Annual Report 2012

Aastaaruanne 2012

Kaane kujundus alles tuleb

Creating New Energy! We will release the Group’s consolidated interim reports for the financial year 2013 as follows:

Corporate • 1st quarter – 30 April 2013 Social Responsibility 2012 • 2nd quarter – 31 July 2013 • 3rd quarter – 31 October 2013

The audited results for the financial year 2013 will be released on 28 February 2014 Click here to read the Corporate Social Responsibility Report www.energia.ee/en/investor Contents

Address by the Chairman of the Management Board 5

In Brief 7

Strategy 11

Business Environment 15

Financial Results 22

Environment 45

Corporate Governance 49

Consolidated Financial Statements 71 Consolidated Financial Statements

Consolidated Income Statement 71 23 Trade and Other Payables 131 24 Deferred Income 131 Consolidated Statement of Comprehensive Income 72 25 Provisions 132 26 Revenue 134 Consolidated Statement of Financial Position 73 27 Other Operating Income 134 Consolidated Statement of Cash Flows 74 28 Raw Materials and Consumables Used 135 29 Payroll Expenses 135 Consolidated Statement of Changes in Equity 75 30 Other Operating Expenses 136 31 Net Financial Income (-expense) 136 Notes to the Consolidated Financial statements 76 32 Corporate Income Tax 136 1 General Information 76 33 Cash Generated From Operations 137 2 Summary of Principal Accounting and Reporting Policies 76 34 Off-balance Sheet Assets, Contingent Liabilities and Commitments 137 3 Financial risk management 97 35 Assets and Liabilites of Disposal Group Classified as Held for Sale 139 4 Critical accounting estimates and assumptions 104 36 Disposal of Subsidiaries 139 5 Segment reporting 106 37 Business Combinations and Other Business Entities Acquired 140 6 Property, Plant and Equipment 112 38 Earnings Per Share 143 7 Operating Lease 114 39 Related Party Transactions 143 8 Intangible Assets 115 40 Events After the Reporting Period 144 9 Investments in Associates 117 41 Financial Information on the Parent Company 144 10 Inventories 119 11 Division of Financial Instruments by Category 119 12 Trade and Other Receivables 121 13 Derivative Financial Instruments 123 Independent Auditor’s Report 149 14 Credit Quality of Financial Assets 125 15 Available-for-sale Financial Assets 126 Profit Allocation Proposal 150 16 Financial Assets at Fair Value Through Profit or Loss 126 17 Deposits at Banks with Maturities of More than 3 Months 127 18 Cash and Cash Equivalents 127 19 Share Capital, Statutory Reserve Capital and Retained Earnings 128 20 Dividends Per Share 129 21 Hedge Reserve 129 22 Borrowings 129 Contents

Dear readers,

We can be proud of our excellent financial results despite the economic recession that has now lasted several years.

Our EBITDA increased by 5% amounting to 278 million euros. distant future are more conservative than before. It is crucial to We can say that the previous year was good for us in many ways, have the flexibility to exploit the oil shale in economically most although our operating environment saw significant changes. feasible operations. As of today the sales of liquid fuels is growing while the profitability of electricity is in decline. Estonian electricity Group´s operating profit for the financial year was lower than market is open and as a country with strong external connections in recent years. It is crucial to note though that impairment of we are free to produce electricity and oil in proportions most our power generation assets does not impact the Group´s cash beneficial to us. flow for the year. The competitive position of the Group´s power generation assets partly depends on circumstances beyond our Our investments reached an all-time record in 2012 and several control such as changes in certain legal acts and price fluctua- major projects will soon be completed. To make electricity gene- tions on the power exchange. Oil shale resource fees increased ration profitable in circumstances where the market price is low, unexpectedly from 2013 and we stopped using biomass at the we have diversified our production portfolio. We commissioned Balti power plant in October following the publication of draft two major wind parks in Paldiski and Narva and opened our amendments to the Electricity Market Act. As a result, our elect- first CHP plant outside Estonia, in Valka. The installation of new Eesti Energia Annual Report 2012 Address by the Chairman of Management Board ricity generation profitability forecasts for 2013 and for the more desulphurisation equipment on the oldest generating units of 5 Contents

Eesti power plant helped us to reduce the SO2 emissions more with over 400,000 customers trusting Eesti Energia as their first than two times and allows us to keep the electricity generation open-market electricity seller. Although we have experience in capacity largely unchanged,while meeting environmental requi- selling electricity on the open market and have also seen success rements. To fund the investment program we successfully issued in the latter, we still need to make an even stronger effort than new Eurobonds to international bond investors (issue size 300 before in getting to know our customers. Every market has its million euros), while the state decided to increase the company’s own distinct characteristics and can produce surprises. We will equity by 150 million euros. work to face the new circumstances with an open mind and a thirst for knowledge. The new Enefit280 oil plant produced the first barrel of shale oil shortly before the end of the year, and is expected to signi- We expect moderate growth in revenues and EBITDA in 2013. ficantly increase our revenues from liquid fuel sales in 2013. The As the market opening implies higher volatility in electricity sales new oil plant will double our existing oil production capacity. As profitability, we expect the newly commissioned oil plant to help the profitability of producing shale oil out of oil shale is higher us maintain strong results. We also expect the distribution network compared to power generation, higher capacity will contribute subsidiary to continue to achieve good results. In addition, the new to maintaining our strong financial results The Enefit280, with CHP plant in Paide and the first waste-to-energy unit in Estonia its unique world-class technology, has proven itself and has generating electricity and heat will be opened in Iru. been a huge achievement. However, our quest is far from over as major research and development needs to be performed to implement this technology in other areas of the world. Properties of oil shale in different regions vary greatly and we need to be flexible to maximize its value. We will proceed with our projects in Utah, USA, and in Jordan.

The investments will decrease this year due to the completion of several projects, but we will continue to seek the right moment for new investment decisions. We are glad to note that the state Sandor Liive has expressed its intent to further support the implementation Eesti Energia, of our investment plan. Chairman of the Management Board

This year has commenced differently for Eesti Energia. All elect- ricity consumers in Estonia can now choose the electricity seller of their liking. We are happy that a large number of customers in Estonia decided in favour of signing an electricity contract, Eesti Energia Annual Report 2012 Address by the Chairman of Management Board

6 Contents

In Brief

Eesti Energia is an international energy company operating in under the name of Enefit. Our unique experience in processing the unified energy market of the Baltic and Nordic countries. oil shale and our skills and technology are held in high regard 100% of the shares of Eesti Energia are owned by the Republic around the world. Oil shale resource belonging to Eesti Energia of Estonia. in Estonia, Jordan and the US are estimated at 11 billion tonnes. With over 7,500 employees, Eesti Energia is one of the largest Eesti Energia sells its customers electricity, network services, employers in Estonia. liquid fuels and other related products. Internationally, we operate

REVENUES EBITDA NET PROFIT INVESTMENTS

868.5 million euros 278.4 million euros 76.9 million euros 513.5 million euros +1.3% +5.0% (48.5)% +1.12%

CREDIT RATING SALES OF ELECTRICITY SALES OF NETWORK SERVICES SALES OF LIQUID FUELS

BBB+/Baa1 10.0 TWh 6.4 TWh 189.2 th t stable / negative* outlook (6.4)% +3.2% +15.3% Eesti Energia Annual Report 2012 In Brief

7

* Changed in January 2013 Contents

Key Events in the Increase of share capital by 150 million euros to 2012 Financial Year 621.6 million euros through monetary payment.

The European Commission approved Estonia’s application for the allocation of free emission allowances for 2013–2020. This enables Estonia to allocate Eesti Energia 18 million tonnes of free allowances for the partial finan- cing of the construction of the Auvere power plant.

Sale of 100% subsidiary, Televõrk AS to Issue of 300 million euro 4.25% notes Tele2 Eesti. The value of the transaction was due in 2018. 25 million euros.

January February March April May June

July August September October November December

Start of hot commis- Project to install First barrel of shale oil produced in Enefit280 oil plant. sioning of the approximately Enefit280 oil plant. 630,000 smart meters by 2017 We started selling open market in cooperation with electricity packages in late Call for the construc- Ericsson Eesti, is September. By the end of the tion tender for the launched. financial year we had concluded Jordan oil shale fired around 408,000 contracts power plant. covering approximately 58% of all supply points in Estonia. Completion of Completion of Narva Paldiski wind park- wind park construc- construction with tion with annual annual production production capacity capacity of 22.5 MW. of 39 MW. Eesti Energia Annual Report 2012 In Brief

8 Contents

Group’s Financials 2009-2012

2009 2010 2011 2012 Revenues

Revenues million € 663.3 796.3 857.5 868.5 million € 858 868 EBITDA million € 207.1 242.3 265.1 278.4 796

Operating profit million € 102.7 148.9 168.0 100.1 663 272 267 293 Net Profit million € 88.9 117. 0 149.2 76.9 195 242 185 227

170 Fixed assets million € 1,221.2 1,329.4 1,769.5 2,101.9 289 286 250 Equity million € 1,103.4 1,107.1 1,236.6 1,409.1 152 156 133 0 83 107 Net debt million € 320.7 112 . 3 380.2 581.0 2009 2010 2011 2012 Investments million € 208.3 219.0 507.8 513.5 Cash flow from operating activities million € 174.5 198.1 161.8 185.2

