers would increase of 8 per cent compared with 2003,which is partly themselves be forced to trade on the electricity exchange, due to the fact that a number of new actors appeared dur- which would be both costly and risky.Some form of finan- ing the year.For more information regarding Vattenfall’s cial security is required to obtain permission to trade on the trading activities,see page 49. electricity exchange,as is a minimum volume.Electricity suppliers charge a certain percentage of the electricity price Dramatic increases in electricity prices due to low water levels, high coal prices and increased taxes

in exchange for this service. VATTENFALL ANNUAL REPORT 2004 The ﬁrst year after deregulation in Sweden,in January The Nordic market 1996,prices throughout all of the Nordic countries were NordPool — the Nordic electricity exchange at a relatively high level,but then fell strongly to very low The price of electricity in the Nordic countries is primari- levels for four years until 2001/2002.These developments ly set on the Nordic electricity exchange,NordPool, are explained by the hydrological balance.1996 was a rela- which is owned by the national grid operators Svenska tively dry year while the following years were charac-

27 The Polish market Polish The exchange electricity Polish the on volumes Low Exchange,has on the POLPX,the Power Trade Polish still since 2000.Trade volume,however,is been underway also declined in 2004 com- and liquidity poor.Trade low 2.6 TWh to 1.9 TWh,to with 2003 – from pared be com- of 131 TWh. with total electricitypared usage in Poland is that electricity volume pro- for the low The main reason ducershalf of their net generation under long- sell about Grid Com- Power term contracts to PSE (Polish delivery pany).PSE then sells the electricity on to sales companies. In addition,sales companies,which sell electricity to end- customers,must a certain purchase part electricity of their and heating plants and renewable combined power from energy sources.As a result,only about 40 per cent of all for trading.The is available electricity generated in Poland plan to end the a revised has presented government Polish long-term contracts.The delivery first plan must be the EU Commission,however,and by then by approved parliament.Athe Polish of the long- share considerable and PSE,how- producers term contracts between delivery ever,end during 2005–2007,which can potentially liquidity independently of the govern- market improve plan.An of volume for the low ment’s additional reason companies,most often the municipality-owned Stadtwerke.German electricity prices fell dramatically of as a result and in conjunction with deregulation before surplus actors capacity and because the established price cuts with aggressive shares defended their market actors from new to prevent customers in order towards gaining a foothold in the market.After the price turbu- years,thelence of the first few stabilised and in market seen.Strongly in prices even 2004 an increase was rising prices materials prices for raw and freight for coal,combined with substantial tax increases,are behind the price increases.Despite the latest price increases,however,con- in were than they sumer electricity prices lower still are the mid-1990s,before and various deregulation.Taxes fees currently comprise 40 per cent of customers’electricity costs.Among the factors will affect the which of German electricitydevelopment prices is in the future the expected lack of capacity in Germany,the resulting European and the new need for investment increased trading system for emission allowances. In practice,there Ger- is no price between difference man electricity exchange prices prices and OTC for long-term contracts.In standard 2004,a of 397 total on the EEX,of traded TWh was which 60 TWh on the the financial market.In and 337 TWh on spot market all, with the previous 6 TWh compared by increased volume year.The liquidity and has intro- to increase EEX strives con- duced the possibility for parties to clear their OTC tracts as a part of these efforts,which that the means counterpart risk is transferred to the exchange.Germany electricity electricity with an annual market is Europe’s consumption of about 530 TWh,equivalent to 18 per consumption.The entire was cent of the EU’s market in 1998 when all German elec- in one blow deregulated tricity customers gained the right to choose their electricity supplier.The German has since undergone market a dramatic restructuring and the large German energy largest companies currently among Europe’s utilities are (see also page 22–23).The largest portion of sales to cus- the various energy local through tomers is still provided The German market German The exchange electricity German The German electricity European trade began in 2002 on the Energy Exchange,EEX,in and liquidi- Leipzig.Turnover NordPool.At than the is still lower but ty has increased end of 2004,there on the EEX, 123 actors active were year.Theprevious with 112 the largest trade compared still found in the so- are outside the exchange volumes market,butcalled OTC and finan- the spot market both to develop. cial trade on the EEX continue terised by high levels of precipitation.Well filled reservoirs of precipitation.Well terised high levels by prices.Many market led to drastically reduced of the low for continued themselves actors that had prepared electricity quite surprised prices were when electricity prices shot sky high in 2002;price the caused by increases warm after an unusually and dry summer levels water low and autumn in combination with rising prices.Not coal return to their nor- levels until the end of 2004 did water pricemal levels,whichlevels.In also led to lower Sweden, by increased have electricity since deregulation taxes 150 per cent,inapproximately 100 per cent, Denmark by 80 and 75 per cent respec- by and in Finland and Norway elec- customer’s than 40 per cent of a private tively.More tricity bill is currently comprised and fees. of taxes Vattenfall’s world: Pricing world: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 28 VATTENFALL ANNUAL REPORT 2004 29 ’ 2 Vattenfall’s world: Pricing world: Vattenfall’s 1 SEK=0,1110 EUR, 1 EUR=9,0070 SEK EUR=9,0070 1 EUR, SEK=0,1110 1 (API2) (€/t) (API2) Electricity usage per capita in Poland is at present only is at present Electricity usage per capita in Poland El 2005 OffPeak (€/MWh) OffPeak 2005 El (€/MWh) OffPeak 2006 El 2006 Coal Spot price (NOKSYS), NordPool weekly average weekly NordPool (NOKSYS), price Spot average weekly annual NordPool (NOKSYS), price Spot possible maximum of percentage a as reservoirs Nordic in level Water API2) (€/t) (API2) 2005 Coal Water level in Nordic reservoirs as a percentage of annual maximum annual of percentage a as reservoirs Nordic in level Water average 40 per cent of the EU average,but is estimated to increase 1.8 per cent per year.A portionby considerable of capacity 2017 in by be replaced and must the 1960–80s stems from requirements. environmental to meet the EU’s order but the difference is expected to disappear during the difference but the coming years.With a medium-term perspective,prices capacity – in reserve low also risemay due to the relatively practice,only 10 per cent.Reserve capacity can in turn be in consumption in the expected increase affected by old generation facilities. and the need to replace Poland The effect of the price of coal on the price of electricity in Germany is Germany in electricity of price the on coal of price the of effect The buy producers Electricity market. forward the in noticeable especially generation electricity their way, same the in sell, and advance in coal a have can that changes against prices hedge to order in advance in for hedged, be can prices way, this In profitability. on impact negative Dur- place. take to are deliveries actual the before years two example, and market world the in increased prices coal 2004, and 2003 ing deviating The accordingly. developed trends price electricity German includ- factors, other by explained be can quarter last the during trend developments shows diagram The allowances. emission in trading ing ’off-peak for prices forward German and coal for contracts forward in 8am. and 9pm between hours the for prices means ’Off-peak’ 2) Vattenfall. Services, Financial Tradition EEX, Source: The low precipitation of 2002 continued to affect electricity prices prices electricity affect to continued 2002 of precipitation low The sta- levels 2004, In 2004. of beginning the at countries Nordic the in normal, than higher were levels water 2005, January by and bilised dramatic very The trend. price electricity the in reflected was which lev- reservoir low the both reflects 2002 of end the at increase price conditions. weather normal than colder the and els Vattenfall NordPool, Source: EUR NOK=0,1208 1 SEK, NOK=1,0880 1 rate: Exchange 1) electricity for delivery in 2005 and 2006 respectively. 2006 and 2005 in delivery for electricity 0 h) % 30 25 20 15 10 80 60 40 20 100 (€/MW ak 2004 fpe Of 2003 2004 2002 2001 2000 2003 1 1999 h t) (€/ 0 al 400 200 800 600 o 20 50 35 80 65 1,000 C Price trends in Germany in trends Price NOK/MW Price trends in the Nordic countries Nordic the in trends Price trade is the conditions under which actors without their trade on the assets must generation or network own POLPX.Polish electricity prices to household customers still regulated.Discussionsare concerning of deregulation since the been underway electricity have market the Polish beginning of the 1990s.Until 2000,the price of electricity the authorities.For set by was that reason,the price of electricity terms 1994 and 1998.Since also fell in real between 2001,however,electricity need to wait no longer providers to get their prices approved,which has led to rising prices. on an international compared level, Prices still lower are Price trends Price Vattenfall’s world: Trust and responsibility

TRUST AND RESPONSIBILITY

Having good, firmly established trust on the part of customers, the general public, politicians, authorities and the media is a central issue for Vattenfall. Creating this trust requires active and responsible environmental efforts.

Vattenfall’s task is to deliver electricity and heat at com- with fossil fuel,such as coal,oil and gas,and 17 per cent petitive prices.We must also maintain high quality,in an with nuclear power.At Vattenfall,42 per cent of our gener- increasingly electricity-intensive society.At the same ation is based on fossil fuel and 37 per cent is based on time,the importance of progress within the environmen- nuclear power. tal area has grown to be one of the key issues with which The reason that these types of energy make up such a to win increased trust.Energy supply is connected to large portion of the world’s electricity generation is that considerable social responsibility.The way in which Vat- both have qualities that make them attractive in many ways. tenfall (and other energy companies) is perceived by the Above all,they can provide large amounts of energy at a rel- media,politicians,investors,public institutions and atively low cost and with great reliability.Neither the com- authorities strongly affects public opinion. bustion of fossil fuel nor nuclear power is dependent upon For Vattenfall,setting the goal of becoming a leading the weather,as wind power is,nor are they dependent on company within the environmental area is therefore both natural regional conditions,as hydro power is. a necessity and an opportunity.A necessity because our Despite these good qualities,both energy types have operations are very capital intensive and the economic undesirable effects.The combustion of fossil fuel creates value of our assets must be secured.But also because,as large amounts of carbon dioxide emissions and contributes one of the major actors in the European energy market, to global warming.This is one of the greatest challenges Vattenfall’s behaviour is continually scrutinised with a currently facing our society.Nuclear power leaves radioac- critical eye. It presents an opportunity since it is a prereq- tive waste,which must be safely stored away from our living uisite for obtaining the trust of customers,maintaining environment for one hundred thousand years. good relationships with authorities,pursuing permits and Since our society is currently dependent on these recruiting qualiﬁed personnel. types of energy,Vattenfall works in several areas to deal with the undesirable effects.Vattenfall both works with The energy challenge — safe, reliable, inex- the development and optimisation of existing techniques pensive energy without undesired effects and invests heavily in renewable forms of energy. Today,64 per cent of the world’s electricity needs are met With more efﬁcient and cleaner processes,the nega-

EU measures against greenhouse gas emissions

The Kyoto protocol Emission allowances trading Trading periods Requires EU member states to reduce their Trading in emissions allowances. 2005—2007 and 2008—2012. total greenhouse gas emissions by 8 per cent before 2012 compared with 1990. Emissions Allocation/National allocation plans

VATTENFALL ANNUAL REPORT 2004 Emissions of greenhouse gases into the Developed by each member state with The EU system for trading atmosphere. information on the total number of emis- in emission allowances sion allowances and their distribution. A tool for meeting the EU’s obligations Greenhouse gases under the Kyoto protocol in a cost-effective Start of the trading system Carbon dioxide (CO2), methane (CH4), nitric manner. oxide (N2O), hydrofluorocarbons (HFC), Trading within the EU began on 1 January perfluorocarbons (PFC) and sulphur hexa- 2005.

fluoride (SF6). Initially, trade will only concern carbon dioxide.

30 Vattenfall’s world: Trust and responsibility

Vattenfall and the environment: Modern facilities and a large proportion of hydro power

In keeping with the ambition to be ‘Number one for the envi- chain, from separation processes through transport solutions ronment’, Vattenfall is developing opportunities to reduce to techniques and knowledge building regarding the storage carbon dioxide emissions from fossil fuel-fired power plants. of carbon dioxide in geological formations. Vattenfall has also There are primarily three types of measure available. taken the initiative in leading a larger EU programme for the • Optimisation of existing facilities. By increasing the efficien- development of separation techniques. The overall goal is to cy in the process, emissions per unit of energy are reduced. be able to build a large-scale demonstration facility, ’The car- • Increased use of energy sources with less carbon dioxide bon dioxide free power plant’, to show the viability of the tech- emissions per unit of generated energy, such as biofuel (bio- nology (see case on page 24). fuel does not increase the net levels of carbon dioxide, since biofuel is included in a natural cycle). Efficient utilisation and less environmental impact • Separation of carbon dioxide from the combustion process Vattenfall’s production facilities for fossil fuel are among the and permanent storage in geological formations. Several world’s most modern. The majority of the fossil fuel Vattenfall processes and sub-systems for this are in commercial opera- uses is used in combined heat and power plants in Germany tion in other industries, such as the oil industry, primarily on and Poland, providing efficient fuel utilisation with less envi- a smaller scale. ronmental impact as a result. As Vattenfall has a high proportion of hydro and nuclear power in the Nordic countries, the Considerable investment in research and development (R&D), combined emission levels are low, which provides a competi- primarily in the combustion of biofuel and the separation and tive advantage in the European energy market. storage of carbon dioxide. The latter technique has been Vattenfall also owns or partially owns six nuclear power judged to hold great potential for reaching cost levels that are plants (a total of eleven reactors) in Sweden and Germany. competitive within the framework of the emission trading sys- Nuclear power provides approximately 40 per cent of Vatten- tem. Development takes place both within Vattenfall and in fall’s electricity generation. Nuclear power produces practical- large collaborative programmes where Vattenfall works ly no carbon dioxide emissions. Availability and reliability are together with equipment manufacturers, other energy com- good and the technology is cost-effective. panies and universities and colleges. Efforts cover the entire

tive effects of the combustion of fossil fuel can be consid- two main factors behind the EU’s increased involvement: erably reduced while the positive aspects,in the form of the strong belief that a more efficient electricity market cost-efficiency and reliability,are retained.Maintenance can speed up the slow economic development in Europe investments in nuclear and hydro power are being made and the ambition to lead development towards a sustain- to increase efficiency. able and responsible society. In the area of renewable energy,Vattenfall is planning The ongoing climate change is one of the issues that large investments in such areas as wind power.In 2004, dominate the European environmental debate today.In for example,Sweden’s largest wind power park,Olsvenne order to reduce emissions that produce the so-called green- 2,was put into operation.Vattenfall also plans to invest house effect,the EU is introducing a system for trading in SEK 1.5 million to build Örestad wind power park,com- greenhouse gas emissions.The system came into effect at the prising 48 wind turbines. beginning of 2005,and initially covers only carbon dioxide.

Through Svensk Kärnbränslehantering,Vattenfall The basic mechanism of the system is that all inciner- VATTENFALL ANNUAL REPORT 2004 promotes the development of methods for ﬁnal storage of ators over a certain size must have the number of emis- spent nuclear fuel. sion allowances corresponding to their carbon dioxide emissions,and that these allowances can be traded within Trading in emission allowances introduced the entire EU.Each EU country has an emission budget The EU’s inﬂuence in shaping the new electricity market in accordance with the so-called burden sharing agree- has increased progressively during recent years.There are ment of the EU’s undertakings in the Kyoto protocol.

31 Emissions have been reduced by almost 58 million by been reduced Emissions have The planning and construction of a new power plant The planning and construction power of a new Emissions considerably reduced considerably Emissions less considerably produce operations Today,Vattenfall’s in 1990,which did emissions than they is the comparative protocol.Carbon emissions for the Kyoto dioxide year kWh of heat gener- for every 29 per cent lower now are kWh of electricity for every ated and 36 per cent lower generated.In comparison,according proto- Kyoto to the col,the 8 per cent.Our emissions by EU is to reduce greatest the reduction operations in Germany represent and comprise in a full 90 per cent of the total reduction emissions in the German electricity and heat industry. German if other sectors included,Vattenfall’s are Even about a sixth of the reductions operations still represent thus far in Germany. achieved total emis- tons,which with Sweden’s can be compared sions of 60 million tons.Emissions of dust particulates has 99 per cent,anddeclined by also acidifying emissions have to some 90 per cent.Vattenfall continues by been reduced further emissions.More reducing towards informa-work Corporate Social Responsi- in Vattenfall’s tion is available Corporate Social Respon- bility Report 2003 (Vattenfall’s sibility Report in September 2005). 2004 will be published What will replace all this capacity,and how will it be all this capacity,and how What will replace impact degree of environmental done? Most likely,the determine and fees will of taxes which type and the level electricityof new is possible.Many generation different available. plants are of power types techniques and new chosen will depend on how finally Which techniques are assess the long-term possibilities of financial the investors case. in each individual profitability a long time.Atakes be found and location must suitable purchased,a permit be obtained,environmental must plan- be documented and approved,project aspects must be carriedning must be negotiat- must out and contracts ed.Because experienced has not yet long- the market term capacity shortage,no of the effects can knowledge summarise,webe expected.To that the uncer- can say and even power of nuclear tainty surrounding the future plants cre- power the phasing out of old fossil fuel-fired planning and in Europe’s ates uncertainty in investment electricityfuture price development. In most countries,capacity will also disappear as old Between 2013 and 2023,theBetween majority of the remain- to further it possible extend make would Reinvestments The price of emission allowances will affect the price will affect The price of of emission allowances In this way,physical measures will be steered towards will be steered measures In this way,physical As their scarcity increases,theAs their scarcity price market of emis- fossil fuel-fired power plants reach the end of their life- plants reach power fossil fuel-fired to be phased out. spans and have At the end of 2004,the decided that government Swedish 2005. Barsebäck close on 31 May 2 will and Finland will have units in Sweden power ing nuclear been in operation for 40 years. their lifetimes.However,some of the oldest and smallest 2020.This before reasons be closed for financial units may 4 and 22 in capacity of between mean a reduction would TWh.The the go- given has recently Finnish government plant,whichahead for construction power of a fifth nuclear as of 2009/10. a capacity of 12 TWh annually will provide plants,but power nuclear a Germany currently has 18 active to cease electric- been reached political agreement has now power. ity generation based on nuclear Uncertainty surrounding surrounding Uncertainty power nuclear of future the electricity.According to Vattenfall’s calculations,an emission electricity.According to Vattenfall’s price in to an increase of EUR 5/ton will equate allowance the electricity price of EUR 2–3/MWh.If the price is EUR 10/ton,the be EUR 4–7/MWh. will instead increase where they are most cost-effective.The are price they where of emission will be determined is,the their scarcity,that by allowances the with of emissions in accordance reduction collective emission budget,and these EU’s the costs of achieving reductions.Estimations prices of the future for emission greatly. vary allowances sion allowances will rise.Plants will always have to weigh will rise.Plants have sion allowances will always or taking emission allowances up the options of buying emissions. to reduce measures physical Each country has an authority allocates emission that facilities to the participating in the system. allowances The principles each decided within are for allocation member state,but not conflict with the EU rules must on subsidies and competition.Ingovernment almost all EU countries will be a shortage there of emission allowances. year,the by in accordance allocation will be reduced Year with the agreed emission reductions. Vattenfall’s world: Trust and responsibility and Trust world: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 32 Vattenfall’s world: Renewable energy sources

RENEWABLE ENERGY SOURCES

Vattenfall works with many different types of renewable energy, primarily biofuel, hydro power and wind power. They comprise an important part of the development of an energy system that supports sustainable development in society. Vattenfall’s ambition is to have a leading role in renewable electricity and heat production.

The importance of renewable energy sources increases as Vattenfall has invested more than SEK 5.5 billion in produc- the business conditions develop.Vattenfall’s ambition is to tion capacity for renewable energy sources in the Nordic have a leading role in renewable electricity and heat pro- countries alone.Vattenfall is examining the possibilities for duction in prioritised markets where the commercial making additional,larger investments in renewable energy. prerequisites are present.By standing at the forefront and Such investments require stable and long-term support sys- driving development forward within the framework of its tems.If these efforts are implemented,the investment sums commercial activities,Vattenfall can contribute to eco- will be of the order of several billions of SEK. logically and financially sustainable development. As well as pursuing the large-scale commercial develop- Of current world energy consumption,a little over ment of hydro power,wind power and biofuel,Vattenfall 13 per cent is derived from renewable sources and about actively monitors the research and development of tech- 7 per cent from nuclear power.The remaining roughly nologies that could comprise a part of a future energy 80 per cent comes from fossil fuel.The proportion of system.Vattenfall also participates in both Swedish and renewable energy in Vattenfall’s heat production is currently German programmes in areas involving such things as slightly more than 20 per cent (15 per cent 2002) while the wave power,hydrogen gas,black liquor gasification,fuel figure for electricity generation is approximately 20 per cells,geothermal power and solar power. cent (18 per cent 2002).The proportion of electricity generated using renewable energy sources,excluding hydro Renewable fuel power,is 0.4 per cent. Vattenfall operates approximately one hundred plants using renewable fuel in Sweden,Finland,Germany and Vattenfall’s work with renewable energy Denmark,making Vattenfall the world’s largest buyer and Since 1997,Vattenfall has invested almost half a billion SEK user of biofuel.In Vattenfall’s Swedish heat and CHP pro- in R&D within the field of renewable energy sources,main- duction,renewable fuel comprises around 75 per cent of ly within hydro power,biofuel-fired plants and wind power. the energy supply.When expanding heat production Moreover,we examine the possibilities offered by other sys- facilities in the Nordic countries,biofuel is the natural tems,such as wave power technologies,in order to meet and choice for Vattenfall.Renewable fuel comprises a consid- prepare ourselves for future demands on our energy produc- erable portion of heat production in Finland.In Germany tion.Possibly even more important,during the same period, and Poland,however,with the exception of waste,renew-

Renewable energy sources make use of solar radiation falling on the Earth and do not consume finite natural resources.

CO2 Wind power Ashes Electricity Electricity Woodchips Electricity CHP Heat Hydro power Forest The use of renewable types of energy is also governed The use of renewable As far as possible,electricity generation is based on During devel- the past 30 years,Vattenfall has driven Shore-based wind power is now a relatively mature a relatively is now wind power Shore-based by the formulation of each country’s legal and economic the formulationby of each country’s frameworks,as costs and capital costs for as operating well techniques.Newthe different production,and renewable in particular,generallyproduction entail greater costs than existing production.In in to facilitate order investments Finland, Poland, Sweden Sweden Poland, Finland, conditions Varying — Germany and 2010,12 a goal that by The EU has established per cent sources, energy renewable of our energy shall stem from with 6 per cent in 1997.Thecompared figure equivalent for electricity 2010,com- generation is 22.1 per cent by with 13.9 per cent in 1997. pared in each country.In the Nordic available the resources countries,for example,the power conditions for hydro electricity good,as very generation are is the supply of biofuel.In Germany,on the other hand,coal is the primary energy source. opment forward by building and evaluating new technol- new and evaluating building by opment forward with manufacturers.The together ogy areas development primarily on are is currently working that Vattenfall and the integration of power wind focused on off-shore plants with the electricity system. wind power about 330 GWh,which will increase Sweden’s total wind about 330 GWh,which Sweden’s will increase than 40 per cent.Throughmore generation by the power permitsacquisition of building for Lillgrund,Vattenfall small to large-scale wind power the step from has taken generation.On has also devel- initiative,Vattenfall its own outside project wind power oped a 60 GWh off-shore Karlskrona,Sweden,and all neces- expect to receive we sary permits 2005.Several in and additional acquisitions are projects development proprietary wind power planned for the near future. is still technology with high availability.The technology larger turbines,which increasingly towards developing in and result better utilisation of wind resources provide costs.The production reduced next large development wind power,which of off-shore step is the establishment wind and generation improved will be accompanied by conditions,but in technical diffi- will also entail increases culties and costs. Vattenfall’s earlier major expansion ventures and exist- earlier major expansion ventures Vattenfall’s With great dedication,Vattenfall has worked with bio great dedication,VattenfallWith has worked In the Nordic countries,VattenfallIn the Nordic has 45 wind power plants,generating a total of about 60 GWh,almost 10 per of nearly production total wind power cent of Sweden’s 700 GWh.In December 2004,we the rightsacquired to park at Lillgrund in construct an additional wind power Öresund,off the south coast of Sweden.This wind power and is planned to holdings Vattenfall’s park will multiply comprise 48 wind turbines with a combined capacity of Wind power Wind ing large holdings of hydro power assets have given us a given assets have power ing large holdings of hydro environmentally- new good understandingvery of how facilities ought to be designed.Two power friendly hydro programmes,totallinginvestment SEK 6.5 billion,are station maintenance power hydro and involve underway production, and upgrades to increase in order work performance mainte- and reduce environmental improve an will provide nance costs.Together,these investments 2013,and by additional 300 GWh a year this electricity green certificates. generation will be entitled to Swedish In Sweden,Vattenfall has about 90 hydro power plants, power has about 90 hydro In Sweden,Vattenfall small-scale,whileabout 40 of which are have in Finland we plants,mostly power small-scale.The hydro hydro twelve about 33 TWh and Finland provide plants in Sweden power during has twelve a normal year.In Germany,Vattenfall plants,mostly stations. power storage power pumped hydro Hydro power Hydro energy for 30 years.Current work,concern- development ing,for instance,the of different combined combustion fuels,aims environmental availability,reduce to increase impact and cut maintenance costs.Experience our from to our combined heat and operations is relayed Nordic and other places.Vattenfall plants in Warsaw,Poland power facility with a is currently a new in Hamburg establishing within the wood capacity of 20 MW based on recycled of the German subsidy system.Inframework Uppsala, heat) was Sweden,a unit (400 GWh/year waste-fired new 2005. commissioned in January able fuel cannot currentlyable with coal in district compete due,forheating production example,to limited supply systems for the extraction and contra demand and limited fuel. transport of renewable Vattenfall’s world: Renewable energy sources energy Renewable world: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 34 VATTENFALL ANNUAL REPORT 2004 35 ski (88; 20) o säikkä (2; 0.6) s e u (1; 0.5) o (2; 1.2) ar Myllyk V

Pärnu (20; 0) auv T Huikk ahja (2; 0.6) R en a (2; 0.825) Marjaniemi (3; 1.1) yrk

en en uleälv sund (96; 25) enk L (15; 4,228) t S vik (2; 0.36 ) en ala (600; 120) Utö (1; 0.225) Munk s Umeälv (10; 1,186) ulle (2; 1.2) Als K Näsudden (10; 12.74) Upp Nyköping (160; 33) ona Ångermanälv (8; 980) en Indalsälv (8; 788) en eälv arlskr ft K a (90; 10) tholmen (1; 0.225) a (1; 0.6) elle Dalälv (3; 160) ala (25; 0) Poland electricity has chosen a solution wherein suppliers Poland pro- a pre-determined buy amount of renewable must to their sales.Thisduction in proportion will proportion 2.85 per cent in 2004 to 9 graduallybe increased from per cent in 2010.In goal,expansion this to reach order be necessary production will most likely in biofuel-fired and wind power,which in turn power as in hydro as well of market the development demands on will place heavy mechanisms and regulations. pre-determined income per kWh while the investment is pre-determined kWh while the investment income per repaid,which in the increases has led to considerable construction wind power.Germany of shore-based is user and renewable power largest wind the world’s now about 5 per cent of total produc- represents production extent is so great that the necessary tion.Today,the expansion of electricity to transmission capacity in order is lagging.Ancope with the wind power important issue is to gain the prerequisites,primarilynow permits,to time,but lines within a reasonable also power new erect stability and operation. network to ensure t Sk (3; 445) y (2; 0.45) Häs ollmor uorv Mo vb Gimån (2; 119) elde (15.4; 4) S /B uuthsbo (1; 0.5) o Ho erf R t s dbr ach (1,050) Klo sb Jor aälv (3; 287) er Göt Mark Humlekärr (2; 1) orp (2; 1) t e (383) Ås t . Lillgrund ar w all . f all sleben (30; 2.7) map and f f o en t (1; 0.5) t hun- MW e (1; 0.45) e the e (560; 480) al s cher able t at y Hohen en o 85 V w L anum (9; 5.4) viding As on t one t , enungsund (2; 1) T o enäs t s edør a v S v ene thal (1,060) pr wn er r A at eeds s Ho riv about xc V er sho e viding s both Goldis riv o has MW) e pr MW) on y ar s eden eloped all plant y f ' v t w s run acit S en de 'ån t acit plant ge in ap MW) be within at c ap or on s y V c er ' lar s s; an w MW) s; c en acit y s gy the po plant s f ap plant o plant 'älv o f plant (c dr Finland. er y o f with plant s y , o w h plant s 'älv', ed acit electricit po ener and er ; in ale o plant ap w c c plant dr MW po y (number eden at age fuel-fir h ed (number w at er or he S ending t able er . bio w small-s s s wind the (he w in er 1 w po w 51 the po fuel-fir o om f MW po fr fuel name o dr fuel. With more widespread acceptance for wind power widespread more With bio ind has o e y io ombined sil Hy Planned W Pumped B o ene C dr ed s y o Germany In Germany,a the solution has been chosen wherein is guaranteed a certain production of renewable owner construction and with additional improvements in the construction and with additional improvements permits and authorisationway with in Sweden, dealt are generation could in wind power the rate of development be further increased. Nordic Countries Nordic The ’green certificate’system in Sweden introduced was electrici-in 2002 with the aim of adding 10 TWh of new 2010.Vattenfall’s energy by renewable ty generation from the middle by assessment is that this goal can be reached of the next decade.This can be expected production new and biofuel-fired to comprise equal parts wind power and generation within industry and combined power heating plants.Vattenfall,for example,hasits first taken this goal with the planning of the wind step towards park at Lillgrund. power renewable production,many countries European renewable have various systems.The subsidy introduced intro- recently emis- trading system for carbon dioxide duced European matters in this direction. also moves sion allowances R Plac h 1) Aside als 174.3 dr Man f INVESTMENTS IN INTEGRATION

VATTENFALL ANNUAL REPORT 2004 “WHEN YOU’RE COORDINATING OPERATIONS THAT RUN 24 HOURS A DAY, SEVEN DAYS A WEEK, THERE’S NO ROOM FOR ERROR!"

36 Per Svensson, manager of the Cross Border Trading unit, is one of The practical challenges not withstanding, during 2004 Vattenfall the people who have worked with the launch of newly established centralised its trading operations into one unit. Vattenfall Trading Services. Just as with many other parts of the “We get a better overview and better use of resources. The coordi- power industry, these are operations that never sleep. They handle nation of Vattenfall’s cable investments enables the development of VATTENFALL ANNUAL REPORT 2004 Vattenfall’s electricity trading over cables that run between the vari- work methods and tools that, hopefully, will in turn lead to increased ous countries and regions. Among other things, this means that this profitability.” unit ensures that the result of investments in cables is hedged by The goal of this union is also to enable an expansion of operations. buying and selling forwards in the respective areas where price “Our location in Hamburg makes it easier to expand to other coun- differences are favourable. tries in Europe and thereby become a pan-European actor.”

37 Vattenfall’s markets: The Nordic countries

THE NORDIC COUNTRIES: RECORD NUCLEAR POWER AVAILABILITY LEVEL AND LOWER MARKET PRICES

Despite falling electricity prices, Nordic operations have developed very strongly, mostly thanks to record high generation within nuclear power and successful price hedging. The year was otherwise characterised by comprehensive measures designed to increase trust and customer satisfaction and by continued uncertainty regarding nuclear power.

Vattenfall generates,distributes and sells electricity and tries is number one in electricity generation,number two heat in the Nordic countries.Electricity trading is also in distribution and number one and two in Swedish and pursued in order to hedge prices for generation and sales. Finnish electricity sales to end-customers respectively. Vattenfall also sells telephony and broadband services,as Nuclear power and hydro power comprised 65.0 and well as consulting and contracting services,primarily 34.3 per cent respectively in 2004,and form the basis of within the energy sector.Transmission,that is,the transfer Vattenfall’s electricity generation.Fossil fuel,biofuel and of electricity via high-voltage networks,is not included waste are also used,especially in heat generation.Vatten- in Vattenfall’s operations,but is run in Sweden by the fall also invests heavily in wind power.Operations are state-owned company Svenska Kraftnät and in Finland by organised in a number of business units which are coordi- Fingrid.Vattenfall’s market position in the Nordic coun- nated under Business Group Vattenfall Nordic.

Best result ever Vattenfall in the Nordic Countries Sales decreased by 4 per cent to SEK 40.8 billion (42.5). Net sales, Operating profit (EBIT), Sales were affected negatively by falling market prices,the 12-month rolling 12-month rolling fall being due to the vastly improved water supply.At the MSEK MSEK end of 2004,the deficit in the hydrological balance had 50,000 15,000 been improved to a surplus of 4.3 TWh,compared with a deficit of 14.2 TWh at the end of 2003.Operating profit 40,000 12,000 increased by 35.2 per cent to 11.5 billion SEK (8.5).The fact that operating profit increased despite falling elec- 30,000 9,000 tricity prices can be primarily explained by increased generation volumes,but also by the fact that generation 20,000 6,000 had been hedged at advantageous prices.The Generation business unit contributed especially well to the good 10,000 3,000 results.The nuclear power plants exhibited absolute

0 0 world-class availability and both Forsmark and the Ring- 2003 2004 2003 2004 hals Group posted their best generation results ever.The Key facts — Nordic Countries 2004 2003 Change, % Net sales 40,794 42,514 —4.0 Operating profit (EBIT) 11,543 8,535 35.2 Operating margin, % 28.3 20.1 40.8

VATTENFALL ANNUAL REPORT 2004 Net assets 57,415 56,367 1.9 Return on net assets, % 20.4 15.2 34.2 Electricity generation capacity, MW 16,878 16,756 0.7 Heat generation capacity, MW 3,523 3,662 —3.8 Electricity generation, TWh 88.4 77.8 13.6 Heat generation, TWh 7.6 7.9 —3.8 Number of electricity customers 934,235 948,235 —1.5 Number of network customers 1,278,310 1,264,000 1.1

38 Vattenfall’s markets: The Nordic countries

Challenges 2004 Measures 2004 Forecasts and strategy

Generation • Extend lifetime, further improve safety • Continued optimisation of generation • Maintenance programme for nuclear and efficiency within existing power plants. within existing nuclear power facilities power and hydro power. • Maintain high availability during ongoing and hydro power facilities. Investments • Safety upgrades for dams. maintenance work. in among other things new turbines that • Increased utilisation of existing genera- • Nuclear power negotiations were sus- increased power output. tion facilities. pended by the Swedish government in • Continued work for an improved environ- • Construction of Örestad 120 MW wind October without agreement being ment — building permits and permission power park. reached. The government then decided to for Sweden’s largest wind power project • Closing of Barsebäck 2 on 31 May 2005. close Barsebäck 2 by 31 May 2005. — Örestad — have been obtained. • Continued evaluation of renewable energy • Amendments to financing legislation gov- sources which meet green certificate erning nuclear waste (Note 7). requirements.

Distribution • Improved trust among customers. • New network disruption guarantee. • Optimise and simplify management of • Fewer and shorter disruptions. • Continued installation of remote-readable customer issues with a genuine customer • New regulatory model, the Performance meters: 105,000 meters in total. focus. Assessment Model. • Expanded investment and maintenance • Implement quality improvements in the programme and strengthened contin- electricity networks. gency organisation. • Continued installation of remote-readable • Actively provided feedback about the new meters for all network customers. regulatory model.

Sales • Ensure growth through increased quality • End to invoicing in arrears for consump- • Continue our work to increase customer that increases customer satisfaction. tion more than a year old for household satisfaction. • Create understanding and acceptance customers (corporate customers 3 years) • Increase customer benefits with total for pricing. within our own network areas. energy solutions based on customer • Retain market share within reseller • Optimise collaboration within the Group needs. segment. for increased customer satisfaction by • Further improve information about the • Ensure long-term competitive edge creating total energy solutions for cus- customer’s possibility to select their through increased cost-efficiency. tomers. agreement type. • Ensure successful implementation of • Began implementing new business system. • Finalise the implementation of the new new business system. business system.

Heat • Find a long-term solution for peat produc- • Divestment of Härjedalens Miljöbränsle • Work to increase customer satisfaction. er Härjedalens Miljöbränsle AB. AB. Continued operation with new owners. • Optimisation of fuel composition. • Construction of a waste incinerator in • Waste incinerator in Uppsala completed. • Growth through acquisitions for long- Uppsala, Sweden expected to be comp- • Automated reading introduced for single term profitability. leted ahead of plan. family homes. • Waste incinerator in Uppsala commissioned.

Services • Market level profitability in all operations. • Developed maintenance agreement with • Ensure resource and expertise supply • Continued growth and increased external Vattenfall’s largest customers. for the future. sales. • Recruitment of strategic resources to • Continued development of maintenance manage the large reinvestment pro- services. gramme in the energy sector. • Market for consulting and development • Functional maintenance agreement with services continues to look good through- external process industry. out the energy sector.

basis for the year’s good results comprises the very efﬁ- Different paths in Nordic energy policies ciently implemented outages during the summer with, Uncertainty regarding the future of Swedish nuclear power among other measures,turbine replacements in the Fors- was seen throughout the year.In October,the Swedish mark plant.Hydro power generation increased by almost government broke off negotiations with the nuclear power 17 per cent thanks to the considerably improved water operators regarding the phasing out of nuclear power in supply. Sweden and in December,the government decided to

39 Customer satisfaction in satisfaction Customer market consumer Nordic the 934,000 electricity cus- has approximately Vattenfall tomers,approximately customers and 1,280,000 network market.The16,600 heating customers in the Nordic energy sector as a whole has,during the year,been subject to debate and criticism focused on such factors as poor billing practices,high prices and disruptions in supply. Criticism the largest has primarily towards been directed this criticismcompanies.Vattenfall takes seriously very trust and to improve resources extensive and is devoting customer satisfaction.In the cus- to strengthen order standing,fortomer’s appointed a Cus- example,Vattenfall in 2004,ceased Nordic in Vattenfall tomer Ombudsman billing in arrears for household customer consumption disruption com- than 12 months old and improved more cuts.Inpensation for power customer to measure order satisfaction use a model based on within the Group,we the Customer Satisfaction Index (NKI).In the Swedish quality market,we with a Swedish the result also compare index (SKI),an independent instrument and to measure customers judge goods and servicesanalyse how in Swe- den.In of a value the autumn of 2004,Vattenfall recorded 57.5,which if we is a clear improvement,but still low with smaller electricity ourselves compare suppliers and other sectors.These an impor- are independent surveys our goal of towards tant part of our work becoming ‘Number one for the customer’. Limited initial impact impact initial Limited trading emissions from In 2005,the described previously trade in emission (see began in Europe for carbon dioxide allowances description on pages 30–32).The countries Nordic have the EU. by allocation plans approved had their respective countries mix in the Nordic generation Since Vattenfall’s power primarily hydro free consists of carbon dioxide emission does not need any power,Vattenfall and nuclear for this generation.Onallowances the other hand, of car- generate certain heat operations levels Vattenfall’s emissions.Inbon dioxide with the Swedish accordance emission allocation plan,Vattenfall has not been given there- and must for these operations full out allowances in the market. such allowances purchase fore estments in remote-readable electricity metersestments in remote-readable con- v SEK 6 billion in reinvestments for the maintenance of SEK 6 billion in reinvestments SEK 18 billion in maintenance investments in nuclear SEK 18 billion in maintenance investments In Investments within renewable energy,including the within renewable Investments SEK 10 billion in Distribution in a five-year investment SEK 10 billion in Distribution in a five-year hydro power and improved dam safety over the next 10 dam safety over and improved power hydro gen- and an additional SEK 0.5 billion to increase years plants in conjunction with the power eration in hydro made. being maintenance investments power,planned for a lifetime of at least 40 years,and efficiency. to increase SEK 6 billion in measures planning of a large off-shore wind power facility in wind power planning of a large off-shore for SEK 1.5 billion.TheseÖresund facilities esti- are mated to be in operation in 2007. and maintenance programme to strengthen security to strengthen and maintenance programme of 8 expanded in 2004 from was supply.This programme to SEK 10 billion,primarily disruption to increase pre- measures. vention tinue;by the end of 2004,a total of 105,000 meters had countries.Allbeen installed in the Nordic of Vattenfall’s such customers will have network 1.3 million Nordic meters installed.

• • • • • Considerable investments for the future the for investments Considerable pro- investment comprehensive runs several Vattenfall grammes countries,comprising the Nordic in a total of 10 years: SEK 42 billion over close Barsebäck 2 on 31 May 2005.Theclose Barsebäck 2 on 31 May is 74 per reactor via Ringhals AB.The Finnish Vattenfall by cent owned has,unlikegovernment the Swedish,decided per- to give reactor,which will power a ﬁfth nuclear mission to build as of 2009.In of 12 TWh a capacity increase provide Swe- den,the state energy authority (STEM) has ﬁnished its regulatory model,the of a new development so-called Per- formance Assessment Model,for of network evaluation fees (see page 17 for a description of the model).At the end of the year,STEM had selected 40 that they announced net- closer inspection regarding companies for network tariffs AB,whichwork in 2003.Vattenfall Sveanät has now Eldistribution AB,isbeen merged with Vattenfall of one these companies.Finland regu- has also begun using a new latory in conjunction with the amendment of its model electricity legislation. market a rea- The model calculates return.Ifsonable the return to be too the model shows high,then this is to be compensated for via pricing. Vattenfall’s markets: The Nordic countries Nordic The markets: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 40 VATTENFALL ANNUAL REPORT 2004 41 Even if work with running in the new facilities will continue for continue will facilities new the in running with work if Even previously. had we problems operating the have longer no “We “We made sure we replaced all the important components, but components, important the all replaced we sure made “We some time, the effect can already be seen. be already can effect the time, some Brandum. Clary says overheating,” any had haven’t We complete overhaul of the entire facility. entire the of overhaul complete systems ventilation and lighting as things such replaced we that also safety staff so division, cell fire the improved even We facility. the in project. the led who Nilsson, Patrik says improved,” been also has has that work The while. a for shutdowns no be will there Hopefully, additional an for operation station’s the ensure should done been years. 40 sses and trou- and sses Since the station is a single unit station, a stop means that genera- that means stop a station, unit single a is station the Since Clary Brandum is an operations engineer at Storuman. From this From Storuman. at engineer operations an is Brandum Clary by Bastusel, in one the including units, power hydro other location, gener- the 2004, of summer the During run. are River, Skellefte the Brandum, Clary renovation. for down shut were facilities and ator the experienced had engineers, operations other the with together A short-circuiting. and overheating with problems generator’s old finan- and required reason, that for were, upgrade and renovation shut- Recurrent well. as advantageous environmentally and cially lo production both of terms in expensive, are downs bleshooting. INVESTMENTS IN HYDRO POWER HYDRO IN INVESTMENTS tion ceases completely. For that reason, the decision was made for a for made was decision the reason, that For completely. ceases tion THINGS ARE WORKING PERFECTLY NOW" PERFECTLY WORKING ARE THINGS “ Vattenfall’s markets: Germany

GERMANY: INTEGRATION WORK HAS PROVIDED STRONG RESULTS

Vattenfall is the third largest electricity producer in Germany and runs operations throughout the entire value chain. Operating profit has improved greatly thanks to a very successful cost-cutting programme.