FFO million € 208.2 187.3 200.9 220.6

Dividends million € 86.9 109.2 56.1 65.2 EBITDA

278 million € 265 Net debt/EBITDA times 1.5 0.5 1.4 2.1 242 207 66 Leverage % 22.5 9.2 23.5 29.2 86 66 ROIC % 7.6 12.6 11. 8 5.5 62 108 FFO/interest cover times 12.9 11. 5 10.5 7.2 109 110 98 FFO/net debt times 0.6 1.7 0.5 0.4 96 EBITDA/interest cover times 12.8 14.9 13.8 9.1 47 61 71 0 EBITDA margin % 31.8 30.9 31.9 33.9 2009 2010 2011 2012 Operating profit margin % 15.8 19.0 20.2 12.2 Fuels Generation Distribution Network Retail

Net debt Leverage ROIC Eesti Energia Annual Report 2012 In Brief debt obligations less cash and cash equivalents, net debt / (net debt + equity) operating profit / average invested capital units in money market funds, investments into fixed income bonds 9 FFO EBITDA margin cash flow from operations, excl. change in working capital operating profit before depreciation divided by revenues

Contents

Group’s Operating Indicators 2009-2012

2009 2010 2011 2012 Average External Electricity Sales Price

Total electricity sales, of which GWh 9.541 10,714 10,707 10,022 €/MWh Regulated price GWh 7,075 6,079 5,473 5,644 60 Non-regulated price GWh 2,466 4,635 5,234 4,378 50.8 48.4 48.1 Heat sales GWh 1,381 1,427 1,074 919 50 42.1 Network sales GWh 5,964 6 , 311 6,170 6,365 40 Distribution grid losses % 7.8 6.6 5.8 6.0

Total oil shale sales, of which th t 12,940 17,906 18,017 16,195 30 Oil shale sales outside the 31.6 30.4 30.7 30.3 Group th t 1,662 1,966 2,120 1,423 20 Shale oil sales (outside the Group) th t 154 181 164 189 2009 2010 2011 2012

Average number of employees no. 7,812 7,423 7,585 7,573 Unregulated market Regulated market

Sales of Oil Shale

million t

20 18 18 22 16 15 14 1,5 2 10 14 14 13 10 0,6 5

2 2 2 2 0 2009 2010 2011 2012

Shale oil production Electricity and heat generation Eesti Energia Annual Report 2012 In Brief External sales 10 Contents

Strategy

Eesti Energia operates in the converging Baltic and Nordic energy related to the abovementioned products, paying special attention market. Our knowledge and skills of processing oil shale are held to improving the efficiency of services and product profitability. in high regard around the world. The unified management of businesses with different risks allows us to grow faster and create more value for our shareholder. Our success rests on a careful balance between providing the local distribution network service in Estonia, selling generated We work in an open and responsible manner. Our highest priority power in the regional electricity market and producing oil for is meeting environmental and safety requirements. We consider global liquid fuel market. We work constantly to develop electricity the interests of the communities affected by our activities and take generation and liquid fuel production projects. We also aim to responsibility for the development of the local energy industry. improve the technology for shale oil production and the services

Vision We are the largest oil shale-to-energy company in the world and offer new energy solutions in the Baltic Sea region Mission All our energy for Eesti Energia Annual Report 2012 Strategy clients´ benefit 11 Contents

Distribution Network

The quality of the distribution network services provided by Our biggest challenge is improving the resistance of the distribu- Elektrilevi has to develop alongside the expectations of our tion network to stormy weather conditions, its 100% change to customers and the regulator. At the centre of our strategy is the smart meter reading system by 2017 and improving network finding an appropriate balance between ever more rapidly efficiency. Elektrilevi guarantees equal access to network services developing technology, the ever higher expectations of our for all the market participants at any time and ensures meeting customers, the long life cycle of our network assets and our the quality requirements set forth by the regulator. In the next large-scale capital needs. several years we will be investing all of Elektrilevi’s operating profit in the development of its distribution network, which will increase the size of the regulated asset base.

Electricity

Eesti Energia has enough generation capacity in the regional electricity market to cover all of Estonia’s electricity consump- ... we have significantly tion at a minimum, thus helping to ensure energy security of the country. We support the regional electricity market dere- increased the gulation. We have rented our share of the Estlink 1 electricity cable between Estonia and Finland out to the Nord Pool Spot CO2-neutral generation power exchange. We also actively support maximising the usage of transmission lines in the Baltic states. We are an active and capacity in the Baltic states. responsible participant in the power exchanges. Our greatest challenge is to ensure the return on new invest-

We make changes in our generation portfolio to match the Euro- ments needed to decrease the CO2 emissions, where there is pean Union’s energy, climate and environmental policies and extensive underused generation capacity in the Baltic states, the demands of competition in the regional electricity market. the climate policy of the European Union is not functioning as We do this firstly by making maximum use of the potential of it was initially supposed to, and we have to fight off competition our current generation capacity and diversifying the fuel used at from a number of electricity suppliers from beyond the borders power plants while making sure that we meet all the environmen- of the European Union. tal requirements that are becoming stricter. Secondly, we have We are a client service organisation providing energy products significantly increased the CO2-neutral generation capacity in the Baltic states. Thirdly, we also develop distributed generation of as well asenergy saving solutions to our clients. By selling elect- electricity and heat in CHP plants and wind parks. Each individual ricity to end-users in Estonia, Latvia and Lithuania we expect to Eesti Energia Annual Report 2012 Strategy investment decision is taken carefully with due consideration to maintain the market share that corresponds to our electricity the legislative environment and the electricity market. generating assets over the long term. 12 Contents

Liquid Fuels

Eesti Energia’s strategy is founded on extracting value from oil national market that Enefit technology is essentially efficient and shale reserves and developing the technology needed to do that. environmentally safe. Our strategic cooperation with Outotec, an We study underground oil shale resources around the world, strive engineering company, ensures that the peculiarities of various for obtaining mining rights and are working on oil shale develop- types of oil shale and the local environment are considered in ment projects. We also aim to license our oil shale technology for the process of developing and introducing new technological others to use and manufacture critical parts for the technology. solutions. The greatest potential for growth in value lies in proving that the development of oil shale deposits will be technically and econo- We have mining rights in Estonia, Jordan and the USA. In Estonia, mically feasible (resources to reserves) and thereafter converting we use the oil shale resources to ensure national energy security, the right to use the deposits into operational production facilities. whereas outside Estonia we cooperate with other investors and We have developed Enefit technology, the world’s leading tech- partners to develop the production of liquid fuels and electricity nology for producing liquid fuels from oil shale. Enefit technology from oil shale. is an efficient industrial process, which uses all of the oil shale that is mined, including the fine particles. Operational oil shale to liquid fuels industry in Estonia will demonstrate to the inter-

Efficiency

To achieve our goals, we pay special attention to increasing Secondly, we focus on neutralising the impact of increasing efficiency and therefore implement special programmes cove- environmental charges on Eesti Energia. We strive for turning ring the entire group. We give the highest priority to increasing an increasing share of the of energy generation leftovers into a personnel efficiency, so that labour productivity increases faster variety of marketable products, thereby reducing the environ- than the company’s labour costs. mental costs of the Group. Eesti Energia Annual Report 2012 Strategy

13 Expertise

Jelena Obolonskaja, Aleksandr Mosnikov Achiever of the Year 2012 Contents

Business Environment

Global energy markets were influenced by a variety of factors The financial markets displayed signs of improvement in the first in 2012 - uncertainty over the health of the global economy, half of 2012, as bond interest rates fell, bank lending increased conflicts in the Middle East and North Africa, the hurricane season and asset prices climbed higher. Focus was still on country risks in the Gulf of Mexico and market regulations in the European and weak economic growth in the euro area. The events in the

Union concerning CO2 emission allowances, aimed at increasing euro area were also of great importance in the second half of energy efficiency. the year as financial markets were influenced by capital outflow from problematic countries. The ratification of the European Compared to the previous two years, the global economy was Stability Mechanism (ESM) treaty in Germany and measures taken characterised by slower growth in the past year. According to the by central banks in order to boost the economies contributed to IMF* estimate, in 2012, the global economy expanded by 3.2% the recovery of the markets. (compared to 3.9% in 2011), with the US economy growing by 2.3% (1.8%) and euro area shrinking by 0.4% (compared to growth of 1.4% in 2011). Estonian economy expanded by 2.4% (7.6%) in 2012 according to IMF forecast.