Vattenfall generates,transmits,distributes and sells electricity The remaining electricity generation is comprised primari- and heat in Germany.Trading is also pursued in electricity ly of nuclear power and hydro power.Operations are and energy-related raw materials in order to hedge prices organised according to a value chain in the same way as in for generation and sales.Vattenfall’s market position in Ger- the Nordic countries and are run according to the same many is number three in electricity generation,number principles.Business Group Vattenfall Europe coordinates three in electricity sales to end-customers,number two in the German business units. transmission and number four in electricity distribution. Within district heating,Vattenfall is the largest actor with Strong improvement in financial performance the longest district heating network in Europe.Vattenfall’s Sales increased by approximately 4 per cent to SEK 66.8 generation in Germany consists of approximately 89 per billion while operating profit increased by 18.5 per cent to cent fossil fuel-based power,which is produced in some of SEK 7.5 billion (6.3),primarily explained by the extremely the world’s most modern and cleanest lignite-fired plant. successful cost-cutting programme,which resulted in annual savings of EUR 519 million (approximately SEK 4.7 billion).Return on net assets improved to 12.5 per cent as Vattenfall in Germany against 10.2 in 2003.Both electricity and heat generation Net sales, Operating profit (EBIT), were,in terms of volume,largely unchanged compared 12-month rolling 12-month rolling with 2003.The Mining & Generation,Distribution and MSEK MSEK Heat business units reported very good results.Even Sales 100,000 10,000 improved its operating profit,but still shows reports a loss. Transmission reports lower operating profit than in 2003 as 80,000 8,000 a result of higher costs due to the increased input of wind power to the network.Two smaller district heating compa- 60,000 6,000 nies in Berlin,with a combined capacity of 320 MW,were acquired for about SEK 440 million during the year. 40,000 4,000 Extensive investment 20,000 2,000 needs in the German market

0 0 As previously mentioned (see page 18),there is an agree- 2003 2004 2003 2004 ment in Germany regarding the phasing out of nuclear Key facts — Germany 2004 2003 Change, % Net sales 66,761 63,974 4,4 Operating profit (EBIT) 7,487 6,318 18.5 Operating margin, % 11 10 10.0

VATTENFALL ANNUAL REPORT 2004 Net assets 58,350 62,171 —6.1 Return on net assets, % 12.5 10.2 22.5 Electricity generation capacity, MW 15,112 15,148 —0.2 Heat generation capacity, MW 8,380 8,090 3.6 Electricity generation, TWh 75.5 74.6 1.2 Heat generation, TWh 15.5 15.7 —1.3 Number of electricity customers 3,006,271 2,947,743 2.0 Number of network customers 3,393,000 3,323,000 2.1

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w e a ef all ed ac v c fuel f aint e e f electricit began begins y s or po a t r r orpor e e icient o e f G). po a f ork egulat ant c a a sur en r er e elop he ed at p p s t w v t s t a e e e e e r r r r abilit a (EnW P which Ensur Hedge Unc tions bined Anlagen). Incr in C unbundling P po Higher Insuf with it V Amendment which Handling wind Ensur ne Guar ing D ment P Challenge • • • • • • • • • • • • • • • sion & ation s tribution at ansmis ale r He S Dis T Mining Gener Allocation of emission allowances complete allowances emission of Allocation with the accordance in Allocation of emission allowances has German Vattenfall national allocation plan means that been given,in principle,a full allocation for the first trad- earlier ing period 2005–2007.In this way,Vattenfall’s been emissions have efforts carbon dioxide to reduce in eastern plants power coal-fired recognised.Vattenfall’s Germany among the most modern are fossil fuel-fired German operations rep- and Vattenfall’s plants in Europe emis- in a full 90 per cent of the total reduction resent sions within the German electricity and heat industry. Intensive debate on price increases price on debate Intensive due to EU legislation and taxes of increased As a result other factors,the German operators’costs network have increased.For this reason,Vattenfall,like of a number other utilities,announced price during increases the sales units also announced price autumn.Vattenfall’s adjustments.Price rise given to intensive have increases prices,however,areand founded well debate.Vattenfall’s expects all price monitoring bodies to provide Vattenfall approval. these operations were restructured during restructured 2004.Thethese operations were plants,forBrunsbüttel power and Krümmel nuclear management responsibility,and has which Vattenfall minority holdings in the management of Vattenfall’s inte- (closed 2003) were plants and Stade power Brokdorf grated Nuclear unit,Vattenfall the new with Europe Energy. New unit for nuclear power operations power nuclear for unit New the collective easily benefit from optimise and more To operations, power nuclear within Vattenfall’s knowledge power,which today stands for 158.2 TWh of the total stands for 158.2 TWh of the power,which today TWh in Germany.In570 (2004) generated addition, of outdated fos- is a great need for the replacement there the coming 10–20 years. generation over sil-based power In all,approximately be replaced. 40,000 MW must Vattenfall,with its modern fossil-based facilities and a generation,is power of nuclear limited proportion well has still decided to test invest- but equipped for the future large plants,Boxberg new ments in two (a lignite-based plant in eastern Germany) (a thermal and Moorburg plant in Hamburg).Withpower the support of EU legislation (Erneubare-Energien-Gesetz),the has government energy of renewable the percentage decided to increase 2020 and,asto 20 per cent by a result,wind gener- power gener- dramatically.Since wind power ation has increased conditions,which weather ation is affected by leads to irregular supplies to the electricity networks,there are loads.Largeoccasional heavy in the transmis- investments bottlenecks remove to in order required are sion network is currently capacity.Vattenfall transmission and ensure carrying within its large construction projects out two transmission network,an extension of the southwest and the Halle and Schweinfurt transmission link between northern Schwerin and Hamburg,at one between a cost EUR 260 million.Asof approximately of the a result generation and these major invest- wind power increased ments,transmission costs in the and balancing power increasing.ForGerman are market this reason,Vattenfall is raising its transmission tariffs 19 per cent as of 2005. by Vattenfall’s markets: Germany markets: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 44 VATTENFALL ANNUAL REPORT 2004 45 “We will extend the southwest transmission link between Halle and Halle between link transmission southwest the extend will “We help only not will capacity transmission in investments the And elec- the of stability the strengthening to contributes project “The The electricity network will also need to be strengthened to be able be to strengthened be to need also will network electricity The Schweinfurt and the northern one between Schwerin and Hamburg. In Hamburg. and Schwerin between one northern the and Schweinfurt EUR than more of cost a at MW 3,000 of capacity in increase an total, Saßnick. says million,” 260 electricity. generated power wind to access get consumers Vatten- of part north-western the of reliability the and network tricity develop- the to contributes project the addition, In area. Europe’s fall out. points Saßnick electricity,” in trade European of ment says Dr. Yvonne Saßnick, who has worked with the project. the with worked has who Saßnick, Yvonne Dr. says where consumption, low with areas coastal from electricity transport to the on dependent is power wind Since generated. is power wind the net- guarantee to order in required also is capacity reserve weather, stability. work RE COUNTING ON 11,000 MW 11,000 ON COUNTING RE ’ Generation capacity in wind power has increased rapidly since the since rapidly increased has power wind in capacity Generation “Electricity from wind power has increased from 4,200 MW per year per MW 4,200 from increased has power wind from “Electricity OF WIND POWER IN 2011" IN POWER WIND OF law came into effect. effect. into came law The project to strengthen the German transmission network has begun has network transmission German the strengthen to project The handle can it that so network electricity the adapting of aim the with sources. energy renewable from generation electricity increasing the energy renewable regarding legislation new the is this behind reason The increase to is goal Its 2000. year the in effect into came which sources energy renewable from generated is that electricity of amount the network electricity things, other Among power. wind as such sources, sources such from electricity purchasing with charged are operators gener- overall of cent per 12.5 2010, by that is goal The prices. fixed at renewable. be shall ation INVESTMENTS IN THE ELECTRICITY NETWORK ELECTRICITY THE IN INVESTMENTS area. Transmission’s Europe Vattenfall in 2003 in MW 5,400 to 2002 in amount increased this of and 2011 in MW 11,000 on counting We’re network,” electricity the of expansion equal an requires power wind “WE Vattenfall’s markets: Poland

POLAND: DEREGULATION EXPECTED TO GAIN SPEED AFTER ENTRY TO EU

Deregulation has only just begun in Poland. Several steps towards a free market have been taken during 2004 and entry into the EU is expected to increase the speed of change even more. Optimisations and cost-cutting have led to dramatic improvements in financial performance for Vattenfall.

Vattenfall generates,distributes and sells electricity and heat in the Polish energy sector,with a total market share of in Poland.Heat (and to a lesser extent even electricity) are approximately 7 per cent.Through EW,Vattenfall’s market generated through the company Elektrociepłownie position in the area of electricity generation is number Warzawskie (EW),of which Vattenfall now owns 75 per seven (3 per cent) with regards to the overall market and cent.Distribution and sales of electricity take place number four with regards to only the privatised companies. through the company Górnośląski Zakład Elektroener- The majority of the distribution companies are state- getyczny (GZE),in which Vattenfall increased its share owned.Of the 33 distribution companies,only two compa- from 54 per cent to 75 per cent during the year.Vattenfall nies have been privatised so far.Through GZE,Vattenfall is is the largest heating producer in Poland,with a market the largest distribution and sales company in Poland among share of 27 per cent.Vattenfall is the largest foreign investor the privatised companies.All in all,Vattenfall holds sixth position in the market.

Vattenfall in Poland Streamlining has shown results Net sales, Operating profit (EBIT), Despite somewhat lower volumes and increased fuel 12-month rolling 12-month rolling costs,operations continued to show very positive devel- MSEK MSEK opment.Sales dropped somewhat but operating proﬁt 10,000 1,000 increased by 33 per cent,mainly due to optimised operations and considerable cost-cutting.Return on net assets 8,000 800 improved to 8.4 per cent against 6.9 in 2003.Both heat and electricity generation decreased by approximately 6,000 600 5 per cent as a result of higher temperatures.

4,000 400 Adaptation to the EU’s environmental directive 2,000 200 The Polish energy sector is obligated to implement the

0 0 LCP (Large Combustion Plant) directive to reduce emis- 2003 2004 2003 2004 sions.Since many of Poland’s power plants are old,com- Key facts – Poland 2004 2003 Change, % Net sales 7,427 7,845 —5.3 Operating profit (EBIT) 589 443 33.0 Operating margin, % 8 6 33.3

VATTENFALL ANNUAL REPORT 2004 Net assets 7,187 6,270 14.6 Return on net assets, % 8.4 6.9 21.7 Electricity generation capacity, MW 928 928 0.0 Heat generation capacity, MW 4,824 4,824 0.0 Electricity generation, TWh 3.2 3.4 —5.9 Heat generation, TWh 11.4 12.0 —5.0 Number of electricity customers 1,100,127 1,095,099 0.5 Number of network customers 1,101,477 1,096,359 0.5

46 VATTENFALL ANNUAL REPORT 2004 47 . . to all ZE. , . y al. G and o- v lish ations which

all o eely y into s f on- oduce y for e attenf a en le to oper within vir t oland t anc P a

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s The ambition is that b oland shall be ab billing anc t oland ation all e not y begin e f

w ade ement ptimis intr omer w et. v P o t eign companies to estab o and tr t

The national allocation plan en ne all should be a f t o s us tment ience and early pr oject has been underw t t the s in P The EU r or t in s gener mark c ed

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all brand and a pr porate customer dio w about in ed that the plan will meet the electr

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oduced in 2005. . eating larger units. w being consoli- orking with the s chat y consolidating the ł ith r e po y cr oof of or W anie ease in P Be er ligated to pr e no icity pr ed to comply with these eb Pr 2004 . oduced in their r y omp ently w c r ws w radually incr Ma icity generation to be r equir ed icity 1 islation suppor Generation of electr . e r e on quir icity pr er plants – s to g s ac ces will incr t and will be intr oland to meet this challenge EU w the le electr the ormanc

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o ional companies. nment is cur ab er plants. ee po ration of companies b etching to 2017 has been g int perf w er eg w ution companies ar een electr estments ar tiﬁcate that sho change v National leg r thr egulation. v er supplier ib e been consolidated into one compan , ations 2004 et shar o enab ene v w al eas. entry der s T

t e in iod str oper e or le energy sour v t of g ur financial f which is the largest electr

es. e the cer e wned companies and ther e v ab olish go es po r v y 2010. ork operator ork ar a o mark T), w p ds, izontal integ e ecti ptimis r le b ehensi or truct urów – ha or example P and O Impr Challenge equir ene • • • T (BO with a mark 31 local distr dated into six r F netw S The P hor state-o r centage of r w is one step in this effor Netw transpor dir sition per some of the po r goal of 7.5 per cent of electr ab pr 10 l a t 31 0.1 0.1 o 258 71.1 28.1 56.5 35.6 T 2003 145.2 4,074 7,983 155.8 32,832 10,000 83,547 56,131 35,185 11,293 13,267 16,576 288,306 5,683,359 4,991,077 76,605,005 3.4 3.4 n.a. 928 928 10.2 12.0 oland 1,961 4,935 4,824 P 27,650 32,165 10,106 1,095,099 1,096,359 6,422,500 9 6 y 31 2.3 4.9 771 28.2 74.6 67.4 15.7 1,516 2,907 8,090 75,000 50,213 11,439 15,148 42,923 21,719 10,000 German 2,947,743 3,323,000 68,849,416 8 2 3 4 5 7 s 31 dic 0.3 0.1 7.9 0.1 n.a. 900 597 227 77.8 25.8 51.6 7,212 8,386 106.8 1,169 3,102 8,531 3,662 Nor 16,756 ountrie 948,235 185,656 C 1,264,000 1,333,089 10 l a in in t 72 0.1 0.5 o 250 34.5 33.6 62.4 70.5 T 2004 due employees in the Group is 33,017 (35,296). 33,017 is Group the in employees Vattenfall’s share totals 14,289 MW for 2004 and 14,178 MW for 2003. for MW 14,178 and 2004 for MW 14,289 totals share Vattenfall’s Vattenfall’s share totals 70 TWh for 2004 and 61 TWh for 2003. for TWh 61 and 2004 for TWh 70 totals share Vattenfall’s grid. transmission Excl. There are 109 employees (111) in other countries. The total number of number total The countries. other in (111) employees 109 are There than 50 per cent (100% Brunsbüttel). Vattenfall's share, based on all plants, all on based share, Vattenfall's Brunsbüttel). (100% cent per 50 than 20%). Brokdorf and 50% Krümmel 67%, (Brunsbüttel MW 1,409 totals 152.1 8,013 167.1 is 32,908 13,303 11,280 10,000 16,727 32,918 7) 8) 9) 290,610 10) published 5,772,787 5,040,633 be which , t will y epor 3.2 3.2 n.a. he 928 928 R 11.4 10.6 T oland y . 3,309 4,824 P 27,543 ailable 1,100,127 1,101,477 v VATTENFALL a sponsibilit 9 6 t e e y R y 41 35 4.9 0.1 3.3 771 not 28.5 67.2 15.5 75.5 ocial e 8,380 2,894 S ar 20,864 10,000 75,000 15,112 11,371 e German at 3,006,271 3,393,000 2004 8 3 4 5 7 2 orpor or f C 2005. s 1 s s 3 dic e 0.1 7.6 0.1 0.4 n.a. all’ 215 ,004 ,242 88.4 ,386 f s 57.5 30.3 1 7 8 6,878 8,735 3,523 113.0 ember figur Nor en t 1 ountrie at ept he 1 188,067 934,235 C T V S onne ABOUT ABOUT 1,278,310 W t h , s

, , s r r y t TW air ee e e , a y s w w o TW ork t y acit he ork po po w p t w y y t ed, a alent ed ed olume t grid r r c v ork emplo e e Ne and and a e e ne t t as as r r sions xide km f w s s xide w w r r y y e e y

t f ed o a a e e equiv t w w sion o at at dio po po w w w w dio s electricit ne xide ation po po emis o fuel-b fuel-b f f gener ar ar Electricit He Electricit He po po

omer omer o o o o t t al Vattenfall’s share totals 7,935 MW for 2004 and 2003. and 2004 for MW 7,935 totals share Vattenfall’s 2003. for MWMW 5,119 5,100 and totals 2004 share for Vattenfall’s Vattenfall’s share totals 990 MW for 2004 and 886 MW for 2003. for MWMW 990 886 and totals 2004 share for Vattenfall’s MW30 2003. and totals 2004 share for Vattenfall’s than 50 per cent. per 50 than Refers to 100% of the plants in those cases where Vattenfall owns more owns Vattenfall where cases those in plants the of 100% to Refers Refers to 100% of the plants in those cases where Vattenfall owns more owns Vattenfall where cases those in plants the of 100% to Refers ticle sil sil al al al al fuel, fuel, . . tribution at dr dr t t t t t s s ansmit ansmis o o ind ind i i arbon ar ulphur us us o r r o o o o ull-time o o 4) 5) 6) 1) 2) 3) Dis Number T W Nucle S Nitric P F T C Number Electricit T No c No c B T T he Hy Nucle F T Electricit B T electricit Hy Gener FACTS FACTS Vattenfall’s markets: Facts about Vattenfall about Facts markets: Vattenfall’s W F

VATTENFALL ANNUAL REPORT 2004 48 VATTENFALL ANNUAL REPORT 2004 49 h . 90 s p—3 p—3 TW 2003 o o elop- n i

v T T e . omer c de i t 822 f f risk ed o t cus vider e o oup elat Pr oup -r Gr e h egy 2005. mark t egional all r r a a-gr in 150 TW r e a 2004 op—3 op—3 e oduct ervic t v f T T ntr S s o i o at

during a e y 859 v b . . o ticip and and r ation ed s a oland being t p impr P s

eer , t s a on aphic e s t ely c e elopment ther ar r v olume ctiv o ur ocus v F F Geogr Implement A management ment Gliwic de F erp • • • • • e ading ount ool c c i tr e f r f y dP risk u o n rnal i ad

e Nor EEX and

e truct , , c he xt s i e e f e f

ade f o electricit tr o with shar shar

t t e e joint Vattenfall is market maker on NordPool and EEX, on NordPool maker is market Vattenfall

ernal a egional

r em. f t ganisational o a s which means that we have agreed to always give both pur- give agreed to always have which means that we rankings,in own chase and sales prices.In NordPool’s highest of the exchange’s ranked was 2004 Vattenfall actors,based on criteria such as pricing,flexibility,market making,reliability in business. and speed Netherlands and is one of Europe’s largest actors in terms Netherlands and is one of Europe’s of sales.Primarily,trade and financial electric- is in physical ity contracts,but commodi- also in various energy-related ties,such as coal,gas and oil.Swedish green certificates and certificates for carbon dioxide introduced the recently also traded. are emission allowances Effective risk management risk Effective Ext Mark Mark Number y or s w 2004 and tion

management a s g ne e MANAGEMENT a joint Vattenfall’s markets: Vattenfall Trading Services Trading Vattenfall markets: Vattenfall’s ed asur at Hambur e ockholm. r t Me Implement C under in S management • • all f n e t at ading RISK ’V r ading edish r T T w S all f all f en t German and en

t t ’ f t a

o a V V , in ting Gmbh ading’. 2004 unit r T s w oland onsis P ading c ne r . , e and T s s a e e at e at ope egr r e upply r ervic ervic u nt S ’ I S C S E Challenge • • Vattenfall is active on the energy exchanges in the is active Vattenfall The integrated unit provides access to the electricityThe integrated unit provides The unit focuses on offering riskand management S Nordic countries,Germany,Poland,FranceNordic and the markets and other energy-related commodity markets for commodity markets and other energy-related markets joint units and is the Group’s business all of Vattenfall’s in the various markets.Thisrepresentative structure for the risks transparency the highest possible that ensures countries. in different activities arise Vattenfall’s through portfolio management services,both within the Group and to external customers.The integration of the two risk and port- management units optimises and improves folio management,better and optimises IT- coordinates systems,and deepens specialists competence. VT During 2004,the former two units in Stockholm trading integrated into a single unit,Vattenfall were and Hamburg Services,withTrading and a its head ofﬁce in Hamburg regional ofﬁce in Stockholm.During 2005,the Polish trading operation will also be integrated with the unit. Vattenfall has been very active in many European energy markets for several years. During years. several for markets energy European many in active very been has Vattenfall management, risk strengthen to integrated were Group the within units trading the 2004, Group. the for creation value increased enable and resources utilise better EFFECTIVE EFFECTIVE OUR BASED LEADERSHIP DEVELOP S ’ MODEL ASSESS TO SKILLS"

AND WAS GOAL VATTENFALL

COMPETENCE

INVESTMENTS IN EMPLOYEES IN INVESTMENTS

A ON CRITERIA

LEADERSHIP “THE

VATTENFALL ANNUAL REPORT 2004 50 VATTENFALL ANNUAL REPORT 2004 51 The employees’ efforts will be evident over time, but one can one but time, over evident be will efforts employees’ The devel- the of understanding an gained now have we example, “For “There were a lot of feelings involved, some people, for example, for people, some involved, feelings of lot a were “There already see tangible results. tangible see already meet to opportunity good a us gives That have. we needs opment Florczak. Malgorzata concludes future,” the in needs changed and groups were therefore analyzed. Each participant went through went participant Each analyzed. therefore were groups and assessments. and presentations exercises, group of day entire an But itself. in challenge a this made participants of number large The them- participants the faced that one the was challenge largest the many. to new completely was working of way This selves. to was us for task important An positions. their about worried were development a as process the see to participants inspire and explain Com- expertise. own their confirm to tool or threat a as not and tool Stan- Tamara emphasises critical,” was process the about munication iowska. sessment criteria. sessment Within the project, development opportunities for both individuals both for opportunities development project, the Within The project began by defining leadership and as and leadership defining by began project The “Deregulation of the Polish energy market affects Vattenfall’s affects market energy Polish the of “Deregulation “Our goal was to see which types of behaviour, perspectives and work and perspectives behaviour, of types which see to was goal “Our strategies,” company implement to employees our help methods Staniowska. Tamara continues During 2004, Vattenfall carried out a large leadership project in Poland; in project leadership large a out carried Vattenfall 2004, During Malgo- part. took Warsaw in EW and Gliwice in GZE from managers 320 at managers Resource Human Staniowska, Tamara and Florczak rzata project. the for responsible were respectively, GZE and EW operations in Poland and, naturally, our employees as well. Meeting well. as employees our naturally, and, Poland in operations under- an on builds Poland in faces Vattenfall which challenges the must We exist. that changes for need the and market the of standing current the which needs development and expertise the examine opera- run to them for easier it make to order in has, management Florczak. Malgorzata says future,” the in and today tions

Vattenfall’s group-wide leadership development pro- leadership group-wide development Vattenfall’s Creating a common view of leadership a common view and developing Creating to create Intensifying integration within the Group Vattenfall Executive Management Programme – In Management Programme Executive Vattenfall – In Management Programme Advanced Vattenfall – In 2004, Management Programme Core Vattenfall Creating networks within the Group. networks Creating managerial and leadership skills in the participants. ’One Vattenfall’. 2004,a conducted with 25 participants. was programme 2004,three conducted with a total of were programs 60 participants. gramme is contained within our own management insti- gramme within our own is contained Management Institute (VMI).VMItute – the Vattenfall is for formingresponsible and carrying out leadership and on a high,interna- programmes managerial development of strategic that are impor- within those areas tional level Group. tance to the Vattenfall • • • In total,there programmes,which group-wide ﬁve are all goals of: the overall have • • • been have which Programmes 2004: during out carried Managers are assessed are Managers Vattenfall of all throughout to guarantee a supply of managers is of deci- The process success.To continued importance to the Group’s sive managerialensure succession,we our man- develop must and as leaders.Beginningagers both professionally 2005, mea- follow-up is also one of the Group’s this process surements,or Indicators.During Performance Group 2004,approximately 500 senior managers and potential and assessed based on our lead- identiﬁed managers were ership criteria,goals in the My attained and results of these efforts, a result survey.As Opinion employee supply of managers looks positive.We future Vattenfall’s seeking to attain,however,largerare and inter- diversity national experience. ORGANISATION ORGANISATION MANAGEMENT

Ensure ﬁrst class management planning and leadership. Ensure access to the expertiseEnsure that meets our long-term Ensure strong employee commitment. employee strong Ensure needs. Group-wide HR work takes place primarily takes HR work in the formGroup-wide both national and orga- across and in networks of projects nisational boundaries.These focus on shar- a strong have ing models,tools and experience. Local unions,works are on all levels conncils – and personnel representatives partnersimportantthe Group.Most in collaborative con- level,collaboration place locally.On Group tacts take takes – Vattenfall, Council place via EWC,European Works 20 personnel representa- which consists of approximately Fin- local trade unions from from and representatives tives land,Poland,Sweden for and Germany.Representatives times a year. meet EWC two management Group • • • Three primaryThree goals and strategies have for the HR area been formulated against this background: If Vattenfall is to successfully meet the major challenges If Vattenfall us,abefore good lead- crucial have factor will be that we with the right competence and a ers and employees of commitment.Instrong 2002,work began to create Group.All for the entire Vattenfall values common core the opportunity to participate given in were employees these efforts were and,in values core 2003,Vattenfall’s – Openness,Accountabilityestablished and Effectiveness the cornerstones now corporate– which are in our cul- faces to ten a period of ﬁve and philosophy.Vattenfall ture will retire,at the of employees when large groups years prospective same time that competition for younger declines in technology and interest increases employees organisa- a competitive ensure people.To younger among choice’one of that ‘The employeyer tion,weneed to be competence.Anleading people with attracts and develops where and culture environment willing are to learn we good condi- create our skills and knowledge and share tions for good performance at work. The considerable and rapid changes within the European energy market have placed new placed have market energy European the within changes rapid and considerable The be also must organisation The competence. their and employees Vattenfall’s on demands years. few next the over retirement entering employees of numbers large the for prepared AND COMPETENCE, COMPETENCE, Vattenfall’s organisation: Competence, organisation and management and organisation Competence, organisation: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 52 VATTENFALL ANNUAL REPORT 2004 53 wice, Poland. Camilla Sun, petro chemistry, Vattenfall chemistry, petro Sun, Camilla Poland. wice, Vattenfall defines diversity as all of our employees defines diversity Vattenfall There are several tools with which to attract and keep several are There having equal opportunities and rights of gender, having regardless younger employees,such mentioned younger as the previously international programme,the rotation international trainee programme,collaboration and with universities colleges,opportunities for internships,thesis and work apprenticeships. Active work for increased diversity increased for work Active a more create is to work The goal of our diversification company. attractive more and profitable,more effective Global government’s supports the Swedish Vattenfall Responsibility initiative.Through have this initiative,we guidelines for international com- OECD’s agreed to follow Global Compact principles. the UN’s panies and to follow operations,the the older include having successor plans for some ones parallel to the younger work employees time.In operations,trials the Swedish begun with have hours.Amongso-called lifecycle-adapted working other the been given the age of 58 have things,employees over to 80 per hoursopportunity down to cut their working cent,but to 90 per cent of equivalent with a salary level the fulltime level.The the indi- purpose is to motivate duty to age 65. in active to continue vidual employee vised for all units and one of the goals is shall have an individual development an individual shall have The experience held by older employees is of critical The experience older employees held by Vattenfall International – The Rotation Programme Vattenfall Vattenfall International Trainee Programme – One Programme International Trainee Vattenfall first programme with 19 participants was concluded with 19 participantsfirst programme was in 2004. programme with 14 participants was begun in 2004. with 14 participantsprogramme was seven programmes were conducted with a total of were programmes seven 140 participants. importance operations.During to future year,tools the of these indivi- advantage to take developed been have duals’experience-based it easier and to make knowledge until the normal age.for them to work retirement As an example,we can mention that in parts of the German The introduction of a strategic competence planning The introduction initiated in 2004.The was process im- has been process has also begun and work plemented in Finland and Sweden and Germany.Beginningin Poland 2005,this is process also one of the Group’s Performance Indicators,and shall all units.The in be introduced translates business process plans and long-term competence needs. goals into future de Action plans are • Group the throughout planning Competence that all employees with their manager. dialogue Back row from the left; Airi Laakkonen, household customer sales, Helsinki, Finland. Manfred Wawrzynosek, Controlling, GZE, Gli GZE, Controlling, Wawrzynosek, Manfred Finland. Helsinki, sales, customer household Laakkonen, Airi left; the from row Back • Utveckling, Älvkarleby, Sweden. Älvkarleby, Utveckling, Vattenfall’s organisation: Competence, organisation and management

age or ethnic/cultural background.The overall strategy er for our employees to combine work and family life and with our diversity efforts is to establish diversity in our to have an open,internal labour market.During 2004,we daily operations and to create knowledge,acceptance and began an international network for female managers and the desire to work with diversity within our organisation. leaders – Vattenfall’s International Network for Women. We have two overriding Group goals regarding diversity: • Our employees shall,with regards to gender,age and Further redundancies in some areas ethnic/cultural background,reflect the societies in Some parts of Vattenfall’s organisation are overstaffed. which we operate. Vattenfall works with different local programmes to solve • Increase the percentage of female managers so that we this and to avoid dismissals.In Sweden,the process have an equally large proportion of female managers has been developed over many years.There the focus has as we have female employees. increasingly been on beginning work very early in the restructuring process in order to be able to solve compe- In addition to these two overall goals,we are also work- tency issues in a way that is beneficial to all.In Germany ing,for example,to ensure that there are no groundless and Poland,several programmes designed to solve over- differences in salary between the genders,to make it easi- staffing have been developed in combination with em-

Back row from the left; Marco Bayer, Communication, Mining & Generation, Cottbus, Germany. Runo Färnstrand, shift engineer, Forsmark 2, Sweden. Sarah Selent and Reinhard Schulz, Jänschwalde powerplant, Generation, Germany. VATTENFALL ANNUAL REPORT 2004 55 In Sweden,Vattenfall has long had a rate of absenteeism In Sweden,Vattenfall During on those on concentrated the year,work was through sickness which is well below the average in the average below sickness which is well through trade and industry.DuringSwedish the period between 1999–2002,however,sick rose,which led to a proj- leave of halving the ect being instigated with the stated goal and reducing of people on long-term number sick leave 2006.From the end of to 3.5 per cent by sick leave a level of 4.5 per cent in 2002,this to 4.1 per cent dropped figure in 2003 and to 4.0 per cent in 2004,which is consistently trade and industry. for Swedish under the average long-term sick leave.The will also see a coming years measures. in health-related of investments strengthening and Finland,sickIn Germany,Poland has also been leave duringreduced years.For recent as a whole,a the Group seen,from during was drop the year 4.0 per cent in 2003 to 3.8 per cent. Continued reduced sick leave sick reduced Continued shall give Group In general,work within the Vattenfall in a safe,healthyopportunities and stimu- for development with ensuring and a healthy lating environment.Work is primarily environment stimulating conducted locally within the organisation.The acci- of work-related number to eight accidents per of five level at the dents has remained during years,which recent fig- thousand employees is a low with other energy companies in Europe. compared ure During the year,an for working international network within the Group. established issues was environment been network,issues this Within have of common interest dealt with,with exchange and ’best a focus on knowledge practice’within each country. Vattenfall’s organisation: Competence, organisation and management and organisation Competence, organisation: Vattenfall’s The results were reported to the work groups that took that groups reported to the work were The results The response rate was high and increased in most high and increased rate was The response parts My Opinion was carriedMy Opinion was time in out for the third part in the survey.Using the results as a basis,managers the results part in the survey.Using those improve- discuss and plan together and employees required. that are ment measures of the Group.The response rate in Finland was 90 per of the Group.The rate in Finland was response cent,in 83 per cent,in Sweden 74 per cent and in Poland Germany 55 per cent.The improvements show results surveys. with previous compared when within most areas include,for results with positive example,collabo-Areas ration,immediate managers and commitment.There is of for improvement,including the areas some room change management,personal assessments and feedback performanceon work and customer orientation. 2004.In Sweden,Finland and Poland,the organi- entire sation took part;in Germany,a of the employees third part.During the opportunity to take given were 2005, the to be given in the Group the goal is for all employees chance to participate survey. in the All in all, satisfied employees employees satisfied all, in All is carried survey out annual- The My Opinion employee measures and improvement ly as a basis for dialogue organisation.Beginning the entire throughout 2005,this Indicators. Performance is also one of the Group’s process ployment guarantee commitments.As has gone ployment Vattenfall years,routinesa consolidation phase in recent through important experi-and programmes,which provided have ence prior restructuring,have to future been developed. Vattenfall’s organisation: Corporate Governance within Vattenfall

CORPORATE GOVERNANCE WITHIN VATTENFALL

Vattenfall is 100 per cent owned by the Swedish State. The Swedish State exercises long- term active ownership and administration. The Swedish government has value creation as a paramount goal. Companies exposed to competition shall operate under the same demands and terms as market actors. This means that the Swedish State places market requirements on profit and returns, based on the companies’ risk profiles.

The Swedish government has established a separate division accordance with the Swedish Companies Act or the Arti- for state enterprises within the Swedish Ministry of Indus- cles of Association. try,Employment and Communications,and,like other owners,works with a number of tools.The composition of The nomination process the Board of Directors,the auditors and transparency are For 100 per cent state-owned companies,standardised and three such important tools.In order to clarify the Swedish common principles apply for a structured nomination State’s view on certain questions,and to attain unity among process.The purpose is to ensure the effective provision the administered companies,the Swedish government has of expertise to company boards.The Swedish Minister of determined guidelines for external ﬁnancial reporting and Industry and Trade has been assigned responsibility for terms of employment for senior management.In addition, board nominations in all state-owned companies.The the Swedish government has identiﬁed certain crucial poli- nomination process is run and coordinated by the Division cy issues,in which companies owned by the state shall act in for State Enterprises within the Swedish Ministry of Indus- a socially responsible manner.This applies to such areas as try,Employment and Communications. equality,the environment,diversity,a healthy workplace and Prior to the annual general meeting,a preparatory the company’s role in society. group is formed and appointed the task of analysing com- With the purpose of promoting clarity and unity in petency needs based on the board’s composition and the questions of responsibility and information between com- company’s operations and position.Thereafter,recruitment pany bodies,the Swedish Ministry of Industry,Employ- needs are reviewed and,if necessary,recruitment work is ment and Communications has drawn up guidelines to initiated.When the process is complete,the nominations support boards of directors in drawing up and revising the are made public in accordance with the guidelines. Rules of Procedure and for managing certain issues regard- This standardised and structured working method ing information. ensures the quality of the nomination work and a broad Management and control of the Vattenfall Group is recruitment base from which the nominated board mem- divided between the shareholder,the Board of Directors bers are chosen. and the CEO in accordance with the Swedish Companies Act,the Articles of Association and the Board of Directors’ Members of the Board Rules of Procedure. Vattenfall’s Board consists of ten Board Members appoint- The Board of Directors appoints the CEO and deputies. ed at the Annual General Meeting,and three Board The CEO handles day-to-day administration,in accordance Members and three Alternate Board Members appointed with the Board of Directors’guidelines and instructions. by the employee organisations.From company manage-

VATTENFALL ANNUAL REPORT 2004 ment,the CEO,Lars G Josefsson,is included in the Board Annual General Meeting of Directors.Of the eight Board Members, two are The Annual General Meeting shall be held no later than six women and also foreign citizens.The average age of the months after the closing of the annual accounts.At the pro- board members is 51.At the 2004 Annual General Meet- posal of the owner,the Annual General Meeting appoints ing,Dag Klackenberg,Maarit Aarni,Christer Bådholm, the Board of Directors and adopts the income statement Peter Fallenius, Jan Grönlund,Lars G Josefsson,Peter and balance sheet,and deals with other issues that arise in Lindell,Hans-Olov Olsson,Lone Fønss Schrøder and

56 Vattenfall’s organisation: Corporate Governance within Vattenfall

From the Chairman

Dear Reader, electricity supply that is ecologically and financially sustainable. Vattenfall has undergone Vattenfall shall remain in the hands of the Swedish State.” extensive expansion while con- State-owned limited liability companies are independent corporate tinuing to report considerably entities subject to the Swedish Companies Act. This legislation has improved financial perform- been developed for companies operating in order to make profits. In a ance. In 1992, Vattenfall’s first limited liability company, there are clear divisions of responsibility year as a limited liability com- between the owners, the board and company management, as well pany, sales amounted to about as rules governing how this responsibility can be expected to be exer- SEK 22 billion, operating profit cised. The Swedish State, as sole shareholder, exercises its control totalled SEK 5.6 billion and over the company through the annual general meeting. return on equity was 12.3 per Vattenfall operates in a public and political arena with the associated cent. In 2004, Vattenfall’s net discussions about the company’s undertakings. Ultimately, it is the sales topped SEK 113 billion Swedish people that own the company, represented by the Swedish and operating profit totalled Parliament. Responsibility for managing this interest is held by the SEK 19.6 billion. Return on Swedish Parliament, acting through the Swedish Ministry of Industry, equity was 22.4 per cent. Employment and Communications. At the beginning of the 1990s, Sweden was in a deep financial cri- Vattenfall’s Board must weigh up different demands and require- sis. Astrong desire to revive the Swedish economy began to develop. ments. The operational framework and guidelines provided by the There was much discussion on the role to be played by the companies Board shall be in agreement with applicable legislation and in line with created through the reorganisation of traditional public service enter- the owners’ requirements on returns. At the same time, policies con- prises, among them Vattenfall. It was decided that these companies cerning the development of new electricity generation techniques and should operate just like any other company – with the primary objective renewable energy sources shall be taken into consideration. Reliable of managing State capital in an effective manner. Vattenfall was trans- deliveries at reasonable prices must be provided. The most recent formed from a public utility to a limited liability company with an interna- widespread storm in Sweden, Gudrun, clearly illustrated the need for tional market as its base of operations. Prior to Vattenfall’s incorpora- security of supply. All of these requirements must be taken into tion in 1992, the proposal to the Swedish Parliament emphasised that: account in a manner that is justifiable in the long term, and which is “It is the task of the company’s board to establish goals and strate- also in the best interests of the company. gies for Vattenfall AB’s operations. If Vattenfall AB is to conduct its Vattenfall’s development in value in recent years has been most business in a reasonable manner and without competitive disadvan- impressive. Five years ago, when major acquisitions were made in Ger- tages, the board and group management must be able to utilise the many and Poland, Vattenfall’s assessed market value was EUR 5–6 bil- company’s resources under the same conditions as are prevalent in lion. Today, this figure is estimated at EUR 15–17 billion. The Vattenfall the non-governmental sector.” of today is a large Swedish group with sales, total assets and financial In 1997, a three-party agreement was reached on energy policy. performance in the same league as Sweden’s largest groups. By com- This formed the basis of a bill entitled “A Sustainable Energy Supply”. bining larger volumes and increased profitability, Vattenfall has created Regarding Vattenfall, reference was made to the guidelines contained a strong resource base for future-oriented investments. in earlier bills, with the amendment that: “Vattenfall AB is an important resource in the changeover process. Within the bounds and requirements of sound business principles, Vattenfall shall pay special attention to the development of new elec- Dag Klackenberg tricity generation techniques and thereby contribute to a Swedish Chairman of the Board

Anders Sundström were elected.The employee organisa- The Chairman participates when necessary in important tions have appointed Board Members Carl-Gustaf Angelin, external contacts and represents the Company in owner- Johnny Bernhardsson,Ronny Ekwall and Alternate Board ship issues. Members Lars Carlsson,Stig Lindberg and Per-Ove Lööv. Rules of Procedure, duties Independent Board Members and areas of responsibility Of the Board Members,Dag Klackenberg,Maarit Aarni, The Board establishes its Rules of Procedure annually,based Christer Bådholm,Peter Fallenius,Hans-Olov Olsson, on the rules of procedure which the Division for State Lone Fønss Schrøder and Anders Sundström are indepen- Enterprises of the Ministry for Industry,Employment and

dent,both in relation to the company and to the owner. Communications has issued.The Rules of Procedure regu- VATTENFALL ANNUAL REPORT 2004 late such things as the Chairman’s duties,information to the The Chairman’s duties Board and the frequency and form of Board Meetings,as The Chairman’s duties follow both the Swedish Compa- well as evaluation of the Board’s work and of the CEO. nies Act and the Rules of Procedure.The Chairman leads Matters dealt with within the Board are primarily treat- the work of the Board and is responsible for ensuring that ed in accordance with the Swedish Companies Act and the other Board Members receive adequate information. Board’s Rules of Procedure.The main tasks of the Board,

57 During party the year,the assigned a working Board The Board has established rules of procedure for the rules has established of procedure The Board The Audit Committee has been formed to in order Remuneration Committee Remuneration is no permanentThere Committee in Remuneration AB. Vattenfall with the task of preparing system for remuneration a new In 2004,the Board three appointed the following Board Members as members of the Audit Committee:Peter Lin- dell,Christer Fallenius.Alternate Bådholm and Peter Board Lööv participated in the Audit Commit- Member Per-Ove are tee as a union representative.Internal Vattenfall audits at the secretary of the Audit Committee.Forheaded by details concerning remuneration,see Note 35 of the consolidated accounts. Committee.The to the Board committee reports its work and,when to the Board submitting the minutes by request- ed,by Meetings.No at Board its work presenting mandate to pass decisions has been delegated to the committee. of,insight the knowledge increase over into and control accounting,financial reporting and riskcompany’s management.The reported their observa- auditors company have tions at Audit Committee meetings in conjunction with audits.The meetings during Audit Committee held four the year.The auditors Meet- reported at an Ordinary Board ing in Februaryone other occasion. and on Committee Nomination AB,as is no Nomination Committee in Vattenfall There has only one owner. the Company The Audit Committee Audit The by the Board (for information regarding how the Board allo- the Board (for information how the Board regarding by cated the remuneration,see on page 95).In the table addition,the SEK 240,000 for com- Meeting decided to allocate mittee work,to the Board.The be allocated by also Board Members General Annual decided that Board elected at the and who par- Vattenfall by not employed Meeting who are each SEK 50,000 should receive ticipate in committee work remuneration,inin annual addition to the Directors’remuneration.Intotal,SEK 150,000 of the SEK 240,000 reserved has been paid out.For further information remu- regarding neration and personnel costs in Vattenfall,see Note 35 of the consolidated accounts. d ust lish d m lish isk e to estab the Boar ar ol and r and to estab , estments and substan- v oup lopment and the Boar nal contr e v In addition, e major in v uctions. o s financial de y’ appr esponsibility for inter ection, om appointing a CEO and deputies, om appointing a CEO ic dir w the compan t fr The implementation of a group-wide system for gather- The implementation of a group-wide ing employee opinions (My Opinion). ing employee Vattenfall’s strategy and vision. Vattenfall’s operations. in wind power Investments Integration of the German subsidiaries. The Group’s risk exposure. The Group’s The issue regarding the closing of the Barsebäck 2 nuclear The issue regarding reactor. The board has evaluated possible acquisitions in Denmark possible has evaluated The board and Poland. Board fees Board General Meeting of 2004,theAt the Annual Meeting determined a sum of SEK 2 million in Directors’remuneration to the Meeting who were Membersthe Board appointed by to be allocated and this sum was Vattenfall by not employed • work Board’s the of Evaluation of Directors of the Board the work evaluates The Board the Chairman is headed by once a year.This and evaluation is conducted as stipulated in the Rules of Procedure. • • • • • • During 2004,the met nine times including the statu- Board tory meeting.The among those to issues are following given: which special attention was The work of the Board of Directors during 2004 during Directors of Board the of work The Board Meetings follow a plan established in the Rules of in the Rules a plan established Meetings follow Board OrdinaryProcedure.These Meet- rules that seven specify ings shall be held each year.In to the Ordinary addition Meetings,the is summoned to further Board if meetings required.According of Procedure,one to the Rules meet- be held at a place other than the head must ing per year office.In 2004,one held in Helsinki.In meeting was conjunction with that meeting,the compre- received Board Finish Group’s information about the Vattenfall hensive operations. management functions. Meetings Board of Frequency central policies and instr follo has ultimate r apar strateg to the Gr tial organisational changes Vattenfall’s organisation: Corporate Governance within Vattenfall within Governance Corporate organisation: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 58 VATTENFALL ANNUAL REPORT 2004 59 As of 2004, the Group is organised into two two into organised is Group the 2004, of As countries Nordic the for one Groups; Business remains Poland Europe. Continental for one and operations Business unit. business separate a the with accordance in organised primarily are structure This chain. value business electricity and long-term have units business that means own their develop to assignments independent Group’s the of framework the within operations goals. long-term Business Groups and Business Units with overall responsi- and Business Units with overall Business Groups services costs for their cus- Shared which aim to reduce bility for operations within their respective areas. bility for operations within their respective tomers.These run cost with the full are in accordance principle. Group functions which support management. company Group cost centres. staff functions and These are • • • Management group and organisation and group Management chain is based on a value management model Vattenfall’s comprised of generation,electricity trading,distribution, sales,heat and services. business The CEO has the task of managing the Group’s with the operations and administration in accordance instructions.TheAct and the Board’s Companies Swedish Man- Group Executive the Group’s CEO is supported by agement (EGM).As 2004,there of 1 January cate- three are gories in the organisation: Note 38 of the consolidated accounts and Note 37 of the Note 38 of the consolidated accounts. company parent Heat Sales Distribution Business Unit Business Vattenfall Poland Vattenfall Group Functions Group CEO Heat Sales Vattenfall’s organisation: Corporate Governance within Vattenfall within Governance Corporate organisation: Vattenfall’s Distribution Transmission Business Group Business Vattenfall Europe Vattenfall Board of Directors of Board Mining & Generation & Mining Shared Service Centres Service Shared Executive Group Management Group Executive Heat Sales Vattenfall Treasury Treasury Vattenfall Services Vattenfall Insurance Vattenfall Generation Vattenfall Trading Services Trading Vattenfall Business Group Business Vattenfall Nordic Vattenfall When more extensive consultancy input is required extensive When more The auditors are present and report and at the meeting in The auditors present are Distribution Finland Distribution Distribution Sweden Distribution from the elected auditors,from assignment shall first the be Audit Committee. the by examined and approved described audit costs are detail in in more The Group’s which the Board examines the annual accounts and meet the annual examines which the Board of occasions on a number CEO and CFO Vattenfall’s the year.Inthroughout addition,the ongoing auditors have Audit Committee. contact and meetings with the Board’s Ordinary auditors Ordinary for the financial year The elected auditors for Vattenfall AB,represented Authorised by Ernst2004 are & Young as auditor in charge,and Lars Accountant Public Träff Redemo,appointedAuthorised Accountant Per by Public Audit Office. National the Swedish to company management.Theto company included Day Committee Klackenberg,the Chairman,Peter Lindell and Anders Sundström.The to the its work Committee has presented Board.Further information system can be about the new found on page 97 and in Note 35 Organisation wner o s s e Manager Manager Manager Manager Manager Manager Manager s e e e oc A e c Pr egy M& at ations our tr s Financ Financ Financ S e and R s oup air f f Gr ommunic A C Human egal L planning s planning s s s busine elopment f v busine quisitions o c de s ations A up and & s s tment s egy wing management s The Chief Executive Officer has had a contractual right The Chief Executive Management and Group other membersFor of Group For information regarding remuneration to the CEO, information remuneration For regarding e ger at e oc v ommunic tr ollo to a separate performance-based variable salary a equal to salary per year,plus of 33 per cent of the fixed maximum an period for the three-year bonuses annual equal to two LTI 2002-2004,as detailed above. Preparatory and decision processes decision and Preparatory of Directors determines to the The Board remuneration proposal.For the Chairman’s with CEO in accordance other members of management,the Offi- Chief Executive with consultations following cer decides on remuneration the Chairmanand after informing of the Board the Board. see Note 35 of the consolidated accounts. management executive to Remuneration Additional information remuneration,bene- about taxable Members,thefits and pension costs for Board CEO and management can be found in Note 35 of other executive the consolidated accounts. programmes Incentive the periodFor 2002-2004,variable con- directly salary was creation,asnected to value the con- outlined in Note 35 of solidated accounts.For management,heads group of group unit managers,anfunctions and business variable annual paid,assalary was a ’long-term was incentive’(LTI).The salaries variable annual and will latter shall not exceed two are financial targets be paid after 2004 if the Group’s exceeded.This ’long-term a incentive’does not provide basis for pensions. Pr S F Risk Mer In C Managerial processes develop in the right direction.All develop processes doc- governing scrutinised to their environmental uments are with respect the Head of Environmen- by be approved aspects and must tal Affairs to be valid.At in order present,the following exist: processes Group Since 2004,the CEO and EGM hold monthly Finan- Vattenfall’s CEO also identifies a number of processes of of processes CEO also identifies a number Vattenfall’s The management model has not yet been fully imple- The management model has not yet Business Group Heads are appointed by the CEO and appointed by Heads are Business Group Preparing,issuing policies. up on Group and following Ensuring that the EGM has access to the competence required. Identifying improvements and initiating necessary mea- Identifying improvements importance to Vattenfall. of key within areas sures Offering advice on important to Business Units and issues Group. other companies within the Vattenfall cial Meetings and more thorough quarterly Business Group thorough cial Meetings and more up on financial and business to follow in order Reviews developments. importance to the Group.The process owners are usually are importance owners to the Group.The process for ensuringmembers responsible that and are of the EGM mented in Vattenfall in Poland,and Business for this reason mented in Vattenfall a management group,with is managed by the Unit Poland Group Executive Chairman being a member of the Group’s Management (EGM).The Chairman of the steering group appoints the other members of the steering in con- group sultation with EGM. report to the CEO.The task of these managers is primarily their Business Units so that each provides to coordinate geographical within their area. value Vattenfall’s operations are carried operations are out in Business Units with Vattenfall’s in accounting,control,profitabilityfull transparency and creation.Thevalue Unit has ultimate Head of a Business under his or her charge,and for the activities responsibility to which the reports to the Head of the Business Group Unit belongs.Business the appointed by Unit Heads are Business of the respective CEO on the recommendation Heads. Group • • • • Group functions have centralised responsibility for their for centralised responsibility functions have Group and support the Group within the entire areas respective CEO and EGM by: Decision-making processes and management and processes Decision-making EGM,heads with the with a The CEO,together Vattenfall long-term and establishes creation overall focus on value for the Business Units and Business goals and requirements Groups.The short-term propose Business Groups goals for by each Business Unit,which subsequently approved are the CEO and EGM. Vattenfall’s organisation: Corporate Governance within Vattenfall within Governance Corporate organisation: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 60 VATTENFALL ANNUAL REPORT 2004 61 Each company within the Vattenfall Group is responsible Group Vattenfall within the Each company concerningfor legal obligations Report,the the Annual Meeting etc.being General Annual managed in a correct manner. in marketing practice shall be followed Good marketing activities. shall When negotiating contracts and the like,Vattenfall its counterpart.act correctly and fairly towards inappropriate benefits or receive give may No employee to be unacceptable or benefits which can be considered or which fall outside accepted business remuneration practice. Stock Exchange registra- the Stockholm follows Vattenfall tion contract and with it the insider rules that apply to listed companies.ThereSwedish specific German are insider trad- AG. Europe ing rules in Vattenfall that apply to the shares methods.If shall only use sound competitive Vattenfall market, a dominant position in any should have Vattenfall this shall not,among other things,be utilised to force agreement termsunreasonable onto a counterpart. in any ethical standard a lower not have may Vattenfall specific country simply because that country lacks legislation in a certain area. of responsi- within their area The legal departments have bility the authority to internally that stop such measures not in or which are or the like laws violate applicable management system. Group’s with the Vattenfall keeping All employees are responsible for ensuring responsible that Vattenfall’s are All employees manner, conducted in an ethically acceptable are activities not be used for illegal or assets shall and that Vattenfall’s inappropriate purposes.Anyone who finds that a Group has Unit is not fulfilling the ethical and legal requirements both the right to report such behaviour and the obligation to a superior. information for Personal shall be handled with respect personal integrity. • • • • • • • • Business ethics Business has,within instructions, Vattenfall a separate set of Group in which questions of a formulatedthe way rules regarding within the entire legal and ethical character shall be handled Group: • • Vattenfall’s organisation: Corporate Governance within Vattenfall within Governance Corporate organisation: Vattenfall’s In line with the guidelines,the CEO no longer to continues programmes for incentive The reasoning For more information more For about personnel costs in Vatten- The above applies to a total of about 100 managers. The above In other countries,Finland,Poland and Germany,the For business unit managers business salary a variable For maxi- of a unit management groups,primarily business For CEOs managersFor of service of 15 a maximum companies receives any variable salary.Regarding other managers any and receives employees,variable salary not exceed the equivalent may monthly salariesof two a year,or 16.7 per cent of the nor- salary. mal fixed long-term creation.The value goal is Group be the Group’s common to all.Further,the performance each unit and of is measured. individual fall,see Note 35 of the consolidated accounts. same value creation goals apply in agreements on variable creation same value salary managers. for senior mum of 20 per cent of the fixed salary an LTI. plus 20 per cent of the fixed of mum units,aof larger companies and heads of larger operating of 15 per cent applies.Formaximum staff personnel in management groups,a of 8–10 per cent. maximum a maximum per cent and for heads of management groups of 8 per cent. Against the background of the Swedish government’s new government’s of the Swedish Against the background management and to executive guidelines on remuneration the devel- programmes,theincentive has approved Board in line with the stated principlesopment of a programme segments of and which as of 2005 will apply in the Swedish in Sweden. all employees operations and covers New incentive programme 2005 programme incentive New Incentive programme for for programme Incentive 2004 employees other dif- been part of the Group,there have Swedish the Within units in most business programme types of incentive ferent and companies.These designed to suit are programmes goals and needs.The averages level each unit’s maximum about SEK 15 thousand per year. Function Managers,a salary variable of 25 of a maximum could above as detailed salary plus an LTI per cent of fixed personnel certain within the staff,a managers/key apply.For of 10–15 per cent. maximum member d on Born 1960 Born s ar Born 1952 Born bo arls Lindell ee C y s er t e Lar P Emplo Anders Sundström Anders Positions 2004. since Member Board Labour of Minister parliament: in and Industry of Minister 1994—96, Parlia- of Member 1996—98, Trade CEO 2002—2004. 1994—98, ment For- Sak. Folksam and Liv Folksam of 1999— Nord Sparbanken of CEO merly Boliden of board the of Member 2002. Technical Luleå of chairman 2002—, 2003—. University Volvo Car. Other board assignments: board Other Car. Volvo Swedish Teknikföretagen, AB, Lindab Swe- Commerce, of Chamber American Sweden West Foundation, Japan den- Industry. and Commerce of Chamber Schrøder Fønss Lone Deputy Formerly 2003. since Member A/S Möller-Maersk A.P. of President Tanker Gas the for responsibility with the for subsequently and Division and Bulk Pilot, Procurement Global Chairman (PCTC). Division Carrier Car vice ASA, Kværner of board the of board Other ASA. Aker of chairman Leif ASA, Yara DSB, assignments: A/S. Bioneer Ltd, Co. & Hoegh member g d Bådholm boar er ee t y Lindber tig S Emplo Chris Born 1941 Born on s Born 1961 Born Born 1946 Born ds Born 1972 Born on tröm s member s f d e ar ernhar s unds B bo S Jo y s ee G y s Per-Ove Lööv Per-Ove Employee 1999. since Alternate SEKO. member, board Olsson Hans-Olov of CEO 2004. since Member Board Vattenfall AB. Chairman of Vattenfall of Chairman AB. Vattenfall Böhler- of member Board AG. Europe the of member Board AG. Uddeholm Engineer- of Academy Swedish Royal Board Committee. Industry (IVA) ing’s Ltd. Holdings ESKOM of member the of Board the of Chairman Com- of Chamber Swedish—German merce. Lindberg Stig Co-opted 1998. since Alternate board Employee 1992—1998. Ledarna member, Lindell Peter Under- 2002. since Member Board of Ministry Swedish the at secretary Commu- and Employment Industry, of boards the of Member nications. AB and AB Sweden Alarm SOS Bilprovning. Svensk Lar Johnn Emplo Ander chrøder member Angelin S d s ar af t bo ee Føns Born 1950 Born y Grönlund Born 1951 Born Born 1951 Born arl-Gus one Born 1960 Born Born 1953 Born C Jan Emplo L Lars G Josefsson G Lars President 2001. since Member Board of Officer Executive Chief and Ronny Ekwall Ronny Alternate 1999. since Member Board SEKO. member, board Employee 1998. Fallenius Peter Resigned 2001. since Member Board February 16 on Member Board as 2005. Grönlund Jan Alternate 2002. since Member Board the at Under-Secretary 2000. since Employ- Industry, of Ministry Swedish 1999— Communications and ment Afa the of member Board 2004. company. insurance member of Green Cargo AB, Icomera AB, Cargo Green of member Chair- UK. Ltd, Rail Metronet and AB Transportation Bombardier of man AB. Sweden Carlsson Lars Employee 1991. since Alternate Sif. member, board on s Ols v arni A allenius F -Olo er t e Hans Maarit P Born 1952 Born Born 1951 Born Born 1943 Born Born 1948 Born d

g Born 1953 Born ar o member member B d d all enber the w Lööv f

boar boar o e Ek ee ee y y y Klack r-Ov onn

e BOARD OF DIRECTORS OF BOARD Board Member since 1995. Employee 1995. since Member Board Sif. member, board Bådholm Christer Board 2002. since Member Board Board Member since 2003. Employee 2003. since Member Board CF. member, board Bernhardsson Johnny Carl-Gustaf Angelin Carl-Gustaf Maarit Aarni Maarit Deputy 2003. since Member Board Phenol the for responsibility with CEO Group Borealis the in unit business Oy). Polymers (Borealis Finland in based responsibil- with CEO Deputy Formerly the in unit business Olefins the for ity Denmark in based Group Borealis assignments: Board A/S). (Borealis and Finland Oy Polymers Borealis Finland. in Oy Rautaruukki Dag Klackenberg Dag P Emplo 2001. since Board the of Chairman of Federation Swedish the of President Handelsbanken of member Board Trade. Board Mellansverige. Regionbank AB. LjungbergGruppen of member R Emplo Dag Chairman Vattenfall’s organisation: Board of Directors of Board organisation: Vattenfall’s

VATTENFALL ANNUAL REPORT 2004 62 VATTENFALL ANNUAL REPORT 2004 63 alk s illf or B t Lindf ennar Alf L Auditors AB Young & Ernst Träff Lars Accountant Public Authorised Redemo Per Accountant Public Authorised Office Audit National Swedish Alternate: Selander Göran Accountant Public Authorised Office Audit National Swedish Uthmann on eman v L Knut Hans Born 1963 Born Born 1950 1950 Born Born 1946 Born Senior Vice President, Group Group President, Vice Senior Communications. Function Magnus Groth Magnus and President Vice Executive Business Function Group of Head Development. Leman Knut Lindfors Alf and President Vice Executive Generation. Nordic of Head th cher o Gr aus R Born 1952 Born Magnus Klaus Vattenfall’s organisation: Executive Group Management Group Executive organisation: Vattenfall’s Born 1950 Born Born 1946 Born Mats Fagerlund Mats Group President, Vice Executive and M&A and Affairs Legal Function Transmission and Distribution of Head Europe. Vattenfall within Lennart Billfalk Lennart President, Vice Executive Strategies. Function Group Dahlström Ann-Charlotte Function Group President, Vice Senior Resources. Human Ekman agerlund P F s s t Mat Mat Born 1958 Born tröm Born 1950 Born Born 1949 Born Born 1946 Born Dahls on s e s t f e s Jo G s Hans von Uthmann von Hans Matts P Ekman P Matts President Vice Executive Senior First Officer. Financial Chief and Rauscher Klaus President Vice Executive Senior Head and AB Vattenfall of (Vorstandsvorsitzender) AG. Europe Vattenfall President Vice Executive Senior Nordic. Vattenfall of Head and Lars G Josefsson Josefsson G Lars President. Group and CEO Ann-Charlot Lar EXECUTIVE GROUP MANAGEMENT GROUP EXECUTIVE % , 1.1 2.5 —1.8 —3.9 —6.5 + + —32.9 Change 003 111 537 2 7,994 4,935 21,719 35,296 emissions have been submitted to the to submitted been have emissions 09 2 1 543 2004 8,192 3,309 0,864 2 33,017 , s ) e s e s y millions alent

SEK emplo

f y in o ountrie

equiv s c onnel l s a eden r Details of important structural transactions in 2004 are set out in out set are 2004 in transactions structural important of Details For the Group as a whole, investment in R&D during 2004 amounted to amounted 2004 during R&D in investment whole, a as Group the For t e oland w A EUR 500 million 20-year bond was issued in April in order to prolong to order in April in issued was bond 20-year million 500 EUR A agree- the Further, portfolio. debt Vattenfall’s of maturity average the million 600 EUR of (RCF) facility credit revolving the governing ment 2009. December 8 to prolonged and renegotiated was National allocation plans for CO for plans allocation National A decision was made to integrate the three Nordic business units Sales units business Nordic three the integrate to made was decision A Nordic Sales unit, new single a into MEGA and Finland Sales Sweden, Countries. Vattenfall was the first Swedish electricity company to discontinue to company electricity Swedish first the was Vattenfall consumed electricity for arrears in customers household invoicing remote- in invest to continued has Vattenfall ago. year one than more million 1.3 Vattenfall’s of All Finland. and Sweden in meters readable way, this In installed. meters such have will customers network Nordic invoicing with replaced and with away done be can charges advance such 105,000 2004, of end the By consumption. electricity actual of installed. been had meters In Poland, an extensive brand campaign was conducted in order to order in conducted was campaign brand extensive an Poland, In received this and market Polish the to name Vattenfall the introduce focus. media much introduced have authorities the Germany, and Finland Sweden, In tariffs. network regulating for models new — introduce to plan or — Vattenfall continued to streamline operations and sold its holdings its sold and operations streamline to continued Vattenfall Hebei company Chinese the and Mosenergo, Russian AB, A-Train in com- producing peat the transferred and Generation, Power Hanfeng owner. another to AB Miljöbränsle Härjedalens pany was GZE company distribution and sales Polish the in Ownership cent. per 75 to cent per 54 from increased EU in all of Vattenfall’s main markets, with all but Poland’s being Poland’s but all with markets, main Vattenfall’s of all in EU mainly this case, Vattenfall’s In Commission. European the by approved has Vattenfall Poland. and Germany in plants generation concerns initial the for countries both in rights emission necessary the obtained 2005—2007. period trading o Important structural changes structural Important of consolidation continued the by characterised was 2004 year The core the to operations of streamlining the and acquisitions completed Nordic the of markets main the within heat and electricity of areas been have assets non-core Certain Poland. and Germany Countries, (4,771). million 4,312 SEK to amounted investments Growth divested. P • • (Number full-time Amount Finland P S German Other T full- 761 by explained be can Poland in cutback substantial the of Part per- in cutbacks the Otherwise, operations. divested in equivalents time rationalisation ongoing of result the are Germany and Poland in sonnel invest- extensive the by explained is Sweden in increase The initiatives. and plants generation our of maintenance the for programmes ment unit. business Countries Nordic Services the in operations acquired newly (R&D) development and Research technical runs Vattenfall development, business of part natural a As development, on emphasis strong a with R&D, development, and research create, to is purpose The knowledge. existing of application the is, that the of parts various the for advantages competitive develop and retain fulfil continually to order in encompassed, also is Development Group. requirements. legal general and requirements safety and environmental business new create to order in undertaken also is development Some the operations, existing of framework the within primarily opportunities, business. core the tables on page 69. page on tables the • • • • • • SEK 529 million (478), of which SEK 306 million (299) was within Svensk within was (299) million 306 SEK which of (478), million 529 SEK R&D sales, net of proportion a As (SKB). AB Kärnbränslehantering of extent the way, this in Calculated (0.4). cent per 0.5 equal expenses competitors. important most Vattenfall’s of those with par a on is R&D

Net debt fell SEK 11,479 million to SEK 55.4 billion (66.9). billion 55.4 SEK to million 11,479 SEK fell debt Net Net profit after tax increased by 29.1 per cent to SEK 11,776 million 11,776 SEK to cent per 29.1 by increased tax after profit Net levels in 2004. Nuclear power generation in Sweden increased by 11.6 by increased Sweden in generation power Nuclear 2004. in levels 2003. to compared cent per Investments were initiated under Vattenfall’s maintenance program- maintenance Vattenfall’s under initiated were Investments programmes investment The plants. generation Swedish the for mes for billion 6.5 SEK and power nuclear for billion 24 SEK to amount power. hydro The considerable expansion of wind power in Germany has led to the to led has Germany in power wind of expansion considerable The networks. electricity German the in development extensive for need high-voltage its of capacity the expand to decided has Vattenfall 260 EUR approximately of investment an with MW 3,000 by network billion). 2.3 SEK (approximately million In Germany, additional electricity generation capacity in the amount of amount the in capacity generation electricity additional Germany, In examining therefore is Vattenfall 2020. by required be will MW 40,000 we projects concrete more Among investments. plant power possible lignite- a and Hamburg in (CHP) plant power and heat combined a find MW. 1,410 providing together Germany, eastern in plant power fired Vattenfall acquired Örestad Vindkraftpark and plans to build a large a build to plans and Vindkraftpark Örestad acquired Vattenfall the in Skåne of coast the off Öresund, in park power wind off-shore billion. 1.5 SEK of investment an with Sweden, of south At the beginning of 2004, Vattenfall decided to invest a further a invest to decided Vattenfall 2004, of beginning the At net- Swedish its in reliability operational improving in billion 2 SEK five-year a over billion 10 SEK to investment total the bringing works, households Swedish to increased was compensation Moreover, period. disruptions. network during power losing Investments totalled SEK 12,601 million (11,356), of which growth which of (11,356), million 12,601 SEK totalled Investments investments maintenance and (4,771) million 4,312 SEK investments (6,585). million 8,289 SEK Three district heating plants in Berlin, with a combined capacity of of capacity combined a with Berlin, in plants heating district Three million. 440 SEK about for acquired were MW, 320 In October, the Swedish government decided to suspend negotiations suspend to decided government Swedish the October, In out phasing the regarding operators power nuclear Swedish the with December 16 On 2. Barsebäck close to and Sweden in power nuclear of legis- Swedish by supported decided, government Swedish the 2004, operate to right the that power, nuclear of out phasing the on lation be shall power nuclear extracting of purpose the for 2 Barsebäck Novem- from agreement general A 2005. May of end the of as revoked regulates Sydkraft and State Swedish the Vattenfall, between 1999 ber the of settlement awaiting While compensated. be to is Vattenfall how be not will AB Kraft Barsebäck with associated assets the agreement, Vattenfall’s exceed to expected is compensation the as down written cent per 74 owns Vattenfall down. write said for costs the of share Barsebäck. of The business units in the Nordic countries were gathered under Busi- under gathered were countries Nordic the in units business The two into organised now is Group The Countries. Nordic Group ness Continental for one and countries Nordic the for one Groups; Business unit. business separate a remains Poland Europe. Electricity sales amounted to 186.4 TWh (184.2) — excluding deliveries excluding — (184.2) TWh 186.4 to amounted sales Electricity owners. minority to Return on net assets increased to 15.9 per cent (12.3). cent per 15.9 to increased assets net on Return Operating profit increased by 28.2 per cent to SEK 19,607 million 19,607 SEK to cent per 28.2 by increased profit Operating (15,296). (20.2). cent per 22.4 to increased equity on Return Net sales increased by 1.3 per cent to SEK 113,366 million (111,935). million 113,366 SEK to cent per 1.3 by increased sales Net Heat sales amounted to 34.5 TWh (35.6). TWh 34.5 to amounted sales Heat Cash flow before financing amounted to SEK 13,472 million (9,841). million 13,472 SEK to amounted financing before flow Cash (9,123). Availability in Vattenfall’s Swedish nuclear power plants reached record reached plants power nuclear Swedish Vattenfall’s in Availability • • • • • • • • Important events: events: Important • • • • • • • • • • The year in brief in year The • Group operations and structure and operations Group offers and heat and electricity sells and distributes generates, Vattenfall Vatten- services. telecom extent, certain a to and, services energy-related majority The company. energy European leading a be to is vision fall’s and Poland, and Germany Finland, Sweden, in located are operations of and Germany Countries, Nordic the comprise segments primary the mil- six some to amounts customers electricity of number The Poland. has Group The companies. jointly-owned through those including lion, Swedish the by owned wholly is AB Vattenfall employees. 33,000 about Stockholm. in headquarters its has Directors of Board The State. The Board of Directors and the President of Vattenfall AB (publ), corpo- (publ), AB Vattenfall of President the and Directors of Board The accounts annual the submit hereby 556036-2138, number identity rate 64—105. pages encompassing 2004, for accounts consolidated and ADMINISTRATION REPORT ADMINISTRATION Administration report Administration

VATTENFALL ANNUAL REPORT 2004 64 VATTENFALL ANNUAL REPORT 2004 65 Administration report Administration permits. In certain cases, new permits may be required. required. be may permits new cases, certain In permits. Projects are underway at nuclear power plants and hydro power hydro and plants power nuclear at underway are Projects com- plants power nuclear and hydro in electricity of generation The A thermal power plant and some smaller thermal plants are subject are plants thermal smaller some and plant power thermal A require that operations conduct also subsidiaries Swedish Group’s The sub- are Barsebäck and Ringhals at plants power nuclear the of Both government, Swedish the by passed decision a with accordance In for acquired were rights necessary the all 2004, of autumn the In The EU system for trading in emission rights for carbon dioxide carbon for rights emission in trading for system EU The electrici- and heat for plants combustion 61 has company parent The plants with the aim of increasing the power output of existing plants. existing of output power the increasing of aim the with plants confines the within part in conducted are improvements power These existing of un- business, the of part important an operations, network do as prises, elec- of generation The permits. require that operations other the like parent the within conducted mainly is plants power hydro in tricity sub- within mainly run are importance of operations Other company. sidiaries. to re-examination. The company’s result and financial position are not are position financial and result company’s The re-examination. to reviews. these of outcome the on dependent Forsmarks Code. Environmental Swedish the with accordance in permits Barse- subsidiary AB’s Ringhals also and AB, Ringhals and AB Kraftgrupp operates SKB plants. power nuclear in electricity generate AB, Kraft bäck radioactive level medium and low of storage final the for installation an of storage intermediate the for installation an and Forsmark in waste are heat and electricity subsidiaries, several In Oskarshamn. in fuel spent opera- network runs Group The plants. combustion in mainly generated of transmission and distribution the for subsidiaries Swedish in tions AB, Miljöbränsle Härjedalens concessions. with accordance in electricity, year. the during divested was Sweden, in peat extracts which hazardous environmentally for authorisation for examination to ject with connection in regulations transitional with accordance in activities, Code. Environmental Swedish the of introduction the at operations result, a As 2005. May 31 on closed be will 2 Barsebäck the as soon as successively down wound be will plant Barsebäck the been have permits necessary the and allow conditions radioactive disman- and down winding the for responsible is AB Sydkraft obtained. Vattenfall, between 1998 from agreement an tlingwith accordance in State. Swedish the and Sydkraft Öresund. in park power wind Örestad in turbines wind 48 of building the Vattenfall 2007, of autumn the in commissioned are operations When and plants power wind of number the doubled than more have will seven of factor a by power wind from generation electricity increased with accordance in obtained be must permit A GWh. 370 to 54 from Code. Environmental Swedish the transitional regulations currently in force for existing installations. existing for force in currently regulations transitional new the that ensuring of purpose the with underway are Preparations time. in fulfilled are regulations are plants combustion important Group’s the of All 2005. in starts system trading the result, a As system. trading the by encompassed Germany in operations Group’s the on impact substantial a have will Finland. and Sweden in operations heat on as well as Poland, and most the for which 2005 for rights emission received has Vattenfall in Sweden, in operations heat For needs. Group’s the cover part of cent per 80 only plan, allocation Swedish the with accordance emis- remaining the means which received, been have requirements market. the in acquired be must rights sion operations Swedish and company parent the in impact Environmental accor- in permits require that operations conducts company parent The mainly operations These Code. Environmental Swedish the with dance heat and electricity of generation the for plants combustion comprise plants. power wind and plants cooling and heat 38 as well as permits, require that generation ty of generation the for plants combustion The registration. require that Stenungsund in plants power two the are permits require that electricity used plant power diesel one and plants turbine gas two Marviken, and per- a requires which plant, turbine gas additional An power. reserve for similar exemption an under run is generation, reserve for kept is and mit installation this of operation continued for permit new A permit. a to a has company parent The 2005. of end the before for applied be must and separately both located are which turbines, power wind 39 of total that way a such in erected been have plants power wind The groups. in The registration. require remainder the and permits require plants ten con- water with associated plants power hydro has also company parent Envi- Swedish the of framework legal the outside lie that regulations trol four in farming fish conducts company parent The Code. ronmental permits. require that installations Continuation Administration report, see next page next see report, Administration Continuation Poland’s entry into the EU in 2004 entailed the country having to having country the entailed 2004 in EU the into entry Poland’s In the autumn of 2004, all the necessary rights were acquired for the for acquired were rights necessary the all 2004, of autumn the In In Germany, there are plans to build within a few years a new lignite- new a years few a within build to plans are there Germany, In In Germany, heat is produced in several large and medium-sized com- medium-sized and large several in produced is heat Germany, In The Group conducts considerable network operations for the distri- the for operations network considerable conducts Group The large several in conducted is electricity of generation the Sweden, In For certain issues of a strategic nature, development is organised in organised is development nature, strategic a of issues certain For As an example of tangible development, we can mention investment mention can we development, tangible of example an As adapt its national environmental legislation to that of the EU. This means This EU. the of that to legislation environmental national its adapt sub- be will permits require that Warsaw in installations Vattenfall’s that with accordance in years, few next the during re-examination to ject building of 48 wind turbines in Örestad wind power park in Öresund, off Öresund, in park power wind Örestad in turbines wind 48 of building be must permits Operating Sweden. of south the in Skåne of coast the legislation. Swedish under for applied fired power plant unit for electricity generation and two new natural gas natural new two and generation electricity for unit plant power fired are There Hamburg. and Berlin in plants power thermal coal-fired and car- fossil-fuel of separation the for installation pilot a build to plans also store to is plan The Germany. in plant power existing an in dioxide bon power a of use The underground. meters 1000 dioxide carbon separated of separation the for installation pilot a for plant power thermal or plant permit a requires storage dioxide carbon and dioxide carbon fossil-fuel entail will unit plant power lignite-fired new A legislation. German under operations these as mines, open-cast from lignite of extraction renewed have extraction renewed for permits necessary The dormant. been have obtained. been already bustion plants, primarily in Hamburg and Berlin, but also in other loca- other in also but Berlin, and Hamburg in primarily plants, bustion Warsaw. in plants combustion four in produced is heat Poland, In tions. locations. several in plants combustion in produced is heat Sweden, In locations, several in produced is heat states, Baltic the and Finland In installations. smaller several and plant large one between distributed bution and transmission of electricity in accordance with permits held in held permits with accordance in electricity of transmission and bution rail- own its has also Group The Poland. and Germany Finland, Sweden, Germany. in operations way wind units, plant power nuclear eight plants, power hydro small and Finland, In plants. combustion in extent, certain a to and, plants, power small several and plant power hydro large a in generated is electricity plant. power thermal a in also and plants, power wind and power hydro plants, combustion large several in generated is electricity Germany, In and power combined medium-sized several plants, power nuclear three wind smaller several in and Berlin, and Hamburg in (CHPs) plants heating so- are plants power hydro the of Some plants. power hydro and power In size. considerable of is which of one plants, storage pumped called plant heating and power combined two in generated is electricity Poland, Stade German the in shares owns Group the addition, In Warsaw. in 2003. in operation of out taken was which plant, power nuclear joint Group programmes, for which the Group Strategies team is respon- is team Strategies Group the which for programmes, Group joint development the in made being is investment major a example, For sible. of combustion the from dioxide carbon separating for technique a of focused is programme Another bedrock. the in storage later with coal, networks electricity in costs reduced and availability improved on pro- Group joint The technology. information of use the through of all in units business the with collaboration close in run are grammes to order in as such reasons, of number a for markets core Vattenfall’s into results programme the of introduction and distribution the optimise operations. business Group the within impact Environmental accordance in required, are permits which for operations runs Group The Poland and Germany Finland, Sweden, in legislation national with and electricity of generation the include operations Such respectively. open-cast four in lignite of extraction the also Germany, in and, heat mines. in increasing availability in Vattenfall’s electricity networks. A number of number A networks. electricity Vattenfall’s in availability increasing in both from emissions dioxide carbon reduce to aim projects different and efficiency plant improved through generation electricity and heat being also are efficiency improve to Measures biofuel. of use increased and hydro in as well as generation, dioxide-free carbon in implemented stor- for technologies and methods of development The power. nuclear is which investment, considerable a constitutes fuel nuclear spent ing Kärnbränsle- Svensk SKB, of framework the within out carried being AB. hantering Management of R&D of Management own its of development future the for responsible is unit business Each empha- The development. and research technical including operations, efficiency, increased for improvements continual on primarily is sis existing in impact environmental reduced and safety, and availability processes. and plants 003 145 263 278 179 580 2 —478 —406 4,096 2,360 2,460 18.22 7,143 5,296 4,754 4,878 69.27 9,123 —5,203 —2,936 —2,831 —2,386 1 1 2 1 2 —84,792 131,700 111,935 emissions is not is emissions 2 3 5 142 819 817 546 4 , 2004 —529 —572 —754 42.52***** 1,6302,122 2,088 3,034 89.42 1 —4,020 —2,248 —4,740—4,124 —6,870—7,899 —5,011 17,359 14,505 14,88014,336 11,776 31,374 19,607 3 —81,992 131,700 113,366 A) (EBITD e 3 6 9 8 6 5 12 14 1 1 11 15 10—962 7, 5, not 5, goodwill STATEMENT e In February, it was decided that as of 1 January 2006, the subsidiaries the 2006, January 1 of as that decided was it February, In “Vat- names the under trade will Hamburg in HEW and Berlin in Bewag respectively. Hamburg” Europe “Vattenfall and Berlin” Europe tenfall the and Vattenfall” “One of edification the in step important an is This brand. cohesive common, a of introduction At the beginning of January 2005, Sweden was hit by a widespread a by hit was Sweden 2005, January of beginning the At infra- and forests to damage The winds. hurricane-force with storm Vatten- enormous. was supply, electricity the particular in structure, are work additional and repairs guarantees, disruption for costs fall’s million. 500 SEK approximately at estimated than 35 per cent of the shares in Denmark’s leading power company power leading Denmark’s in shares the of cent per 35 than billion). 10 SEK over (just billion 8.5 DKK approximately for A/S Elsam In February, Vattenfall reached an agreement to purchase slightly more slightly purchase to agreement an reached Vattenfall February, In expected to have a negative impact on Vattenfall during the initial trad- initial the during Vattenfall on impact negative a have to expected 2005—2007. of period ing • • which led to lower electricity prices. As Vattenfall hedges, to a certain a to hedges, Vattenfall As prices. electricity lower to led which market fluctuating of effect the generation, electricity future extent, in investment considerable the to Due out. evened is profits on prices main- be to expected is share market company’s the service, customer opera- rationalise to work Poland, and Germany In increased. or tained regulation network for models new of introduction The continues. tions net- on pressure increased entail can Germany and Finland Sweden, in quantify. to impossible currently however, are, effects The tariffs. work CO for system trading new the assessed, currently As profits of distribution Proposed 105. page See day closing after Events • negativ

f o olution s dis millions s millions millions millions millions millions INCOME INCOME and SEK anie SEK SEK ems SEK SEK SEK

, , , it y y y s omp ember s ems c tisation o ation, it l *** holdings / s abilit abilit abilit s Dec ed goodwill, s t tis tisation, it s f s ar ar ar e o amor l o e / r —31 pr it ociat e f amor amor s omp omp omp curitie s o s c c c t int e a

s s pr negativ y f

o and and **** f o c eciation, o similar January s ar erm s ecting ecting ecting 1 f f f e e s , depr sult

and y similar e af af af minorit e e r r eciation eciation SEK t SEK ome

olution

long-t o e old* , , s (thousands) and s

xpens he

e elopment e ome the and ne ems ems ems (EBIT)** t s s s inc e v s xpens bef millions it it it t e — s dis depr depr e e it s inc in ax e shar f it

or de dividend t e e f ormation: t shar other shar f o r f o s

e SEK e ed t shar e ating ating ems pr in

oduct it s pr r per

f fi ativ and r or f om it xpens per per in which which which e int

o o p po xpens e tr s

o fr

ations r s o amounted to SEK 22,533 million (13,102) on 31 December 31 on (13,102) million 22,533 SEK to amounted f e y t ch r bef p s oper int oper Of Of Of Including Including Including o s

P pr ale

ating ar ating e s s it s r t e f t ticip e t e s sult s r oss During 2004, the Board met nine times, including the statutory meet- statutory the including times, nine met Board the 2004, During o x r dminis dditional e e arnings o a elling arnings Number E Dividend E Outlook for 2005 for Outlook normalised, has balance hydrological so-called the countries, Nordic the In The Board of Directors establishes rules of procedure each year which, year each procedure of rules establishes Directors of Board The the of Unit Ownership the by issued guidelines the follow essence, in on Communications and Employment Industry, of Ministry Swedish 2000. May 18 The work of the Board of Directors in 2004 in Directors of Board the of work The Net sales amounted to SEK 26,046 million (26,741). Profit after finan- after Profit (26,741). million 26,046 SEK to amounted sales Net 7,035 SEK was profit net and (6,172) million 11,502 SEK was items cial mil- 3,671 SEK to amounted year the during Investment (4,577). million 31 on (33) million 142 SEK to amounted assets Liquid (4,637). lion Trea- Vattenfall by managed account group the in Funds 2004. December sury AB 2004. The parent company parent The Continuation Administration report Administration Continuation radioactive is plants power nuclear of impact environmental main The carbon of emissions gaseous is it plants combustion from while waste, of impact environmental main The substances. acidifying and dioxide use. land is operations network and power hydro **) **) ***) ****) Financial *) *) *****) A Oper Minorit Ne Int Pr Ta Oper R Other R Other Other P C G S A Amount Ne CONSOLIDATED CONSOLIDATED Consolidated accounts Consolidated ing. The Board evaluates the work of the Board of Directors once a year. a once Directors of Board the of work the evaluates Board The ing. consisting Committee, Audit internal an formed Board the 2003, During 2004. in meetings four held Committee Audit The members. Board four of pro- of task the with party working a assigned Board the year, the During The management. company to remuneration for system new a ducing 58). page on more (see Board the to work its presented has party working