The debt crisis in the euro area was one of the main sore spots Compared to the in the global economy in 2012. While move towards a banking union beckoned, capital requirements for financial institutions previous two years, in the euro zone were still becoming stricter and the regulatory mechanism was under development. Unemployment having the global economy was increased to 11.2% in the euro zone by the end of 2012 accor- ding to the IMF was a major problem for Member States in the characterised by euro zone, and this indicated that the economic recession was not yet over. The US economy was characterised by moderate slower growth growth compared to the previous year with unemployment at in the past year. 8% according to the IMF, which is 0.7pp lower than in 2011. The US was also expecting the government to decide on extending tax cuts and increase the debt limit but conclusive resolutions Eesti Energia Annual Report 2012 Business Environment were not reached during the year 2012. 15

* Macroeconomic data concerning the year 2012. is based on IMF estimates. Source: IMF, 2013 January WEO Update (Gradual Upturn in Global Growth During 2013). Contents

Price of Liquid Fuels

Brent crude price was at 86.0 €/bbl (112.2 $/bbl) in the beginning Prices of Liquid Fuels of 2012 and at 84.6 €/bbl (111.6 $/bbl) by the end of the year. Oil price fluctuations were characterised by higher volatility in €/bbl €/tonne

2012 compared to 2011. In the beginning of 2012, oil prices 100 635 increased due to better than expected economic indicators in the

USA and China and the continuing geopolitical tensions in the 90 572 Middle East and North Africa, which did not cease in the second half of 2012. Oil prices dropped to yearly lowest levels in June, 80 508 due to abundant crude oil supplies and worsening economy pre- dominately in the euro zone but also in USA and China, indicating 70 445 that worries are not limited to the euro area alone. Oil prices rose during July and August, due to the news of measures taken 60 381 by the European Central Bank and US Federal Reserve to boost Jan.11 May.11 Sep.11 Jan.12 May.12 Sep.12 Jan.13 the economy as well as news of the limits on production in the Brenti crude (€/bbl) North Sea. Starting in September 2012, there was a downward Fuel Oil (1%) (€/tonne) trend in crude oil prices on account of increasing concerns about the cooling of the euro area economy. Fuel Oil Crack Spread Fuel oil (1% sulfur content) price decreased during the year of

2012. Fuel oil started the year trading at 521.8 €/tonne (681.0 $/ €/bbl €/tonne tonne) and finished the year at the level of 450.9 €/tonne (595.0 $/tonne). Crack spread, describing the price difference between 0 0 crude oil and fuel oil extracted from it, was more volatile in 2012 than in 2011. Prices were affected by seasonal factors as well as (5) (32) maintenance works in refineries and global demand for bunker

Price of Liquid Fuels (10) (64)

Fuel Minimum Maximum Average Change compared price t o 2011 (15) (95) Jan.11 May.11 Sep.11 Jan.12 May.12 Sep.12 Jan.13 Brent crude (€/bbl) 71.1 99.1 87.4 8.5% Fuel oil 1% vs Brent crack spread (€/bbl) source: Thomson Reuters Fuel oil (1%) (€/tonne) 443.6 577.8 515.7 13.0% Eesti Energia Annual Report 2012 Business Environment Fuel oil 1% crack spread (€/bbl) (11.9) (0.4) (4.8) (37.7)% 16 Contents fuel. In the first half of the past year price spread between crude oil resulting from the accumulation of stocks and the increased oil and fuel oil narrowed due to a increase in the price of fuel supply of fuel oil in the global market. oil resulting from increased demand for fuels to replace nuclear energy in Japan and South Korea. Following the power plant In August 2012, a regulation setting the sulphur content limit accident in Japan in March 2011, the use of nuclear energy in for bunker fuel at 1% entered into force in the North American the country was limited in 2012. The end of 2012 saw a major region. In Baltic Sea region, the sulphur content limit will be decrease in the price of fuel oil compared to the price of crude decreased tenfold compared to the existing 1% limit (i.e. to 0.1%) from 2015.

Emission Allowances Prices

In 2012 emission allowance prices remained at the same level as Emission Allowances Prices by the end of 2011. The December 2012 CO2 emission allowance futures started the year trading at 6.6 €/t and finished trading Minimum Maximum Average Change compared at 6.5 €/t by the end of the year. At the beginning of 2012, the (€/t) (€/t) price (€/t) t o 2011 price rose due to cold weather in Europe and expectations that CO2, December 2012 5.7 9.5 7.5 (45.7)% the supply of emission allowances would be decreased. The prices CO2, December 2013 6.0 10.3 7.9 (46.3)% of emission allowances were lower compared to 2011 due to the excess supply of allowances resulting from the continuing economic slowdown. The price of CO allowances was positively 2 Prices of CO Emission Allowances influenced by the downward trend in coal prices, which boosted 2 demand for emission allowances. In September, the natural €/t gas price, which had increased compared to the price of coal, contributed to the increase in demand for emission allowances. 20

In November 2012, the European Commission came out with 15 several proposals for public discussion concerning the future development of emissions trading, which implies that the emis- sions trading regulation of the European Union may change which 10 would have a substantial impact on the energy sector as well.

5 In 2012, the state allocated 10.3 million tonnes of free CO2 emission allowances to Eesti Energia to cover the emissions of Jan.11 May.11 Sep.11 Jan.12 May.12 Sep.12 Jan.13 Eesti Energia Annual Report 2012 Business Environment the year. From 2013, the state will not be allocating free emission CO2 emission allowance price for December 2012 CO emission allowance price for December 2013 allowances for electricity generation. 2 17 source: Thomson Reuters Contents

Electricity Prices

The whole of 2012 saw exceptionally high levels of water in Nor- Levels of Nordic Water Reservoirs dic reservoirs, which allowed electricity to be generated at lower costs. While the high level of water reservoirs mainly affected % of the maximum the Nord Pool Spot system price, to an extent it has also put electricity prices under pressure in Finland and the Baltic States. 95 At the beginning of 2012, electricity prices in Nordic countries rose due to a drop in the amount of nuclear energy generated. In 75 the middle of 2012, high levels of water in the Nordic reservoirs contributed to the drop in prices. While the filling of the reser- 55 voirs slowed in the second half of 2012, still the water balance reached a record level for the last 12 years in October 2012. 35

2012 still saw a bottleneck effect between Sweden and Finland 15 resulting from insufficient transmission capacity, and the average week 1 5 9 13 17 21 25 29 33 37 41 45 49 1 median value* Levels of Nordic reservoirs of 2010 Levels of Nordic reservoirs of 2011 *1990-2011 Levels of Nordic reservoirs of 2012 source: Thomson Reuters 36.6 €/MWh (25.7)%

5.4 €/MWh price spread between the regions was -4.1 €/MWh (compared to -1.6 €/MWh in 2011). The average price spread between 39.2 €/MWh Estonia and Finland in 2012 was 2.6 €/MWh (compared to -6.0 (9.6)% €/MWh in 2011). 32.5 €/MWh (31.9)% 8 €/MWh On 18 June 2012, the ELE price area was established on the 1.3 €/MWh Estonian-Latvian border in connection with transmission capacity limitations on the border. The average price spread between Estonia and the ELE area in the past year was -3.4 €/MWh, which means that transporting electricity to Latvia and Lithuania was 31.2 €/MWh (33.7)% relatively expensive due to the shortage of transmission capacity. Eesti Energia Annual Report 2012 Business Environment

NP system price Average price source: Thomson Reuters 18

Price spread compared to the SYS price Contents

At the end of 2012, NASDAQ OMX opened the electricity deriva- Eesti Energia Narva Power Plant’s producer price for electricity in tives market in the Estonian price area, which will allow electricity Estonia was 29.4€/MWh (approved by the Competition Authority price risks to be hedged. CfD* futures for the Estonian price area on 28 July 2009). can be traded for a period of up to three years. The price of CfD derivatives depends on the difference between the price in the Due to the opening of the electricity market, free market prices Estonian price area and the price in the Nord Pool Spot system. for electricity apply to Estonia in 2013 instead of the regulated NASDAQ OMX provides opportunities for trading in electricity prices. Domestic consumers in Estonia could already sign open price derivatives in most Nord Pool Spot price areas. market electricity contracts in September 2012.

Compared to 2011, the clean dark spread excl. oil shale and CO2 costs in the Estonian exchange price for electricity rose to 21.3 Minimum and Maximum Daily Electricity Prices in 2012 €/MWh (+1.2 €/MWh or +6% on the value for 2011). Oil shale and CO2 costs decreased by 23% compared to 2011 mainly due Price area 2012 minimum (€/MWh) 2012 maximum (€/MWh) to the downward trend in prices for CO2 emission allowances. Estonia 22.5 76.5 In 2012, the regulated electricity price in Estonia was 30.7 €/ Finland 7.4 101.3 MWh (approved by the Competition Authority on 1 June 2010). ELE 25.2 84.9 SYS 7.9 96.2

Daily Average Electricity Prices

€/MWh

100

80

60

40

20

0 01.11 03.11 05.11 07.11 09.11 11.11 01.12 03.12 05.12 07.12 09.12 11.12 01.13

Nord Pool Estonia price Nord Pool Finland price Nord Pool ELE price Nord Pool System price source: Thomson Reuters Eesti Energia Annual Report 2012 Business Environment

19

* Contract for Difference i.e. a derivative which allows traders to speculate on the price movement of underlying assets without actually owning the underlying assets. Contents

The electricity markets of Latvia and Lithuania were partially Electricity Consumption on the Baltic Open Market (23 TWh) open for business customers in 2012. Clients accounting for approximately 63% of the Latvian electricity consumption in 2012 were in the open market. The Latvian Nord Pool Spot price 2 area is expected to be opened in 2013. 4 7 In Lithuania, only larger companies have bought electricity on the 2012 4 2013 open market since January 2012. The Lithuanian market was open 11 Proportion of Proportion of open market open market to the extent of 61% of the volume of electricity consumption. consumption consumption All Lithuanian companies will become open market participants 52% 7 84% at the beginning of 2013. The Lithuanian Nord Pool Spot price 6 6 area was opened on 18 June 2012. The area operated autono- mously as it was not connected to other Nord Pool price areas.