VATTENFALL ANNUAL REPORT 2004 66 VATTENFALL ANNUAL REPORT 2004 67 - f e e o v y r h o - ans- t t s p the r olish atly d ating and y

ation the im- which e ed ating T much ough e wn e P o SEK e . nt r within the h finan- pri-

t s ans- ating Oper-

4.9 ale s achie s or t till e (6.0). g million

T he s a higher

f onsi- tr S

thr s with is s c in s gins o ation e f T c h . o Oper ating ating t (3,042). s chas all’ Finnish a s gely e-do t Oper o gener f due ation ervic electricit w Oper minorit n (100), he in eduction s s as 589 per all’ million, TW million and lar

ably mar ale at within incr ation, r e t f pur , T

s t w writ s s e (almo S t s due . (369). sult Oper Oper y

2004. t e gener eement . s o s , om s ement ed ement en a e H er at s b

1.1 goal . t 5.8 t c r o y e

v . gener v (24,994). million

SEK fr o 300 t at V signment r Härjedalens w c

y ome o o o (2,131). a higher , c (7,809). agr a e

o t (63,974). gener (7,845). therlands b 7,487 million at s shar as t his onjunction V er s po e o He t w onsider (2,868). pric with amme t c smaller inc time T as epor s c million nt (348). million SEK Ne during r ed He y busine mpr nt o o impr e i po loans in d s the t e (1,855). 3,103 c ativ c

e SEK 166 sale million ogr

e and a nt o f c t the ithin oduc due elopment ernal ely xplained tr v r e o ge million he e Electricit the o million on or million pr 519 sil-fuel million 222 v t ntinuing e dr o W o a c pr additional T 2003 ting. er s at nt dened million 2005. ation per e y ger i o electric fuel p in SEK lar

e p o SEK million de c y h f f wn in incr at als o at y o ecurring a ent million o in ting t o ar lar r e t per million

bur SEK

ed ximat electricit EUR t ork. -cut c om impr 3.3 an

is t f t non-c

pe . s t 20,286 o an f 3.0 it 2,317 o s the 8,231 w s o fr other 7,427 s s y (12.0).

f it nt a adminis s t gener 353 t o er tribution (15.7). nt 3 t e-do f 14 o e in 66,761 2,963

-cut o b

(2.3) e than e o o due (3.4). sitiv r e h 100 s ation t c able per o w (—690). t h c y non-r but c y ained c nt (67.4) at s omp ne e h all’ it o h , o is pr b SEK Dis t omp b appr f l being f

c e and po ed o

SEK pr c

1,592 SEK and t SEK h Consolidated accounts Consolidated writ c n SEK TW o c s

incr c it o d y he TW int o a SEK SEK the s e o f t

ant

o per e vings o TW due t SEK a a a e TW b ed er , per the t o

ed million t ope t t

18.5 o pr e o o s tribut t f e

s s gener r TW ement ery t t number w is o v sa

a y o the a SEK per at v u t

million the ating y pr

nt and ed at and nt nt ation, ating ent s ativ a sale 66 e 2003 2.0 f b e 3.3 nt

3.2 11.4 V

E s due nt nt and e o and 15.5 po olv

e e c ha s f it e w o included e t tr y in y

er a c e e f s anie ociat v c c r decr o o o o c or b ating e b t t c c e ed s 67.2 e all n o t signific e ar utilisation. w f er s . i 004, incr f incr s t oper

39.8 and oper

but p s sho it ating y s ation 2 a it as

ent pr —103 nt nt ’

ained. , ed f nt Gener per ed y per po per f en per c f e er omp t o e e s incr per per s er o e b t amount 400—500 o olume 2003 t oper c and sale in o & ale mainly c c erms t a

a c w r s an Electricit educing and v at w acit t

s pr

a r e

e . tighe e oup sult p which oper

adminis 5.3 8.7 alancing

5.4 18.8 p unctions t hand, ed f SEK s er at er

1.4 ompris incr s s per s

as V e 4.4 3.3 po

f objectiv f y eduction the b as s 2003, gener

er po y wind e a o c y r y a a

y y Gr w r per per o w in y end per o that EUR it b w

y y c a

er b f

anie t F b w y e b w b f He b o incr incr e b in f a l e b b e s he o ar e

w been o sale po ations d o lo s s f ating it s Mining T r s ent oup all the ed f act 5.9 14.2 5.0 e ntinued 1.3 the ed t ed a with

o wind . lo s ed r

other f ed c

p e alled f mark s ed ed incr in olume f s s

AB o s ar s e o

s omp within s y y y y s s G ale . sale v good o dic a

decr a a, c ations o a e s c at a had a b b b ,

en b a a er ed t S tribution pr oper which e nucle e (74.6), at e input oper e t o-c he

s e e it e the in e e spit p dened sult — the , vings t and

unit s epor f

negativ r

T ar s h e y r ar xplained a ed ed ed decr usine unit ormanc electricit e ed ery Nor s o o ating s 0 s pric e ed r

all. He Dis ed a nucle sa s s s t s s e De v V s f e on ed

B t or Oper

7 s incr bur amount incr incr w decr incr decr incr a a a a a a t f anie pr , amme th v the TW e et tment (4.9) a o ating r ations ement e e e e e s s s s s it t it it it s o en omp s billion) perf dic dic e sion sion a f v f f f dened as t t able h e Oper As C B t s p o o o o o ogr ading w om oland ervic ale a ale ale ale ale ome wned olume xhibit r omp o Other Other c decr pr marily within Empo S (6,318). pr mark annual achie 4.7 o fr bur busine e cial alignment mis c incr mis unchanged 75.4 TW decr P S pr (443). oper optimis decr decr Mark S ating decr der in T Nor S pr it div Miljöbränsle Nor S pr pr v S S V Oper due German

. . , e e f o s

e s s ar ar t e o in nt y a - f dis- y . at iled a- e as b s s n e y t o erk s b d eeds , s ed per c ems a t w- o ed oup SEK and S in c

anie e ding t is

it pric it y e r is W per r s million pur- x trib- ar Ger- ale 19,607 ed egr s o

nucle ed 2003 nucle ho G 15.2 olume , e incr e o f s s . t

Elec-

fix de s at

hedging per , ed f ting an at v s c s million s a f ationali- o a SEK at 25.6 o int it cluding a s r t

primarily omp e che olume o r the f cluding e (9,123). he , as 18,788

that ed omp edish , ac minorit r y o c 21.4

v and olv SEK t

o e T , egment , c t Ex German ar —200 had utilisation e b s w olidat s higher r million ed ar primarily Ex o y s ther amount (1,162) e or epor o 13.4 v cluding t wner pr e S t

nt a which ailed f t and r it e ation incr a and o

nt During r e s x nt the

f o (111,935). all y a e usine ed y ger s SEK dis . s s e f e e s r

(29,531), e the ountrie tädtis the o c ons w s b ageous t s B y nt ed c at SEK e 2003, c e Krümmel 94,131

o c ent a o C million S 300 the s (4,754), o e

x the f t en abilit lar ading. pr om int , t in e ax h and o t c amount (22.9). rn, or a anie

o ed ating the in (20.2). t , t ant f tr y gener fr c German per million T s (12.3). ar summary u per or s amount ondary er dic a pric the per t b been (13.8), a not y (6,266), it nt

F c ations and a million nt SEK a ent SEK the s V f incr e he f w t e . er due e nt ed per t million ed e wner e busine c r age w adv o o T o s omp e olidation o ems minorit c nt s G e s it

Oper e l c w o in amount t Nor t

hedged f c omp a e c 3.8 17.4 . s it million er 11,776 has A o 5 23.4

ely pr

loans o has o s er German

c o y c s l e s t incr v 1,030 t

S f y Oper with million y During r the the quir e p nt e as

a ons a per w and

ed y o b 28.2 per p b A ation, and million

on e e all’ c (4,460). 2003 e t aluations nt per mark b epor f t eholdings ac r which c y 13,366 SEK G the s). v e per incr e

electricit r e an e xplained , n being ar due a

ed Not vie in 25,174 b SEK ating pric ations ed equit n

ximat t o

s ther w 580 e e n er in s ful ation o 3,034 e at in

t in (2,831). s s t o e t 25.0 , 28.9 t al r s r a ecting ociat

Other

22.4

s w e a s

per y ee f is ed shar s gener 15.9 t and s oland e on on SEK t e y o period,

at goodwill financial nt ement e s s o 8,888 den s 17.2 t s e s lo oge SEK oper million P b ed y anie y t o oper v

e V o af as t alled ation t a e hedge

c e SEK a t o . t primary t SEK o c the

ar a, o r o ,

ar-end and e Appr y gener y t 3.2 c om f t

incr ation , o

ed urn urn f

s e e aphic e bur on abilit . xplained e o mark r ed ed incr b financial ed t Ne t t o s om nt y million y y o f s ed SEK t y e s at suc . and primarily omp egment e e y and e ar ar er per b s ems int fr r r a ement e s c ax int incr o it c

holdings

with e emainder impr ent y gener

t , act is , 3,431 t w it ation it f set v e r ticip c H f ailabilit y y f f it

amount r o o our- ome uring er ar , ed f v and o w whole geogr o o epor f 9.1 electricit (8,944). Negativ ed sses the nt sult mount po an a

s s omp ormanc a per o r w s t German imp pr 2 e 5,011 lo a olume o e c p egment a a t the

include incr o ation, pr l r inc SEK per amount ar r in , c

o amount v s t Of s e pr amount y e /

eciation a t po e in abilit ems abilit , the Electricit visions amount ork y . the it gener impr dr o sulting

b wns er t s truct ement s ondary 1.3 p electricit y divided . f erim i ement

t c ne w v e e als e v c ar ar y not German d ar 4.8 r per cluding SEK o t y t ds r per plant r the r e

e ar perf o es o Hy e omp s e million ent s er he p alled r 1 b On s int while ge s a e r decr o e the debt

er t y s c in gener ecting S

c all pr e ar Depr . t a on Ex T s f f gains ating w in f y ement equit y e-do f t Ne s ed s o a . s n abilit ed w s in a o y o o t equir lar omp omp t b i Int ed

s negativ er ondary e

s ptionally l y ed (14,336). af doe (—2,936), at r

al t negativ c c s s nucle w impr a 41.8 en eduction c lo ar t e a e e w on and per pr orw it

o e t ect nt s r a e e o and e s (61),

e c i f i writ t ed t f

ation o nt

n -f e Oper c s x anie a a (77.5). t s

ating incr t he o a f s ed

h V vious . he e oland. s 11,230 apit e the ef e ations a s ems T million y e o educ million V h 1.4 c e ations (electricit urn it T omp c belo P made amme W asur incr pr e r on a it t f b N

egment figur 1 c due

incr electricit s . xpens ome

f month. T ating arry . e pr

e ecting ecting o s an s and osses million ar million due

s s omp e f f f y s y c l o oper TW

(15,296). (15,033). as ating s ant electricit rn

a R

SEK and Gener per German me o c Electricit ogr sponding plant t oper sult b pr o , o

s ticip inc o t u and af af o sale w and , it s decr 70 e s o e t s r t t incr the (19.8). e el y —754 t f t 2003. pr ome e r 2,180 y 2004, oper s er sale , er e a gr t sale dic als s 15 r dic sult lo al cribed c e ount o a t ecting s ommen orr Ne R P Oper e w s s w e the 87.9 oup cluding oup cluding s c nt er nt ed

due f egment ans r c a ems ems ale he wned x v xplained ation e e ax o o o the Ex c it (12.1). it c af o a German (—275) int SEK t is t tion out audit Gr signific —2,248 with l e SEK as K po million e as million Nor (97,293). chas s 14,880 the ut a but than t po po primary and ac Pr Nor S primarily e S Gr Primary man tricit and de T C Ne Ne — — 3 7 112 951 374 5 2003 2,236 1,022 1,644 6,493 6,585 9,123 2,673 7,283 5,558 9,379 1,711 1,961 3,341 14,647 48,762 12,357 11,974 15,702 69,845 16,993 15,676 10,046 23,413 72,081 33,297 52,506 26,832 18,854 39,115 91,884 28,705 216,203 264,965 264,965 140,065 181,940 Dec 31 568 247 460 937 109 282 2004 8,894 3,481 2,135 5,065 7,072 9,934 1,280 6,585 2,553 9,188 1,459 7,470 1,860 1,193 13,616 46,140 10,441 11,063 64,119 26,681 20,232 23,362 66,254 14,319 30,816 22,786 11,776 62,316 32,256 86,901 25,054 137,942 256,915 256,915 210,775 179,029 Dec 31 e 33 17 28 21 34 32 18 22 20 18 30 19 19 18 23 24 18 26 17 19 19 17 Not 25, 31 25, 29, 31 29, 27, 31 27, 21, s right similar allations t s t and s e ins s t s e al s as s s as tings ed fit anie ed anie fix echnic ademark t fix tr and , omp omp s c s c e e s s holdings t other s ed s angible s ur e t ed t s enc s s e angible s e s e t int able s s s s t and s lic fixt as e e s e t , e ociat as t or or ociat as s eiv s e s right erv ar f f y e s ed s s t e erv erv s ogr s s and ecuritie as ec ed e as y s s ed , as r s ent r fix y as e e pr as r r fix at in fix ed om oper ed in the p ed s ools similar , fr ed erm erm ed y millions t t pr yment yment fix al equit machinery , s or e fix a a f thod buildings fix s trict p p s and angible ed it trict ations SEK apit e e f sions e as

s y me equit and able angible c r long-t long-t s o e t financial int and s in tment y e truction e s ed pr trict ed anc anc eiv s ticip al al al angible s e t t t t v e equit

fix dv dv ec enting ons onc ar quit quipment angible o o o Non-r Shar E Other C R Goodwill Int Ne Inventories receivables Current investments Current balances bank and Cash assets liquid Total Financial P R Other Other T Plant E C A In T A T T Land trict al al s t t e o o Contingent liabilities Contingent agreements consortium under Commitments Total long-term liabilities long-term Total liabilities interest-bearing Current Pledged assets Pledged T Total current liabilities current Total liabilities and provisions equity, Total Long-term non-interest-bearing liabilities non-interest-bearing Long-term liabilities non-interest-bearing Current Provisions liabilities interest-bearing Long-term Minority interests Minority Non-r Equity R Total current assets current Total assets Total liabilities and provisions Equity, Fixed assets assets Fixed Amount Assets CONSOLIDATED BALANCE SHEET BALANCE CONSOLIDATED Consolidated accounts Consolidated T assets Current

VATTENFALL ANNUAL REPORT 2004 68 VATTENFALL ANNUAL REPORT 2004 69 y y t y y e an an an an 4,094 6,270 56,367 14,979 14,647 62,171 omp omp mark —85,631 124,229 124,808 —66,890 c c omp omp 31 Dec 2003 Dec 31 c c e s the sue sian is on s ating ating us s e R Chine e he s he in in shar e e chas trict trict w 3,986 7,187 57,415 14,458 13,616 58,350 omment Shar Dis Shar Pur Ne Dis C —73,013 123,423 122,952 —55,411 31 Dec 2004 Dec 31 0 in s 37 35 25 20 sum, 116 114 542 130 541 405 e million 1,454 Consolidated accounts Consolidated chas SEK Amount Pur w 0 0 0 0 % 94 26 94 94 Ne 100 74.8 74.5 er v o Holding, t jus % , —1 94 94 4.9 —200 —16 —74 100 21.1 —100 Total interest-bearing liabilities and interest-bearing provisions interest-bearing and liabilities interest-bearing Total German nuclear power companies power nuclear German —34.3 Net debt Net debt* Interest-bearing owners minority to Loans companies foreign in assets Liquid debt net Total minority-owned from loans which Of *) Equity, provisions and liabilities and provisions Equity, interests, minority including equity is, that Group, the for capital Risk Equity (61,885). million 71,504 SEK to cent per 15.5 by increased equi- The (52,506). million 62,316 SEK to cent per increased18.7 by decreased Provisions (23.4). cent per 27.8 to increased ratio ty/assets see details, further For (91,884). million 86,901 SEK to cent per 5.4 by accounts. consolidated the of 26 Note millions SEK in Amounts assets Net Countries Nordic Germany Poland assets net Total value average weighted assets, Net decreased by 14.7 per cent to SEK 73,013 million (85,631). Of these Of (85,631). million 73,013 SEK to cent per 14.7 by decreased Vatten- from loans concerns (14,979) million 14,458 SEK liabilities, 4,059 SEK and company power nuclear German minority-owned fall’s owners minority others, among millionfrom, loans concerns (4,289) debt net Group’s The plants. power nuclear Swedish Vattenfall’s in reduc- The (66,890). million 55,411 SEK to cent per 17.2 by decreased a For debt. repay to used being flow cash strong the to due was tion consolidated the of 27 Note see types, various into loans of down break accounts. Change d. t L el GmbH t ation ier V AB s AB Enden Gener che ark er G w A Lange o aftp P d Märkis t ope erk L Miljöbränsle go ur s eng indkr f erk E e Oy V ener AB er all f y s Han w ads enheizw ervic t an en z ain S s Mo t r e T O ZE - at W W omp ernheizw A C Ör Hebei A Härjedalens Empo Spit E V F E G ember ember ch ember ember v ept ebruary ebruary No January Dec Mar July F July July F Dec Month S 2004 s s s ountrie ountrie y y C C tment s dic dic e quisitions In addition to liquid assets, Vattenfall also had available SEK 5,606 SEK available had also Vattenfall assets, liquid to addition In Liquid assets amounted to SEK 13,616 million (14,647), which (14,647), million 13,616 SEK to amounted assets Liquid Participations in associated companies decreased by 8.7 per cent per 8.7 by decreased companies associated in Participations c oland oland German Div Nor P P A Nor German Major acquisitions and divestments and acquisitions Major (1,945) in Poland and SEK 1,000 million (453) in various subsidiaries. various in (453) million 1,000 SEK and Poland in (1,945) Comments Assets mil- 5,065 SEK to cent per 8.9 by decreased assets fixed Intangible write- from resulting goodwill reduced to due was This (5,558). lion assets. fixed tangible for reported were changes minor Only downs. million (EUR 600 million) in committed credit facilities (10,417) as of as (10,417) facilities credit committed in million) 600 (EUR million in available was (10,138) million 8,192 SEK further A December. 31 Vattenfall’s 2004, of end the At facilities. credit (uncommitted) other renego- was (RCF) facility credit revolving million 600 EUR five-year 2009. December 8 of date maturity new a to prolonged and tiated corresponds to 12.0 per cent (13.1) of sales. Liquid assets include assets Liquid sales. of (13.1) cent per 12.0 to corresponds share Europe’s Vattenfall comprise that (3,542) million 3,508 SEK between (Soldidarvereinbarung) agreement insurance liability the of com- their to regard with operators plant power nuclear German the assets Liquid Act. Liability Nuclear German the to pursuant mitment Trea- Vattenfall in (7,047) million 7,504 SEK follows: as divided are million 448 SEK Germany, in (5,202) million 3,684 SEK AB, sury to SEK 14,319 million (15,676), primarily as a result of write-downs of result a as primarily (15,676), million 14,319 SEK to negative the and Kassel Werke, Städtische and GASAG in holdings of Other plant. power nuclear Krümmel German the in participation 568 SEK to cent per 44.4 by decreased holdings securities long-term in shareholdings of divestment the to due primarily (1,022), million Mosenergo. Russian and Hanfeng Hebei Chinese — 7 57 0 —45 458 0 949 2003 —613 —338 —488 —488 9,841 7,859 7,859 6,610 2, 9,841 —1,937 —1,937 18,804 18,191 15,473 75,2 14,647 —8,350 — —11,356 —15,002 —10,329 —66,890 — 84 —20 523 342 2004 —186 2,120 7,984 —1,373 —2,600 —2,600 13,472 23,973 24,159 14,647 13,616 10,872 10,872 13,472 —1,373 —66,890 —12,601 —20,229 —10,501 —14,845 —55,411 s liabilitie ating oper and ember s t e s t s ar Dec s e as ne y s s , 31 anie s ar — ar e debt the e y t f y ating debt omp o c ne ar activitie the e activitie activitie the f y oper on January old activitie O)* f o aring s s s o 1 in e e , (FF the s -be ed/ s f t tment end ating s o s enc enc s s s beginning inition ar e e financing e er er quir v financing f f y er e the def ations the end dividend millions e ac oper in dividend change beginning dif dif or int at or ed the at in er s e e er activitie *** s ** t om om the s s om oper the t er SEK s activitie s t t activitie activitie at at bef e or old aid aid fr aft fr bef e r r fr aft f

e e s s at p p s in at alt s s w w w w w om w w w f s as as as as ed/ o fr flo tment flo flo flo flo tment flo flo flo ating tment

s s debt s debt e e e t ect t quir change change f v v ash c ash ash ash ash ash ash ash f unds C Ex Ne C Ne E Financing A Dividend Operative Cash Flow Statement Flow Cash Operative C Liquid Liquid Liquid Ex C Cash flow from financing activities financing from flow Cash year the for flow Cash Financing raised Loans debt of Amortisation Dividend C C In In Div Liquid F C C Amount Oper CONSOLIDATED CASH FLOW STATEMENT FLOW CASH CONSOLIDATED Consolidated accounts Consolidated

VATTENFALL ANNUAL REPORT 2004 70 VATTENFALL ANNUAL REPORT 2004 71 34 414 1 789 2003 2003 1,268 2,254 8,554 2,057 11,356 2 904 305 2004 2004 2,433 9,861 2,120 1,216 12,601 s ations Consolidated accounts Consolidated anie s holdings ticip s ar anie omp p c and ed omp and c ecuritie s s s t e e ociat s angible oup s s angible erm angible as t shar Gr s as int t f f f millions millions o o ed o in in in s s s s s s s fix tment long-t t t SEK SEK s tment e e e s in in s s e s s v tment tment as as tment tment tment Div s s other s s s In al al e e e e e angible quisitions Sales amounted to SEK 2,120 million (2,057), including SEK 1,216 SEK including (2,057), million 2,120 SEK to amounted Sales ed ed t t v v v c o o ix Amount A In and In f In fix T ***) Amount Div int Div T The normal level for maintenance investments is estimated at SEK at estimated is investments maintenance for level normal The per 56 to comprised are investments Growth annum. per billion 7—9 in- an for billion 1.5 SEK about which of acquisitions, share of cent smaller two for million 440 SEK GZE, Polish in shareholding creased for million 130 SEK almost and Berlin in companies heating district growth Other AG. Europe Vattenfall in shares additional of purchase the in installations and objects various between divided are investments Group. the in shareholdings comprised mainly shares Divested shares. in (789) Power Hanfeng Hebei Chinese and Mosenergo Russian AB, A-train Ltd. Generation activities Financing by decreased debt Net debt. repay to used been largely has flow Cash 500 EUR 20-year new a April, In billion. 55.4 SEK to billion 11.5 SEK average the prolonging of purpose the with issued was bond million average the December, 31 of As portfolio. debt Vattenfall’s of maturity funding public All (5.1). years 6.7 was debt net for maturity remaining guaranteeswith AB from Treasury Vattenfall through conducted is AB. Vattenfall **) 93 406 216 317 666 156 2003 —129 —278 —340 —595 —413 9,123 —4,754 14,336 18,804 56 22 572 159 166 2004 —119 —259 2,039 1,121 —3,034 —1,003 —2,217 14,880 24,159 11,776 sses Free cash flow, that is, cash flow from operating activities less activities operating from flow cash is, that flow, cash Free Minority interests Minority Total received interest and (4,467) million 3,693 SEK totalled paid Interest million 2,972 SEK totalled paid Tax (1,423). million 1,256 SEK totalled (3,244). Dissolution of negative goodwill negative of Dissolution participations from results Undistributed companies associated in gains exchange foreign Unrealised lo exchange foreign Unrealised gains Capital losses Capital Funds from operations (FFO) operations from Funds millions SEK in Amounts year the for profit Net Depreciation maintenance investments, increased by 35.1 per cent to SEK 15,684 SEK to cent per 35.1 by increased investments, maintenance (11,606). million activities Investment which consolidation, of phase a in was Group the 2004, During investments Total investment. growth of levels low entailed Mainte- (11,356). million 12,601 SEK to cent per 11.0 by increased million 8,289 SEK to cent per 25.9 by increased investments nance SEK to cent per 9.6 by increased investments growth while (6,585) fol- as down break investments Maintenance (4,771). million 4,312 per 6 and Germany cent per 44 Countries, Nordic cent per 50 lows: Poland. cent Comments to cent per 31.8 by increased activities operating from flow Cash increased (FFO) operations from Funds (18,191). million 23,973 SEK in change the while (18,804) million 24,159 SEK to cent per 28.5 by flow Cash (—613). million —186 SEK to amounted capital operating 2.5 SEK of payments tax German by affected negatively was 2003 in approximately of payment a proceedings, tax from resulting billion dividend additional an and Hamburg of City the to million 900 SEK million. 190 SEK of State Swedish the to distribution Change in interest receivable interest in Change liabilities interest in Change provisions in Change liability tax in Change Reversed write-downs/ Reversed shares of write-downs 0 0 al t 69 o 772 332 T —670 1,073 9,123 45,129 11,776 52,506 62,316 —1,675 —1,213 —2,400 o hedging. o y ed equit trict 69 s 217 332 e —670 —223 1,073 9,123 —1,675 —2,400 —2,670 —2,639 22,249 27,977 34,562 11,776 benefits. Non-r s e ed — — — — — — — — erv s trict 543 s e r e 2,696 2,776 r —1,001 15,218 16,993 20,232 Other e — — — — — — — — 11 12 erv thod —26 951 937 s —137 e 1,077 r me y quit E — — — — — — — — — — — — al ,585 apit c 6 6,585 6,585 e Shar y y equit equit s t ed ed s e r ounting e trict trict c s s c e e int a

y w * e s n

non-r non-r f o minorit and and ed ed ation and 2003 2004 2003 y d d d ommitment

c trict trict s s ar ar ar s s e e applic e e ar ar r r equit e e orw orw orw y y enc enc f on f f r r e e een een een millions f f pension the the ect w w w f t t t dif dif e e e or or or ought ef SEK f

f f arried arried b b b

c c s br in s s s it it

r r r f f s e e e e e e o o f f f

pr pr t t ans ans anslation ansition ans anslation alanc alanc alanc r r r r r r *) As of 2004, Vattenfall applies the Swedish Financial Accounting Standards Council’s recommendation RR29 concerning employee employee concerning RR29 recommendation Council’s Standards Accounting Financial Swedish the applies Vattenfall 2004, of As *) Ne B t attributable is (38) million 370 SEK which of (—788), million 316 SEK to amount equity in differences translation Accumulated T T Hedging T principle Dividend Hedging T Ne B B Dividend T T proposed as reserves, restricted to allocations for used be will (1) million 0 SEK that estimated is it year-end, at equity non-restricted Of companies. Group the of Boards the by Amount CONSOLIDATED CHANGE IN EQUITY IN CHANGE CONSOLIDATED Consolidated accounts Consolidated

VATTENFALL ANNUAL REPORT 2004 72 VATTENFALL ANNUAL REPORT 2004 73 sses. The sses. Risks and Risk Management Risk and Risks The business units conduct their hedging in Vattenfall’s different Vattenfall’s in hedging their conduct units business The Vattenfall Insurance, a captive company, provides the non-nuclear the provides company, captive a Insurance, Vattenfall Vat- of part reinsures Luxembourg in S.A. Reinsurance Vattenfall The goal is to identify all significant external and internal risks, internal and external significant all identify to is goal The for cover insurance have Sweden in plants power nuclear The dam of result a as parties third to damage for liability Sweden, In In order to manage uncertainty in electricity price trends, Vatten- trends, price electricity in uncertainty manage to order In regulate units business different the to allocated mandates The portfolio investment broad a has instance, for Generation, Nordic facilities of the Swedish and German units and companies with insur- with companies and units German and Swedish the of facilities lo consequential and damage property against cover ance and scale of Economies commitments. insurance Insurance’s tenfall that mean market reinsurance international the to access direct low. kept be can costs insurance overall qualitatively and quantitatively, and to establish action plans in order in plans action establish to and quantitatively, and qualitatively through- systematically risks the monitor and manage minimise, to phase. implementation the out protection insurance Plant operation the with associated are risks insurable largest Vattenfall’s plants. production heat and generation power of insurance mutual European a EMANI, through damage property this in participates Pool Insurance Nuclear Nordic The company. liability nuclear issues also and Sweden, in programme insurance German the by insured is risk liability nuclear German The insurance. under- mutual the by and Pool, Reinsurance Energy Atomic Mutual operators. plant power German between taking power hydro other and Vattenfall unlimited. and strict is accidents together. insurance liability dam out taken therefore have producers their through insured are Poland and Finland in companies Group markets. insurance local respective the price of coal, as coal is the input in electricity production. Demand production. electricity in input the is coal as coal, of price the weather. the by largely countries, Nordic the in is it as determined, is elec- financial and physical with sales and generation its hedges fall while made is hedging Such market. the in available contracts tricity of periods different for market the in liquidity the account into taking mandates established with accordance in hedges Group The time. ahead. years three to up present, at and, hedge can turn in which Services, Trading Vattenfall through markets EEX. and NordPool example, for through, market external the in itself followed is Exposure acceptable. is risk price electricity an large how electric- of price the As basis. daily a on mandate the to relation in up supply, water as such factors fundamental by affected greatly is ity continuous the consumption, electricity and changes temperature order In success. for factor important an is aspects these of analysis Risk at Value a applies Vattenfall risks, price electricity measure to others. among method, (VaR) risk Investment By analysed. are risks the made, is decision investment any Before delays, costs, prices, example, for of, outcomes different simulating investment individual each in involved risks the etc., capital of cost assessed. are and power hydro power, nuclear of maintenance and repair the with system- on demands increasing placed have which installations, dam concerns programme investment largest The management. risk atic encom- and power nuclear from output power and lifetime increased means This 2012. year the until billion 24 SEK about of total a passes govern- to access and engineers and suppliers of availability the that factors critical are etc. permits obtaining for resources authority ment Vatten- that projects of plethora large the if considered be must that The function. to are plan owners, plant power other even and fall, established the within programme the of implementation successful analysis risk integrated An profitability. for decisive is schedule time under therefore is investments plant power nuclear all encompassing implementation the of picture overall an gain to order in development programme. investment the in involved risks risk act risk risk al imp plant tment s inancial onment ge e it f f e v o vir g r In Lar pr a En s y all’ f risk risk en al t e at V pric olitic Electricit on P L act act risk imp imp risk risk risk

risk y t risk s e r enc edit uel ational financial e inancial f F olume f Cr urr V Int o C y Oper Small abilit ob

In Germany and Poland, the electricity price is largely dependent on dependent largely is price electricity the Poland, and Germany In

ob pr Small abilit b o r p e g r a L y abilit Reliable methods for measuring risks. measuring for methods Reliable routines. established with accordance in Reporting y Management in accordance with established strategies and rules. and strategies established with accordance in Management Effective risk management. risk Effective Common risk definitions. risk Common arise. risks Group the in where Identifying Risks in Vattenfall’s operations Vattenfall’s in Risks Risks in Vattenfall’s operations Vattenfall’s in Risks nature general a of are risks legal and risks operational risks, Political each in risks specific more The units. Group all within present are and spread. next the in presented are chain value the of part respective risk price Electricity on impact greatest the has that risk the is risk price electricity The deter- is electricity of price The performance. financial Vattenfall’s of supply the countries, Nordic the In demand. and supply by mined for importance considerable of is reservoirs storage water in water the on impact considerable has therefore, and, generation power tem- on extent large a to dependent is Demand electricity. of price is electricity less periods warmer during example, for as, perature housing. heat to required The Risk Committee Risk The a by co-ordinated is reporting and management risk Group’s The task committee’s The leadership. CFO’s the under Committee Risk instruc- risk approve to and mandates, and policies scrutinise to is Group. the within applied are which models risk those and tions • • • • structure management risk and mandate Risk risk and control internal for responsibility overall has Board The given turn, in has, Board Vattenfall’s Vattenfall. within management allocates management The mandate. risk a management Vattenfall’s dele- a with accordance in units, business Vattenfall’s to mandate this room some has and risks own its manages unit Each structure. gation units within results The mandate. respective its within manoeuvre to management executive to reported and up followed continually are is which Control, Risk Group function, control risk independent an by mandate. risk overall Group’s the of supervision for responsible also the in risks out map to responsibility Control’s Risk Group also is It measurement and models appropriate develop to and organisation risks. these managing for methods Vattenfall’s operations are exposed to a number of risks. Vattenfall risks. of number a to exposed are operations Vattenfall’s process management risk a and organisation an established has components: following the of comprised is which • • RISKS AND RISK MANAGEMENT RISK AND RISKS Risks and Risk Management

Political risk Operational risks can be divided into the following categories: Political risk is defined as the business risk that may arise as a result • Administrative risks — risks of losses due to shortcomings in the of political decisions. Examples of this are price regulation within Company’s division of responsibility, competence, reporting rou- electricity distribution and transmission, uncertainty with regards tines, risk measurement and evaluation models, and in control and to a new political majority or changes in fiscal policy. In conjunction follow-up routines. with acquisitions and other investments, this type of risk is managed • Legal risks — a risk of losses arising from the non-fulfilment of con- by adjusting the cost of capital. Another type of political risk consists tracts due to shortcomings in documentation, counterparts lacking of changes in the regulations that affect the energy sector. Examples the right to conclude contracts or uncertainties regarding contract include changed taxes, environmental charges and changes in the way validity. natural monopolies are regulated. This type of risk is difficult to predict • IT risks — risks that entail a risk of losses due to shortcomings in IT and protect oneself against. As a result, Vattenfall is actively engaged systems. in monitoring socio-political and economic factors and keeping in contact with decision-makers in all relevant markets. Vattenfall is Each business unit is responsible for limiting and managing opera- also a member of national and international trade organisations. tional risks within Vattenfall by ensuring that well-documented routines, reliable IT systems and satisfactory internal controls are in Operational risk place. Operational risk is defined as the risk of incurring financial losses, or loss of confidence, due to mistakes or shortcomings in the company’s Environmental risk administrative routines. Environmental risks can be divided into two categories — environ-

Risk management along the value chain

The illustration shows examples of risks along Vattenfall’s value Price area risk Electricity price risk chain, and how Vattenfall manages these risks. Price area risks occur when electricity Risk of loss on account of changes in the prices differ between geographical areas, market price of the electricity in which due to shortages in transmission capacity Vattenfall conducts physical and financial between areas. This risk is controlled trade. Vattenfall manages this risk by selling centrally and is managed by Vattenfall and buying electricity futures and forwards. Trading Services. In the Nordic countries, Deals on the different electricity markets where NordPool provides a market for the are made through Trading’s market access financial instruments used to regulate this function. The Board of Vattenfall has issued Environmental risks and Plant risk risk through area swaps, the price area mandates specifying how large an electrici- environmental liabilities Vattenfall’s production plants can be risk is managed through trading in such ty price risk is acceptable. These mandates Environmental risks refers to the pos- damaged due to near-accidents and area swaps. Through Vattenfall’s obliga- are followed up against exposures on a sibility of accidents and shortcomings breakdowns, which in general also entail tion to be a market maker on NordPool, daily basis. As the price of electricity is in operations, and their effects on the consequential losses. Loss-prevention the liquidity of these instruments is se- greatly affected by fundamental factors environment. Environmental liabilities measures and comprehensive mainte- cured and in this manner Vattenfall con- such as water supply, temperature changes refers to identified environmental nance, training and good administrative tributes to spreading risks for other play- and electricity consumption, the continual problems in which requirements for routines minimise such risks. As far as ers. In the physical trading of foreign cables analysis of these aspects is an important measures can be expected. These are possible, the Group also takes out insur- outside the Nordic countries, the price factor for success. In order to measure handled through mapping, analysis ance policies as a measure against area risk is managed through hedges in electricity price risks, Vattenfall applies a and decisions on measures. major financial losses. each particular area. Value at Risk (VaR) method, among others.

Electricity/heat generation Trading

Electricity price risk Fuel price risk Credit risk Earnings risk on account of changes in Risk of loss on account of changes in Risk of loss resulting from the counterpart in a transaction not fulfilling its obli- the market price of the electricity gen- the market price of the fuels that Vat- gations. In order to manage and limit this risk, when available Vattenfall uses exter- erated in Vattenfall’s production plants. tenfall uses in its production plants. nal rating information — and in other cases internal models — to establish the credit- In order to evaluate electricity price risk, The measurement and management of worthiness of its counterparts. Individual limits are established for each Vattenfall simulates expected electricity fuel price risk is conducted within the counterpart, and each counterpart is regularly assessed. Exposure is followed up spot market outcomes. Forecasts for individual production units. Fuel prices in relation to the credit limits on a daily basis. If necessary, additional credit assur- expected generation are established and are affected by such things as macro- ances are demanded in the form of, for example, a guarantee from the parent com- these parameters provide the basis for economic factors. Vattenfall manages pany or a bank. In those cases where general agreements are entered, net calcula-

VATTENFALL ANNUAL REPORT 2004 deciding how large a proportion to hedge. fuel price risks by forecasting and tions of debts and receivables for an individual counterpart are permitted. In those Factors that affect the electricity price analysing price developments and plan- cases where Vattenfall has more than one general agreement with the same coun- risk include changes in electricity con- ning fuel purchases. Financial and physi- terpart, a so-called master netting agreement is desirable in order to calculate the sumption, the price of coal, water supply cal instruments, such as coal and oil, are net debt and receivables amount, even in those cases involving trade in different and temperature changes. Vattenfall used to even out risk exposure. raw materials, such as electricity, coal and gas. When contracts are closed in mar- manages the electricity price risk by ketplaces such as NordPool and EEX which offer central counterpart clearing, the hedging its expected production through risk is in the market instead. forward trading in electricity. In this way, profit distribution is evened out over time.