Estonia Latvia Lithuania Regulated market

source: Eesti Energia forecast Eesti Energia Annual Report 2012 Business Environment

20 Janis Bethers Achiever of the Year 2012

Entrepreneurial spirit Eesti Energia Annual Report 2012 Address by the Chairman of Management Board

21 Contents

Financial Results

Total revenues for the financial year 2012 remained at the same and liquid fuels compensated the decline in elelctricity sales. level as a year ago. The revenues from the sale of electricity Impairment of power generating assets in the amount of 63.3 dropped mostly due to low power market prices, which decreased milliion euros had a significant non-cash impact on the Group’s the sale of electricity at unregulated prices to power markets and profitability. The impairment was driven by low price levels in wholesale companies almost twice compared to a year before. power exchanges as well as several changes in the legal acts However, higher revenues from the sale of network services regulating electricity generation.

REVENUES EBITDA OPERATING PROFIT NET PROFIT

868.5 million euros 278.4 million euros 100.1million euros 76.9 million euros +1.3% +5.0% (40.4)% (48.5)%

OPERATING CASH FLOW INVESTMENTS DIVIDENDS EQUITY

185.2 million euros 513.5 million euros 65.2 million euros 1,409.1 million euros +14.5% +1.1% +16.2% +13.9% Eesti Energia Annual Report 2012 Financial Results

22 Contents

Revenues

Change in Revenues

million €

300

200

272.5 244.8 223.9 100 168.0 170.9 189.2 96.8 60.9 77.8 86.8 37.4 35.5 32.8 28.7 0

1.8% (10.1)% 18.4% (5.2)% 27.9% (12.6)% (10.3)% Sales of electricity Sales of electricity Sales of network Sales of heat Sales of liquid fuels Sales of oil shale Other products at regulated prices at unregulated prices services and services

Sales Outside the Group

2.1 6.2 6.4 5.55.6 5.24.4 1.4 189.2 164.1 1.1 0.9

3.1% (16.4)% 3.2% (14.4)% 15.3%(32.9)% Sales of electricity Sales of electricity at Sales of network Sales of heat (TWh) Sales of Sales of oil shale at regulated prices unregulated prices services liquid fules (million t) (TWh) (TWh) (TWh) (th t) Eesti Energia Annual Report 2012 Financial Results 2011 2012 23 Contents

32%* Retail

The Retail division’s revenues rose by 6.1% or 19.5 million brand awareness has increased to 75%. Only a year ago, 39% of euros to 339.6 million euros. The division was influenced by Latvian companies were aware of Enefit as an electricity seller. In the preparations for the opening of Estonian electricity market, Lithuania, Enefit’s brand awareness has increased to 28%, which expanding client base and sales in the Baltic retail market and is a good result, given that nearly 20 active electricity sellers are one-off income from the sales of telecommunications company operating in the electricity market in Lithuania. A year ago, 17% of Televõrgu AS in the first quarter. Lithuanian companies were aware of Enefit as an electricity seller.

Sales of electricity in the Baltic open market proved to be more 2012 was the last year when electricity was sold in Estonia at the successful than planned. While the aim in Estonia was to retain price regulated by the Estonian Competition Authority. In 2012, the market share, new clients were actively searched for in Latvia the Retail division had signed more than 645,000 contracts for and Lithuania where Eesti Energia operates under the trademark selling electricity at regulated prices to approximately 471,000 of Enefit. The number of clients has tripled and sales doubled private and 27,000 business clients thus covering more than in Latvia and Lithuania year-on-year. In December 2012, Eesti 91% of all connection points in Estonia. As all existing contracts Energia had 1,317 open market clients in Latvia (up by 1,044 lapsed due to market opening the clients purchasing electricity at clients) and 316 clients in Lithuania (up by 201 clients). The regulated prices could choose a new electricity seller or remain 2012 Enefit brand awareness survey in Latvia showed that Enefit’s purchasing universal electricity service. On 1 January 2013, the

Electricity Sales Market Shares in the Baltics

24%

8% 20% +0.2 pp* +2.1 pp* +5.4 pp* +0.1 pp*

74%

The Baltic countries Estonia Latvia Lithuania

EE Others * change compared to previous financial year Eesti Energia Annual Report 2012 Financial Results

24 * Of external revenues Contents

Estonian electricity market was fully opened to all electricity con- Sales of Electricity by Retail Division sumers. Eesti Energia commenced conclusion of new contracts in September 2012. As at the end of the financial year, Eesti GWh 2011 2012 Change Energia had concluded over 408,000 open market electricity Retail sales of electricity at contracts, covering more than 58% of all Estonian connection regulated prices, of which 5,416 5,617 3.7% points and exceeding the initial forecasts several times. sales outside the Group 4,994 5,160 3.3% Sales of electricity at unregulated prices, of which 2,362 2,621 11. 0 % Revenue from other services of the Retail division fell by 11.7 in the Estonian 1, 211 1,310 8.2% million euros or 31.7% to 25.2 million euros, mainly due to exit unregulated market from the telecommunications business in the first quarter of sales outside the Group 1,058 1,110 4.8% the financial year (2.1 million euros vs. 10.9 million euros in the Sales in the Latvian open market 430 874 103.2% previous financial year). Sales of repair and construction services in the Lithuanian open market* 720 436 (39.4)% were up 1.2 million euros or 5.7% at 21.9 million. Võrguehi- Total retail sales of electricity 7,778 8,238 5.9% tuse AS, which is part of the Retail division, is one of the main partners of Elektrilevi in the area of designing, construction and maintenance works.

Retail Division’s Retail Division’s Retail Division’s Average Electricity Sales Volume Electricity Sales Revenue Electricity Sales Price

GWh mln € €/MWh 10 000 300 293 50 276 44.8 44.1 7,778 8,238 7 500 225 38 2,362 2,621 106 116 31.4 31.5

5 000 150 25

5,416 5,617 170 177 2 500 75 13

0 0 0 2011 2012 2011 2012 2011 2012

Regulated price Unregulated price Eesti Energia Annual Report 2012 Financial Results

25 * Sales in the Lithuanian open market represents a decrease in quantities due to the introduction of netting of Baltpool’s exchange transactions. By using the earlier method, the sales to the unregulated market would have increased by 13,9% (820.1 GWh in 2012 vs. 720.0 GWh in 2011) Contents

25%* Distribution Network

Distribution Network’s revenue for the financial year increased The other revenues of Distribution Network amounted to 6.2 by 33.4 million euros or 16.8% to 232.3 million euros mainly million euros (+7.7%, +0.4 million euros) of which approximately as a result of a change in the network tariffs on 1 August 2011. 76% came from the sale of connection services. In 2012, network losses were 423 GWh or 6.0%, increasing by 24.8 GWh (0.2 percentage points) year-on-year. Network reliability indicators have improved compared to the previous year, Distribution Network’s Number of failures was 22,975 (down by 4,920), the average duration of planned interruptions was 91 and that of unplanned revenue for the financial interruptions was 187 minutes (by 20 and 194 minutes less, respectively, than in 2011). year increased to 232.3 million euros

Distribution Network’s Network Distribution Network’s Network Distribution Network’s Average Services Sales Volume Services Sales Revenue Network Services Sales Price

GWh million € €/MWh 8,000 6,419 6,604 300 40 34.0 6,400 225 29.9 2,146 2,227 225 30 192 4,800 150 20 3,200 4,272 4,377 1,600 75 10

0 0 0 2011 2012 2011 2012 2011 2012

Sale of medium-voltage network services (GWh) Sale of low-voltage network services (GWh) Eesti Energia Annual Report 2012 Financial Results

26 * Of external revenues Contents

28%* Generation

The Electricity and Heat Generation division’s revenues for the hedges increased sales price by 3.7 €/MWh and revenues from financial year 2012 amounted to 494.9 million euros, down by Estlink underwater power cable by 2.1 €/MWh. 11.5 million euros or 2.3% or year-on-year. Lower revenue from Estlink underwater power cable of 9.3 mil- The Division’s electricity sales revenues amounted to 424.8 mil- lion euros (down by 6.5 million euros or 41.4%) was caused by lion euros (down 6.3% or 28.7 million euros) including renewable a smaller price difference of 2.3 €/MWh (down by 1.3 €/MWh or energy subsidies, revenue from Estlink underwater power cable -36.7%) as well as by lower use of the cable. Namely, in 2012 and financial hedges. the cable was fully utilised 36.5% of the time (2011: 49.3%).