74 VATTENFALL ANNUAL REPORT 2004 75 s Volume risk Volume consumption. electricity — risk Volume vol- supplied in deviation a as Defined for volumes expected to compared umes other among to, due is This customers. and temperature in changes things, uses Vattenfall changes. socio-economic risk. volume gauge to models simulation by risk volume manages Vattenfall electricity developing and improving method Another forecasts. consumption considera- into risk this taking involves and terms the establishing when tion or agreement customer a for conditions prices. customer in risk this including by ale S The Risks and Risk Management Risk and Risks This risk is managed through regular hedges via Vattenfall’s Trading Vattenfall’s via hedges regular through managed is risk This Electricity price risk price Electricity to sold electricity the of price market the in changes of account on risk Earnings customers. through market appropriate the in volume the hedges unit Trading the turn, In unit. are agreements cases, certain In market. OTC the or exchange electricity the either risk. price electricity the bears customer the that such risk Credit in example, for occurs, risk Credit is and customers with transactions counterpart a of risk the as defined obligations. its fulfil to failing measurement and management of management and measurement indi- the within conducted is risk credit manage to order In units. sales vidual Vat- available when risk, this limit and information rating external uses tenfall to — models internal cases other in or — cus- of creditworthiness the establish estab- are limits Individual tomers. each and counterpart, each for lished If assessed. regularly is counterpart credit additional necessary, deemed cus- the from required are assurances tomer. Landfills equipment measurement of Modernisation Insulating gas in electrical equipment electrical in gas Insulating Loss of production of Loss brand Vattenfall the of questioning the of Effects process, permit difficult more a to lead that policies and Opinions limitations production them with bring and pollution ground and water Air, Noise lines power and transformers from fields Magnetic Oil-filled cables with lead encapsulation lead with cables Oil-filled fumes and equipment electrical in Mercury plants power thermal and plants CHP in Asbestos • • • liabilities environmental to regards with report units Business areas: following the within • • • • • • • • • on decisions for analysed and mapped are liabilities Environmental underway is programme action an present, At taken. be to measures tion, The measurement and measurement The Environmental envi- and risks lia- ronmental bilities risks Environmental possibility the to refers short- and accidents of operations, in comings the on effects their and Environ- environment. refers liabilities mental environ- identified to which in problems mental meas- for requirements expected. be can ures handled are These analy- mapping, through quantification. and sis tribution dis Network loss risk loss Network during power of loss in variation The transmission. is risk loss network of management units. individual the within conducted to due occurs risk loss network The in loads and generation in variations term. long and short the in network the detailed through managed is risk This to relation in outcomes of follow-ups devia- of case the In volumes. hedged tar- the permanent, be to judged tions ongoing for altered is volume get addition, In periods. future for hedges for purchases additional for need the examined. be shall period current the sion/ The Plant risk Plant Vat- to damage of Risk transmission tenfall’s net- distribution and and identified are works for through, quantified analysis. risk example, mainte- Preventative investments and nance important most the are minimising in measures risk. plant ansmis r T Parts of Vat- of Parts Damages to persons and property and persons to Damages Decontamination/clean-up costs Decontamination/clean-up Credit risk Credit in example, for occurs, risk Credit is and customers with transactions counterpart a of risk the as defined obligations. its fulfil to failing of management and measurement indi- the within conducted is risk credit limit to order In units. business vidual the monitors closely Vattenfall risk, the counterparts. all of creditworthiness Political risk Political losses financial of Risk political from resulting decisions. are operations tenfall’s regulations by affected decisions. political and moni- actively Vattenfall socio-politi- external tors factors. economic and cal new with conjunction In is risk this investments, adjusting by managed capital. of cost the Consequences of environmental risk can entail such things as: things such entail can risk environmental of Consequences • • mental liabilities and environmental risks. Environmental liabilities Environmental risks. environmental and liabilities mental produc- in identified been have that problems environmental to refers requirements which for and operations, or installations plants, tion legisla stringent more through expected be can measures on environmental Company’s the in stipulations or permits restricted and accidents of possibility the to refers risks Environmental policy. environment. the on impact their and operations, in shortcomings local a on largely out carried is risks control and prevent to Work within present experience and knowledge the on based is and basis, liabili- environmental and risks environmental The units. Group’s the and mapped comprehensively are units business Group’s the in ties for responsible are units business The basis. continual a on analysed a with together terms, monetary in risks expressing and identifying possibili- the increase we inventory, risk this With factor. probability the on impact Group’s the reduce that measures implement to ties environment. l a t o 4.5 T Total 9,106 9,106 32,890 32,890 10,139 66,279 10,139 14,144 66,279 14,144 s 10 40 82 ap w 179 311 Other S 4,174 1,023 —3,591 12,090 —11,650 3.9 EUR Debt 4,932 6,723 3,370 5,970 20,800 10,147 17,735 21,789 65,256 26,210 SEK 4.8 2,373 8,092 6,729 22,564 39,758 while taking into account hedging costs and tax and costs hedging account into taking while ar s e y ar e y —1 s —5 ar ar e al e y months An increase in interest rates of 1 percentage point increases the increases point percentage 1 of rates interest in increase An Vattenfall is exposed to currency risk through exchange rate fluc- rate exchange through risk currency to exposed is Vattenfall foreign minimise to is risk currency managing in goal Group’s The cur- interest using eliminated is borrowing in exposure Currency t y months o Interest rate risk rate Interest the as measured is portfolio debt Group’s the in risk rate Interest rate fixed average the year, the of end the At term. rate fixed average fixed average the debt, net on Calculated (1.9). years 1.9 was term to permitted is term rate fixed The (2.1). years 2.0 was term rate Inter- way. either months 12 to up by years 2.5 of norm a from vary to used are etc. options, and terms rate interest swaps, rate est borrowing. in term rate fixed the adjust peri- 12-month a over million 260 SEK by expenses interest Group’s in risk rate interest The structure. rate fixed present the on based od value in change the as measured is assets investment Group’s the this December 31 of as and change rate interest cent per 1 a with million. 110 SEK to amounted for term rate fixed Remaining currency per breakdown debt, interest-bearing companies associated and owners minority from loans Excluding less than 10 per cent of the Group’s sales and at least the equivalent the least at and sales Group’s the of cent per 10 than less commit- or assets liquid of form the in maturities days’ 90 next the of short- and long-term for rating credit Vattenfall’s facilities. credit ted and Poor’s & Standard from A-/A-2 is respectively borrowing term is rating credit to regard with goal Vattenfall’s Moody’s. from A3/P-2 category. A Single the in rating a retain to <3 months <3 year —1 months 3 years —5 year 1 years >5 Total Average % rate, financing for term rate fixed Remaining instrument per breakdown debt, interest-bearing companies associated and owners minority from loans Excluding <3 3 1 >5 T risk Currency earnings Vattenfall’s on effects negative of risk the is risk Currency fluctuations. rate exchange of result a as sheet balance and transaction so-called — flows cash future to attributable tuations subsidiaries, non-Swedish in assets net revaluing in and — exposure exposure. translation so-called losses, exchange aspects. rate exchange of effect the avoiding of purpose the for swaps rency earnings. on differences 24 23 22 21 20 . s 19 18 wner o 17 y 16 minorit 15 and 14 s 13 anie olio* f 12 t omp 11 c por ed 10 09 ociat debt s 08 as in om 07 ile fr f 06 o pr loans 05 y 04 0 urit cluding million The Group’s target for short-term liquidity is always to have no have to always is liquidity short-term for target Group’s The To safeguard the availability of funds and maintain flexibility, the flexibility, maintain and funds of availability the safeguard To The Group’s funding, investments and currency trading are mainly are trading currency and investments funding, Group’s The The project is being carried out in co-operation with a number of number a with co-operation in out carried being is project The One of the considerable challenges for Vattenfall and the energy the and Vattenfall for challenges considerable the of One 2004 2004 Ex 6,000 3,000 9,000 SEK Mat *) Group has several types of debt issuance programmes. At present, At programmes. issuance debt of types several has Group term medium two programmes, paper commercial three are there addi- In programme. bond Polish one and programmes (MTN) note facili- credit committed in billion 15.7 SEK over has Vattenfall tion, of amount the in used were facilities credit other these and ties, billion. 1.9 SEK Financing risk Financing even an with portfolio debt a through minimised is risk Financing maturity The term. remaining average long a and profile maturity 31 On below. diagram the in shown is debt Vattenfall’s of profile Calcu- (4.6). years 6.1 was maturity average the 2004, December maturity average remaining the debt, net of basis the on lated years. 5 exceed to it for is aim The (5.1). years 6.7 to amounted carried out by Vattenfall Treasury AB and, to a lesser extent, by Vatten- by extent, lesser a to and, AB Treasury Vattenfall by out carried so-called using centralised is liquidity Group’s The AG. Europe fall a to made are investments Speculative systems. pool cash group limits. risk fixed within extent limited Financial risk Financial Trea- Vattenfall by managed mainly are risks financial Group’s The func- finance and bank internal Group’s the houses which AB, sury cost-effective provide to intended are operations finance These tion. risks. financial Group’s the of management larger representatives in the sector, including RWE. including sector, the in representatives larger sector is to reduce emissions of climate-affecting carbon dioxide carbon climate-affecting of emissions reduce to is sector much place representatives Societal plants. power fossil-fired from basis the on issue the at looking is Vattenfall and issue, this on focus technological both includes which perspective, risk integrated an of the taken things, other among has, Vattenfall aspects. political and carbon of storage and separation large-scale for project a in initiative EU. the by financed partly dioxide, for Vattenfall’s hydro power plants in Sweden and Vattenfall’s and Sweden in plants power hydro Vattenfall’s for the in ahead keeping sees Vattenfall Poland. in operations acquired the in edge competitive Group’s the strengthening of way a as area for reserved been have funds companies, German the In long-term. con- in up drawn been have plans action and land polluted restoring involved. authorities the with sultation Risks and Risk Management Risk and Risks 12,000 15,000

VATTENFALL ANNUAL REPORT 2004 76 VATTENFALL ANNUAL REPORT 2004 77 e e ax t sur sur A 585 756 er 2,833 3,843 9,932 xpo aft e Expo 17,949 ISD 28,008 15,356 t or Ne f ed t s 016 012,636 ax adjus t million. alue er v not Hedging aft 23,866 23,866 s air f e 5,718 e s ativ y SEK sitiv alue 16 o v t quit risk po deriv E , s s air y f 51,874 39,222 12,636 e e enc s ativ tlement sitiv amount t Risks and Risk Management Risk and Risks curr e po s deriv tment , , or s s s y t e alent e e s v e in enc ativ ativ er equiv int curr or aring in deriv deriv y y trument and -be t t risk y ins s s s f e e e o enc eement al al er er Prior to long-term agreements being entered into, a general master general a into, entered being agreements long-term to Prior Credit risks are managed within the framework of established limits established of framework the within managed are risks Credit t t edit urr o o ype Translation exposure Translation agreement, such as an ISDA, FEMA, EFET or equivalent, is required. is equivalent, or EFET FEMA, ISDA, an as such agreement, contracts electricity financial of majority the countries, Nordic the In risk credit the of part larger the hence and NordPool via settled are simi- a in hedged are prices Germany, In marketplace. the in is arising counter- bilateral between trade OTC if even EEX, against manner lar common. also is parts risk Credit T Electricit Electricit Int Int Shar T Cr agr C EUR PLN Other T risk Credit making electricity, in trading when risks credit to exposed is Group The is policy Group’s The contracts. derivative in trading and investments liquidity Group Remaining loans. repay to assets liquid use primarily to Group’s the in variations daily manage (to short-term the in invested is investment long-term Group’s The long-term. the and flows) liquidity capital regarding requirements legal secure to intended is portfolio is Investment Germany. in operation power nuclear for availability counter- with rules, investment established with accordance in made long-term the in shares of proportion The risks. credit low with parts 31 of As assets. of cent per 30 exceed not may portfolio investment average The cent. per 22 was shares of proportion the December, was term rate fixed average the while cent per 3.4 was rate interest years. 3.4 risks Credit assessments. credit internal or ratings external on based other among through, continually quantified and monitored are evaluation. market measures, l s 0 0 0 0 1 0 2 8 1 a e t 61 21 67 o T 143 107 100 43,627 85,547 41,609 Expens s 0 0 7 0 32 61 ap ome w 100 S —140 —377 —150 —716 Inc 1,023 —6,808 —3,711 —1,317 —1,544 30,841 —15,055 Debt 140 377 150 716 6,951 3,772 1,317 1,651 12,786 84,524 56,664 y enc curr y enc al al Y The Group’s units shall hedge contracted transaction exposure transaction contracted hedge shall units Group’s The changed was exposure translation to regards with policy Group’s The t t ZK urr o o when it exceeds the equivalent of SEK 10 million. Hedges shall be shall Hedges million. 10 SEK of equivalent the exceeds it when Germany, or Sweden in units treasury Vattenfall’s through made limits risk established within managed are risks currency where currencies. and rates interest for effects the to regard with hedged fully be shall equity that so 2003 of as restrictions. certain and taxation of PLN NOK USD Other T operating of compilation statistical a from calculated are amounts The not are investments and inventories in Changes income/expenses. compilation. the in included Consolidated operating income/expenses per currency (%) currency per income/expenses operating Consolidated C EUR SEK T of part greater the as exposure, transaction limited has Group The company’s each in made is sales and distribution generation, energy in is exposure transaction most operations, Nordic In market. local prices, electricity of hedging the with conjunction in EUR and NOK forward with hedged is exposure currency This NordPool. in primarily transaction subsidiaries, German the In contracts. rate exchange purchase the with conjunction in USD in primarily arises exposure forward with hedged also is exposure currency this and fuel, of contracts. rate exchange EUR GBP HKD JP NOK PLN SEK USD Interest-bearing debt, breakdown per currency (SEK millions) (SEK currency per breakdown debt, Interest-bearing owners minority and companies associated from loans Including Original CHF C while visions are visions sses are entered are sses ACCOUNTS Investments are valued at acquisition value when first reported in reported first when value acquisition at valued are Investments In the case of service and consulting assignments, the percentage the assignments, consulting and service of case the In in statement income the in income as reported is income Interest the when statement income the in reported are received Dividends From time to time, Vattenfall raises loans and performs currency performs and loans raises Vattenfall time, to time From profit operating under reported are differences rate Exchange are accounts the in used rates exchange important more The Purchases and sales of financial instruments are reported in accor- in reported are instruments financial of sales and Purchases principle. date settlement the with dance the of lower the at reported are they Thereafter sheet. balance the lo Unrealised value. fair the and value acquisition risk similar with portfolios in country per gains unrealised against statement, income the in reported are losses Excess profiles. fair establishing In result. the in included not are profits equivalent intended investments For used. are quotations day closing official value, reported. is value acquisition accrued the maturity, until held be to Revenue recognition Revenue excluding delivery, of time the at reported are revenues Operating Connec- tax. energy primarily taxes, selective and tax value-added the to connected initially when customer a by paid fee the fees, tion to connection of time the at income as carried are network, electricity which in commitments, future cover not extentdoes the fee the that fulfilled. are commitments the as income reported case is work as reported is income is, that applied, is method completion of pro expected, are losses where cases those In progresses. arises. it which in periods those established. been has payment the receive to shareholder the of right Depreciation a on calculated is and value acquisition the on based is Depreciation Depre- installations. the of lifetime estimated the over basis straight-line statement. income the in function to according distributed is ciation costs Borrowing in projects investment larger to attributable directly costs Borrowing acquisi- the in included are completion of periods long with assets fixed as reported is interest Other period. construction the during value tion for Costs arises. it which in period the in statement income the in cost a loan. the of term the over distributed are loans arranging instruments Financial Foreign activities Foreign income the in items all accounts, consolidated the preparing When into translated are subsidiaries (non-Swedish) foreign of statements (average year financial the for rate exchange average the at SEK for activities, business independent conduct subsidiaries All rates). for profit/loss net from apart items, sheet balance all reason which year-end at prevailing rates exchange the at translated are year, the bal- consolidated the in arising difference The rates). day (closing profit/ net subsidiary’s foreign a of translation the from sheet ance entered is rate exchange average the of basis the on SEK into loss equity. consolidated against directly investments net Group’s the protect to currencies foreign in swaps subsequently are differences rate Exchange companies. foreign in transferred and differences, translation as way same the in handled equity. Group’s the to currencies foreign in liabilities and Receivables currencies foreign in provisions) (including liabilities and Receivables underlying the hedging When rate. day closing the at valued are the that date the on rate exchange spot the liability, or receivable underlying the of valuation the in used is hedged was currency liability. or receivable the with transactions, operational to applies that amount the in income/expense. financial net under reported remainder accounts. consolidated the of 4 Note in provided immediately. made CONSOLIDATED CONSOLIDATED uring costs and other expenses other and costs uring THE THE TO sses, restruct sses,

Intra-group sales and internal profits are eliminated, with deferred with eliminated, are profits internal and sales Intra-group considerable has Group the which in unit a is company associated An The income and expenses of companies acquired during the year the during acquired companies of expenses and income The The consolidated accounts have been prepared using the purchase the using prepared been have accounts consolidated The In conjunction with preparing the financial statements in accordance in statements financial the preparing with conjunction In As of 2005, the Vattenfall Group will apply international account- international apply will Group Vattenfall the 2005, of As As of 2004, the Swedish Financial Accounting Standards Council’s Standards Accounting Financial Swedish the 2004, of As The main activities of the Group are described in Note 5 of the of 5 Note in described are Group the of activities main The tax taken into account in the latter. the in account into taken tax per 50 than more not and cent per 20 least at (normally influence venture. joint or subsidiary a not is which and power) voting of cent in for accounted are companies associated in holdings Group’s The state- income consolidated the In method. equity the with accordance com- are companies associated of results the in participations ment, company’s associated the of proportion consolidated the of prised proportion Group’s The value. surplus of amortisation the minus result the in included is expenses tax recorded companies’ associated of the sheet, balance consolidated the In expenses. tax consolidated to equal amount an in changed is shareholdings of value reported of depreciation less result, company’s each of share Vattenfall’s received. dividends and value surplus are included in the consolidated income statement from the time of time the from statement income consolidated the in included are consolidated the in included are companies Divested acquisition. divestment. of point the to up statement income accounting method. The purchase accounting method means that means method accounting purchase The method. accounting equity subsidiary’s the of portion that includes only equity Group’s the acquisitions, with conjunction In date. acquisition the after amassed lia- and assets company’s acquired the of made is valuation market a except value, surplus the in account into taken is tax Deferred bilities. remaining The amortisation. to subject not are which rights, water for reported is valuation the and price acquisition the between difference relates goodwill Negative accordingly. goodwill negative or goodwill as lo future anticipated to acqui- of time the at liabilities identifiable as reported be cannot that sition. Consolidated accounts Consolidated compa- and company parent the include accounts consolidated The voting the of cent per 50 than more held Vattenfall which in nies influence. controlling a had way other any in or power, with generally accepted accounting principles, the Company’s exe- Company’s the principles, accounting accepted generally with and estimations make Directors of Board and management cutive recorded the and liabilities, and assets affect which assumptions period. accounting the of end the at liabilities, contingent of value outcome actual The affected. also are costs and income Recorded estimations. these from deviate can ing standards. The effects of the transition to International Financial International to transition the of effects The standards. ing consolidated the of 3 Note in reported are (IFRS) Standards Reporting accounts. new recommendation RR29 concerning employee benefits is benefits employee concerning RR29 recommendation new 2004, January 1 of as RR29 apply to began Vattenfall As applied. years. previous for figures comparative no are there Note 2 Accounting principles Accounting 2 Note General with accordance in prepared been have accounts consolidated The the of recommendations the and Act Accounts Annual Swedish the Council. Standards Accounting Financial Swedish consolidated accounts. consolidated

Note 1 Company information Company 1 Note been have 2004 for AB Vattenfall for accounts consolidated The Directors of Board the by signed were and publication for approved AB, limited a is Vattenfall company, parent The on2005. February 18 Group’s The Sweden. in office registered its with company liability Annual the at adopted be will statement income and sheet balance Meeting. General NOTES NOTES stated.) otherwise unless millions SEK in (Amounts Notes to the consolidated accounts consolidated the to Notes

VATTENFALL ANNUAL REPORT 2004 78 VATTENFALL ANNUAL REPORT 2004 79 s s s s s s ar ar ar ar ar ar e e e e e e y y y y y y 5—35 5—30 5—20 3—10 5—40 25—50 s s shop line individual cases. Provisions cases. individual ork w sion and ansmis tr and buildings e allations t allations t ins ehous tribution ins Notes to the consolidated accounts consolidated the to Notes ar ations w dis er ating w y he oper po and equipment o e e ic ic trict dr The value of the energy stored in the form of water in reservoirs is reservoirs in water of form the in stored energy the of value The these to corresponds sheet balance the in reported provision The Leasing charges attributable to operational leasing agreements leasing operational to attributable charges Leasing f f Government grants Government accor- in reported is this asset, fixed a to connected is grant a When for conditions local on depending methods, two of one with dance deferred as liability, a as entered is grant the Either grant. the the at statement income the in income as recorded is and income, to, relates grant the that asset fixed the of depreciation as rate same asset. the of value book the reduces grant the alternatively, or, not reported as an asset. an as reported not Receivables Accounts received. be to likely amount the in reported are Receivables are losses debt Bad value. invoiced at reported initially are receivable paid. be to expected not is receivable the when entirety their in off written provisions Pension in basis actuarial an on calculated been have provisions Pension RR29— with line in Method Credit Unit Projected the with accordance plans. pension benefit defined to regards with Benefits Employee Vattenfall’s in capital against figure net a as reported commitments Germany. and Sweden in funds pension own provisions Other the of size or maturity the where obligations are provisions Other antici- or obligations for made are Provisions uncertain. is amount of assessment the on based risks pated obligations the of value present estimated the to according made are power German the by made are provisions example, For day. closing on waste nuclear future regarding sheets balance own their in companies opera- nuclear of decommissioning the and expenses management corresponding make not do companies power Swedish The tions. Waste Nuclear Swedish the to fee a pay they Instead, provisions. decom- the and waste nuclear of management future the for Fund provisions of types Other operations. power nuclear of missioning accounts. consolidated the of 26 Note in specified are Hy Dis Electricit Mining Of Of Write-downs reviewed are assets fixed tangible and intangible for write-downs Any occurred. have may value in reduction a that indications are there when exceeds value book the when arises write-downs for requirement The amount. recoverable the and price selling net the of higher the Leasing fall advantages and risks all essentially which in agreements Leasing Other agreements. leasing financial as classified are Group the with agreements. leasing operational as reported are agreements leasing equivalent An assets. as reported are agreements leasing Financial liabili- long-term other or liabilities current under reported is liability appropriate. as ties in cost a as term lease the over basis straight-line a on reported are statement. income the Inventories value realisable net and cost of lower the at valued are Inventories of consumption The principle. first-out first-in the with accordance in the of content energy the of depletion a as calculated is fuel nuclear fuel of batch each of cost acquisition the on based is and rods, fuel core. the into loaded while unre- while sses are recorded in the income statement statement income the in recorded are sses sses are reported as soon as they are expected to arise to expected are they as soon as reported are sses Depreciation for each component within the operations listed operations the within component each for Depreciation improvements land buildings, as defined is property Investment Amortisation of intangible assets is made over the lifetime of each of lifetime the over made is assets intangible of Amortisation Development expenses shall be reported as intangible assets if a if assets intangible as reported be shall expenses Development Other trading transactions are reported in accordance with the with accordance in reported are transactions trading Other For hedging of net investments in foreign subsidiaries, see the see subsidiaries, foreign in investments net of hedging For Derivatives not entered into for hedging purposes are reported as reported are purposes hedging for into entered not Derivatives Interest expense for borrowing is reported in the income statement, income the in reported is borrowing for expense Interest below is based on the assessed lifetime. lifetime. assessed the on based is below value. in increase or income rental generate to order in held land and operations. in used estate real considered been previously have These individual asset. Goodwill is written off over a period of between 5 between of period a over off written is Goodwill asset. individual years. 10 and property investment including assets fixed Tangible for adjusted value) (acquisition cost at valued are assets fixed Tangible oper- power nuclear Within depreciation. accumulated less revaluation includes acquisition of time the at value acquisition Germany, in ations decommission- for expenses estimated for value present estimated an is plant the where site the restoring and plant the removing and ing basis the on calculated expenditure estimated equivalent The located. provision. a as reported been has value present the of number of criteria are fulfilled, and include such expenses that are that expenses such include and fulfilled, are criteria of number Company. the for advantages financial future to lead to likely highly crite- the meet not do expenses development Group’s the often, Most expenses development Such assets. intangible as up set being for ria research to similar manner a in arise they as off written instead are expenses. lower of cost of market principle based on a collective valuation. collective a on based principle market of cost of lower gains said of realisation the with conjunction in reported are Gains lo any while assets fixed Intangible trade- licences, patents, concessions, include assets fixed Intangible cost at valued are assets These goodwill. and rights renting marks, amortisation. accumulated less value) (acquisition Foreign activities heading above. heading activities Foreign statement. income the in amount net a as follows: The result of currency-related derivatives is reported in the in reported is derivatives currency-related of result The follows: currency-related), (not derivatives other For statement. income lo unrealised derivatives Energy in market derivative energy the in participant active an is Vattenfall mar- the through Europe northern in NordPool, through Scandinavia market OTC European the in and Amsterdam, and Leipzig ketplaces of purpose the for conducted Trading contracts. bilateral through against entered is volumes sold and purchased of prices the hedging deliv- the with accordance in respectively income and costs reported contract. physical underlying the of periods ery taking into account any swaps. any account into taking Currency agreements entered into to cover forward transactions are transactions forward cover to into entered agreements Currency relates cover forward the which to transaction the until recorded not interest hedging for contracts currency and rate Interest completed. is rates. day closing at valued are borrowing in risks currency and rate the in reported are interest accrued and differences rate Exchange statement. income Borrowing subsequently and value, acquisition at reported initially is Borrowing value. acquisition accrued at Derivatives alised gains are not recognised as income until they become liquid or liquid become they until income as recognised not are gains alised day closing official value, fair establishing In closed. is position the quota- lacking swaps) (primarily derivatives For used. are quotations anticipated the discounting by calculated is value fair the tions, flow. cash future 0 0 IFRS 6,105 2,673 7,369 26,832 43,544 52,385 11,974 48,848 75,729 244,472 293,320 293,320 174,047 185,982 217,591 — — — al t 86 86 42 o T 547 tment 4,429 4,0 3,907 —9,379 23,125 27,714 27,800 27,800 23,893 —93,109 101,966 adjus G — — — — — — — — — — — — — 0 4,429 101,966 —106,395 F — — — — — — — — — — — — — — 9,379 —9,379 —9,379 E — — — — — — — — — — IFRS o t 547 547 547 547 218 329 218 D — — — — — — — — — ansition tr 176 3,364 3,364 3,364 3,188 1,652 1,712 1,652 upon s C — — — — — — — ect f f 86 86 As Vattenfall presents comparative consolidated information for information consolidated comparative presents Vattenfall As the of principles accounting the in changes important most The the to according prepared be shall accounts 1, IFRS to According E 854 mendations, which were applied by the Vattenfall Group until the end the until Group Vattenfall the by applied were which mendations, consolidated the why is which IFRS, on based largely are 2004, of rules. new the to adapted been already extent, large a to have, accounts is IFRS to transition the for date the reports, financial its in year one instruments financial of exception the with 2004, January 1 to set below. See Instruments. Financial — 39 IAS with accordance in defined Swedish the to according consolidated previously information, Financial Standards Accounting Financial Swedish the and Act Accounts Annual restated be therefore will GAAP), (Swedish recommendations Council’s IFRS. with comply to order in IFRS to transition the of Effects with accordance in be shall 2005 for reporting financial Group’s The be shall 2004 year comparative the for information the and IFRS to are restatement and introduction the restated.how for rules The Interna- of Adoption First-time — 1 IFRS in stipulated are place take Standards. Reporting Financial tional presenta- the with conjunction in below described are Group Vattenfall 2004 December 31 and January 1 of as equity on effects the of tion concern- 39 and 32 IAS 2004. for profit net on as well as respectively, fig- comparative and 2005 of as applied are instruments financial ing been not rules, transition the with accordance in have, 2004 for ures restated. these Moreover, 2005. December 31 of as apply that standards IFRS effects the result, a As EU. the by approved been have shall standards based are and preliminary are below reported IFRS to transition the of December 31 before changes undergo may which IFRS, current the on starting a As reported. amounts the on effects subsequent with 2005 retroac- applied be will standards all that 1 IFRS in assumed is it point, the which to extent The rule. this to exceptions are there but tively, the in documented is exceptions these utilised has Group Vattenfall below. notes 2,350 22,949 23,803 23,889 23,889 21,539 21,539 e B — — — — — — — — — — — — — — — — — v a h s s y’ recom- ed. t an A — — — — — — — — — — — — s e v sidiarie omp c ein 10,123 r sub —10,123 —10,123 ent be in ar o s t p e e AAP edish ed G w 5,558 9,379 7,283 2,673 shar S 48,762 29,260— 11,974 39,115 26,832 93,109 72,081 51,836 o t 216,758 265,520 181,940— 265,520 213,684 xpect spectiv e e r e able ar the e s in tribut the at , s y s s s t ount e s om s c e s e fr t s ac equit s s t enc s e s t er s t , e s o e er s e s s s s f liabilitie t alanc s s as t int t urns liabilitie and int s b as t s e as able s e dif y s as e e s tment t ed r en s ed e and er s er eiv ed liabilitie e as s and ank s t fix t s ary ak as v ent Reporting Standards (IFRS) Standards Reporting nt ix b e fix t i ec , e f int

as s liabilitie r in ed s s y y erm ix orie as minorit s liabilitie as f curr and y t ent ent ent ent been e empor visions visions al visions ount al al al al ed ent s angible T are carry-forwards loss tax to attributable differences Temporary t t t t t o c o o v urr urr urr urr ash quit ong-t o o o o o angible E T L C T pr Minorit pr Minorit Pr C T T C In C C Int T Financial T As Fix Restated equity and net profit for the Group the for profit net and equity Restated IFRS) to transition of (date 2004 January 1 of as equity and sheet balance of Reconciliation Note 3 Transition to International Financial International to Transition 3 Note accounting international apply will Group Vattenfall the 2005, of As with comply thereby will principles accounting Group’s The standards. approved as (IFRS), Standards Reporting Financial International the Standards Accounting International the include also which EU, the by Council’s Standards Accounting Financial Swedish The (IAS). not ac loss tax such that likely is it where cases in account into taken only future. foreseeable the within used be can carry-forwards Taxes cur- year’s the of sum the as estimated is expense tax Group’s The the for liabilities and assets tax deferred in change the and tax rent differences temporary so-called the that means tax Deferred year. the and taxation of time the to respect with exist sometimes that generally and legislation tax between events certain of measurement Tempo- account. into taken be must principles accepted accounting reported and profit taxable between arise thus may differences rary tax for liabilities and assets of values the between as well as profit, liabil- tax deferred A values. reported their and purposes assessment to lead will settlement or recovery where cases in reported is ity where cases in reported is asset tax deferred A payments. tax future taxes. future in reduction a to lead will settlement or recovery applica- rate tax the at valued assets are tax liabilities and Deferred discounting. without country relevant the in day closing the on ble Continuation Note 2 Note Continuation period the over income as recorded is it cost a to tied is grant the When to intended is grant the that cost recorded the equal to it for required compensate. Notes to the consolidated accounts consolidated the to Notes

VATTENFALL ANNUAL REPORT 2004 0 8 VATTENFALL ANNUAL REPORT 2004 81 0 0 0 IFRS IFRS —960 5,663 7,577 3,516 2,553 —5,330 —5,203 11,063 46,293 50,518 37,126 25,100 15,298 17,112 10,095 29,518 83,599 —12,572 —83,848 113,366 182,540 285,014 201,415 164,289 238,721 285,014 l — — — 01,126 a al t t 46 07 o o T T 598 153 572 1 ,511 ,816 tment tment —433 —192 —206 3,837 3 6 1,744 1,283 —9,188 —1,310 —1,856 2 28,099 98,035 27,946 28,099 2 —2,061 —1,681 —2,495 —1,856 —86,901 adjus adjus G G — — — — — — — — — — — — — — 0 0 — — — — — 83 91 5 4 939 939 —356 4,8704,870 —1,074 98,035 —102,905 F F — — — — — — — — — — — — — — — — — — — — — — — — — . 72 5 572 ely 9,188 —9,188 —9,188 E E — — — — — — — — — — — — — — — — — — IFRS IFRS

spectiv 29 o o e t t —77 464 464 183 464 464 281 183 —77 —48 —77 r IFRS D D — — — — — — — — — — — — — — 2 9 — ansition ansition 4 76 1 65 65 65 Notes to the consolidated accounts consolidated the to Notes tr tr —23 —23 and 3,034 2,958 1,319 3,034 3,034 1,715 1,319 upon upon s s AAP C C — — — — — — — — — — ect ect G f f f f 46 52 52 E E 153 886 107 688 553 —213 —198 —206 —154 IAS 16, IFRIC 1 and IFRIC 5 IFRIC and 1 IFRIC 16, IAS decommissioning for expenses future estimated 16, IAS to According acquisi- the in included be shall assets fixed tangible dismantling and a as reported is expense future the of value present The value. tion rules the to exceptions special adopters, first-time For provision. amount the of calculation the for 1 IFRIC with accordance in apply in applied was (which 5 IFRIC to According asset. an as recorded decommissioning future for consolidated are that funds advance), asset an as reported be cases, certain in shall, costs dismantling and sheet. balance the on B. Amortisation of goodwill of Amortisation B. GAAP Swedish with accordance in 2004 during amortised Goodwill reversed. is 1,253 3,037 edish 23,761 24,467 21,430 24,314 24,467 21,430 w S B B — — — — — — — — — — — — — — — — — — — — with 134 122 134 122 122 134 134 122 134 122 e A A — — — — — — — — — — — — — — — — — — — — — — danc r o c 6,928 —3,034 —6,928 ac —3,034 —3,034 —3,034 —6,928 —3,034 in AAP AAP 2004 edish edish G G —572 —754 w w 5,065 9,188 7,470 1,126 1,772 2,553 or S S f —4,020 —5,011 46,140 11,063 17,359 26,681 32,256 25,054 11,776 19,607 62,316 66,254 86,901 31,374 —81,992 —12,139 256,915 194,599 179,029 210,775 113,366 256,915 e ement ativ at tr t s in y

and , ome ch s s s s adminis t ar e s inc s s e t ar s ations equit e s s s ome t s e s e old

r t s t e , e s s y and s e r e and s the e s s (EBIT)

s anie s s e s , inc t s t alanc s s f as t t t ticip s liabilitie liabilitie and s s it b as int s s o r e ax e as able f e s t e the s as t e e s tment a r t r y ed o e r r ome s omp p e ed e e e s n e e eiv ed or t liabilitie c e as and s and

ating ank s pr t xpens oduct i fix f c x t s v ent f — r i or b e e inc fix

int int e e f int int o p as om it s xpens s s liabilitie r in ed ed s

s elopment r f y y f e y y e e x fr erm v o bef p i oper orie as o s

liabilitie as f curr minorit and y ale t ating s s ent s ent ent ent it pr de nt s e onciliation s t f visions visions visions e ociat al al al al al ed e t t s angible c s sult o t t t t t o x o s o o v urr e e urr urr urr ash o quit elling ong-t xpens xpens o o o o o a angible A. Negative goodwill Negative A. Swedish with accordance in sheet, balance the on goodwill Negative during made dissolution the and equity against entered is GAAP, reversed. is 2004 Notes 3 IFRS and assets acquired Combinations, Business — 3 IFRS to According acquired the of value net the If value. fair at valued be shall liabilities shall difference the price, purchase the exceeds liabilities and assets goodwill). negative designated (previously income as reported be lives useful undetermined with goodwill, as such assets, Intangible be shall assets down write to need The off. written be not shall year. each assessed Financial Pr minorit T Minorit Ne e Other e R as Oper Financial R Ne C Gr S and L C T pr E T C T T Minorit pr Minorit Pr Int T Financial T C In C C Reconciliation of balance sheet and equity as of 31 December 2004 December 31 of as equity and sheet balance of Reconciliation As Fix 2004 ember 7,700 5,916 13,616 Dec 31 2004 7,346 7,301 January 14,647 1 y urit s t mat e s IFRS as with o t s t e s liquid ding as or ed t c ac s Liquid epor t r e s as viously months According to IAS 37, when, as a consequence of the due date due the of consequence a as when, 37, IAS to According IAS 39 is expected to affect Vattenfall as follows: as Vattenfall affect to expected is 39 IAS e 3 accordance with the requirements found in IAS 39 — Financial — 39 IAS in found requirements the with accordance EU. the by approved as Measurement, and Recognition Instruments: The possibility to apply IFRS 3 — Business Combinations, prospec- Combinations, Business — 3 IFRS apply to possibility The 2004. January 1 is, that date, transition the of as tively — 21 IAS to according differences translation set to possibility The the on zero to Rates, Exchange Foreign in Changes of Effects The date. transition sim- the concerning 1 IFRIC in exception the apply to possibility The decommission- for provisions existing in changes for method plified restoration. and ing The possibility not to restate financial information for 2004 in 2004 for information financial restate to not possibility The The transition to IFRS is being administered as prescribed by IFRS 1. IFRS by prescribed as administered being is IFRS to transition The retroactively applied be shall principles accounting the principle, In The IFRS. with accordance in balances opening provide to order in and permitted are application retroactive from exceptions following Vattenfall: by applied been have • • • Statement Flow Cash the on IFRS of Impact only shall assets liquid Statements, Flow Cash — 7 IAS to According a with investments in holdings and balances bank and cash include a practice, Swedish to According less. or months three of maturity with investments even wherein applied has interpretation broader included. been have months three of excess in maturities equity comprise a part of reported consolidated equity. This is a is This equity. consolidated reported of part a comprise equity interests minority which to according GAAP, Swedish from change equity. or year the for profit net in included not are interests Minority F. item deductible a comprise longer no profit net in interests Minority report- now are equity in interests Minority statement. income the in equity. under ed 1 IAS liabilities that specifies Statements Financial of Presentation — 1 IAS previously Provisions long-term. or current as classified be shall long- and liabilities current alongside item separate a as reported lia- long-term and current of part as reported now are liabilities term respectively. bilities pres- in time over amount reported the increases one approaching, financial a as reported is effect resulting the computation, value ent con- will 19) (IAS pensions for provisions on effects (Equivalent item. expense.) operating an as reported be to tinue interest provision-related and provisions of Reclassification G. provision-related and sheet balance the in reclassified are Provisions statement. income the in reclassified are effects discounting rules Exception • — Financial Instruments: Recognition & Measurement & Recognition Instruments: Financial — has but 2005, January 1 for balance opening the affect will 39 IAS the with accordance in above presented figures the affected not rules. exception Hedging and Instruments Derivative fair at reported always are instruments derivative 39, IAS to According the in reported be shall value fair in Changes sheet. balance the in value Pr Deductions: > Liquid 39 IAS to according Instruments Financial of Reporting The annual change in the provision stemming from the present the from stemming provision the in change annual The The present value calculated in accordance with IAS 37 — Provi- — 37 IAS with accordance in calculated value present The In Sweden, payments are made to the Swedish Nuclear Waste Fund Waste Nuclear Swedish the to made are payments Sweden, In In most cases, the provisions concern obligations far in the future, the in far obligations concern provisions the cases, most In The present value calculated in accordance with IAS 37 — Provi- — 37 IAS with accordance in calculated value present The IAS 27 — Consolidated and Separate Financial Statements requires, Statements Financial Separate and Consolidated — 27 IAS shall year the for profit in interests minority that things, other among in interests minority that and profit, net consolidated reduce not IAS 27 IAS E. Capitalisation of development costs development of Capitalisation E. capi- are criteria established the fulfil that development for Costs income the burden and sheet balance the on asset an as talised amortisation. with statement According to IAS 38 — Intangible Assets, development costs shall be shall costs development Assets, Intangible — 38 IAS to According Capi- fulfilled. are criteria certain when assets intangible as reported all 1, IFRS to According amortisation. to subject are assets talised be shall 38 IAS of introduction the after arising costs development asset an as up setting for requirements the if asset an as capitalised have costs the whether of irrespective case the is This fulfilled. are accounting earlier with accordance in expense an as carried been upon application retroactive permit not did GAAP Swedish principles. recommendation. equivalent the of adoption the IAS 38 IAS value calculation is reported as a financial item. Changes in existing in Changes item. financial a as reported is calculation value 1. IFRIC with accordance in calculated are provisions sions, Contingent Liabilities and Contingent Assets, when the plant the when Assets, Contingent and Liabilities Contingent sions, Property, — 16 IAS with accordance in included, is commissioned was over depreciated and value acquisition the in Equipment, and Plant included been has provision this of part no Previously, life. useful the asset. the of value the in D. Obligations for restoration etc. in mining operations mining in etc. restoration for Obligations D. lig- mine to right a entail Germany in operations mining Vattenfall’s and restore to obligation legal a incorporates right mining This nite. operations. for used land the re-cultivate for the purpose of covering the future costs for the nuclear power nuclear the for costs future the covering of purpose the for Waste Nuclear Swedish the to paid fee The obligations. producers’ in share Vattenfall’s government. Swedish the by determined is Fund be shall it that nature a such of is Fund Waste Nuclear Swedish the of share this on Returns sheet. balance the in asset an as reported been has it Sweden, In income. financial as reported are fund the fund the of value the report neither to practice accepted generally the to Payments sheet. balance the in obligation the of value the nor expenses. as reported been instead have fund which is why they are reported at discounted values. The annual The values. discounted at reported are they why is which calculation value present the from stemming provision the in change cal- are provisions existing in Changes item. financial a as reported is Decommis- Existing in Changes — 1 IFRIC with accordance in culated Liabilities. Similar and Restoration sioning, sions, Contingent Liabilities and Contingent Assets when the plant the when Assets Contingent and Liabilities Contingent sions, Property, — 16 IAS with accordance in included, is commissioned was depre- and plant the of value acquisition the in Equipment, and Plant part the Inventories, — 2 IAS to According life. useful the over ciated spent of safeguarding the for sum variable a is that provision the of the in expense an as carried and inventories in included is fuel used. is fuel the as statement income Continuation Note 3 Note Continuation operations power nuclear in etc. decommissioning for Obligations C. have Germany and Sweden in producers power nuclear Vattenfall’s decommission to production of cessation the upon obligation legal a land of plot the restore to and plant power nuclear the dismantle and encompass- also obligation this Further, located. was plant the where used fuel radioactive spent of storage final and safeguarding the es are plants power nuclear Swedish for calculations The plants. the by years. (40) fourty of life useful a on based Notes to the consolidated accounts consolidated the to Notes

VATTENFALL ANNUAL REPORT 2004 82 VATTENFALL ANNUAL REPORT 2004 83 e 0 0 al al t t o o ar T T 580 2003 s —754 s e 9.0940 1.0805 1.9400 7.2750 1.2215 19,607 12,601 14,880 15,296 11,356 14,336 Dec at 256,915 185,411 111,935 264,965 203,080 113,366 111,935 113,366 r y 31 da Liabilitie . sing 2004 Clo alue — — — — — — — — v 9.0070 1.0880 2.2100 1.2115 6.6130 Dec —12 air f 31 —1,296 —2,398 —1,616 —8,675 —9,392 —1,616 —2,398 —14,840 —14,803 Eliminations Eliminations and e 2003 at r alue 9.1245 1.1450 2.0785 8.0788 v age — — — 6 er v 669 690 443 589 oland oland A P P 1,153 7,421 2,083 7,845 9,393 7,427 7,845 . qusition 15,565 10,639 12,227 t 2004 c s a

o f c 9.1193 1.0887 2.0192 1.22601.2283 7.3314 o ed er y w tis y y lo 9 enc PLN EUR USD DKK NOK Notes to the consolidated accounts consolidated the to Notes 715 495 urr the amor C —825 5,174 1,404 5,208 9,164 9,702 6,318 7,487 German German 66,046 66,761 63,974 at at 157,506 167,855 115,551 y ed ed t t a o A The Group’s activities are also divided into business segments business into divided also are activities Group’s The According to the transition rules for the first-time adoption of adoption first-time the for rules transition the to According oland ur ountry epor epor r r (secondary segments), namely Electricity (electricity generation, (electricity Electricity namely segments), (secondary distribu- and transmission (electricity Distribution sales), and trading activi- Other sales). and distribution production, (heat Heat and tion) serv- activities, research activities, treasury Vattenfall’s include ties functions. Group and companies ice Note 4 Exchange rates Exchange 4 Note accounts: the in applied rates exchange Key C E Denmark Norw P US segments on Information 5 Note separate three within conducted mainly are activities Group’s The Countries, Nordic the are segments primary These areas. geographical covers mainly segment Countries Nordic The Poland. and Germany the in activities includes also but countries, Nordic the in operations of consist segments primary The Netherlands. the and States Baltic assets. of locations the on based areas geographical IFRS, the percentage of the fair value of the company’s derivative company’s the of value fair the of percentage the IFRS, not have — GAAP Swedish with accordance in — that instruments corresponding a with sheet balance the in reported is reported been equity. under counter-entry s s 85 71 895 994 e 6,325 5,310 4,503 4,488 8,535 ountrie ountrie , 39,899 41,52062,570 11,543 40,794 42,514 98,684 95,146 72,436 75,870127,20 C C s be ativ e s dic dic a the ed c t unting s shall Nor Nor deriv o c a por ect

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s visions visions be . , s s (EBIT) (EBIT) o o 39, egment egment fulf

ticip ticip equit s s it it S pr pr f f ar ar included A shall sale sale o o I p p

t t ement ement s s is y o een een pr pr and and t egment hedge at at w w under ne ne s s s t t om om t t s s fr fr equit ed be be the s s t ding tment tment ating ating eciation eciation t t r s s s s e e o ernal ernal al al e e ome ome trument sult sult s s Hedges of net investments in foreign operations will be accounted be will operations foreign in investments net of Hedges on effects the in matching good continued achieve to order In According to the principles applied until now, changes in the fair the in changes now, until applied principles the to According t t c v v e e ale ale o o epor Oper As Liabilitie In Depr R In Depr R 2003 Ext S T 2004 Ext S T Oper As Liabilitie Primary Reporting Other Types of Financial Assets and Liabilities and Assets Financial of Types Other Reporting reported initially are liabilities and assets financial 39, IAS to According amortised or value fair either at subsequently and value, fair their at classified. is liability or asset financial the how on depending cost statement, income the in reported be to are value in changes Future classified is asset financial a where cases those of exception the with directly reported is value in change the when sale”, for “available as Vattenfall, Within divested. been has asset the until equity against “available as classified are shares quoted of any) (if holdings only are assets financial current GAAP, Swedish to According sale”. for inc under inc ins when ac r as before, although forward points in forward exchange rate contracts rate exchange forward in points forward although before, as the over linearly accrued than rather value market at reported be will lifetime. part large a to accounting hedge apply to intends Vattenfall profits, well. as 39 IAS under instruments derivative company’s the of values of derivative instruments concerning the hedging of anti- of hedging the concerning instruments derivative of values until sheet balance the in reported not are transactions future cipated accounting hedge where cases those In reported. is item hedged the is instrument derivative the instruments, derivative to applied not is cost of (lower value fair and value acquisition of lower the at reported of value in change the to addition in hedges, value fair For market). or reported also is item underlying the of value in change the hedge, the statement. income the in Notes to the consolidated accounts

Continuation Note 5 Secondary segments 2004 Electricity Electricity Networks Heat Other Eliminations Total External net sales 68,040 30,845 12,647 1,834 — 113,366 Sales between segments 5,942 13,916 5,673 4,428 —29,959 0 Total 73,982 44,761 18,320 6,262 —29,959 113,366 Assets 193,593 81,392 42,975 120,949 —181,994 256,915 Investments 12,984 3,564 2,295 3,632 —9,874 12,601

2003 Electricity Electricity Networks Heat Other Eliminations Total External net sales 70,475 26,740 11,351 3,369 — 111,935 Sales between segments 5,491 13,632 4,955 4,619 —28,697 0 Total 75,966 40,372 16,306 7,988 —28,697 111,935 Assets 180,288 82,191 38,548 109,825 —145,887 264,965 Investments 4,611 2,248 1,226 4,567 —1,296 11,356

In 2004, the Group has also reported operations in the profit areas described below in interim reports and the year-end report: Operating profit (EBIT) excl. Net sales Operating profit (EBIT) items affecting comparability 2004 2003 2004 2003 2004 2003 Nordic Countries Nordic Generation 25,174 29,531 8,888 6,266 8,891 6,319 Market Nordic 20,286 24,994 222 369 218 372 Nordic Heat 2,963 2,868 353 348 418 345 Nordic Distribution 8,231 7,809 2,317 2,131 2,309 2,127 Services 3,103 3,042 166 100 164 98 Other business 1,592 1,855 —403 —690 —854 —841 Eliminations* —20,555 —27,585 — 11 — 11 Total Nordic Countries 40,794 42,514 11,543 8,535 11,146 8,431 Germany 66,761 63,974 7,487 6,318 7,085 6,160 Poland 7,427 7,845 589 443 569 442 Eliminations** —1,616 —2,398 —12 — —12 — Total 113,366 111,935 19,607 15,296 18,788 15,033 *) Concerns trade between Market Nordic, Nordic Distribution and Nordic Generation. **) Concerns trade between Germany and Nordic Countries.