The Division’s sales to the unregulated market fell by 785 GWh In the financial year, the annual net generation of electricity was (down by 14.9%) to 4,498 GWh, due to lower generation resul- 9,374 GWh, which was a reduction of 1,054 GWh or 10.1% year- ting from low market prices. In the financial year 2012, the on-year. Electricity purchases totalled 1,272 GWh (an increase of average electricity sales price to unregulated market exclusive of 550 GWh or 76.2 %) and the average purchase price was 40.9 the renewable energy subsidies was 48.5 €/MWh. The financial €/MWh (an increase of 2.0 €/MWh or 5.2 %)

Generation Division’s Generation Division’s Generation Division’s Electricity Sales Volume** Electricity Sales Revenue** Average Electricity Sales Price**

GWh million € €/MWh 49.1 12 000 11,138 540 64 48.5 10,635 432 399 48 8 000 5,283 4,498 360 29.5 29.5 259 218 32 4 000 180 5,856 6,137 16 172 181 0 0 0 2011 2012 2011 2012 2011 2012

Regulated price Unregulated price Eesti Energia Annual Report 2012 Financial Results

27 * Of external revenues ** Excluding renewable energy subsidies Contents

We generated 531 GWh (+123 GWh, +30%) of electricity from Sales of Electricity by Generation Division renewable resources of which biofuels accounted for 385 GWh

(+77.2 GWh or 25.1%), wind for 135.1 GWh, water for 9.5 GWh GWh* 2011 2012 Change and in an efficient cogeneration mode for 1.5 GWh. Sales of electricity at regulated prices, of which 5,856 6,137 4.8% The Group received 25.1 million euros in renewable energy external sales 479 484 1.0% subsidies, an increase of 3.8 million euros or 18.1% year-on- Sales of electricity at year. The growth of subsidy was mainly impacted by generation unregulated prices, of of electricity from biofuels in the first half of the financial year. In which 5,283 4,498 (14.9)% October 2012, electricity generation from biofuels at Narva Power external sales 4,259 2,859 (32.9)% Plant was discontinued. As to the current draft amendments to Total electricity sales 11,13 8 10,635 (4.5)% Electricity Market Act, Narva Power Plants will not be receiving renewable energy support for biomass-fired generation in the coming years. In summer, Narva and Paldiski wind parks started Sales of Heat by Generation Division to generate electricity to the network. The generated quantities do not yet qualify for renewable energy subsidy as the network GWh 2011 2012 Change connection tests are still underway and approval from Elering is Sales of heat, of which 1,177 1,031 (12.4)% being applied for. external sales 1,074 918 (14.5)%

In 2012, revenue of heat fell by 1.6 million euros or 4.2% to 37.3 million euros. Revenue of heat was reduced due to sales of Kohtla-Järve Soojus in March 2011and lower demand for output of Iru CHP. The average external sales price of heat was 38.1 €/MWh (up by 3.2 €/MWh or 9.3%).

Other revenues of the Generation division were up by 18.8 million euros or 134.5% at 32.8 million euros, a significant part of it

(19.7 million euros) was earned from selling the CO2 emission allowances not necessary for generation. Eesti Energia Annual Report 2012 Financial Results

28 * The Generation division’s results are presented as a net amount of purchases and sales of the power exchange. Contents

15%* Fuels

The Fuels division’s revenues totalled 302.8 million euros, which sales price of liquid fuels in the financial year was up by 40.4 was a decrease of 40.7 million euros or 11.9%. €/t or 10.9% at 411.5 €/t, it followed the global market price of heavy fuel oil, averaging 515.7 €/t, which was by 13.0% hig- In the financial year, the decrease of external sales of oil shale her year-on-year. Without considering the impact of derivative was caused by smaller demand for oil shale due to reduced elect- transactions, the sales price of liquid fuels was 480.5 €/t, up by ricity generation output as well as by lower sales of concentrate 62.9 €/t or 15.1%. externally. Production of oil shale was down by 1.0 million ton- nes or 5.8% at 16.9 million tonnes and the average sales price The external revenues of EE Tehnoloogiatööstus amounted to was 11.4 €/t (up by 0.2 €/t or 2.2%). The decline in production 42.8 million euros, which was 29.6 million euros or 40.9% lower resulted from the closing of Aidu quarry in July 2012. year-on-year. The decline was mainly resulting from the comp- letion of a new oil plant and decreased work volume related to Higher reliability of the Enefit140 equipment is the key factor Narva Power Plants. contributing to growth in sales of liquid fuels. The average external

Sales of Oil Shale by EE Kaevandused

thousand tonnes 2011 2012 Change Change in Revenues of the Fuels Division Intra-Group sales of oil shale for electricity production 14,254 12,900 (9.5)% million € Intra-Group sales of oil shale 400 for oil production 1,642 1,872 14.0% 343 Oil shale sales outside the 40 303 Group 2,120 1,423 (32.9)% 300 29 31 Total oil sale sales 18,017 16,195 (10.1)% 200 67 85

100 180 Sales of Fuel Oil by Fuels Division 164

0 thousand tonnes 2011 2012 Change 2011 2012 Sale of liquid fuels, of which 178 203 14.4% Oil shale Liquid fuels Other External sales 164 189 15.3% Repair and construction services Sale of electrical equipment Eesti Energia Annual Report 2012 Financial Results

29 * Of external revenues Contents

Profitability

The Group’s EBITDA for the financial year 2012 was 278.4 million The impairment of electricity generating assets was driven by low euros, an increase of 13.3 million euros or 5.0%. Operating profit electricity market prices, the decision by European Commission before impairment adjustments amounted to 163.4 million euros, not to allocate free CO2 for electricity generation starting form down by 3.7 million euros or 2.2%. Impairment of electricity 2013 and higher environmental tax rates. The impairment of generating assets in the amount of 63.3 million euros reduced Narva Power Plants amounted to 58.3 million of total annual the Group’s operating profit to 100.1 million euros. impairment.

Change in Operating Profit million €

250 13 (10) 15 (19) 24 (29) 200 168 1 163 (63) 150 100 100

50

0 Operating Higher Discounts of Higher Decrease of Higher Lower Other Operating profit Impairment Operating

profit profitability of CO2 emission profitability of electricity depreciation profitability excl. impairment adjustments profit 2012 2011 network allowances liquid fuels sales volume of electricity services and revaluation sales sales of hedging instruments Eesti Energia Annual Report 2012 Financial Results

30 Contents

Division Positive impact Negative impact Change in operating profit (million €)

+12.1 million euros Higher electricity sales margin Retail +9.3 million euros (5.1) million euros 8%* Revenue from the sale of Televõrgu AS Higher fixed costs adjusted by ungained revenue and costs 13.6 +1.4 million euros Higher electricity sales volume 2011 2012

(3.2) million euros +20.6 million euros Higher depreciation Higher network services sales margin (2.1) million euros 62.3% Distribution +3.6 million euros Higher fixed costs Higher network services sales volume network (1.4) million euros Higher repair expenses 27%* 45.4 27.9 In the financial year 2012, Elektrilevi’s rate of justified profitability (profit earned on regulated assets), established by the Competition Authority, was 7.83%. The average regulated amount of Elektrilevi’s assets was 580 million euros. 2011 2012

+18.3 million euros (63.3) million euros (13.9)% Lower discounts of CO2 emission allowances Higher impairment of electricity generating assets +9.3 million euros (27.9) million euros Generation Lower repair expenses Lower electricity sales margin 79.9 40%* +7.1 million euros 68.8 Lower environment protection provisions (12.5) million euros Higher depreciation 5.5 +4.4 million euros (7.5) million euros Lower fixed costs Lower electricity sales volume 2011 2012* 2012

(16.2) million euros Lower non-recurring revenues (39.8)% (15.1) million euros +7.9 million euros Lower profitability of oil shale mining Fuels Higher liquid fuels sales volume 25%* +5.2 million euros (5.0) million euros 70.9 Higher liquid fuels sales margin Lower profitability of 42.7 Tehnoloogiatööstus

(4.1) million euros Eesti Energia Annual Report 2012 Financial Results Lower depreciation 2011 2012 31

* operating profit excl. impairment

Contents

Cash Flows

In the financial year 2012, the Group’s cash flows from operating in the amount of 35.4 million euros as well as interest and activities amounted to 185.2 million euros. borrowing expenses related to bonds issued in the amount of 300 million euros. n the financial year 2012, the Group’s cash flows from operating activities increased by 14.5% year-on-year, up by 23.4 million The Group’s cash flows from investments in the total amount euros. Cash flows from operating activities were increased by a of 548.9 million euros, up by 350.2 million euros, were influ- decrease in prepayment for CO2 emissions allowance, which enced, apart from investments (514.1 million euros) also by added 34.0 million euros and a change in the EBITDA, adding cash flows from the sales of the telecommunications company 13.3 million euros. The main negative factors included an inc- (22.1 million euros). rease of receivables by 17.0 million euros and an increase of 9.1 million euros in loan and interest expenses. The Group’s financing cash flows were influenced by the issued bonds in the amount of 300 million euros, the increase of share Compared to the Group’s EBITDA in the amount of 278.4 million capital by 150 million euros and dividend payment in the amount euros, the cash flows from operating activities were significantly of 65 million euros. reduced by different changes related to the working capital

Development of Operating Cash Flows

million € 9 (26) 300 278 (23) (17) 250 (14) (10) (9) (3) 185 200

150

0

EBITDA Other current Interest CO2 Income Sale of Changes in Change in Other Operating assets paid loan prepayment tax telecommunication inventories trade recievables cash flows expenses and changes subsidiary Eesti Energia Annual Report 2012 Financial Results

32 Contents

Financing and Investments Eurobonds in the amount of 300 million euros (with a fixed Credit Ratings coupon rate of 4.5% and with a maturity date in 2020), the Group carried out a new bond issue in April 2012 in At the end of the financial year, Eesti Energia had a credit rating the amount of 300 million euros for long-term financing of Baa1 with stable outlook from Moody’s and BBB+ with stable of investments. The annual coupon rate of bonds is 4.25% outlook from Standard & Poor’s. On 8 January 2013, Moody’s and the maturity date is 2 October 2018. changed the rating outlook to negative. Eesti Energia’s credit • The loans received from the European Investment Bank ratings are at the investment grade level that allows the Group Capital accounted for 144.3 million euros of the raised to access debt capital markets if needed. debt. The Group’s undrawn loans amounted to 495.0 million euros Financing as at the end of 2012: Eesti Energia’s substantial investment plan triggers a need to • In September 2011, we signed bilateral revolving credit raise debt and maintain a sufficient liquidity buffer. facilities with five regional banks. These credit facilities are aimed to provide a sufficient liquidity buffer to the Group. As at 31 December 2012, Eesti Energia’s equity amounted to These will also provide flexibility with regard to the timing 1,409.1 million euros. The shares of Eesti Energia are 100% of raising long-term funding. The financing transactions held by the Republic of Estonia. In 2012, Eesti Energia’s share that were successfully conducted during 2012 decreased capital increased from by 150 million euros to 621.6 million somewhat Eesti Energia’s need for the liquidity buffer, which euros when the sole shareholder of Eesti Energia increased the enabled the Group to reduce the initial amount of liquidity Company’s share capital by a monetary contribution. The share facilities of 500 million euros by 100 million euros. As at capital was received from the state on 10 July 2012. the end of 2012, the credit lines in the amount of 400 million euros have not been drawn. The facilities will expire As at the end of 2012, the Group’s balance of liquid assets was in September 2014. 151.8 million euros (including deposits with maturities of more than three months and liquid financial assets). • In December 2011, we signed two loan agreements for 95 million euros with the European Investment Bank to finance As at the end of the last financial year, Eesti Energia’s total the Iru waste-to-energy unit and the wind parks. These nominal borrowings amounted to 744.9 million euros (+66.9%, loans remained undrawn at the end of the financial year. +298.5 mln euros). The amortised borrowings amounted to 732.7 An agreement has been reached to extend the deadline million euros (up by 68.0%, +296.5 million euros year-on-year). for drawing the loans by one year until December 2013. The significant borrowings of the Group included: The weighted average interest rate of the Group’s borrowings at the end of 2012 was 4.12%, which represented a fall of • The Eurobonds listed on the London Stock Exchange in Eesti Energia Annual Report 2012 Financial Results 7 basis points over the financial year. The weighted average the amount of 600 million euros. In addition to the earlier 33 Contents rate of borrowings with fixed interest rates was 4.16% and that the end of the year, a rise of 10 percentage points over the year. for borrowings with floating interest rates was 0.76% (including Based on its loan agreements, Eesti Energia is bound to conform the base rate). Borrowings with fixed interest rate made up 99% to certain financial covenants. As at the end of 2012, the Group of the total Group’s debt as at the end of the financial year. All complied with these financial covenants. borrowings are denominated in euros. Dividens As at the end of 2012, the Group’s net debt* stood at 581.0 million euros, having risen by 190.6 million euros during the The Group paid its owners dividends of 65.2 million euros in year. The rise in net debt was caused by the Group’s substantial 2012. The dividends were paid out in the second quarter of the investment programme, whose expenditure significantly exceeds year, The state budget for 2013 plans to receive net dividends the cash flows from operating activities. The ratio of EBITDA to from Eesti Energia of 73.5 million euros and the Company must net debt also rose, although it remained at a conservative level also pay tax on top of the dividends, calculated as 21/79 on the of 2.1 in 2012. The ratio of net debt to equity reached 41% at net dividends.

Net Debt Net Debt/EBITDA Net Debt/equity million € times %

581 600 2.5 50% 2.1 41% 2.0 40% 380 31% 400 1.5 1.4 29% 321 1.5 30%

1.0 20% 200 112 0.5 10% 0.5 10%

0 0.0 0% 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 Eesti Energia Annual Report 2012 Financial Results

34

* Net debt – debt obligations less cash and cash equivalents, units in money market funds, investments into fixed income bonds. Contents

Investments

In the financial year 2012, the Group invested 513.5 million Approved Investment Projects and Base Investments euros, which was by 5.7 million euros or 1.1% more than in the previous year. The construction of Narva and Paldiski wind parks million € was completed and just before the year end, we received the first 2 200 barrel of shale oil from the new Enefit280 oil plant. In 2013, the 563 Iru waste-to-energy unit and the installation of desulphurisa- 1 650 tion equipment and lime systems at Narva Power Plants will be 438 completed; the oil shale infrastructure development in Auvere 1 100 and Jordanian preliminary development project for electricity 513 generation will come to an end. Of the major development pro- 550 jects, the construction of a new 300 MW power plant and the 508 preliminary development of international projects oil production 0 will continue in the next years. 2011 2012 2013E 2014-15E

Major Investment Projects

300 MW power plant in Auvere 54 69 36 Distribution network 52 Enefit280 Oil plant 78 16 73 208 18 Iru waste-to energy plant 2011 2012 508 million euros 31 513 million euros Wind parks 30 Desulphurisation equipment 54 58 120 Other 25 100 Base investments Eesti Energia Annual Report 2012 Financial Results

35 Contents

Main Investments

million €

300 MW power plant in Auvere 278 360 638

Distribution network* 140 160 300

Enefit280 oil plant 222 222

Desulphurisation equipment 108 117

Iru waste-to energy unit 66 39 105

International projects 43 57 100

Wind parks 82 89

Oil shale industry infrastructure 18 25 34

0 100 200 300 400 500 600 700

Up to 31 Dec 2012 Future investments

As at the end of the financial year, a total of 1,005 million euros to invest another 636 million euros to complete them. was invested in the on-going development projects and we plan

Construction of the New 300 MW Circulating Fluidised Bed (CFB) Power Plant

In summer 2011, Eesti Energia started the construction of a new power plant running on the modern circulating fluidised bed technology in Auvere. The new power plant, which should be completed in 2015, allows alongside oil shale to burn biofuels for up to 50% of its fuel intake and helps to bring the waste of the plant to the level of a modern gas plant. The maximum annual net generation of the new power plant is 2,192 GWh.

For financing the construction of Auvere power plant, the Euro- pean Commission allocated for Eesti Energia a total of 18 million tonnes of greenhouse gas emission allowances free of charge for 2013–2020.

Eesti Energia Annual Report 2012 Financial Results 36

* From the beginning of the new regulation period 1 August 2011 Contents

Improving the Quality of the Network Service

For improving the quality of the network service, we invested a total of 99.6 million euros in 2012. In the financial year, the Group built 707 substations and 1,750 kilometres of underground and overhead cables. From the beginning of the new regulation period (1 August 2011 - 1 August 2014), we have invested a total of 140.0 million euros in the electricity network. The total budget for the investment plan of the regulation period is 300 million euros.

Construction of the New Enefit280 Oil Plant in Auvere

The Group started the construction of the oil plant, with the annual production capacity of approximately 257,000 tonnes of shale oil, in summer 2009. At the maximum capacity, the plant burns nearly 2.3 million tonnes of oil shale per annum. The construction of the oil plant was completed by the end of the financial year and the focus is now on the commissioning of the plant. With the completion of the new Enefit280 oil plant, we will increase our total shale oil production capacity to nearly 500,000 tonnes per annum. The plant is expected to generate its first production at the beginning of 2013. Eesti Energia Annual Report 2012 Financial Results

37 Contents

Installation of Desulphurisation Equipment at Narva Power Plants

For reducing sulphur emissions, we installed desulphurisation equipment on four of the generating units of the Eesti power plant. After the installation, the net capacity of those units is 674 MW and the annual production capacity is 4.9 TWh. By the project commenced in spring 2009, we took an obligation to reduce sulphur emissions at Narva power plants 2.5 times, while maintaining the production capacity at the current level. Under the same project, we also commenced the installation of lime dosing systems in order to achieve the required cleaning level of exhaust gases, irrespective of the quality of burnt oil shale. The lime systems will be completed in the first quarter of 2013.

Construction of Iru Waste-to-Energy Unit

In summer 2013, the first waste-to-energy unit in the Baltic States will be started up next to the Iru combined heat and power plant, with the heat generation capacity of 50 MW and electricity generation capacity of 17 MW. The maximum annual generation of the unit is 330 GWh of heat and 136 GWh of power. The unit will use up to 220,000 tonnes of unsorted municipal waste as fuel source per annum. The quantity of waste necessary for the whole next year is covered by contracts as at the end of the financial year. The waste-to-energy unit, which will run on the most modern combustion technology, is able to turn nearly 85% of energy contained in waste into electricity and heat. Eesti Energia Annual Report 2012 Financial Results

38 Contents

Preliminary Development of International Projects

The preliminary development of the Jordanian electricity project will last until 2013. Procurement for construction of a power plant was announced in July and procurement for mining in December 2012. The winners of both procurements will be identified during the first half of 2013. The planned capacity of the Jordanian first oil shale power plant is 460 MW and its completion is planned to take place in 2016. Eesti Energia holds 65% in the Jordanian development project. The project partners (including Jordanian oil production) are YTL Power International Berhad with a holding of 30% and Jordanian partner Near East Investment with a holding of 5%.