Note 6 Net sales The Swedish Act (1992:1537 latest amendment 1995:1544) on the Financ- ing of Future Expenses of Spent Nuclear Fuel etc. ensures said financing by 2004 2003 requiring that the permit holder pay a fee based on generation. This fee is Sales including indirect taxes 119,740118,224 paid to the Swedish Nuclear Waste Fund, which manages the received funds. Indirect taxes —6,374 —6,289 The fund reimburses the owner of the reactor for expenses as the owner’s obligations in accordance with Swedish Nuclear Activities Act (1984:3) are Net sales 113,366 111,935 fulfilled. According to agreements between the Swedish State, Vattenfall and Sydkraft, payments from the fund for Ringhals AB shall be managed by Vatten- fall AB and payments for Barsebäck Kraft AB by Sydkraft Nuclear power AB. During 2004, SEK 677 million (648) was disbursed from the fund with Note 7 Costs of products sold regard to costs for which the Vattenfall Group is liable. On 31 December, Direct costs include production taxes and duties of SEK 4,637 million the fair value of Vattenfall Group’s share of the Nuclear Waste Fund was (4,562) and property taxes of SEK 1,234 million (587). The costs SEK 22,271 million (20,012). also include interest components relating to annual pension costs **) According to the Swedish Act (1988: 1597, latest amendment 1995: 1545) of SEK 884 million (739) and to nuclear power provisions and other on the Financing of the Management of Certain Radioactive Waste etc., the provisions of SEK 641 million (1,121) in the German companies. holder of a permit to own and operate a nuclear reactor in Sweden must pay a fee as a contribution to the activities conducted at Studsvik AB relating to the development of the Swedish nuclear power programme. This fee is also based on the energy delivered from the reactor, and is paid into and adminis- Note 8 Costs of nuclear waste management tered by the Swedish Nuclear Waste Fund. 2004 2003 Fees to the Swedish Nuclear Waste Fund

V Note 9 Other operating income

A — own high level radioactive waste* 309 292 TTENF — SVAFO** 8074 Other operating income primarily comprises capital gains from the sale of fixed assets, operationally derived exchange rate gains, rental

ALL Provision for future expenses of managing low and medium level radioactive waste 53 52 income and insurance compensation. ANNU Total 442 418 AL *) According to the Swedish Nuclear Activities Act (1984:3), any organisation REPOR Note 10 Other operating expenses in Sweden with a permit to own or run a nuclear installation is obliged to dismantle the plant in a safe manner, to manage spent fuel and other radio- Other operating expenses primarily comprise capital losses from the T

2004 active waste and to conduct necessary research and development. The permit sale of fixed assets, operationally derived exchange rate losses and holder shall also finance said management etc. closedown and restructuring costs.

84 VATTENFALL ANNUAL REPORT 2004 85 — — 0 8 8 2 - o s o 92 83 f t t 3.1 2.3 5.4 a 555 406 984 308 743 o 2003 2003 2003 2004 2003 2003 —3.3 —2.5 22.9 30.7 —337 —206 ts —10.1 4,410 1,352 1,269 3,228 3,246 2,463 2,471 arry e 34,854 32,591 c alent s e . elation ation s s ass r cluding s: e t the x ar s lo w in e cr e ax t t equiv t ax er ely : and t t ollo ds the f ed in e y emen emen y ar — 2 at the . as b err r at at 106 59 33 t t 0.4 4.1 4 e 572 301 818 234 s s 865 ef 2004 2004 2004 2004 2004 spectiv —1.3 —6.5 orw 28.028. 28.9 27.1 ax wn —293 —144 d e manner

t 3,213 4,038 3,246 2,905 2,626 -f r s: minorit o 34,688 31,917 do s t utilis ome ome w t e o arry ak s: t inc inc and wing xplained s c e edish e ollo w s f as ax ed ed w s br t is . ollo spond S s f e lo e as t sible ollo ax ations s periods ds ax s f t s or s s t t e olidat olidat ax ar orr t s the e T po as er ed c bef ems e oper or in ons ons ne it vious it int r c c f amount be orw e err t nominal y o e not due -f bef pr and c. pr ed liabilitie liabilitie eign the the 2004. def t t will o it all do s o t the o o int f f e t or goodwill t shee t t e e it in f arry o e c e y ed minorit ax erm erm at ds ds ne and xplained in t pr ds epor goodwill, s r een , e r s y ding ding e ar ar f s s ther w ar (360) in in elat s and ax** o is t ax r lo or or xpens elation at t s e s s t e* r c c r alanc s s e t t e the ome ax long-t long-t orw orw be b ax s s s s at t orw ax at in able able ac ac negativ whe t t r at t -f -f e e r ax e in o e ent e liabilit -f r f Notes to the consolidated accounts consolidated the to Notes e e t inc t s ax or Minorit o ome e er er eiv eiv or t s s f million ax and and ed ax ain in liabilitie as t t ax t ax urr t t enc tisation t arry arry t as e e ec ec c e . arry int int inc ed bef limit c c r liabilitie r liabilitie ax ax s s e e , c able able xpens xpens er e er t t ountrie 16 y y it f s s e

e e ds ed s c f err t as as s s ax enc s ed ed tment o e at 1,536 ar ent ent ent ent dif incr amor ax ax olution en unc lo lo r umulat lo visions visions err er time pr def T T al al al al al c s ed ed ectiv edish eden err err ectiv f c t t t t t o o f tribut f is c djus urr urr urr urr f he he w w f o o o o o ax ax ax er ax orw T e T Not Minorit Minorit T T t SEK it f T 2005 2006 2007 2008 2009 No T Def at Def Fix C Pr C T Def Fix C Pr C T P S Dif A Amended Non-deductible non-t Dis and Other E T *) **) A S Other T 2 3 0 0 0 0 1 o: 5 2 85 2 t —69 2 5 39 495 212 145 162 2003 2003 2003 2003 2003 2003 —849 —106 ed 2,279 2,831 2,122 5,203 1,162 4,460 1,507 6,270 12,360 14,336 14,095 s amount sult e r ar ’ e s y 1 2 057 7 1 ar the Group comprise Group the —3 4 71 4 e the y —17 254 12028 142 298 1 162 43 170 4 2004 2004 2004 2004 2004 2004 —825 or 2,259 1,030 3,431 5,011 1,630 4,020 2,453 8,8405,51 9,273 f 17,359 14,880 14,505 it f vious o e pr pr s in o t s t s anie s e s t able er s s (381). omp anie o int c c y estments anie s tribut ed omp s c div at million e e omp anie on c ociat minorit oup s old losses s elopment ed Gr as omp s v —224 s xpens e gains e , , and xpens c s e e s s s s e e osses de e ax /l t ociat SEK similar profit/loss items items profit/loss similar similar profit/loss items profit/loss similar securities holdings securities ax oup ome s e t oduct ax chang change o ativ and t xpens ax t sses s x x Gr as ’ or wns pr t xpens e inc tr o e e s gains gains l ountrie ountrie ountrie ountrie f e t t

ch ed ar l c c c c o s s bef e al al a ar e e ent s y e-do it t e err f al al al al al al eign eign eden eden eden, eden, er er s s Operations-related foreign exchange losses for for losses exchange foreign Operations-related t t t t t t r o rit dminis urr e apit apit apit o elling he w w w w o o o o o o o or Def S Other T T amount Other T follows: as allocated is expense tax reported The C S Other SEK 88 million (128). million 88 SEK Taxes 15 Note Pr S S Other C F T com- interest concerning accounts consolidated the of 7 Note also See provisions companies. German to the in relating ponents Note 14 Interest expenses and expenses Interest 14 Note Int Int C F T million 53 SEK comprise gains exchange foreign Operations-related (154). Dividends W C T and income interest Other 13 Note R T long-term other from Result 12 Note Note 11 Depreciation and amortisation and Depreciation 11 Note C S A Notes to the consolidated accounts

Note 17 Intangible fixed assets Concessions and Renting and similar rights similar rights Goodwill Total 2004 2003 2004 2003 2004 2003 2004 2003 Acquisition values Acquisition values brought forward 5,572 6,221 3,875 4,038 2,313 2,038 11,760 12,297 Acquired companies 3101 — 2 40 6 350 9 Investments 296 118 9 17 — — 305 135 Divestments/Disposals —179 7 —47 —69 —1,296 310 —1,522 248 Reclassifications —2,890125 1,161 —10 —241 45 —1,970 160 Divested companies —17 —842 — —76 —2 — —19 —918 Translation differences 3 —58 —39 —27 82 —86 46 —171 Accumulated acquisition value carried forward 3,095 5,572 4,959 3,875 896 2,313 8,950 11,760 Accumulated amortisation according to plan Amortisation brought forward —2,192 —2,067 —1,931 —1,877 —1,740 —1,212 —5,863 —5,156 Acquired companies —1 ——————1 0 Amortisation for the year —255 —430—273 —130—122 —288 —650 —848 Divestments/Disposals 171 —9 33 59 1,296 —268 1,500 —218 Reclassifications 372 — 1,003 — 49 — 1,424 0 Divested companies 17 295 — — 2 — 19 295 Translation differences 3 19 7 17 —66 28 —56 64 Accumulated amortisation carried forward —1,885 —2,192 —1,161 —1,931 —581 —1,740 —3,499 —5,863 Write-downs Write-downs brought forward —39 —586 —300 —305 — — —339 —891 Write-downs for the year —2 — — — —211 — —213 0 Divestments/Disposals — — 7 — — — 70 Reclassifications 24 — —24 — — — 00 Divested companies — 547 — 5 — — 0552 Translation differences ————5—50 Accumulated write—downs carried forward —17 —39 —317 —300 —206 — —668 —339 Residual value according to plan carried forward 1,193 3,341 3,481 1,644 109 573 4,783 5,558

Note 18 Tangible fixed assets (excluding investment property) Plants and machinery and Equipment, tools, and Construction Land and buildings* other technical installations fixtures and fittings in progress** Total 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Acquisition values Acquisition values brought forward*** 63,254 64,578 320,280 312,479 9,619 9,686 6,495 5,870 399,648 392,613 Acquired companies 56 332 1,714 3,967 7 56 128 218 1,905 4,573 Investments**** 384 227 2,656 1,830413 497 6,399 6,083 9,852 8,637 Transfer from construction in progress 370424 5,319 4,728 9010 2 —5,779 —5,254 00 Divestments/Disposals —624 —1,252 —2,047 —2,368 —289 —1,015 —12 —40 —2,972 —4,675 Reclassifications to investment property —2,499 ————————2,499 0 Other reclassifications — —187 1,139 —236 —927 376 —144 —156 68 —203 Altered classification of government grants***** — — — 4,304 — — — — 0 4,304 Divested companies —315 — —215 —347 —83 —19 —1 —60 —614 —426 Translation differences 99 —868 —350—4,0 77 —46 —64 —5 —166 —302 —5,175 Accumulated acquisition values carried forward* 60,725 63,254 328,496 320,280 8,784 9,619 7,081 6,495 405,086 399,648 Accumulated depreciation according to plan Depreciation brought forward —28,799 —28,367 —177,713 —167,980—7,857 —7,711 — — —214,369 —204,058 Acquired companies — — —6 —15 — —6 — — —6 —21

V Depreciation for the year —1,638 —1,541 —11,526 —11,000 —431 —816 — — —13,595 —13,357 A

TTENF Divestments/Disposals 602 551 1,410 1,867 263 908 — — 2,275 3,326 Reclassification to ALL investment property 540 ———————540 0

ANNU Other reclassifications — 116 —1,383 396 665 —310— — 63 202 Altered classification AL of government grants***** — — — —3,333 — — — — 0 —3,333 REPOR Divested companies 197 — 141 58 41 8 — — 379 66 Translation differences —47 442 127 2,294 45 70— — 125 2,806 T 2004 Accumulated depreciation carried forward —29,145 —28,799 —188,950 —177,713 —7,274 —7,857 — — —225,369 —214,369

86 VATTENFALL ANNUAL REPORT 2004 87 — — — 0 1 s 39 5 —3 003 —71 —56 307 235 1 —66 2 2003 able — —162 5,054 1,029 4,174 l eiv 10,046 —3,828 —3,713 a 181,566 ec ot r T Other erm 95 26 — 8 5 5 004 679 2 — —4 5 70 61 —570 —141 — 5 157 1,196 2004 long-t —832 —3,713 —2,428 9,934 177,289 10,046 — — — 1 1 1 * an asset of SEK 566 million 566 SEK of asset an —1 — — —2 003 — — — — s 2 ess* n (15,214), which are not are which (15,214), n —1 —1 6,493 —89 —30 104 2003 anie om ogr truction 1,978 1,961 fr pr equal to the received subsidy and an and subsidy received the to equal s omp ons in — — — 3 3 1 c C —2 — — — —9 004 able ed 2 eiv 7,072 — — — — — ec ociat 24 15 R s —13 2004 as —127 1,961 1,860 — 8 2 1 7 1 and — — — , 003 tings —50 —51 2 fit 1,711 ools t

, s — — — — — — t and

—2 e s s 245 235 374 e erning 2003 Notes to the consolidated accounts consolidated the to Notes as —104 — — — — — — ur yment onc a 004 ed ixt c —51 p —51 quipment 2 f s E e fix 1,459 anc — — — — — dv —2 —3 and A supplier angible — t —13 374 104 460 2004 o t —1 25 003 allations t —61 —79 287 2 ins —2,673 —2,502 al 140,065 machinery s t 2003 2003 ,310 e — — — — — — — — — — — s 4,410 1,144 4,492 — — 1 and

echnic 10,046 30 78,351 erning s 9 13 t as 004 t 2003 108,661 2 yment ed —569 onc a 1,363 c ther p Plan fix —2,502 —1,604 s o e 137,942 * anc — — 1 0 dv — — — — — — — — — angible 1 2 13 A supplier 003 —98 2 o int 282 282 t 2004 2004 2004 buildings —1,104 33,297 —1,158 4,038 9,934 1,478 4,418 97,233 26,140 71,093 and s — 4 13 s Land 679 2004 able —164 —138 —764 0,816 —1,158 3 able eiv ec eiv r ec d r s ar ation aring d wns ar orw -be aring d s f t e ar ding e s y r als ar applic e y s s s -be o principle t

s e-do t c orw er t enc s o f on the ations r e t orw e f ac s ought e anie anie d f writ or er oper ect f br as f /Dispo ar sific dif f pr s int ed non-int ations ation omp omp ought e alue ounting ax c c t c v wns wns wns arried orw br f c eclas ac e erm sific sific ed ed ed erm r increase in the accumulated depreciation equal to the difference if the grants had originally been classified as a liability. a as classified been originally had grants the if difference the to equal depreciation accumulated the in increase (497) is included in the acquisition value of buildings. of value acquisition the in included is (497) subject to depreciation. depreciation. to subject tment tment w s e-do e-do e-do s err al e e sidual cumulat plan quir quir ne t

ansition anslation rit rit rit v c ew advances/receivables ew e c c eclas eclas alanc ong-t f ong-t arried r r o o Specification of other long-term receivables: long-term other of Specification ****)(192). million 146 SEK to amount year the value during acquisition the received in grants increase an Government caused This liabilities. as reclassified *****)were grants government certain 2003, During **)(96). million 69 SEK of amount the in asset an as reported been has period construction ***)the during as interest reported interest year, the Accumulated (4,682). million For 4,874 SEK to amount forward, brought balance received, grants Government Def L L T Payments received Payments R forward carried Balance B T o A N provisions/ assets, tax Deferred net period, the for dissolution Transmission lines and transformer stations are not subject to tax to subject not are stations transformer and lines Transmission values. assessment receivables long-term and Advances 19 Note Tax assessment values (for Swedish real estate) real Swedish (for values assessment Tax Buildings Land Total c R t *)millio 15,214 SEK to amounting rights water and land for values acquisition include buildings and land for values Acquisition A W Div R in T A W W Other Write-downs/offs companies Divested differences rate Exchange — — 8 7 1 0 1 5 5 0 3 19 62 13 46 35 48 10 96 26 11 22 12 15 003 alue —69 —17 —65 198 200 120 457 134 v 2 —262 erm 1,354 1,022 1,483 ook holdings B s long-t — — — — 5 68 13 004 —22 5 2 Other ecuritie —450 s 1,022 s e 100 360 100 100 s shar — 1 7

6,570 4,800 8,000 8,000 4,000 3,240 f 4 in o 38,000 24,000 10,000 10,000 11,000 50,000 00,000 12,500 003 anie —88 2 112,500 198,000 400,000 200,000 3 300,000 218,000 —337 —791 8,200,000 omp —1,383 18,042 15,676 c ations 161,433,752 Number ed ticip — 2 r a 40487 ociat P —30—30 —12 s 2004 —136 —773 —448 as 0 4 % 15,676 14,319 75 00 00 66 00 36 00 7 60 1 100 10 1 1 100 100 100 100 100 100 1 100 100 100 100 100 100 100 100 100 sessors. e- d Hodling, d s shar ar ar s e s orw and orw enc f anie f r s e anie e f c i f sue

f omp g dif associated companies and other and companies associated holdings securities long-term alue s s o s c i ations omp ought

v a e arried ontribution all all c e g ed c wns c v v br ft r ed in

sund ’ e o e e yrk t e sific ed s l k er f tment tment t thammar t shar vidaber ockholm ockholm ockholm ockholm ockholm ockholm ockholm ockholm ockholm ockholm ockholm ockholm s s e-do s s t otland o arber unds unds t t t t t t t t t t t t uleå uleå egis ociat e e w quir Rental income from external customers amounted to SEK 109 mil- 109 SEK to amounted customers external from income Rental R S L G B Ö Å Helsinki S S S S Malmö S L S S S S Säf S S S V Ö S Gent s anslation rit v alanc c eclas alanc r Investment property encompasses approximately 190 properties 190 approximately encompasses property Investment estimated The Germany. East former and Hamburg Berlin, in located concerned the which at amount the as defined been has value fair who partners knowledgeable between transferred be could property complet- in interest an have who and other each of independent are been mainly have calculations value fair The transaction. the ing as own Vattenfall’s by made R Change as W T B Note 21 Participations in Group companies, Group in Participations 21 Note B A In Ne holder Div lion in 2004. Direct costs for the concerned properties amounted to amounted properties concerned the for costs Direct 2004. in lion prop- to related is million 146 SEK which of 2004, in million 292 SEK income. rental generate not did that erties l 6 8 9 7 a t 41 o 004 T —93 —31 —30 Number 2 —442 —251 —558 —540 —679 y 1,597 1,280 2,614 2,499 Identit 004 — — — — e 3 — Land 2 —6 —5 at —43 —17 944 —289 —144 —422 1,231 1,366 1,423 s orpor 556573-5940 556333-2468 556008-2157 556044-8887 556014-7406 556174-8525 556425-8134 556175-2014 516401-8391 556438-5952 556010-0819 556242-2959 1071366-1 556439-0614 556192-6212 556572-9869 556499-8689 556573-5965 556500-4974 556383-5619 556377-2861 556440-2609 556417-0800 556463-7683 556558-7036 C 250526 im- 004 — — 1 1 3 2 —2 —2 —2 —1 — 18 14 65 67 —5 ement —46 —46 v Land o pr AB — 5 6 3 2004 401 AB säljn. e —48 —28 —13 348 322 uildings * —151 —512 —104 —494 —252 B 1,068 1,124 dic För anc AB AB d Nor age d AB

p s o ar s s alem ar t Insur e AB t t xt S ering AB e e AB ified t AB all ne s s ar enad ar orw s om om AB orw a— f s S B A AB B s s s f d e f e ding fr fr ervic e e e as as A y AB ee A y r

als als als

en A/ ought s arried AB d S AB epr er arried PB yrk t t s s s s

o eciation t AB clas c t AB gi c Nor s s alue e c s ed ed br ar tk e enc enc enc a Management s e the v the e AB r 22, r r r s alue aft grupp o

V v ought ac aft ought Entr e e e v fix fix tribution e ernational sified sified B d er f f f or gi depr t In Kr or erige wns Ener orw alans tighe s f br alue t plan aft f br Kr ervic alue f

w v /Dispo /Dispo /Dispo ar angible s AB v AB In air dif dif dif v Not S t usine o o s s s ervic S er s a s ed f Kr t clas clas alue i t B F Oy Eldis S Bränsle P Danmark anie ens w eciation er er Ener s e e v AB e e-do wns s ountrie a wns wns ad orw B r r o ed w w s f Kärnbränslehan ggarna all all all all all all all all quisition C tionsb A AB P angible angible o o d d or

f f f f f f f f d tröms Årjäng y omp t t arried t ding as other tment tment tment c tment writ depr ac c r el eciation eciation r ef gibolage ar ar whe ar s s s e-do as s e-do e-do en en en en en en en en le umulat dic dic e o g tinuation säkrings t t t t t t t t f o s smark e e e e edP edP sidual quisition c c. c. c. r quisition c ed t t t t t t t t timat ensk c r r n aftb oduk anslation anslation anslation oup rit rit rit v om c c c c c e c x e a a a a a a a a ens ther ther v w w o arried r r r o o i orw orw orw C V V V V V V V V S S S Säf Nor Pr Ringhals S F F För Gotlands Kr Arr B Ener eX The list below encompasses the parent company’s directly and indirectly held shares and participations. participations. and shares held indirectly and directly company’s parent the encompasses below list The Gr Nor Abonner Note 22 Shares and participations and Shares 22 Note o R plan Es Div T A f W W W T A f o ac Depr Depr Div c fr f A In Div T A A A f Note 20 Investment property Investment 20 Note Notes to the consolidated accounts consolidated the to Notes

VATTENFALL ANNUAL REPORT 2004 88 VATTENFALL ANNUAL REPORT 2004 89 y — — — — 6 6 1 6 4 2 3 7 7 3 0 % 13 18 15 19 17 16 14 94 94 94 94 94 74 55 94 94 94 94 75 an alue alue 170 332 291 125 v v 8,868 5,266 3,238 9,662 omp c 1 40,533 ook ook B B Holding, ent ar g g g w P e a s erin ic tbus erlin erlin erlin erlin erlin f chau t f w s B B B B B ar o o t 2 2 7 6 8 W C ch e 42 ed 10 14 10 12 62 oup S V Hambur Hambur Hambur alue 500 100 100 ,566 ,518 ,5908 er 149 334 186 200 v t Gr 5 1 7 Number 12,999 35,341 16,000 89,726 14,000 ook egis 9 219,919 150,000 B R 72689384 18,366,0 s all GmbH e f 20 GmbH GmbH 500 750 en t shar gy GmbH 1,000 f gy 5 1 1 1 8 Number % at o 50,000 84,000 10,000 70,000 54,000 GmbH 00 7 5 75 00 5 5 5 36 00 00 V 288,000 1 1 1 100 100 100 100 1 100 Pumpe GmbH a Ener sion G e Ener s z o A e t ation GmbH ar Holding, ar % e s Grup t 50 50 20 35 30 40 48 50 50 40 30 w GmbH A ansmis as ervic G ch ale r S S holding. S A Gener Mining Nucle T S W ung s t e Holding, EW e er g Damm ic ope ope ope ope ope ope ope ci f erk Notes to the consolidated accounts consolidated the to Notes f s ading n y ur ur ur ur ur ur ur o g w r a chland’ erw g g E E E E E E E T t G ger a s ed a a a t aft w A r e e s e all all all all all all all all ed a eå t arleb ft f f f f f f f f G Kr s ala ala embour er ft Deut o r t Müllv t x ockholm ockholm ollhät G e a en en en en en en en en erlin t t u udvik udvik udvik egis r allinn eå ager t t t t t t t t all vidaber ic ockholm ockholm f R Gliwic L Hambur L L L B S F T T Malmö Älvk Mo S f oden olle t t uleå egis f ugenber olen at at at at at at at at R S Asikk Helsinki S Pit S B Åt L o Gothenbur Gent en MVR R V V V V V V V V VEA WEMA P Nieruchomo t . at V AB % 74 63 74 94 71 94 71 94 51 ough 100 Number 100 100 y y grupp thr aft Holding, ent Kr Identit Identit c s e e 62659 221005 e g g at g at per 9861 1955 ic f 49528 V) f den o erlin erlin erlin smark 94 orpor orpor f B B B or Malmö RHB 0953-041-1 556565-6864 556565-6872 556194-9784 1031853-0 556565-6856 (B) 556001-1800 38,440W 556417-0859 (HRB) 556439-0606 10142764 556550-1292 556037-2970 HRB 556528-3180 556330-9227 556390-5891 556530-9829 556139-8255 556013-1574 556543-1607 556200-9117 C C number 556572-4696 (LE o ed F Landau Helsinki Helsinki er al t Hambur Hambur Hambur t ispgår Uimaharju o t B ough egis a R .A. thr S wn

o s y oHG s ent n s c o z G G C c K anie A anie y & per t anie o GmbH e .A. C S ge 20 el omp omp & t c erk c omp y W c GmbH ier skie - ther AB AB ed O AB s oup

V w oener AB el AB ed G o fur .A. a s t gi Gr AB tr GmbH A z GmbH S a (publ) AB s AB z aft y r e ociat 2 AB t che d erkk s a ark wn t ociat Elek AB Oy AB Elnät Ener Kr Värme y G** v an en o s s other e G s s s W S OÜ o as A anc Oy s AB G A El AB e s as K s s aftp chland t o AB Fjärrvärme gi and AB . Electricität s Brunsbüt ærk s s ant omp er anie anie oima Neukölln Märkis anie AB o v AB t e aklad eckling ope AB c s asury onia gi aft wnie r V e ot t v C gs Z AB e wned anie anie einsur erkk s ervic u gi ountrie ountrie r u gi erk indkr che Kr nt & Ener AB Link erk erk wned Indalsälv V Deut E E R S T Ut Vät T omp gslagens gslagens gslagens gslagens omp omp anie -o C C all Gas eiligungsne w e V c f c c t ountrie r Ener G ll Südw -o y y gis ol edør Oy alan a omp omp ountrie all all all all all a all all all all all Oy C A en ele v ener aft er f f f f f f f f f f f dic dic t omp c c c slaski p ocieplo ads oup A eP c eEner V vidaber eem ectly AB t gie at erber erber erber erber ebäck tr en en en en en en en en en en en ag odens s uleå w dic t t t t erki s s Gr V t t t t t t t t t t t al, ectly S w T Åt Other Pit Plus Pr S Other Nor Asikk Nor i/ B Guls L t t t t t t t t e t oup G oland e ar ernkr at at at a a a a a a a a amilo o ernheizw ernheizw Continuation Note 22, see next page next see 22, Note Continuation Indir Dir B Ener F F Hambur HEW K Nor B P V V V German Other T *) **) companies Group by held shareholdings Larger V V P Elek Górno Other V V V Väs Väs Väs Väs Ör Other German Gr V V V V Associated companies Associated y — — — — — — — — — — — — — — — 1 29 2 40 an 003 003 003 003 alue 648 774 5 v 2 2 2 2 ,592 ,466 6 2,159 4,469 1,900 3,614 6,498 2 3,614 6,752 omp c 11,179 34,854 16,283 10,219 26,832 10,123 91,884 11,974 ook B nt e r a P — 51 76 14 14 25 oup 35 alue 976 992 164 360 v 408 650778 756 Gr 2004 2004 2004 2004 1,667 3,107 4,354 4,688 6,709 1,958 8,224 4,115 2,457 3,051 5,887 6,928 6,901 1,063 2,507 3,051 5,558 14,319 ook 10,307 3 15,381 25,054 16,45014,946 8 1 B s s e s anie ome e 928 akings y shar t 2,500 f inc Number

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2407 s A A e R R orpor HRB B42798 46782 HRB HRB H HRB H HRB HRB HRB number C HRB HRB HB shar 7,8303 f 36033 Number 2004 o 13,000 11,763 7,470 3,888 1,320 1,902 G 8 8 6 % A mbH 22** 12 15 20* t G Os K a

chaft t Holding, . . o en eden t t C n n w s ells e e & S s c c G , achs s A holdings chago S e o -Ge GmbH per per s holdings AB GmbH GmbH S mbH s anie gi GmbH G g 16 14 s G erk GmbH t G GmbH de A g gung is is r w

dorf K G ungs

a s s t omp onsumable or A o curitie für p eden Ener ok ade c z c e ock er C s Gas t / e s s s r curitie enber e s w t GmbH s chim t s s s Krümmel S Br e e s S right right r & t vik e i ar v s , o a t Handels erk erw and chaft Eilenbur P R W anie anie anie sp V erk erk erk W gie ting ting AB Electricia e e e e therlands w w w gie o o wned therlands erliner ervic ountrie v ells v ountrie G all-

y y s GmbH B wned ountrie ountrie ountrie s f f f omp omp omp Ne -o C aft and C che erk erk erk erk A aft aft aft c c c Ne o o erials c c c Ener S ania fuel G ar -o

w w w w a e e Ener Ge Ab and—Rät GmbH O c. A G dic dic s t ar S R G A k e mat ectly adt adt adt adt A omp ernkr ernkr ernkr O oland V olar t t t tädtis t utilia, S e erials Shar Shar al al ectly w al Nor P S S Other Other German GNS Nukle L Other Other E Nor Jämtkr Other Other C S S S S TVF K K K K A EHA E G German ELINI, t t a umma o o o Mat T R Nucle Oil C Note 23 Inventories 23 Note *) **) Indir Dir Other long-term securities holdings securities long-term Other Continuation Note 22 Note Continuation Notes to the consolidated accounts consolidated the to Notes S T

VATTENFALL ANNUAL REPORT 2004 90 VATTENFALL ANNUAL REPORT 2004 91 2 f % ed o 4 25 86 al- 004 5.0 5.5 143 312 435 c 2004 2 and - pur- ax , ar- the —108 —840 —891 t mil- 1,265 s 1,332 1,029 1,670 1,332 1,644 p f s t liabili- ax —1,214 32,313 16,450 14,946 o 16,450 29,702 e tment a t 2.0—2.5 2.5—3.5 unt e s —14,972 v s o o ax e quisition t or t in s / t v — — f ent sment as SEK s c s 2,465 sumption ac s in , sses e ed s sumed. emaining s ar the ed o uarial s as quisitions

r l w gains able able e e —891 lo —891 f ’ as per ix ct y err as s o f ar SEK ac ne A or , f e the f erv when y be s ee 10 y principle o ax s o . def y t e tribut e — — o tribut an e alue r t vious at v or gain or with at the e at f f plans enc r need alue is ed made al is pr v t air omp s pension er w emplo f s ax c f is o 17,052 17,052 equal ounting t s s t c t flo purposes Non-funded dif e e the unt the during book visions s s ac the that normal with eciation during ombined out o er — w c or as as a ary liabilitie v , and pr ax f liabilitie the o orridor t e alled s tially t ne 289 o plans that ash c ax t ully depr f t c funded ar F ur e ormed ax a pension ed plan. s o p ed t s o-c een ormed 15,261 plans e s ent ed s tment tment empor plans no fut —14,972 other w 2004) t as s s e it ding err ed t as xt assessment perf in e e side in err e e perf onjunction as v v as e tribut ation s be the c err ax e ax def that e in in plans t t sumption out e egar d def d ell alled in dis ommitmen the in r incr f benef or tment s c def w as ar or f o ar o ed individual ervic incr s e f om om t f able enc alls o-c ervic t s ed e applic f s o s (change oup s as fr fr v v enly s o err er ’ the ar ob orw t visions o ontribution e v orw t o f o ined enc s f ach in Gr on p obligations f t s t benefit c o e t alue e pr f e o uarial er e anie def urn urn vision plan v dif t f pension salary er pr c t o t all s def on pension o s with f o ed ect shar or e e appr Notes to the consolidated accounts consolidated the to Notes periods able t f at f and egulations e act r r able able as dif ined f pr pensions r e or million, e en us the e s ations omp ought f e mo t at the losses t arried urn

c t xpens alue or r and alent ar ed ed ed gr t t ely f e f c s br defined def t is , e v at s on e s the o o s s -end elat at at annual annual e tribut t r V c s e major o pension tribut it sific ed e r e tribut yment s and or or , a pension pension c the s e e tment er

ar alue f at f ed e at A e s 2,521

ent t t s ount at v e equiv s epor t t t t visions s e ual the al al al a ur ur n c erv e visions er y s s s s quir As s s t t t o e e s spectiv anslation ansition e v o alanc c ct eclas alanc o o o o he r r ulat o o o ension ut ut e e air or lion. c the r f unchanged po In f Unr gains T at Pr B T A C Pr R T B actuarial following the 2004, for obligations pension calculating In made: been have assumptions Dis Anticip F F liability: tax deferred for Provisions T million, analy SEK tie P C Int Anticip C Other T C T A Pr r emplo ticular gr m presented are plans pension benefit defined for costs pension total The below: sses are taken up as income and expenses and income as up taken are sses As of 2004, the Group applies the Swedish Financial Accounting Financial Swedish the applies Group the 2004, of As lo and gains Actuarial Pension commitments for HEW employees are mainly comprised of comprised mainly are employees HEW for commitments Pension Bewag’s pension plan is financed through Pensionskasse der Bewag, der Pensionskasse through financed is plan pension Bewag’s The pension plans in Germany are based on collective agreements in agreements collective on based are Germany in plans pension The Vattenfall’s commitments for retirement pensions and family pen- family and pensions retirement for commitments Vattenfall’s The Swedish pension plans supplement the Swedish social insurance social Swedish the supplement plans pension Swedish The Standards Council’s recommendation RR29 on employee benefits, employee on RR29 recommendation Council’s Standards Employee — 19 IAS with complies purposes and intents all for which pension benefit defined the RR29, of application the Through Benefits. princi- same the to according reported are companies Group all of plans basis actuarial an on calculated are plans pension the end, this To ples. of effect total The Method. Credit Unit Projected the with accordance in an as reported been has this and million 1,265 SEK is transition the has principle accounting in change The provisions. pension in increase 670 SEK of equity consolidated non-restricted in reduction a entailed interests. minority and tax deferred account into taking after million the company’s commitments to personnel employed before 1 April 1 before employed personnel to commitments company’s the of sum The years. 10 least at for employed been have who and 1991 third-par- from pensions and pension statutory pension, retirement the on salary the of cent per 65 of maximum a to amounts normally ties based. is pension the which a mutual insurance company. This plan is financed through funds from funds through financed is plan This company. insurance mutual a are commitments these accounts, the In employees. its and Bewag their began who employees For plans. contribution defined as treated agreement transitional a is there 1984, January 1 before employment equal pension a with age retirement until working employees providing of Half based. is pension the which on salary the of cent per 80 to up to der Pensionskasse from benefit entire the and pension statutory the amount. guaranteed the to credited are profits, including Bewag, The commitment. pension entire the encompass obligations Bewag’s 1 before since employed personnel to attributable assets investment value. market at assets investment as reported are 1984 January line with market terms and conditions. Substantial defined benefit defined Substantial conditions. and terms market with line and Bewag companies the of employees for Germany in exist plans HEW. sions for office employees in Sweden, secured through an insurance an through secured Sweden, in employees office for sions Swedish the with accordance in reported not are Alecta, from policy RR29. recommendation Council’s Standards Accounting Financial Accounting Financial Swedish the by issued statement a to According a is plan this 42, URA force, task issues emerging Council’s Standards 2004 the For employers. several encompassing plan benefit defined to as information such to access had not has Vattenfall year, financial ITP The plan. benefit defined a as plan this report to possible it make Alecta, from policy insurance an through secured is which plan, pension year the for Fees plan. contribution defined a as reported therefore is million 127 SEK to amount Alecta from policies insurance pension for policyholders the between distributed be can profit Alecta’s (123). the in profit Alecta’s 2004, of end the At parties. insured the and/or 128 to amounted level consolidation collective so-called the of form fair the comprises level consolidation collective The (120). cent per commitments insurance the of percentage a as assets Alecta’s of value principles calculation insurance Alecta’s with accordance in calculated 29. RR with agreement in not are which assumptions, and system and are the result of agreements between employer organisa- employer between agreements of result the are and system are Sweden in employees all Almost organisations. labour and tions plan, benefit defined a primarily is that plan pension a by covered a employees guarantees plan pension This ITP-Vattenfall. as known are benefits These salary. their of percentage a on based pension balance the in provisions through Foundation, Pension a in secured premiums. insurance or sheet Pensions: German and Swedish Group’s the in obligations pension Vattenfall’s commitments. pension benefit defined predominantly are companies dis- pensions, retirement primarily are plans pension concerned The the funds, these in assets The pensions. family and pensions ability pension also are There value. fair at reported are assets, investment plans. contribution defined are that countries other and these in plans 7 —4 —2 —5 71 11 8 21 —70 —64 —67 —44 —11 —94 2 992 407 212 , in —597 —398 —140 —536 —406 —235 per w 2,457 5,558 6,928 5,887 1,393 1,900 6,498 6,752 s —1,081 —1,646 —3,034 10,123 21,639 uring t flo —10,919 27 c u r ely ash ement c sses and sses s est 2004) r

in in s, s ximat t o c disbur sult a e r r t in n o Appr (change o t . s c

s e sult s n ed e r o

2004) o t s other in purpo s xpect sses ar ed e e lo y is or e f among (change xpect e , e s s s 2006—2007. e vious e shar non-pension 2004 e tho ar d or d d d pr f d d d d 2004) ar disput s s s s s ar ar ar in ar ar ar ar e e e e e period s s s s s s goodwill quisition s s s orw period period period legal orw orw orw visions e f orw orw orw orw enc enc enc enc enc f f f visions include f f f f the o emaining 2001—2003 2004 ac visions visions visions ommitment r o ect ect ect er er er er er anie anie f pr c anie anie anie o o o f and f f the the the f f f f f (change o pr ed ed ed ed ed visions visions visions pr pr pr ed ef ef ef ax o o o ee the dif dif dif dif dif e or or or negativ t f us us us us f us f ought s omp omp ought ought ought omp omp omp arried arried arried arried goodwill: pr pr pr during c c visions elat or or c c c f f c c c c br ant time br br br o e visions the e e e e e ed ed ed o e e e sified sified sified ed ed ed ed ed pr f at while s s s t t t pr o s s s ounting ounting ounting guar er er er onnel-r visions visions visions visions visions visions visions visions e e e c c c visions visions s v v v quir quir Gross profit for 2004 includes the dissolution of negative goodwill negative of dissolution the includes 2004 for profit Gross About 75 per cent of provisions for tax and legal actions are actions legal and tax for provisions of cent per 75 About o o o o o o o o anslation anslation anslation anslation anslation o o alanc alanc alanc alanc alanc c c e e e eclas eclas eclas alanc alanc alanc alue r r r r r er ent Other B Pr Dis Pr R R Div T B Dis Pr R R Div T B Negativ Germany. in acquired operations to attributed is goodwill Negative lo as dissolved successively been has goodwill Negative arisen. have costs restructuring (4,754). million 3,034 SEK of amount the in Pr V Pr T B A Pr T B provisions: Other Other P B A Pr Dis Pr R R Div T B disputes: legal and tax for Provisions ongoing to due expenses tax future possible for made are Provisions include These actions. and disputes legal ongoing for and audits tax encroach- concerning actions legal ongoing to related provisions Germany. East former in land on laying cable regards as ment 2006—2011. years the during disbursements in result to expected to expected are provisions the of so or cent per 25 remaining The 2005. in flows cash in result Pr B Pr primarily and c 2005 s e . 73 43 f a y —90 —65 —82 —12 —40 359 269 310 o y in anie —119 —120 —173 —649 —317 a 6,709 8,224 6,592 er p notic —1,431 34,688 10,219 34,854 w ations y omp the s po c the oper edundanc giving and 2004) the primarily r ad, er , e y in o edish e t s or t b w t s f management w t as e S principle e po Ins w . ur ur he ar ar shee T (change fut . elating e activitie r c. f t e o e nucle ounting visions the t nucle c f xpendit o f ur o alanc e 2004) ations ne o or ac pr b f in ations w uring s the oper ne und other 2004) oper F f xpendit in er sioning o in e period, truct e t w s s (change e and e sponding s as r po e the ur y mining W made a f ation ar ommis management o p or e orr fut f ar d d d s e d d d c (change e e ar s s s liabilitie e dec or ar ar ar ur ar ar ar er f e e e w nucle applic ax anc s ongoing s t f fut s s period period Nucle the po xpens orw orw orw mak o orw orw orw er enc enc enc f f f e on f f f ed v visions ar e the visions ect ect er er er olutions anie e the made anie o f f the the f f f err o s s and not ur ed ed visions visions ect in e f pr edish ef ef f or e pr o o dif dif dif or or f t fut nucle def o dis , do f us f us ar w omp ought ought ought / ef omp s y sioning arried arried arried pr pr S s c or or or as c . e f f f c c c br br br y w e e e onnel orm ed ed e e e sified ed ed f elv the s s s t anie ar s o ounting ounting er er t visions visions visions visions visions visions ommis e c c visions visions visions v v quir Approximately 27 per cent of the provisions that have been made been have that provisions the of cent per 27 Approximately In accordance with current assessments, some 73 per cent of of cent per 73 some assessments, current with accordance In Existing plans for the decommissioning of the German nuclear German the of decommissioning the for plans Existing per the German o o o o o o anslation anslation anslation ansition o o o alanc alanc alanc c e e eclas alanc alanc alanc r r r r omp o ee t German thereafter and 2005 in disbursements in result to expected are the over distributed evenly relatively cent per 65 approximately result to estimated are cent per 8 remaining The 2006—2011. years 2011. after flows cash in Personnel-related provisions for non-pension purposes: non-pension for provisions Personnel-related Pr in R Div T B B Pr Dis Pr Pr the provisions will result in cash outflows later than 2007. For 2005, For 2007. than later outflows cash in result will provisions the while provisions the of cent per 14 at estimated are disbursements provisions the of so or cent per 13 remaining the for disbursements years the over distributed evenly relatively be to estimated are 2006—2007. Provisions are made for restoring sites and other undertakings con- undertakings other and sites restoring for made are Provisions Ger- in mining lignite conducting for permits Group’s the with nected measures/under- environmental for made also are Provisions many. Group. the by out carried activities other within takings B other and operations mining of expenses future for Provisions measures/undertakings: environmental R R T B Pr Dis Pr Pr power operations involve about 91 per cent of the provisions for future for provisions the of cent per 91 about involve operations power flows cash in result will and management waste nuclear of expenses 2 approximately at estimated are disbursements 2005, For 2007. after per 7 remaining the for disbursements while provisions the of cent per 2006—2007. years the over distributed evenly be to estimated are cent thems dec c f nucle Provisions for future expenses of nuclear waste management: waste nuclear of expenses future for Provisions In A Pr T B Continuation Note 26 Note Continuation Pr B T Notes to the consolidated accounts consolidated the to Notes