The preliminary development of the Jordanian oil project is expec- ted to last until 2016. During the preliminary development phase, Eesti Energia will develop a part of the Attarat Um Ghudran mine. Area under research is estimated to contain 3.5 billion tonnes* of oil shale of which 0.9 billion tonnes represents measured resource for developing electricity project. In 2012, test runs with the Jordanian oil shale were performed in Frankfurt and the process of adjusting the Enefit technology to the Jordanian oil shale commenced.

In March 2011, Eesti Energia acquired the oil shale resourcein Uintah County, Utah (USA), which is estimated at 6.6 billion tonnes*. We plan to use our oil shale resources in Utah as a base for the liquid fuels’ industry with a capacity of 50,000 barrels of oil shale per day. The preliminary phase should be completed by 2016. In Utah, we continue to operate under the name of Enefit American Oil. Eesti Energia Annual Report 2012 Financial Results

39

* For more information see page 137 (Note 34) Contents

Construction of Wind Parks Development of Oil Shale Industry Infrastructure in Auvere

In the financial year, Eesti Energia completed the construction The Group will build a fuel handing system, which will supply oil of two wind parks. A wind park with a capacity of 39 MW was shale to the existing oil plant, the new Enefit280 power plant and established on Narva ash field and a wind park with a capacity of CFB power plant. The estimated completion date is March 2013. 22.5 MW in Paldiski. They increase the total wind energy gene- rating capacity to 111 MW. For building the wind park on Narva ash field, we used the plot of land that has been the deposition place of oil shale ash for over 30 years. The estimated annual generation of new wind parks is 133 GWh, which significantly helps diversify Eesti Energia’s energy generation. In the next few months, the recently completed wind parks should undergo a testing process, on the success of which the receipt of renewable energy subsidy depends.

Groups Electricity and Heat Generation Capacities

Net electricity Annual net elect- Added net elect- Net heat capacity Annual net heat Added net Year of capacity ricity generation ricity capacity (MW, 2012) generation heat capacity construction (MW, 2012) (GWh, 2012) (MW) (GWh, 2012) (MW) Eesti Power Plant 1,369 7,636 – 84 109 – 19 63-73 Balti Power Plant 654 1,564 – 400 491 – 1956-66 New CFB Power Plant – – 274 – – 2 011-16 Iru 156 27 - 625 415 – 1980-82 Iru WtE – – 17 – – 50 2 010 -13 CHP projects 2 3 2 – – 8 2 011-13 Wind parks 111 135 – – – – 2 0 0 9-12 Other 3 12 – 62 99 – n/a Enefit280 – – 35 – – – 2 0 0 9-12 Total 2,296 9,378 328 1,171 1,113 58 Eesti Energia Annual Report 2012 Financial Results

40 Contents

Outlook for 2013

The year 2013 is a landmark year for Eesti Energia Group in The Enefit280 oil plant marks a significant growth in the pro- many respects – a new, third phase of the EU emissions trading duction capacity of shale oil and we expect it to become fully system will begin, the Estonian electricity market will be become operable in 2013. fully open to the end consumers and the investments projects to be completed will boost our production and sales capacity. Growth in profitability will be significantly increased by the added output of shale oil after the launch of the Enefit280 oil plant,

while the addition of full CO2 expenditure related to electricity Outlook of the Group’s Financial Results generation will have a negative impact since unlike in 2012, emissions allowances will not be allocated for generation of

million euros 2012 Outlook* for 2013 electricity free of charge. In the income statement for 2012, Revenue 868.5 Growth only 6.1% or 6.5 million euros of the allowances necessary for emissions were recognised as expenditure. EBITDA 278.4 Growth Investments 513.5 Decline Because of substantial investments, the Group is expected to Net debt/EBITDA 2.1 G rowth continue generating negative cash flows in 2013, but significantly less than in 2012.

The added production capacities and the opening of Estonian electricity market have the major positive impact on the Group’s Group’s EBITDA Sensitivity to Market Fluctuations revenue. Million €

In 2013, the Group’s electricity generating capacity is increased 25 mainly by completion of new generation projects. Year-round 18.7 operation of Narva and Paldiski wind farms increases the 6.2 Group’s annual production capacity by 133 GWh and the timing 0.3 of renewable energy subsidy also has an impact on the reve- 0 nue. The construction of the Iru waste-to-energy unit will be (0.3) (6.2) completed in the first half of 2013, with the expected annual additional production capacity of 136 GWh of electricity and (18.7) 330 GWh of heat. Electricity produced as a by-product in the (25) Shale oil ElectricityCO CO Electricity Shale oil Enefit280 oil plant, with the estimated annual output of 276 GWh, 2 2 will be also added to the Group’s electricity generation portfolio. 10% increase in price 10% decrease in price Eesti Energia Annual Report 2012 Financial Results

41 * Slight growth up to 5% Growth more than 5% Slight decline up to 5% Decline more than 5% Contents

Closed Positions system, the price difference of the Finland Price Area and Estonia Price Area of Nord Pool compared to the system price and the In 2013, the electricity market will become open to all Estonian price of fuel oil with 1% sulphur content being the reference end consumers, which will increase the price of electricity sold by product of shale oil in the global market. the Group, while also adding significant volatility to the revenue.

For reducing the impact of volatility deriving from the electricity To cover the production portfolio’s CO2 emission expenses, price on the Group’s financial results, we have concluded elect- the Group has concluded future transactions for 2013, mainly ricity sales contracts at a fixed price in the Baltic retail market through futures traded on the ICE platform and option transac- and also acquired the Nord Pool’s derivatives traded on Nasdaq tions. In addition, the Group has also retained the CO2 emissions OMX, which close the electricity price position. To guarantee allowances from the second trading phase. revenue from the sale of liquid fuels, we have concluded future transactions with derivatives traded on ICE trade platform as well By way of derogation, the European Commission has granted as with counterparty banks. Estonia the right to allocate free-of-charge emission allowances to the existing manufacturers for making more environment- The Group’s revenue from the sales of electricity and liquid fuels friendly production investments. The new 300 MW power plant substantially depend on the prices of raw materials prevailing in being built by Eesti Energia at Auvere may receive under that the global and regional markets. The Group’s financial results are measure up to 18 million tonnes of CO2 allowances in the period mainly impacted by the electricity price in the Nord Pool trading of 2013–2020. Eesti Energia will account for the allowance as a government grant at a market price and depreciate it periodically in the revenue upon completion of the power plant.

Closed Positions of Electricity, Liquid Fuels and CO2 Allowances

TWh €/MWh th t €/t million t €/t

15 60 240 600 21 12 476.1 44.8 189.2 451.8 43.8 8.7 8.4 10 10 40 160 400 14 8 126.0 108.1 11.0 11.5 7.7 7.0 8.3 5 20 80 200 7 4

0 0 0 0 0 0

Sales Closed Closed Sales Closed Closed CO2 allowance Closed Closed 2012 position position 2012 position position 2012 position position 2013 2014 2013 2014 2013 2014 Eesti Energia Annual Report 2012 Financial Results

Sales of electricity Sales of liquid fules in wholesale market CO2 allowance quantities Average price of closed position 42 Contents

Investments

The investments for 2013, which are estimated to be significantly Investments Decided lower than in 2012, are reduced by completion of the projects. In 2103, Eesti Energia intends to invest 438 million euros in the 300 MW power plant already decided projects. in Auvere Distribution network 48 In 2014–2015, the total amount of investments decided by Iru waste-to energy plant 21 Eesti Energia will continue to decrease and the main investment, 6 7 155 Desulphurisation equipment apart from the base investments, is the 300 MW power plant to 40 Development projects be built in Auvere. 438 million euros 9 Oil shale industry infrastructure An investment not yet decided, but being considered by Eesti 39 Energia is the construction of additional production capacities Wind parks 112 of liquid fuels in Auvere on the basis of the new Enefit280 tech- Other nology and also the construction of a shale oil refinery. The Base investments business prerequisite for the next investment decisions is the achievement of sufficient reliability of the new Enefit280 oil plant in 2013 and cost-effectiveness of the projects. Given the Group’s current debt capacity, additional investment decisions most likely depend on addition of equity, is no equity is added such investment decisions may be postponed into far away future. Eesti Energia Annual Report 2012 Financial Results

43 Responsibility

Viktor Dobrovolskihh Achiever of the Year 2012, honorary award Eesti Energia Annual Report 2012 Address by the Chairman of Management Board

44 Contents

The Environment

In the past financial year, Eesti Energia’s environmental activities electricity generation and increasing the efficiency of the use mainly focused on reducing the emission levels, diversifying our of resources.