VATTENFALL ANNUAL REPORT 2004 92 VATTENFALL ANNUAL REPORT 2004 93 y 44 . alue —30 780 984 167 323 559 780 327 181 490 378 911 517 v 2004 2003 2003 2003 9,552 2,736 7,231 5,272 9,552 4,059 1,565 3,592 9,095 3,126 air alue not 11,209 76,092 15,702 23,413 14,468 10,429 43,111 14,484 F ed impor- v sition. is electricit po tle ociat lit book s and alue f v s long o as the er air — — — ant — v F

as and 74 e alue hedge s 536 833 361 323 756 108 689 776 v w 2004 2004 2004 e est. 9,954 2,317 1,5501,955 2,776 5,347 9,954 8,894 7,591 1,143 4,059 1,999 2,768 4,208 ho at 11,063 73,013 23,362 14,468 10,307 39,211 14,132 ook er r signific same e B wner a o int ar y the has be change x * crued o s which s s s e t , ac s y minorit s whole t t s o a s anie anie anie t omer * o erns ed o t s s s c s c as s sumed s onc e e omp omp omp cus elat include c ed e utions utions as c c c . s -r electricit oup wner wner e t , e tit tit tment o o ativ x ativ om s er ed ed ed s Gr not elat e e** ade s y y liabilitie e sur e e fr w s ins ins been f v ome s nt xpens s ansaction o debt the s sur e o po s in sur deriv ome xpo deriv xpens ociat ociat ociat c e tr t e e inc doe e s s s e s edit edit has ar s s xpens tment aper cl. e cl. xpo inc able-tr or s onnel-r s xpo Notes to the consolidated accounts consolidated the to Notes e s minorit as cr minorit as as cr x alue ed P f x ome e y s e s this e ativ yment v e e er aring e a aring o o o o o o o wher alue ed a v s t t t t t t t xpens p ax s err ed v in inc p e t anie per nucle e int t s s s s s s s crued cial in air s -be -be e f err e t t crued deriv ed liabilitie liabilitie ac def air s s s loans loans ativ ansaction F ading e e e and he ent r omp ac other def anc liabilitie anc ount err c adjus t tr T T al al al al al al s er er crued crued crued crued c t t t t t t ) anslation ansaction t dv c c c c c urr ond ond ommer r r * o o o o o o ax ee n Other T T T *) * A A f A Other Def and Other T instruments financial of value Fair 31 Note item to according value fair and value book shows below table The deviate not does value book which in instruments Financial type. below. table the in included been not have value fair from C Int Shar T I B Liabilitie and Liabilitie Liabilitie Deriv T Note 29 Current interest-bearing liabilities interest-bearing Current 29 Note B C Liabilitie Liabilitie Liabilitie Other T liabilities non-interest-bearing Current 30 Note A A Liabilitie T Other A and T income: deferred and expenses accrued of Breakdown y s — — — — — — ed t s ernal able able able able able 2003 o ating/ t t t t t P xt liabilit 2,402 9,843 1,614 3,967 R S S S Outlook S S e Moody’ 36,918 69,845 13,994 41,993 37,977 - — — — — — % ed A3/ A3/ A3/ A3/ A3/ 24 19 48 73 Us opor tion, &P pr S able able able able able y ating/ t t t t t R S S S S S Outlook urit -/ -/ -/ -/ -/ 2009 A A A A A 7905,123 Mat 2004 7,896 y 3,736 38,062 64,119 13,635 enc Due SEK SEK SEK SEK PLN EUR USD USD USD urr 2010 2018 2009 2024 2007 C % eed 6.0 5.0 6.0 s 600 202 wing. gr o oupon, A 6,000 2,000 1,000 1,000 amount 5.375 6.125 C 10,000 10,135 15,000 anie s borr s s omp erm and utions c 500 500 650 500 500 -t wner e y* s s t tit acilitie o Amount f ed aper y y acilitie Not P ins aper shor f s acilit e P aper F enc edit or EUR EUR EUR EUR EUR acilitie acilitie ociat P f edit f f cial s erm edit cr y s urr Not edit aper cial T cr C cr minorit as edit P f aft aft cr cial ed o o o o t Cr t t t acilit dr dr s erm f e e e e e ed s s s cial T t ommer er er v v C ommer liabilitie -up line loans Not Not Not Not Not o o C Medium Medium Medium Medium Medium Medium ommer ommit olving o o o o o o o C ack al al v ans t t B ommit e ank ank ond ommer olish o ur ur ur ur ur ur ur ther o o erm erm erm erm erm ype Note 28 Long-term non-interest-bearing liabilities non-interest-bearing Long-term 28 Note million 1,393 SEK (2,236), million 2,135 SEK of liabilities total the Of years. five than more after due fall (1,513) T E T E T under described are risk currency and risk interest risk, Financing 73. page on management risk and Risks heading the T E T E T E B Unc B o T *) bonds Benchmark E US Medium E P C R Loans and credit facilities credit and Loans L C Liabilitie Other T more after due are amounts following the liabilities, above the Of Liabilities (25,156), million 18,803 SEK loans Bond years: five than minority to Liabilities (4,371), million 3,892 SEK institutions credit to borrowings long-term Other and (3,529) million 3,324 SEK owners (486). million 138 SEK Note 27 Long-term interest-bearing liabilities interest-bearing Long-term 27 Note B Liabilitie Liabilitie o t at- has V the as- sses or as o- , ed or f s f e le s f as obliga- and ed t een o t s le ed e w option. t maximum xpir o t maximum s c e a Should ar a all s atings be anc their ontingent p epor o c r e t r t c dinat e a ed. plant as as adv ting , ed er ed t le edit enc t s er mee in las been cr w subor er ar o ent , ough ed f t e s ed e y po ermination epor e dif t has r thr f the ail er f eiv t high amoun o as e 24 w dinat ur s e le ec ne the s us r or with f us inc f with made in ad o he f e act s T omer o subor he t . t will ack been sit b us ontr danc right the c c utions obligations righ this or ed has alled e er e c tit depo included s s the as ft t as options ac the o-c is A le ins le s ar . the is and in f s , the er o e y period, f erp egain the t ed r o as aft da underlying which due ar o e le t eiv p ount time financial asing the c ec ed sing as r ther le in sums s yment s or right t ansactions the f US a clo million, s o p ed tr the ar and dinat at consortium agreements consortium , tie the On the sit e s erp the . ar yment ar s a p all. 1,226 e om has f p subor or yment y f during figur depo fr a ount al t en all p t c including f In Germany, actors operating nuclear power plants have unlimited have plants power nuclear operating actors Germany, In for security provided have AG Europe Vattenfall and AB Vattenfall con- the Finland, in unit business Distribution Group’s the Within In 2003 in its Swedish operations, Vattenfall carried out a leasing a out carried Vattenfall operations, Swedish its in 2003 In Vattenfall bears full financial responsibility for SwePol Link up to up Link SwePol for responsibility financial full bears Vattenfall Vattenfall’s investments in heating companies and other busine other and companies heating in investments Vattenfall’s 99 SEK , asing ne ent at f asis f s alled ent en liability. The combined mandatory insurance coverage for all these all for coverage insurance mandatory combined The liability. cov- are million 256 EUR to up of Claims million. 2,500 EUR is actors Claims Pool. Reinsurance Energy Atomic Mutual German the by ered million 2,500 EUR of maximum a to up million 256 EUR of excess in (Solidarverein- agreement insurance liability joint a by covered are This operators. plant power nuclear German the between barung) the and one during claims two for obligation an entails agreement insur- liability joint this of share Group’s Vattenfall The year. same EUR of total a or claim, per million 194.75 EUR is agreement ance million. 3,508 SEK to equivalent million, 389.50 Europe Vattenfall subsidiary the by conducted trading energy the 578 EUR of value total a to guarantees of consisting GmbH Trading to equal million, 57 EUR totalling guarantees day, closing On million. con- reported the in included are and pledged were million, 516 SEK liabilities. tingent considered be to are customers by paid currently fees nection con- their terminate customers where cases those in refundable small. very are however, refunds, annual The tracts. US o c t R been the e r a le tions V o liabilitie sales a is transaction the of basis The plant. power a for transaction a to sold was which plant, power the for agreement lease-back and leasing the Once years. 15 for back leased and counterpart French a via plant the purchase to right the has Vattenfall expires, period been has counterpart French the to sale the from Income option. call the for rating credit high a with institution financial a with deposited the for sum the including payments, leasing the of disbursement leasing the redeem prematurely to wish should Vattenfall If option. day, closing On Vattenfall. for costs incur would this agreement, million. 32 SEK of maximum a to amounted costs these b July 2020. July Note 34 Commitments under Commitments 34 Note con- the Under basis. venture joint a on built often are plants Power propor- in electricity to entitled is owner each agreements, sortium of regardless liable, is owner each and ownership, of share its to tion costs. venture’s joint the all of proportion equivalent an for output, ownership. of share its to proportion in costs for liability a entail often 7 8 78 10 4 16 13 003 003 0.9 181 112 280 217 2 2 —146 6,023 2,661 3,673 12,357 7 5 15 13 0.9 247 217 220 2004 2004 4,033 2,629 3,779 10,441 ar e y s: ery erie deliv s deliv y ar per er

utions: e t w s y s visions e s s tit curit o und n

h/ po s change e F x pr s ins erie e e ee t TW e as , fr sses, gage as s gy and t s o edit liabilitie liabilitie sur l deliv W r s / c ge

and erie er ommitment ar ener mor o xpo funds

c w t e e f MW t s ory char gains o on po s a deliv y t ank Nucle s liabilitie b ed ee e ontingent ontingent ale gy acit c c s ed al ading wn alis ant l l e ap o e tr al a a r edish As a natural part of the Group’s business and in addition to the to addition in and business Group’s the of part natural a As con- Vattenfall 2000, and 1999 in operations German its Within Under Swedish law, Vattenfall has a strictly unlimited liability for liability unlimited strictly a has Vattenfall law, Swedish Under Number C Ener Liabilitie Floating R t t t ansaction a hole lock ompensat w r o o o or or obligations specified above, guarantees are put in place for the fulfil- the for place in put are guarantees above, specified obligations obligations. contractual various of ment The plants. power involving transactions leasing of number a ducted On some rivers, several hydro power stations share regulation facili- regulation share stations power hydro several rivers, some On the of share their for liable each are stations the of owners The ties. costs. regulation with Together accidents. dam from resulting damages third-party lia- out taken has Vattenfall Sweden, in producers power hydro other for million 6,000 SEK of maximum a out pay will which cover bility damages. of type this W Other C Guar Other S T Note 33 Contingent liabilities Contingent 33 Note f Other T B Note 32 Pledged assets Pledged 32 Note F Fair value is calculated for listed securities and instruments such instruments and securities listed for calculated is value Fair prices. market on based futures and bonds government shares, as issued internally as such instruments and securities non-listed For dis- is flow cash future swaps, currency and interest and loans bonds, rate coupon zero The rates. coupon zero prevailing the to counted for STIBOR, as such rates, deposit from derived is currency each for Closing maturities. longer for rates swap from and maturities shorter in instruments of SEK to conversion the for used been have rates day foreign currencies. 2005 2006—2009 2010— T T Unr Ye Notes to the consolidated accounts consolidated the to Notes

VATTENFALL ANNUAL REPORT 2004 94 VATTENFALL ANNUAL REPORT 2004 95 l l r e o — — — — — — — — — — — — — — — 0 a 7 a t o t t f 70 1 o o 003 003 T T long- 786 8 537 202 111 678 2005 2 2 TI) entiv 2,073 1,188 1,032 3,730 3,602 1,44 1,050 4,935 7,994 3,107 8,973 (L ed aid inc 15,771 21,719 12,977 35,296 p be timat erm t 2002—2004 Es s 7 e — — — — — — — — — — — — — — — 0 e 1 22 y 93 196 660 195 Other omen ation 594 516 713 72 3 435 525 2004 2005 W 3,061 8,886 1,207 1,707 5,066 8,197 ariable 2,006 2,052 1,801 9,755 v or 12,820 f aid emplo p ed emuner be r o t timat Es s * e — 6 s 46 87 18 89 er Men 342 157 e ic — — — — — — — — — — — — — — — f ecutiv f 3,728 6,287 79 x o member e 16,653 27,099 466 6 329

d ension xpens 1,804 4,594 3,789 2,227 3,859 1,817 1,974 P e 21,538 oar enior B s and l l a a r t t — — — — — — — — — — — — 6 a 12 o o c 53 58 66 14 57 72 37 T T 202 445 543 109 2004 2004 y Notes to the consolidated accounts consolidated the to Notes ation 506 100 1 other 3,309 3,365 8,660 8,192 an 1,069 20,864 33,017 12,684 and omp emuner C r s 3 e y 9 9 8 e a 12 2 00 y 3 3 39 4 39 43 00 p 198 409 2 827 Other omen ation 212 250— 200 250— 250— 133 211 133 4 y salary W 3,323 1,806 8,468 4,818 7,674 2,482 3,010 6,156 2,099 2,929 2,934 1,511 5,409 2,141 1,766 12,410 e 003 emplo 32,723 o s e 2 t asic t holida vic e (961) b 4,201 , vic emuner s r 12,977 17,178 oup vic e d able incl. and siden gr and ar e

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LTI the and salary fixed of c 15 groups. management Incentive programme 2004 programme Incentive in applied been has managers for system remuneration variable A program- incentive and Group Vattenfall the of segments Swedish the companies. and units business other most in applied been have mes 2002—2004 managers for salary Variable to linked directly was salary variable a 2002—2004, period the For functions group of heads management, senior For creation*. value as paid, was salary variable annual an managers, unit business and annual two exceed not shall latter The (LTI). incentive’ ’long-term a is financial Group’s the if 2004 after paid be will and salaries variable a provide not does incentive’ ’long-term This exceeded. are targets pensions. for basis targets. three-year its exceeds or attains Group the if high unit business the to corresponding applied, is goal creation value all goals, management to as well as goals, operative own and goal creation. value enhance to help which of salary fixed the of cent per 33 of maximum a to equal salary variable the for salaries variable annual two to equal LTI an and year, per above. detailed as 2002—2004, period three-year per 25 of maximum a total to permitted was salary variable the tions, case the In above. detailed as was LTI the and salary fixed the of cent maxi- a functions, Group within individuals managers/key certain of applied. cent per 10—15 of mum All pension benefits are vested, that is, not conditional on future on conditional not is, that vested, are benefits pension All pre- management, Group of members other these For employment. SEK from varying amounts in ITP-K and Alecta to paid were miums thousand. 193 SEK to thousand 141 change annual the and debt ITP the of comprised cost calculated ally posted is This ITP. above and over portions the of value capital the in In Foundation. Pension Vattenfall’s through secured and liability a as applied be can plan pension premiumbased alternative an case, one the of instead paid are premiums wherein staff, salaried high for exten- so-called The liability. a as entered being amount equivalent for applied be also can above, described as ITP, above and over sion management. senior the during salary their to entitled are they company, the by nated comprising pay severance plus months), (6 notice of period contractual the for deduction a with monthly paid is which salary, months’ 18 question. in period the during income new to corresponding amount term. contractual fixed a for is employment Rauscher’s Klaus Dr. processes decision and Preparatory to paid remuneration the on decides that whole a as Board the is It Chairman the from proposal a following Officer Executive Chief the Executive Chief the management, of members other For Board. the of the with consultations following remuneration on decides Officer the 2004, In Board. the informing after and Board the of Chairman new a preparing of task the with party working a assigned Board head- the under details further for below See system. remuneration 60—61. pages on above and 2005” programme incentive “New ing In those cases where the pension applies from age 62, ITP is applied is ITP 62, age from applies pension the where cases those In For those with the opportunity to retire at 60, between the ages ages the between 60, at retire to opportunity the with those For In the case of Dr. Klaus Rauscher, remuneration for pension bene- pension for remuneration Rauscher, Klaus Dr. of case the In varies age retirement management Group of members other For In the case of the First Senior Executive Vice President, a premium- a President, Vice Executive Senior First the of case the In In the event of termination of employment by Vattenfall, the CEO the Vattenfall, by employment of termination of event the In Lars G Josefsson, who was born in 1950, is entitled to retire at the age the at retire to entitled is 1950, in born was who Josefsson, G Lars The four board members in the internal audit committee also received also committee audit internal the in members board four The with a so-called extension, equal to 32.5 per cent of salary in excess in salary of cent per 32.5 to equal extension, so-called a with years’ five past the of average the Furthermore, amounts. basic 30 of is salary variable while pension, the for basis a provides salaries fixed of cent per 40 about is pension The calculation. the in included not 62. age from salary fixed the —of 60 and 65 years, 70 per cent of the fixed salary is paid. Variable paid. is salary fixed the of cent per 70 years, 65 and 60 —of 65. and 60 of ages the between pensions for basis no provides salary supplemen- a with together 65, of age the from applies plan ITP The 32.5 of consists extension The extension. so-called a pension, tary in based is pension the which upon salary the of part the of cent per based is pension the which upon Salary amounts. basic 20 of excess with accordance in salary, variable annual and salary basic comprises of cent per 49 and 44 between is 65 age from pension Service ITP. salary. fixed the fits is paid as a salary supplement. salary a as paid is fits 62. 2003, October 1 after employed those for and, 60 between based pension solution applies with a retirement age of 60. of age retirement a with applies solution pension based Other executive management executive Other Group of part are who management executive of members other For other and salary of sum total the people, 9 of total a management, 25,983 SEK was cars, company of value the including remuneration, thousand. is entitled to severance pay corresponding to a maximum of 24 of maximum a to corresponding pay severance to entitled is the until paid be only may pay severance months’However, salary. cal- be will pay severance the of size The age. retirement contractual of termination of time the at salary fixed the of basis the on culated of portion variable the of aggregate the of third a plus employment, employment new of event the In years. three past the for salary the by reduced be will pay severance the source, another from income or received benefits other or income new the to corresponding amount an monthly. paid is pay Severance question. in period the during of 60. A retirement pension of 65 per cent of his salary upon retirement upon salary his of cent per 65 of pension retirement A 60. of paid be will benefits retirement this, After 65. of age the to up paid be will the of cent per 32.5 plus plan benefit ITP applicable the to corresponding a is amount basic (a amounts basic 30 exceeding salary his of portion latter The purposes). security social Swedish for used amount standard 80. of age the to up payable is and limit, time a has benefit retirement and year consecutive each for fifth a by decreases it 76, of age the After no provides remuneration Variable 80. of age the at completely ceases premiums by covered is commitment pension The pension. the for basis vested, are benefits The basis. regular a on company insurance an to paid employment. future on conditional not is, that In 2004, Lars G Josefsson, who is Chief Executive Officer and President and Officer Executive Chief is who Josefsson, G Lars 2004, In including remuneration, other and salary a received AB, Vattenfall of Variable thousand. 5,523 SEK to amounting car, company a of value the long a and thousand 1,801 SEK at estimated is 2004 for remuneration As thousand. 3,602 SEK of 2002—2004 period the for incentive term salary. variable any receives longer no President the 2005, of Chief Executive Officer and President and Officer Executive Chief Continuation Note 35 Note Continuation Directors of Board of amount the in fees received Board the of Chairman the 2004, In totalling fees received members board other while thousand 400 SEK above). table the in shown (breakdown thousand 1,723 SEK Notes to the consolidated accounts consolidated the to Notes fees as follows: SEK 50 thousand each for those not employed by Vatten- by employed not those for each thousand 50 SEK follows: as fees representative employee two the for total in thousand 13 SEK and fall are amounts These 2004. in positions these holding members board remuneration. Board heading the under above table the in included

VATTENFALL ANNUAL REPORT 2004 96 VATTENFALL ANNUAL REPORT 2004 97 8 3 3 0 0 6 4 94 87 83 74 4 2 15 17 11 10 ating 5 104 320 asing 2003 —214 le Oper 6 0 1 01 8 6 6 5 5 9 2 12 3 16 11 3 12 14 3 11 —12 asing 2004 le Financial e ic f **** ** s s Of y) udit ooper ooper ome A

eC eC inc ond y) Notes to the consolidated accounts consolidated the to Notes y (German audit be s oung* oung*** National erhous erhous Y Y ee at at ory f and & & /BDO Financial w w these costs are attributable to audits of Swedish, Polish, Finnish and Finnish Polish, Swedish, of audits to attributable are costs these companies. German (German t t l l l ut e e s: a a a edish The facilities are classified in accordance with standard leasing prin- leasing standard with accordance in classified are facilities The reported assets of value acquisition the 2004, December 31 On follows: as down break facility of type this for payments Future s t t t at t e w ciples, based on the fixed income component. income fixed the on based ciples, Accu- (1,113). million 1,673 SEK to amounted leases Operating under accu- and (—143) million —554 SEK to amounted depreciation mulated (—5). million —30 SEK to write-downs mulated Leasing income Leasing behalf on facilities power operate and own companies Group Certain compo- two into down breaks customers from Income customers. of variable a and expenses capital cover to component fixed a nents; delivered. quantity the on based component To S Erns Other To Other Erns Other To *)(4), million 6 SEK totalling costs audit company’s parent the to addition In **)companies. German in audits to attributable primarily are amounts These ***)Poland. and Germany in operations to attributable is (6) million 6 SEK Poland. and Germany in operations to ****)attributable is (4) million 11 SEK companies affiliated with Transactions 39 Note Vattenfall The State. Swedish the by owned wholly is AB Vattenfall state State, Swedish the to offered are services and products Group’s suppliers other with competition in companies state and authorities terms commercial accepted generally under and Group its and AB Vattenfall manner, similar a In conditions. and authorities state from services and products purchase companies generally under otherwise and prices market at companies and share significant No conditions. and terms commercial accepted the to attributable is profits or sales net Group’s Vattenfall the of individual an on companies and authorities its or State Swedish basis. 2005 2006 2007 2008 2009 2010 L etc. auditors, to Remuneration 38 Note Pric BDO S Pric 4 2 71 89 93 ating 1 483 504 309 379 322 316 306 asing 2003 2003 % le 1,951 3,757 Oper Men 89 95 2004 7 9 9 11 06 67 57 35 14 % 2003 1 266 390 209 382 asing 2004 le Financial omen 5 W 11 among 2004 plan o t ding plan or other c o tribution t management

ac quipment e dis /E ding among among or c eciation ac s ecutiv ond x alue depr y v Gender e machinery tribution tribution alue be management ed v wns e dis dis 36 and member and s e d e-do umulat al In other countries, Finland, Poland and Germany, the same value same the Germany, and Poland Finland, countries, other In sidual ar quisition As before, the basis of the incentive programmes continues to be to continues programmes incentive the of basis the before, As programme. incentive the by covered are Sweden in employees All In line with the Swedish government’s guidelines, the Group Presi- Group the guidelines, government’s Swedish the with line In The above applied to a total of about 100 managers. 100 about of total a to applied above The c t ecutiv rit e c c o x o T to amounted assets Group for expenses leasing year’s The (353). million 594 SEK 2010 Future payment commitments, as of 31 December 2004, for leasing for 2004, December 31 of as commitments, payment Future follows: as down break contracts rental and contracts 2005 Plant A W R B Gender e Leasing 37 Not expenses Leasing reported and leases financial through Group the by leased Equipment comprises: assets fixed tangible as Not Gender monthly salaries a year, or 16.7 per cent of the normal fixed salary. fixed normal the of cent per 16.7 or year, a salaries monthly required the less profit operating in change positive the = creation Value *) cent. per 11 is return required the where assets, net average on return New incentive programme 2005 programme incentive New guidelines new government’s Swedish the of background the Against programmes, incentive and management executive to remuneration on applies 2005 of as which programme, new a adopted has Board the Sweden. in employees to and operations of segment Swedish the in Incentive programme for other employees 2004 employees other for programme Incentive incentive of types different Group, the of segment Swedish the Within These companies. and units business most in found are programmes each of needs and goals different the to adapted are programmes year. per thousand 15 SEK about averages level maximum The unit. A maximum of 15 per cent applied for heads of service companies, service of heads for applied cent per 15 of maximum A manage- a of members for applied cent per 8 of maximum a while group. ment the Group’s long-term value-creation. The Group goal is common to common is goal Group The value-creation. long-term Group’s the measured. is individual and unit each of result the Further, all. dent no longer receives any variable salary. Regarding other managers other Regarding salary. variable any receives longer no dent two of equivalent the exceed not may salary variable employees, and creation goals apply in agreements on variable salary for senior for salary variable on agreements in apply goals creation managers. 2006 A 2007 2008 2009 9 3 9 68 37 58 34 31 0 3 20 67 5 5 213 538 454 1 2003 7,440 3,210 4,022 6,391 1,9 1,286 4,577 1,531 6,585 14,284 17,135 47,272 17,939 65,779 33,731 78,731 40,532 36,941 11,060 82,914 16,982 82,914 19,888 11,734 12,753 Dec 31 55 35 13 29 86 516 503 2 540 278 142 2004 2,818 5,251 4,335 6,756 1,790 1,919 1,286 7,035 6,585 31,534 16,695 47,482 67,681 19,683 40,398 79,251 10,043 43,216 40,533 10,973 99,215 99,215 31,114 24,949 14,269 11,444 Dec 31 e 1 1 1 31 26 17 27 18 20 32 17 28 20 2 2 18 18 2 20 18 22 23 24 29 3020 15 25 Not s t s 19, 19, 19, s s s s s e shee s , liabilitie anie

e s s anie s shar s liabilitie e e s s liabilitie t other s ed s ach) ur omp e liabilitie t ed t s omp c enc aring s e e s right e c s able s s liabilitie s and and e fixt lic s s as

e aring d t , -be 50 ociat s balanc as s s t ociat t as oup s eiv s e

right ar aring s t s ar oup s s ed c e s e y e -be liabilitie e ogr nt and y s Gr as e ed y t s ed s , Gr as r s e aring n e as SEK -be fix similar s er t t pr t orw as balanc f e fix a able a as f e s in in fix s s om om o liabilitie s (131,700,000 in the p -be ed y e , t allations e erv er eement ools t equit

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s al er liabilitie as t machinery e s , s s fix or c t t s s s e o holdings f r millions bank erv fix s s buildings ed ins e e agr e e alue erm liabilitie fix s omp s s int non-int as r er s angible and y ought s equit it t v s ations ations e pr apit f c al ent ent sions e and able able r SEK orie angible tings c

long-t long-t ory s o br as , as s int non-int and ed t financial int and anie anie trict ar s ed s e truction equit as in e y ent

s nt tium it fit p t ut erm erm pr nt eiv eiv s ed as f ticip ticip al al al e e equit long-t fix curr curr angible y t nting c c r r e a t t t o curitie e at or ent visions ent ent v al al ademark urr ash e e e onc ons a a t quipment ax o o o angible trict omp omp s visions e r echnic al al al al al t t ed o s Pr Int C tr Other s Other T In C C Ne R T T Land C T Financial P R c Plant t E and P c R Shar at S t t t t t o a quit o o urr e urr urr ontingent ommitment quit ong-t ong-t o o o o o ons Pledged C C c C C T T pr T T E E R Non-r T Unt Pr L L T P Amount As Fix T C 07 003 —28 185 3 673 2 —106 —865 —371 —233 2,167 5,801 1,409 5,947 4,047 4,577 6,172 —1,003 —2,281 26,741 —20,794 3 4 2 9 —31 445 2004 —142 —752 9,375 2,522 1,571 9,912 7,035 7,838 —1,243 —2,127 —2,018 —2,340—1,224 26,046 11,502 —16,134 e 5 9 6 1 6 01,121 8 7 12 13 14 15 1 1 1 4, Not ement at t ember s Dec s t s o —31 c ome in in s e s inc

and e similar x January s a holdings y ar 1 t ations ations ome ems , nd s n e old a it s y xpens

elopment ome a anie s s inc e v s s xpens and x ticip ticip s s e e it r r inc a e o f

de the l t e a a t millions other o / curitie omp s ems anie p p e e e omp it or c e ating ating it pr

oduct f it s f r c f ativ and r or or SEK om xpens o s ntributions e o p om om it xpens e s ed tr s

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pr f e o t ch fr fr c c s l o bef bef p nt s oper oper int o erm s

ating opriations ar s e opriations e s it it pr it sale r s t e f f r f ociat t t e s sult sult sult s o o o oup oup x s o a dminis e e e e o elling a Pr T Ne Pr appr Appr similar Int pr Gr as R long-t Other Oper R Gr R A R Other Other C Gr S P Amount Ne THE PARENT COMPANY PARENT THE The Parent Company’s accounts, including Notes including accounts, Company’s Parent The

VATTENFALL ANNUAL REPORT 2004 98 VATTENFALL ANNUAL REPORT 2004 99 2003 —1,761 26,741 28,502 2004 —2,058 26,046 28,104 s e ax t ect indir s e ax s t including ect s sale t The reported tax expense of the parent company, Vattenfall AB, Vattenfall company, parent the of expense tax reported The ale Note 5 Intra-Group transactions Intra-Group 5 Note purchase total and sales from income total company’s parent the Of cent per 11 for account companies Group with transactions costs, costs. purchase of (43) cent per 51 and sales of (10) sold products of Costs 6 Note million 210 SEK of duties and taxes production include costs Direct (272) million 233 SEK of taxes property and (161) Pension provisions Pension calcu- are company parent the in pensions for commitments Pension prin- insurance Swedish accepted generally with accordance in lated to corresponds sheet balance the in reported provision The ciples. capi- available the against net entered commitments, pension these Foundation. Pension Vattenfall’s in tal Taxes payments tax defer to companies allows Sweden in legislation Tax company, parent the In reserves. untaxed to provisions making by balance the in item separate a as reported are reserves untaxed income company’s parent the In tax. deferred includes that sheet untaxed of dissolution and reserves untaxed to provisions statement, Appropriations. under reported are reserves appropriations. after profit on tax of consists rates Exchange 3 Note accounts. consolidated the of 4 Note See Note 4 Net sales S Indir Ne NOTES FOR THE FOR NOTES COMPANY PARENT stated.) otherwise unless millions SEK in (Amounts information Company 1 Note for approved been has 2004 for AB Vattenfall for Report Annual The February 18 on Directors of Board the by signed were and publication Vattenfall the in company parent the is which AB, Vattenfall 2005. Swe- in office registered its with company liability limited a is Group, company parent the of statement income and sheet balance The den. Meeting. General Annual the at adopted be will principles Accounting 2 Note General in prepared been have accounts AB’s Vattenfall company parent The recom- the and Act Accounts Annual Swedish the with accordance Council. Standards Accounting Financial Swedish the of mendations parts applicable the in stated are applied principles accounting The additions following the with accounts consolidated the in 2 Note of AB. Vattenfall company parent the for Depreciation the from accounts, consolidated the in as calculated, is Depreciation esti- the over basis straight-line a on applied is and value acquisition deprecia- accelerated certain addition, In asset. the of lifetime mated and plan to according depreciation between difference (the tion reported is company parent the in purposes) tax for depreciation respectively. reserves untaxed and appropriations under al t 22 33 43 o T 231 395 —12 —31 2003 The Parent Company’s accounts, including Notes including accounts, Company’s Parent The —569 —445 —827 —423 2,091 4,017 4,577 4,577 7,035 3,313 —1,525 —4,069 —3,280 —3,497 —1,675 —3,273 17,613 19,888 24,949 —2,857 —2,400 —1,675 —3,280 y ed — 40643 43 33 equit —12 109 231 451 109 142 395 trict 2004 s —827 e 2,033 2,167 6,042 7,035 4,577 7,035 6,275 9,711 —1,427 —2,244 —2,400 —1,675 —2,400 12,017 17,078 —3,180 —2,753 —5,933 —11,821 Non-r e — — — — — — — — — ory t erv —31 u s t e s a r 1,317 1,286 1,286 t S ar e y e s — — — — — — — — — — al s ember s s ations s t ar liabilitie apit Shar e the e , c Dec s ems f s y 6,585 6,585 6,585 t i o ticip

as f —31 ating ar activitie o activitie the anie p other ed w ed s activitie f activitie o 2003 2003 2004 fix flo eiv and oper ect omp d s and d d and f January c ec s tment s s ar holdings s end r ar ar ating ef t 1 ar ash s e beginning ar ar ar ar s s , and s s e e c e e e e e s s y v financing oup y y y y orw t orw orw ations the anie the f angible ger ger f f the angible as e e oper financing in shar t change the Gr t s f f at or the or the at the the the f millions o o ed in in in

as s s millions omp activitie mer mer om om om oper s om s t t ecuritie ntributions s s s s c t or or or or or activitie aid s fix fr f fr fr bef e e o ontributions ought ed f fr f f f e arried arried SEK p s s c c ntributions SEK s om om c c om ed w w w w w it it it br w w o ontributions ontributions in f f f ais in

ating as as fr fr e e as ect ect c c c fr r e s lo lo lo lo lo o o o s erm f f tment f f f f f tment tment tment flo flo tment tment ating oup oup s s s s s pr pr pr r ef ef included ociat e e e e e t t t angible sult sult ans G Gr oup oup oup oper s

v v v djus alanc alanc ash ash ash ash ash e e ash ash alanc o f f unds ax ax C Liquid received interest and (2,027) million 1,754 SEK totalled paid Interest million 1,071 SEK totalled paid Tax (983). million 842 SEK totalled (1,224). Financing activities activities Financing L Gr Dividend C C Liquid Liquid long-t In int Div Div C C A not C in C In In as Parent company cash flow statement flow cash company Parent Amount Oper F Ne Dividend Gr T o R Ne Ne B Parent company change in equity in change company Parent Amount B Gr T o R Dividend B par a at shares 131,700,000 comprises capital share AB’s Vattenfall each. 50 SEK of value e d 4 0 ar 28 5 —80 427 666 2 842 464 963 2003 2003 2003 arried alanc orw c 1,304 1,224 1,409 2,281 1,999 6,601 2,733 1,371 1,295 f B 14,269 s — — — — — — — ged 408 408 anie Mer omp c 5 3 22 6 — — — — — 280316 563 728 2 2004 2004 2004 (—) olu- 2,335 2,340 1,571 2,018 1,733 s —223 —383 vision/ tion 2,127 2,733 Dis o Pr e d — ar 383 842 464 963 ought alanc orw s 6,416 1,371 1,295 f B br s 11,734 e e e e e e e is allocated as follows: as allocated is sidiarie sidiarie erv erv erv erv erv erv erv s s s s s s s s e sub e e e e e e e sub r r r r r r r o t gains losses om ome eciation s fr xpens e ation ation ation ation ation ation ation inc e t t depr s s similar profit/loss items profit/loss similar items profit/loss similar ome e e change change ax alloc alloc alloc alloc alloc alloc alloc ed xpens t x x ax er er inc e t e e at ax ax ax ax ax ax ax t t ed int int T T T T T T T s s e e ent eler err al al al al eign eign er er c t t t t r c urr o o o o o or A 1999 2000 2001 2002 2003 2004 2005 T mil- 223 SEK follows: as were 2004 in reserves untaxed in Changes of million —383 SEK dissolved, was depreciation accelerated in lion million 2,733 SEK and dissolved, was reserve allocation tax 1999 the reserve. allocation tax the to transferred was Taxes 16 Note expense tax reported The C Def T amounts years previous to attributable year the for expense tax The (—15). million —52 SEK to Note 13 Other interest income and income interest Other 13 Note Int Other F T and expenses Interest 14 Note Int Other F T reserves untaxed and Appropriations 15 Note 4 5 6 2 1 —3 9 7 1 10 003 —25 —27 1 185 673 666 604 649 —28 2 2003 2003 2003 sses on sses — — 9 9 1 1 —5 4 23 23 4 445 752 742 2004 2004 2004 2004 1,121 2,384 —1,263 estments estments estments s div div div e on on on old s s xpens s e e osses osses osses e /l /l /l in associated companies associated in holdings securities in Group companies Group in oduct ativ r wns wns p xpens tr

gains gains gains f e o al al al s e-do e-do t al al al al s t t t t rit rit dminis apit apit apit o elling o o o o T Dividends W C Note 12 Results from other long-term long-term other from Results 12 Note Dividends C T Note 11 Result from participations participations from Result 11 Note T Dividends W C Note 10 Result from participations participations from Result 10 Note S A T Note 9 Depreciation and amortisation and Depreciation 9 Note C Other operating expenses primarily consists of capital lo capital of consists primarily expenses operating Other Note 8 Other operating expenses operating Other 8 Note rate exchange derived operationally and assets fixed of divestments losses. Note 7 Other operating income operating Other 7 Note divest- on gains capital of consists primarily income operating Other profits. rate exchange derived operationally and assets fixed of ments The Parent Company’s accounts, including Notes including accounts, Company’s Parent The

VATTENFALL ANNUAL REPORT 2004 100 VATTENFALL ANNUAL REPORT 2004 101 1 0 3 1 0 13 —2 —1 —2 —2 568 383 571 —14 —47 2003 2003 —610 —567 —564 —619 1,178 1,167 al al 17,939 12,133 29,552 30,079 —1,085 —5,806 t t o o —11,613 —11,374 T T 3 1 0 0 0 —6 —3 —2 516 516 162 —14 —39 2004 2004 —645 —207 —783 —713 —610 1,161 1,867 1,427 1,178 19,683 13,600 32,637 29,552 —6,083 —12,954 —11,613 — — — — — — — — — — — — — — — 0 0 — 13 13 s —11 —13 557 454 454 454 221 —13 2003 2003 s —313 e ogr truction pr Goodwill — — — — — — — — — — — — — 0 0 — ons in (6,660), which are not subject to subject not are which (6,660), C 13 13 —16 —13 497 454 —13 2004 2004 —434 1,418 1,919 1,919 1,919 — — — — — — 3 3 1 and —2 —2 12 22 34 , s tings —20— —14 —31 —33 —13 813 811 192 170 537 2003 2003 —244 —143 —536 —274 —136 fit and ools t right , and s e enting — — — — — — — 9 1 5 R ur —3 —7 similar 13 35 —16 —30 —32 —13 811 808 170 176 503 503 2004 2004 ixt quipment f —274 —136 —305 —141 E — — — — al 2 0 —2 88 13 31 s and —26 —14 —31 341 354 212 22015 616 2003 2003 —526 —307 —374 —323 6,391 echnic right t —6,210 —5,775 13,005 12,781 —6,390 machinery sions s allations t e and — — — — — 3 other s ins —6 —7 similar 14 13 13 onc —14 C 354 340 145 389 703 2004 2004 and —184 —323 —647 —465 2003 —327 The Parent Company’s accounts, including Notes including accounts, Company’s Parent The 1,120— Plant 6,756 —6,390 —6,053 12,781 14,120 —7,364 59,730 22,453 37,277 — — — — — 25 —88 141 102 2003 —528 —232 buildings —5,021 16,661 16,147 11,060 11,060 —5,087 and — — — — — d 2 d —7 2004 45 ar ar 237 2004 Land —129 —235 55,040 20,973 34,067 d orw —5,087 16,147 10,973 16,422 10,973 —5,449 orw f f plan ar o t orw f arried arried d c ding c ar s or eciation eciation c arried plan plan d orw c ac f alue o o ar t t v depr depr ar ed ed orw f e d* ding ding at at ought y als als ar s s or or eciation eciation eciation eciation br c c s s s eler eler the quisition quisition c c orw ought ac ac f d d or ac depr depr ac depr depr ac ac f br alue alue plan alue /Dispo /Dispo ar ar v v v o s s ed ed ed ed ed ed ed ed ations t ations alue alue v v orw orw arried f f c alue alue sific sific v v ding s tment tment eciation eciation s s umulat umulat or al e e sidual sidual quisition quisition cumulat cumulat cumulat cumulat cumulat cumulat quisition c c c t depreciation. c c c c c c c c e e ook ook c c c eclas eclas uildings alue arried arried o Transmission lines and transformer stations are not subject to tax tax to subject not are stations transformer and lines Transmission values. assessment T Tax assessment values (for Swedish real estate) real Swedish (for values assessment Tax B Land c R c A B million 6,683 SEK to amounting rights water and land of values acquisition include buildings and land for values Acquisition *) ac forward brought Depreciation plants Merged year the for Depreciation Divestments/Disposals Reclassifications assets fixed depreciation, Accumulated companies Group from purchased Merged plants Merged Investments progress in construction from Transfer Divestments/Disposals Reclassifications A v A Note 18 Tangible fixed assets fixed Tangible 18 Note A forward brought values Acquisition R A R A B A Div R A A Depr Depr Div Note 17 Intangible fixed assets fixed Intangible 17 Note A A — — — — — 7 2 56 6 11 82 58 —59 —26 173 213 2003 2003 2003 2003 1,402 2,555 s erm erm —2,544 holdings able s long-t long-t eiv ec r Other Other ecuritie s — — — 2 6 —1 —4 58 3099 55 76 1011 8 10 —14 213 229 2004 2004 2004 2004 1,493 2,606 —2,596 s — 4 -end s —4 94 anie —30— —87 295 538 ar 2003 2003 in —295 e anie 2,687 1,932 1,909 s y omp —2,149 c omp at able s c PRI ed ations funds e y eiv s * ed b visions s ec ticip o ociat R s ed ar pr ociat P as er visions s t purpo — — — — — o 2 as ed pension 12 om pr —14 fr 538 egis 540 2004 2004 in r —117 visions elat 1,909 1,790 al o ommitment pr c apit C pension l onnel-r ormation f s: s non-pension a al Liabilities to Group companies are mainly attributable to long- to attributable mainly are companies Group to Liabilities hedged. are currencies foreign in borrowings all Virtually The provision reported in the balance sheet corresponds to these to corresponds sheet balance the in reported provision The s t t In ension er ension e o or term borrowings from Vattenfall Treasury AB. AB. Treasury Vattenfall from borrowings term Note 25 Provisions Provisions 25 Note P P f To calcu- are company parent the in pensions for commitments Pension prin- insurance Swedish accepted generally with accordance in lated ciples. in capital available the against net entered commitments, pension consolidat- the of 26 Note also See Foundation. Pension Vattenfall’s accounts. ed P L T *) liabilities interest-bearing Long-term 26 Note of amount the in companies Group to liabilities to attributable Fully fall (4,519) million 8,923 SEK which of (33,731), million 40,398 SEK years. five than more after due — — — s —25 s 2003 2003 in anie —165 7 4,187 2,149 4,022 s 0 92 25 —3,448 —7,573 anie 38,093 11,336 40,532 937 120 684 omp 2003 2003 2003 able c ations 2,649 1,557 1,739 2,148 8,889 omp c 16,982 eiv oup ec ticip R Gr oup ar P Gr om — — — 2 fr —2 313 2004 2004 —977 4,022 2,244 4,335 —1,266 40,532 40,533 1011 203 844 1101 516 158 278 100 2004 2004 2004 2,678 1,806 1,480 2,028 1,4801,739 31,114 23,122 s anie s ome s inc y omp anie c * ed omp s crued c s d d t d d ade ac ar ar ar ar ar electricit able ociat emiums onsumable p , oup s c other pr e eiv and orw orw Gr as , orw orw other f f e f f s ed s s s ar , able-tr ec ome ontributions quisitions e e e and r c / om om sp eiv ’ anc s ac eiv inc * eholdings s fr fr able / e ome and other long-term securities holdings securities long-term other and s ec s s s ec ations ations ought ought r arried arried r and eiv xpens xpens xpens s erials inc c c wns br br anc s insur e e e shar ec e e c. e e able able sific sific crued r t

tment tment e mat adv aid aid aid aid eholder s ac s e-do ged erials eiv eiv ount al al al e e w w al crued c yment t t t ep ep ep ep rit v a alanc alanc c c ec ec eclas eclas alanc alanc o a o o o Other R R The parent company’s cash and bank balances are administered by administered are balances bank and cash company’s parent The in funds company’s parent The AB. Treasury Vattenfall subsidiary the which (13,102), million SEK22,533 to amounted account Group the Group from receivables current as sheet balance the in reported are companies. Note 24 Cash and bank balances bank and Cash 24 Note A T Breakdown of prepaid expenses and accrued income: accrued and expenses prepaid of Breakdown Pr Pr Pr T A T receivables Current 23 Note Oil Mat Note 22 Inventories 22 Note R P R B B Ne Note 21 Advances and long-term receivables long-term and Advances 21 Note Note 20 Shares and participations and Shares 20 Note accounts. consolidated the of 22 Note See W B Group. the in restructuring to attributable mainly are divestments and contributions Shareholders’ *) B Note 19 Participations in Group companies, associated companies companies associated companies, Group in Participations 19 Note The Parent Company’s accounts, including Notes including accounts, Company’s Parent The Pr and C Shar Div In R Mer

VATTENFALL ANNUAL REPORT 2004 102 VATTENFALL ANNUAL REPORT 2004 103 2 6 al t 12 13 1 37 17 o 0.9 T 8 536 432 968 2003 2003 2003 (205) 4,051 3,673 1,132 1,138 19,113 78,731 50,985 1 4 13 4048 37 17 1 0.9 712 508 397 398 2004 omen 761 2004 (197) W 1,220 4,436 3,779 18,519 79,251 51,665 s s anie er senior executive officers. officers. executive senior er 5 omp Men supplied: 735 740 c sidiarie er lending: ar s w s s s s e sub other und y ee po F or h/ or f e anie f ee t ant asury’ s fr TW as e liabilitie r supplied omp ee W wing s T wing guar 3 c al s o t and o er ommitment o ar ee ant T c all ed ed 2004 w f f MW consortium agreements consortium 1,449 1,452 ory borr o borr ant s po en supplied y e t guar Nucle sidiarie ociat e dinat ontingent at s ale gy c acit guar s V ernal act ernal sub as ant ap xt xt o o or al edish ntr f t t Number C As security for the energy trading of the subsidiary Vattenfall subsidiary the of trading energy the for security As accounts. consolidated the of 33 Note also See e e subor Ener which: t hole ompensat o w f o Note 32 Commitments under Commitments 32 Note accounts. consolidated the of 34 Note See Note 31 Contingent liabilities Contingent 31 Note Guar o Other T Other C W Europe Trading GmbH, Vattenfall AB has provided guarantees to a to guarantees provided has AB Vattenfall GmbH, Trading Europe million 1,256 SEK to equivalent (155), million 140 EUR of value total EUR totalling guarantees utilised date, sheet balance the On (1,641). in included were (88), million 124 SEK to equivalent (10), million 14 liabilities. contingent reported S C lia- contingent company’s parent the of (78,366) million 78,900 SEK guaran- has AB Vattenfall subsidiaries. its to attributable are bilities commitments. AB’s Treasury Vattenfall teed 1 494 495 omen 7 0 8 1 9 4 W 21 89 16 530 170 726 726 2003 2003 2003 2003 The Parent Company’s accounts, including Notes including accounts, Company’s Parent The 1,006 2,880 3,210 1,006 10,464 12,753 2 Men 955 957 9 1 0 22 32 19 2 27 534 834 834 247 533 31033 578 2004 2004 2004 2004 8,179 2,508 2,818 1,283 11,444 , s e ome s s inc s xpens t e s y anie s s ed omer o t ation c err e)* omp anie anie cus ed c crued ecurit s s def s e e s ac om ed elat ool omp omp ade as emuner ee fr c c xpens r and y ome e s dP and s xpens xpens ociat e inc e oup oup s e s s s Nor funds emplo y able-tr onnel-r other Gr Gr as ed ome y s s s yment on t a o o o a s t t t xpens p pension ank err inc o p y per e s s s crued and c b s ecurit e ountrie number s s ed liabilitie ac def liabilitie c ed ading l l liabilitie anc age ount onnel err tr which al al al al a a eden s crued crued c t t t t t t The Company’s outstanding pension commitments attributable to these officers total SEK 41 million (37). million 41 SEK total officers these to attributable commitments pension outstanding Company’s The f er dv c c c lock alarie ocial w v o o o o ax er or Liabilities to Group companies are mainly attributable to long-term to attributable mainly are companies Group to Liabilities charges. power for others and AB Kraftgrupp Forsmarks to liabilities agreement with accordance in be, shall there liability latter the For lia- other Of debt. the on payable interest no co-owners, the between years. five than more after due falls (93) million 78 SEK bilities, *) SEK 7 million (5) of the pension expense are attributable to the group comprising current senior executive officers and form and officers executive senior current comprising group the to attributable are expense pension the of (5) million 7 SEK *) duties. Board with connection in benefits pension any receives members Board the of None Other T P S S (o Note 33 Average number of employees and personnel costs personnel and employees of number Average 33 Note A S T assets Pledged 30 Note B f Other Breakdown of accrued expenses and deferred income: deferred and expenses accrued of Breakdown A Other Def electricit Other A A Liabilitie Liabilitie A T Note 28 Current interest-bearing liabilities interest-bearing Current 28 Note SEK totalling companies Group to liabilities to attributable Fully (1,531). million 5,251 liabilities non-interest-bearing Current 29 Note T Note 27 Long-term non-interest-bearing liabilities non-interest-bearing Long-term 27 Note Liabilitie Other To To T Other 0 4 4 0 4 3 1 1 al t 50 46 43 41 39 o T ating 273 290 535 536 asing 2003 2003 —202 le Oper s 1 7 9 1 3 1 1 1 1 6 7 5 0 6 1 ee —5 y 521 522 Other asing 2004 le Financial emplo esidents and vice presidents. vice and esidents s * e — s 14 14 er ic f ecutiv f e x o member e ic e f d s Of oar enior B s ecutiv x e udit ooper ome A eC inc ond y audit be s oung* oung National erhous Y Y 3 al ee t at ory f o and & & Financial T w 709 712 2004 t t l l ut e s: al a a edish Facilities are classified in accordance with standard leasing prin- leasing standard with accordance in classified are Facilities reported assets of value acquisition the 2004, December 31 On s t t t at outside Sweden. outside t e w o T 2005 2006 2007 2008 2009 2010 L etc. auditors to Remuneration 37 Note S Erns S To Other Erns Other To based personnel for consultations to attributable is (2) million 3 SEK About *) companies affiliated with Transactions 38 Note accounts. consolidated the of 39 Note See ciples, based on the fixed income component. income fixed the on based ciples, Accu- (797). million 1,219 SEK to amounted leasing Operating under and (—308) million —342 SEK to amounted depreciation mulated (—5). million —30 SEK to write-downs accumulated follows: as distributed are plants of type this for payments Future Leasing income Leasing cus- of behalf on facilities energy operates and owns AB Vattenfall components; two into down breaks customers from Income tomers. compo- variable a and expenses capital cover to component fixed a delivered. quantity the on based nent Pric 4 1 82 14 3 13 94 3.5 5.0 3.4 6.8 3.3 4.1 ating asing 2003 2003 53.9 oup s % 3 ations le Gr ee y Oper 693 696 Other all oper f Men, 86 90 en 3.4 4.7 3.4 6.6 3.3 4.0 t emplo 2004 2004 49.0 at edish V w S y — — — — an 18 4.2 3.6 6.4 7.4 2.4 s asing * e % — AB s 2003 2003 49.4 le omp 16 16 c er all Financial f ic f ecutiv f en ent omen, x t o member e ar W e at 14 106 d p 4.2 3.3 4.9 4.04.2 7.1 2.3 V 2004 2004 ar 41.0 he o enior T B s ecutiv x e s s s s s s s s s s s ar ounger e y older y sickne sickne sickne sickne sickne ation ough eeism ting among among thr and and ent las s ough ough ough ough ough management s b emuner e r 50 29 30—49 s s s a e

thr thr thr thr thr f eeism o executive management executive mor tribution tribution other aged aged aged ent sickne or ecutiv s dis dis e e e age ountrie s x eeism eeism eeism eeism eeism s and s s s member s c e y s ab omen d ent l ent ent ent ent ent c tho w men tho tho al** da a al ough eden s s s s s ar r t t t o e w ther o o alarie or or or or or T 2007 2005 Note 36 Leasing 36 Note expenses Leasing leasing for 2004, December 31 of as commitments, payment Future follows: as down break contracts rental and contracts Gender o Gender B Note 35 Gender distribution among among distribution Gender 35 Note P thr 60 Ab f Ab f Ab f Ab f T sickne Ab f Note 34 Absenteeism through sickness through Absenteeism 34 Note hours working normal of percentage a as sickness through Absenteeism year the throughout *) Board members and senior executive officers also include alternates, vice presidents and former Board members, alternates, pr alternates, members, Board former and presidents *) vice alternates, include also officers executive senior and members Board accounts. consolidated the of 35 Note see AB, Vattenfall within management executive senior to benefits For S S Other (2.2). million 2.4 SEK of bonuses include presidents and members Board to remuneration **) other and salaries Total Continuation Note 33 Note Continuation The Parent Company’s accounts, including Notes including accounts, Company’s Parent The To company parent the to attributable year the for expenses Leasing (10). million 11 SEK to amounted 2006

VATTENFALL ANNUAL REPORT 2004 104 VATTENFALL ANNUAL REPORT 2004 105 5,600,000,000 11,478,110,612 17,078,110,612 Christer Bådholm Peter Lindell Peter Anders Sundström Per Redemo Per The annual accounts and the consolidated accounts have accounts and the consolidated accounts The annual General Meeting of share- to the Annual recommend We Authorised Public Accountant Johnny Bernhardsson Johnny To be carried forward,SEKTo As a basis for our opinion concerning liability, discharge from decisions,actions examined significant we and circum- taken to determine to be able order in the stances of the company Member or the Board of any the Company any,to liability,if Member or the Board also examined whether any CEO.We of the CEO has,in in contravention other way,acted any Companies Act,theSwedish Accounts Act Annual Swedish that our audit pro- or the Articles believe of Association.We basis for our opinion set out below. vides a reasonable Annual with the Swedish in accordance been prepared Accounts Act and,thereby,give a true and fair of the view financial positions and the results and the Group’s Company’s with generally accepted account- of operations in accordance ing principles in Sweden.The statutory administration report is consistent with the other parts and accounts of the annual the consolidated accounts. holders statements and balance sheets of the that the income be adopted,that and the Group Company of Parent the profit with the be dealt with in accordance Company the Parent in the administration report,andproposal that the members of Directors and the CEO be discharged from of the Board liability for the financial year. The Board of Directors and Chief Executive Officer pro- of Directors and Chief Executive The Board be distributed as follows: pose that the profits be distributed to the shareholders,SEK To Swedish National Audit Office Audit Swedish National Proposed distribution of profits, Audit Report Audit profits, of distribution Proposed Jan Grönlund Jan Lars G Josefsson Chairman of the Board Dag Klackenberg Lone Fønss Schrøder President and Chief Executive Officer President and Chief Executive Stockholm,18 February 2005 Stockholm,18 February 2005 Lars Träff Ernst & Young AB Ernst & Young Carl-Gustaf Angelin Authorised Public Accountant Authorised Public Ronny Ekwall Ronny Hans-Olov Olsson Hans-Olov The proposed distribution is equivalent to a dividend of SEK 42.52 per share. to a dividend distribution is equivalent The proposed Maarit Aarni We conducted our audit in accordance with generally conducted our audit in accordance We accepted auditing standards in Sweden.Thoseaccepted auditing standards standards plan and perform to obtain that we the audit in order require accounts and the consoli- assurance that the annual reasonable of material free dated accounts are misstatement.An audit includes examining,on a test basis,evidence supporting the in the accounts.Anamounts and disclosures audit also includes assessing the accounting principles used and their of Directors and the CEO and sig- the Board application by of Directors and the the Board nificant estimates made by CEO when preparing and consolidated accounts the annual of infor- presentation the overall as evaluating accounts as well accounts. accounts and the consolidated mation in the annual To the Annual General Meeting of the Shareholders of Vattenfall AB Vattenfall of Shareholders the of Meeting General Annual the To Corporate 556036-2138 identity number accounts and the consolidated audited the annual have We accounts,comprising pages 64–105,the accounting records, of Directors and the and the administration of the Board AB for the financial year Officer of Vattenfall Chief Executive 2004.These accounts and the administration of the company Accounts Act Annual and the application of the Swedish when preparingand the consolidated accounts the annual of Directors and of the Board the responsibility accounts are an opinion on the is to express the CEO.Our responsibility accounts,theannual consolidated accounts,and the administration based on our audit. AUDIT REPORT AUDIT According to the consolidated balance sheet,theAccording Group’s non-restricted thousand equity amounts to SEK 34,561,806 (27,976,455).Of this amount,SEK 400 thousand is to be allocated to restricted reserves.The General Meet- Annual SEK 17,078,110,612. totalling profits ing has at its disposal PROPOSED DISTRIBUTION OF PROFITS OF DISTRIBUTION PROPOSED s y s s 7.0 t t s 50.5 43.7 33.1 43.6 14.0 13.6 11.7 27.8 0.77 o le . t 8,289 2,248 2,248 2,246 4,020 ent liquid ne . in in c 73,013 73,013 55,411 55,411 26,407 55,411 28,179 23,973 24,159 24,159 30,634 71,504 71,504 15,684 31,453 equit aring inancial s s o shee 126,915 256,915 144,517 f t debt debt sidiarie e tment and -be cluding ems o per y t s including t x plus s , it s e . elation e y y wner wner sub e r v s t o o aring aring in s alanc er in y y abilit elation e b debt e r s s ems ansactions equit int eign ar equit -be -be e e it er elation tr sidiarie t t in r cluding o o s s or the t t x f int e e s in e

o t aring omp sub plus y t enanc age s in minorit minorit er er c s ems ems xpens xpens e A) A) A) A) ansactions s o o e e it it -be t t int int tr t er eign s financial o o elation elation debt time t t e maint arbitr r r t int , or wner t y y minorit s f ecting elation age s er y o f s in in r s ne (EBITD (EBITD (EBITD (EBITD loans loans ent e in s s y le af o c int t t in nt aring t s er s s s financial financial financial financial e e s s s s s o abilit e abilit time s s t t t t elation elation arbitr erm erm c , y s s s r r int per ar ar -be t ems as as e e e t minorit , s s it wner plus plus plus plus time in in s . y time time s e including minorit eciation eciation eciation eciation er er er y , per atio o , , e

. s r , le elation y omp omp er o equit s s O) O) O) O) O) O) O) O) y long-t long-t r t er activitie activitie t t c c int int int ent elation s s s s s liquid liquid ar c r atio int y y y in equit depr depr depr depr s s ems ems e e r e abilit (FF (FF (FF (FF (FF (FF (FF (FF int age time s debt it it y / y e e e e le le in plus equit , cluding s er er ar nt er including t per x and and ating ating loans or or or or e le v , e age minorit plus y ecting ecting in int s s tment c . o the f f s . atio s al s debt o c abilit plus y y f er debt debt debt debt debt debt r s e omp bef bef bef bef t minorit minorit minorit aring t ations ations ations ations ations ations ations ations e e af af t t o v c s oper oper erm atio o v y ar s it it it it t s . per ems ems ems t r o

f f f f equit e debt , e e in c t it it it -be w s financial financial o o o o s t t t t om om oper oper oper oper oper oper oper oper e er aring end ems ems t t er sidiarie sidiarie s lo aring aring aring aring aring aring s e xpens omp pr pr pr pr loans ems f xpens as fr fr it it e ne equit minorit minorit s e e c long-t plus e it r int / / ne ne debt ecting int shee -be om om om om om om om om w w f s -be -be -be -be -be -be e sub sub the t er y t as t t t t t t t including including including s e / fr fr fr fr fr fr fr fr A/ A/ . s ash af erm s s s s s s enanc . flo flo y s y y y at le int c e ating ating ating ating ne e e e e e e int ne t debt debt liquid financial debt financial financial debt debt debt / / e eign eign al t t er t t t t t t t ecting er er er er er er O O O O cluding cluding s t ee f alanc ash ash ems ems quit quit quit quit x x r unds unds unds unds unds unds unds unds o inancial inancial or or FF F Int Int including Int Int including F C C Maint Int f debt and Ne Ne FF F F Int FF F long-t as F Ne EBITD Oper it Oper Ne EBITD e Oper af it Oper e Ne f F Financial f F Ne E E t E B Ne Int f minorit Ne E Ne FF F 5.3 5.1 ent , ent 14.6 22.4 21.4 17.3 16.6 15.3 15.9 15.2 c c in 4,020 4,020 in y 17,359 21,379 19,607 19,607 11,776 11,230 18,788 18,788 20,562 52,506 52,506 16,542 the aring debt y 113,366 113,366 113,366 113,366 per 123,423 123,423 per , the or , y cluding f f y -be y t x abilit . o ems s abilit s e

it aring t ar e als s t e ar e abilit abilit s er o age abilit . -be t s t ar ar er t as omp ar int s v omp c , e c a ale cluding cluding xpens s er Figures for the Group in 2004. Amounts in SEK millions unless otherwise stated. otherwise unless millions SEK in Amounts 2004. in Group the for Figures omp x x omp e t shee . omp . c c ed e e s liquid c e ecting ar ne f ecting ecting ecting ecting e visions cluding cluding ecting f f f f ecting o ecting ecting f y af y x x f o f f t sale ome ome ome ome and eight af af af af e e non-int t af af s af af alanc pr ecting w ecting s s s s s inancial f , f ecting b inc inc inc t t t inc t the f s ne a f .

s s s s ems f equit af s af o e e e e ems ems ems ems le o o o it af t able ems t t ems ems o ems it it it it the elation t er er er er debt it it it ar ar ale it r f . Capital gains and capital losses from losses capital and gains Capital eiv s e e ems o s ems int int int int y y t in ems it e s ec it . y y y y . r it y y y lation financial financial financial financial ent period y ent ne s . aring e c age t elation elation cluding c the the r o r r cluding cluding cluding cluding elation ar e x f f t r cluding cluding cluding time er x x x x s e ent cluding e beginning the -be o o in , x x xpens v x plus e plus plus e e e in plus in ent y abilit abilit abilit c x t abilit per aring per e e in e a e c as . y s e cluding nt , or minorit minorit minorit minorit ar ar ar s cluding ar e f x s s e ent the cluding s x ar ar ar ar atio atio e the t t ed per -be c c x r r er e gin gin, e e e e t per e e f s s e at elation y y y y s als , abilit s s sale and and and and o e e omp omp omp (EBIT) (EBIT) (EBIT) (EBIT) (EBIT) (EBIT) (EBIT) (EBIT) (EBIT) (EBIT) (EBIT) (EBIT) r t omp e liquid y y y t c c c c o time per per ar gin gin, it it it it it it it it it it it it as as

mar mar age age t in eight ax ax ax ax , , , er f f f f f f f f f f f f the the the the t t t t t t beginning beginning financial ne t y y y o o o o o o o o o o o o y y y y w it it er er and f f e e e e o o int non-int v v or or or or equit a mar mar

ne ne equit equit xpens xpens t t pr pr pr pr pr pr pr pr pr pr pr pr omp o o , s f f f f o o s e e c or or or or the the s s o o ecting ecting ecting s c c ecting t t t t shee pr it it it it pr s s s s f f f f abilit abilit abilit on on on on abilit abilit abilit abilit f f f f e e t t le at at e beginning s s o o o o s s bef bef bef bef able af af af af ar ar ar ar ar ar ar

ax ax y y ale ale ale ale ating ating e e ating ating ating ating ating ating ating ating ating ating ating ating it it it it as as s s s s pr pr pr pr urn urn urn urn f f f f visions elation elation eiv er er t t t t t t t t t t t t t t ecting the e-t e-t r r o o o o o f e e e e ems ems ems ems quit quit alanc omp omp omp omp omp omp omp ec elation elation Financial Oper af it Oper it Financial Int c in Oper Oper c Ne r Oper Ne R Oper b pr r Ne c E E R Ne R Ne at Ne Pr it Ne Pr c Pr it Pr in Pr Ne c Ne Pr Oper Oper c Oper shares and other fixed assets. fixed other and shares Oper Oper Oper Ne Items affecting comparability: affecting Items KEY FIGURES FIGURES KEY Key figures Key OF CALCULATIONS AND DEFINITIONS Int Oper c Oper r period R

VATTENFALL ANNUAL REPORT 2004 106 VATTENFALL ANNUAL REPORT 2004 107 0 6.1 3.3 4.5 5.2 8.5 8.6 6.1 3.4 288 40.4 24.2 83.8 42.2 21.7 21.7 15.9 28.8 15.9 41.0 0.68 10.6 10.6 1998 4,320 2,213 6,067 4,528 6,758 4,439 7,996 2,664 1,500 9,86 4,448 —1,907 20,942 57,253 27,876 27,957 83,356 23,437 32,325 8.1 4.5 6.1 7.9 7.8 7.9 9.1 9.1 3.4 542 43.4 19.3 86.9 22.7 19.9 19.9 42.3 46.4 15.5 15.4 0.77 1999 1,326 2,472 7,916 5,515 6,224 4,860 7,991 9,866 1,500 4,297 —1,760 18,569 32,275 60,395 27,754 86,663 27,415 33,347 Seven-year review Seven-year 8.1 3.03.4 3.3 4.9 8.9 4.2 6.4 8.9 6.6 2.3 990 51.8 11.5 83.1 13.5 55.8 21.1 15.7 35.4 1.07 16.4 10.5 2000 3,050 4,985 1,037 6,688 5,830 7,543 5,189 —2,536 24,046 50,854 74,968 23,840 31,695 13,123 43,311 35,374 115,259 ful integration and consolidation work, consolidation and integration ful .8 80 7.3 2.6 3.8 6.3 6.9 9.2 9.9 8.8 2.3 48.7 23.6 60.1 0.95 14.4 12.8 11.8 10.3 22.7 10 2001 149.9 5,478 2,232 4,1902,9702,538 9,959 7,454 1,030 —4,737 88,723 43,443 18,25012,165 23,814 13,148 10,340 69,003 55,736 39,578 111,662 100,701 259,043 7 7.4 2.6 3.7 6.1 7.2 9.4 2.5 57.7 22.7 63.2 1.37 13.2 12.8 19.1 18.3 10.5 10.1 20.0 2002 188.3 9,96019,0 3,010 7,566 1,675 —6,386 94,838 39,932 10,820 24,855 13,363 34,248 17,106 15,473 45,129 126,349 127,479 101,025 276,276 more than doubled in the same period. Operating profit has profit Operating period. same the in doubled than more 2004, in billion 19.6 SEK to 2000 in billion 6.7 SEK from increased success very to due mostly generation. electricity of hedging effective to due also but 3.4 8.3 7.4 3.3 51.9 22.018.014.8 28.1 58.0 1.08 13.7 13.4 11.09.9 10.8 20.2 19.8 12.3 12.1 23.4 2003 184.2 9,379 2,400 2,267 9,123 —5,203 85,631 11,356 11,606 12,3609,987 24,878 15,296 35,296 18,804 14,647 66,89075,20 52,506 117,449 124,229 111,935 264,965 5.3 7.04.6 5.1 43.7 33.1 43.6 14.08.5 50.5 11.7 0.77 13.6 17.3 16.6 15.3 14.6 22.4 21.4 15.9 15.2 27.8 2004 186.4 9,188 5,600* 1,772 —4,020 73,013 12,601 15,684 17,359 31,453 33,017 19,607 11,776 24,159 13,616 55,411 62,316 112,398 123,423 256,915 113,366 A) s s ed) t s (EBITD s at time e t visions , s aring o y er s time s e , pr alue t int -be v t s y eciation s s time ne abilit y y y y time , , e s , and debt s O) r ar age cl. e e debt ee x time therwis cl. time depr er y cl. t atio atio e abilit abilit abilit abilit , (FF o at x ems ems , r r v int x y e t time debt omp e / it it a s minorit e ar ar ar ar aring , ne ems S c cl. h s or ar s s cl. it x atio atio t t e x age age ed e r r gin gin s -be e e al y e emplo abilit atio t and TW debt debt s e omp omp omp omp (EBIT) bef t ems s s ations er er r plus aring millions s t , unle y y c c c c o v v it ar y s s edish it it e atio gin gin t y y as as ax mar mar f f age age o o r ecting t e the t t w eight f t t c c o o -be er w ome s financial financial ement (% it it s t S oper er er e SEK er t w t t f f s t aring aring af t t or s sale xpens v v omp mar pr mar pr s equit equit ne ne , s s e f dividend. o o o at e flo int equit e inc e c or o o s equit equit t e s in e e t ormation y s int number ecting ecting ecting ecting shee / / t debt shee ne ne f c c w it om s s f f f f pr pr t -be -be ed s al er f on on on on e t y er er e t t t t as t s e as in fr lo ems s / o bef A/ A/ af af af af s s s s ash o f tment y y ale ax ax plus it ating ating ating ating c t e e e e ne age int int figur it s deb pr s as debt debt / / r opo f urn urn urn urn ome e t t t t t t ecting er er e er y t t t t er O O O O e-t e-t o cl. f ee Pr v alanc e ash e e e e v alanc ems ems ems ems quit quit x unds r Comments of result the quadrupled, almost have sales Vattenfall’s 2000, Since Bewag, HEW, companies energy German major the of acquisition the have Assets GZE. and EW companies Polish the and Laubag and Veag Other Dividend In Electricit A *) FF FF EBITD EBITD e Int debt Int Int af FF FF E Ne Ne Pr it R R it R R it Ne B K Oper Oper it Pr B Liquid E Minorit Int Ne Non-int Oper Financial Financial Pr Ne C F F Amount Inc Ne Oper SEVEN-YEAR REVIEW SEVEN-YEAR Non finite energy sources such as wind, as such sources energy finite Non Replacement delivery, in accordance with a with accordance in delivery, Replacement Electricity distribution network with a voltage in voltage a with network distribution Electricity Legal separation of transmission/distribution from transmission/distribution of separation Legal A bilateral general agreement prepared in accor- in prepared agreement general bilateral A Electricity generated by a gas turbine or steam or turbine gas a by generated Electricity International agreement to reduce emissions of emissions reduce to agreement International is a standard used to provide quality-assured and quality-assured provide to used standard a is A market where trade is conducted with immediate with conducted is trade where market A Generation, transmission, distribution and sale of elec- of sale and distribution transmission, Generation, Separation of the transmission/distribution system transmission/distribution the of Separation International standard for environmental management environmental for standard International Competent authority that supervises the market to market the supervises that authority Competent The Nordic power exchange. power Nordic The Norway’s largest power company. power largest Norway’s A measure of the extent to which the price of a commodity a of price the which to extent the of measure A Firm at the end of the distribution chain, which normally which chain, distribution the of end the at Firm The Polish Power Exchange; Towarowa Gielda Energii. Gielda Towarowa Exchange; Power Polish The Brown coal. Brown Negotiated third party access. Access to the network granted network the access. to party Access third Negotiated Regulated third party access. Access to the network granted network the access. to party Access third Regulated A financial instrument that is a combination of spot and for- and spot of combination a is that instrument financial A One of Germany’s four largest power companies. power largest four Germany’s of One Svensk Kärnbränslehantering AB (Swedish Nuclear Fuel and Fuel Nuclear (Swedish AB Kärnbränslehantering Svensk Transmission system operator. Responsible for operating, for Responsible operator. system Transmission Over the Counter. Trading (directly or via a broker) outside the outside broker) a via or (directly Trading Counter. the Over Polskie Sieci Eletroenergetyczne — Polish Power Grid Company Grid Power Polish — Eletroenergetyczne Sieci Polskie solar, geothermal, wave, tidal, hydro power, biofuels. power, hydro tidal, wave, geothermal, solar, the on station power another of owner the to decision, court riparian river. same Unbundling company. a of interests other the from interests chain Value tricity. Volatility period. particular a over varies Regulator pricing. fair and competition effective ensure sources energy Renewable power Replacement Retailer con- final the to it sell to order in wholesaler a from product a buys sumer. RTPA tariffs regulated and published of basis the on RWE SKB of management the for Responsible Co). Management Waste Sweden. in waste radioactive market Spot delivery. Statkraft Swap agreement. exchange financial of type a transactions, ward power Thermal plant. power nuclear or coal-fired a in process TSO sys- transmission the developing and of maintenance the ensuring area. given a in tem ISDA agreement ISDA Asso- Dealers Swap International the by issued guidelines with dance in obligations legal parties’ the regulates agreement The ciation. other. each with transactions derivative 14001 ISO systems. 14025 TR ISO products of impact environmental the about information comparable http://www.environdec.com. also See services. and protocol Kyoto network distribution Electricity network Local gases greenhouse kV. 0.4—20 of voltage a with unbundling Legal (generation/supply). activities other Lignite NordPool NTPA grid. between negotiations bilateral of basis the on OTC contracts. financial and physical in exchanges official POLPX network Regional PSE kV. 40—130 of Sweden eciation and Amortisa- and eciation est, Taxes, Depr Taxes, est, Approval of tariffs prior to implementation. implementation. to prior tariffs of Approval Tariffs amended after implementation if implementation after amended Tariffs Financial instruments wherein the value or value the wherein instruments Financial Output from a power plant to which several par- several which to plant power a from Output Tradable certificates issued for renewable elec- renewable for issued certificates Tradable Underground facility for the final disposal of spent of disposal final the for facility Underground A market in which buyers and sellers agree on a on agree sellers and buyers which in market A Removal of monopoly rights and obligations in order to order in obligations and rights monopoly of Removal Actual electricity generation capability in relation to the to relation in capability generation electricity Actual The Benelux countries’ largest power company. power largest countries’ Benelux The Combined heat and power plant. Plant which supplies which Plant plant. power and heat Combined

Earnings Before Inter Before Earnings Spain’s largest power company. power largest Spain’s Finland’s largest power company. power largest Finland’s The 25 countries constituting the European Union after the after Union European the constituting countries 25 The Eco Management and Audit Scheme. European Commission European Scheme. Audit and Management Eco One of Germany’s four largest power companies. power largest four Germany’s of One One of Germany’s four largest power companies and the main- the and companies power largest four Germany’s of One Earnings Before Interest and Tax (operating profit). (operating Tax and Interest Before Earnings

Italy’s largest power company. power largest Italy’s Distribution system operator. Responsible for operating, ensur- operating, for Responsible operator. system Distribution Corporate Social Responsibility — a concept whereby companies whereby concept a — Responsibility Social Corporate Górnoslaski Zaklad Elektroenergetyczny S.A., a Polish sub- Polish a S.A., Elektroenergetyczny Zaklad Górnoslaski Environmental Product Declaration. A system based on Type III Type on based system A Declaration. Product Environmental European Energy Exchange, the Leipzig power exchange. power Leipzig the Exchange, Energy European The largest power company in France and Europe. and France in company power largest The Funds From Operation. From Funds Elektrocieplownie Warszawskie S.A., a Polish subsidiary of Vat- of subsidiary Polish a S.A., Warszawskie Elektrocieplownie fixed price for the future delivery of an underlying instrument, such instrument, underlying an of delivery future the for price fixed Instruments). Derivative also (See electricity. as Certificates Green generation. tricity GZE Vattenfall. to sidiary Fortum market Forward Ex-post tariff regulation tariff Ex-post FFO EW tenfall regulation tariff Ex-ante declarations in ISO TR 14025 which aims at providing objective, providing at aims which 14025 TR ISO in declarations of impact environmental the on information comparable and credible www.environdec.com/eng. see services, and products EU-25 2004) May (1 enlargement latest necessary. deemed EPD Endesa Enel E.ON Sydkraft. of shareholder Electrabel Electrabel EMAS EnBW EDF EEX auditing. and management environmental for regulations EBIT EBITDA DSO a in system distribution the developing and of maintenance the ing area. given depreciation). before profit (operating goodwill of tion nuclear fuel, see also SKB’s web site http://www.skb.se. site web SKB’s also see fuel, nuclear Instruments Derivative Deep repository Deep Deregulation of Examples instrument. underlying an to related is value in change Deriva- swaps. and forwards options, include instruments derivative management. risk in used often are instruments tive CSR liberalisation. for synonym a as used Here competition. for up open maximum possible generation. possible maximum backpressure a as known Often district-heating. and electricity both process. industrial an to directly linked if plant power Consortium rights. have ties their in concerns environmental and social economical, integrate stakeholders their with interaction their in and operations business basis. voluntary a on Availability plant CHP GLOSSARY Glossary

VATTENFALL ANNUAL REPORT 2004 108 ABOUT ENERGY

18% Energy units in practice 25,000 4,000 5 15 1 kWh is enough to run a standard Swedish car heater for about an Operations in the electricity is sold at market price, hour or an 11 W low energy light bulb for almost four days. Vattenfall’s generation per market, TWh 2004 0 0 0 0 Nordic countries either to Vattenfall’s sales units or 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2003 2004 1 MWh is enough to heat a small house for a couple of weeks and is Generation. Generates roughly marketplaces such as EEX through Vattenfall Trading Services. generated in about 20 minutes by Vattenfall’s largest wind power 20 per cent of the electricity con- ■ Net sales ■ Return on equity ■ Fossil fuel-based power park in windy conditions. sumed in the Nordic countries. Transmission. Owns and operates ■ EBIT ■ Return on net assets ■ Nuclear power ■ Most generation takes place in the transmission grids in eastern Hydro power 1 GWh is enough to meet the energy needs of an average Swedish 1) These volumes include windpower, 88 eight nuclear reactors and in Germany and Hamburg. town with a population of 100,000 for eight hours and can be gener- biofuel and waste totalling 0,2 TWh approximately 100 hydro power Distribution. Distributes electrici- for 2003 and 0,6 TWh for 2004. ated in one hour by the Harsprånget hydro plant or in 20 minutes by stations. Generated electricity is ty to 3.4 million customers, prima- the Forsmark nuclear power plant. sold at market price, either to rily in Berlin and Hamburg. Vattenfall’s sales units or market- 1 TWh is enough to run two large news print machines for a year. It’s Sales. Sells electricity and energy- Key figures places such as Nord Pool through also enough to power all of Sweden’s railways, underground railways related services to domestic cus- Vattenfall Trading Services. 1 and trams for five months. Ringhals nuclear power plant can generate tomers, resellers, the industrial 2004 2003 2004 this power in twelve days. 8 Distribution. Distributes electrici- sector and other companies. Net sales, MSEK 113,366 111,935 12,586 MEUR ty to 1.3 million customers in Swe- Heat. Produces and sells heat. Operating profit (EBIT), MSEK 19,607 15,296 2,177 MEUR Nordic countries den and Finland. Operates district heating systems, Profit before tax and minority interests, MSEK 17,359 12,360 1,927 MEUR 76 Sales. Sells electricity and energy- two of the largest systems in West- Net profit, MSEK 11,776 9,123 1,307 MEUR related services to domestic cus- ern Europe, in Berlin and Ham- Earnings per share, SEK 89.42 69.27 10 EUR tomers, energy companies, the burg. Return on equity, % 22.4 20.2 industrial sector and other compa- Return on net assets excl. items affecting comparability, % 15.2 12.1 nies. Total assets, MSEK 256,915 264,965 28,524 MEUR 11 Operations in Poland Heat. Owns and operates heating Equity/assets ratio, % 27.8 23.4 16 3 Distribution and Sales. Vattenfall installations in the Nordic coun- Funds from operations (FFO), MSEK 24,159 18,804 2,682 MEUR owns 75 per cent of Poland’s Poland tries and in the Baltic States and is Investments, MSEK 12,601 11,356 1,399 MEUR largest privately-owned network Germany responsible for sales of district Electricity generation, TWh2 167.1 155.8 company, GZE, which has 1.1 mil- heating and so-called thermal Heat production, TWh 34.5 35.6 lion customers, primarily in the heat. Average employees in the Group 33,017 35,296 southern part of the country. Services. Conducts consulting, 1) Exchange rate 9.007 SEK/EUR. Hydro power Nuclear power Heat. Vattenfall owns 75 per cent contracting and R&D activities 2) Of electricity generation, Vattenfall has 70 TWh (61) of its disposal, and the remainder goes to minority owners. of EW, a company that also gener- Fossil fuel-based power Heat generation within the energy, infrastructure ates electricity. The company has External net sales per market, MSEK EBIT per market, MSEK Net assets per market, MSEK and industrial sectors. 2004 2003 2004 2003 2004 2003 about 27 per cent of the Polish heat market. Nordic Countries 39,899 41,520 Nordic Countries 11,543 8,535 Nordic Countries 57,415 56,367 Operations in Germany Germany 66,046 62,570 Germany 7,487 6,318 Germany 58,350 62,171 Mining & Generation. Generates VATTENFALL ANNUAL REPORT 2004 Joint Group operations Poland 7,421 7,845 Poland 589 443 Poland 7,187 6,270 roughly 17 per cent of the electrici- Vattenfall Trading Services, Total 113,366 111,935 Total 19,6073 15,296 Total 122,952 124,808 ty consumed in Germany. Most gen- Vattenfall Treasury and Vattenfall eration takes place in modern, Insurance are central support Nordic Countries 39,899 (35%) Nordic Countries 11,543 (59%) Nordic Countries 57,415 (47%) large-scale lignite-fired plants and, functions to manage the Group’s to a certain extent, in jointly-owned Germany 66,046 (58%) Germany 7,487 (38%) Germany 58,350 (47%) risks and offer market access. nuclear power plants. Generated Production: Vattenfall AB and Intellecta Communication AB. Photos: Bruno Ehrs, Getty Images, Poland 7,421 (7%) Poland 589 (3%) Poland 7,187 (6%) Vattenfall AB (Hans Blomberg and Ralf Grömminger). Printed by: Tryckindustri Information AB. Copyright 2005, Vattenfall AB, Stockholm.

3) Incl. eliminations of —12 MSEK.

109 INVESTMENTS FOR THE FUTURE ANNUAL REPORT 2004

CONTENTS

Vattenfall’s organisation 52—55 Employees and competence 55—61 Corporate governance 62—63 The Board of Directors and management