Reducing Air Emissions

We started with extensive investments already in 2009 to significantly reduce emission levels from pulverised oil shale combustion technology based energy generation units at the Eesti power plant. The installation of NID desulphurisation equip- We reduced ment in four generating units helped us remarkably reduce SO2 emissions in 2012. In addition, we created a supplementary more than twice system to improve the binding of sulphur in other pulverised oil the SO emissions shale combustion technology based generating units. The solu- 2 tion that features adding limestone to the combustion chamber improves the binding of the sulphur emitted in the burning or thermal treatment of oil shale. As a result of all the measures described above, we have managed to reduce more than twice the energy generation and allows us to increase the amount of oil SO2 emissions from the Eesti power plant and they now remain below 25,000 tonnes per annum. This allows us to keep the shale to be processed while meeting environmental requirements. electricity generation capacity largely unchanged, while meeting environmental requirements. In the past financial year we also commenced preparations for

installing equipment to reduce NOX emissions. The equipment will be installed in energy generating units already fitted with In addition to reducing SO2 emissions, the NID desulphurisation equipment we installed also helped to reduce the amount of NID systems, and the process is to be completed by the end of fly ash in emitted flue gases. The reduction of fly ash emissions 2015 at the latest. Eesti Energia Annual Report 2012 Environment contributes to our goal of reducing the environmental impact of 45 Contents

Diversification of Energy Generation Portfolio

Eesti Energia is constantly focusing on reducing the CO2 intensity criteria to diversify fuels, and increasing overall efficiency, we of the electricity it generates. To achieve this goal, we are diver- can reduce the emission of greenhouse gases in the electricity sifying the fuels we use with the share of biomass increasing, generation process. maximising the use of new equipment to improve the efficiency of electricity generation, implementing the combined production In 2012, Eesti Energia started using a feeding system for co- of liquid fuels and electricity in Enefit280 and increasing the use combustion of biofuels and oil shale in the Balti power plant, of wind power . which will allow the share of biofuel in CFB boilers to be increased to at least 50% of the fuel intake. In 2012, almost 365 GWh of The new 300 MW power plant at Auvere will have a capacity renewable energy were generated from biomass, as woodchips to burn up to 50% biomass or 20% peat alongside oil shale, weremainly co-fed into the fluidised bed boiler of the Balti power which will make Eesti Energia’s energy generation portfolio more plant. Besides wood, peat can also be burnt algonside oil shale diverse. By using solid biomass that conforms to the sustainability in CFB boilers.

Increasing the Resource Usage Efficiency

The large amounts of waste produced in the process of oil shale transport. We continue to use mine waste for the construction mining and the usage of oil shale for power generation make us of facilities in Ida-Virumaa region. the largest waste-generating company in Estonia. We consider maximising the recycling of waste and by-products generated in To increase the use of recycled oil shale ash, we continued the process, especially mine waste and oil shale ash, extremely working on several development projects in 2012 in order to important for reducing our environmental impact. In 2012, we test new areas of application. For example, the OSAMAT project continued working to increase the efficiency of resources used explores using oil shale ash as a foundation for the mass- mainly by creating more opportunities for recycling mine waste stabilisation of road embankments in road construction. We also and oil shale ash. continue studying major mass-stabilisation projects in the ports of the Baltic Sea. In addition to new solutions, we have started Although Eesti Energia has sufficient capacity for making crushed to research opportunities for using granulated oil shale ash in stone from mine waste (mainly used in engineering of infra- agriculture to neutralise acidic soils. We have started to develop structure objects), its use is mainly restricted by the distances a new oil shale ash standard in cooperation with construction between mine and the areas where construction activity is most material industry and Tallinn University of Technology. Eesti Energia Annual Report 2012 Environment intensive, and the inadequate logistics system that relies on rail 46 Contents

Key Environment Figures

2011 2012 PRODUCTION Electricity (GWh) 10,428 9,378

Heat (GWh) 1,263 1,137

Liquid fuels (t tonnes) 184.5 211.1

Producer gas (million m3) 58.1 65.2 2011 2012 USED RESOURCES Commercial oil shale (million tonnes) 15.8 14.8

Natural gas (million m3) 98.2 59.4

Biofuels (million tonnes) 0.4 0.5

Cooling water (million m3) 1,522.9 1,307.2

Pumped mining water (million m3) 224.8 203.0 2011 2012 EMISSIONS incl. water from quarries (million m3) 131.8 112 . 2 SO2 (th tonnes) 56.8 23.2 incl. water from underground incl. the Narva power mines (million m3) 93.0 90.8 plants (th tonnes) 56.6 23.1

12.8 9.9 NOX (th tonnes) Fly ash (th tonnes) 28.3 6.5 2011 2012 12.3 11. 0 WASTE CO2 (million tonnes)* Oil shale ash (million tonnes) 7.1 6.9

incl. recycled (th tonnes) 97.5 121.3

Mine waste (million tonnes) 9.0 8.1

incl. recycled (million tonnes) 8.1 7.6 2011 2012 WATER POLLUTANTS Suspended matter (th tonnes) 1.7 1.1

Sulphates (th tonnes) 131.5 76.0

2011 2012 ENVIRONMENTAL FEES PAID Resource fees (million euros) 28.7 30.4 Eesti Energia Annual Report 2012 Environment Pollution fees (million euros) 19.8 17.8 47

* Preliminary figures Teamwork

Katrin Tamsar, Katriin Loorents, Krista Tammäe, Erkki Lindepuu Achiever of the Year 2012 Contents

Corporate Governance

The shares of Eesti Energia are owned by the Republic of Estonia. Due to the fact that the eurobonds of Eesti Energia are listed on SHAREHOLDER London Stock Exchange and following the company’s structure CUSTOMER of ownership, we observe the following principles and laws in Fields of operations Countries of operations our corporate governance: Opportunitities

• The Combined Code on Corporate Governance (hereinafter Goals of Eesti Energia the Combined Code), the set of principles of the United Kingdom’s Financial Reporting Council; Organisation and assets • Selected principles of the Baltic Guidance on the Gover-

nance of Government-owned Enterprises (hereinafter Management Regulations Economic principles Regulators the Baltic Guidance), drawn up by the Baltic Institute of environment Competitors Liquidity Corporate Governance, which cover the expectations for Technical capability Creditors Reporting management, financial reporting and auditing; principles Threats

• The State Assets Act; Supervision principles • The Commercial Code of Estonia; Risk management • Eesti Energia’s Articles of Association. principles

Eesti Energia’s revenue Client satisfaction Eesti Energia Annual Report 2012 Corporate Governance

49 Contents

To make Eesti Energia’s governance even more efficient, we have 1. A single management structure and understanding of authority developed a corporate governance model using the following 2. Clear and clearly stated principles of management inter-linked components to ensure transparent and sound 3. Agreed reporting principles governance: 4. Effective supervision 5. Perceived risk management

Supervisory Organisations and Legal Acts Regulating and Impacting the Operations of Eesti Energia

STATE SUPERVISION LEGAL ACTS

Competition Authority • Earth’s Crust Act • Liquid Fuels Act • Metrology Act • Electricity Market Act • Electrical Safety Act • Environmental Impact Technical Surveillance EESTI ENERGIA • District Heating Act • Water Act Assessment Act Authority • Mining Act • Chemicals Act • Environmental • Grid Code • Competition Act Management Environmental Inspectorate System Act

A Single Organisational Structure SHAREHOLDER CUSTOMER Fields of operations and Our Authority Countries of operations Opportunitities

Goals of Eesti Energia

Organisation and assets It has been crucial for us to keep the organisation structure of Management Regulations Economic principles Regulators Eesti Energia simple and rely above all on the Group’s goals and environment Competitors Liquidity Technical capability requirements. Therefore we have separtaed the management Creditors Reporting principles Threats structure from legal structure. Supervision principles

Risk management principles

Eesti Energia’s

revenue Eesti Energia Annual Report 2012 Corporate Governance Client satisfaction 50 Contents

Legal Structure

• Energy Sales • Sales and Customer Service • Energy Trading EESTI ENERGIA AS • Iru Power Plant Attarat Power • Renewable Energy and CHP Company • Nuclear Power 100% Eesti Energia • Electric Works SIA Enefit Enefit Jordan B.V Õlitööstus AS 65% • Central Functions Jordan Oil Shale Energy Company Enefit Outotec 100% Elektrilevi OÜ UAB Enefit Technology OÜ 60%

Orica Eesti OÜ Eesti Energia Eesti Energia Pogi OÜ 35% Kaevandused AS Võrguehituse AS 66.5%

Eesti Energia Tabasalu Narva Soojusvõrk AS Eesti Energia Solidus OY Koostootmisjaam OÜ 66% Narva Elektrijaamad AS 55%

Eesti Energia Enefit Power and Heat Eesti Energia Eesti Energia Eesti Energia Eesti Energia Aulepa Elektrotehnika ja Valka SIA Testimiskeskus OÜ Hoolduskeskus OÜ Tehnoloogiatööstus AS Tuuleelektrijaam OÜ Automaatika AS 90%

EAO Real Estate Group Nordic Energy Link AS Enefit American Oil Co. Enefit US LLC EAO Federal Lease LLC 39.9% EAO State Leases LLC EAO Technology LLC EAO Orion LLC Eesti Energia Annual Report 2012 Corporate Governance Owned 100% by Eesti Energia AS Joint venture supported by Eesti Energia’s corporate governance Owned 100% by Eesti Energia AS subsidiary Minority interests 51 Contents

Our management structure is based GENERAL MEETING on the acknowledged model where the operational management of the SUPERVISORY BOARD AUDIT COMMITTEE companies and its direct support func- MANAGEMENT BOARD tions form the first line of defence are responsible for the timely risk mana- First line of defence Second line of defence Third line of defence gement and availability of sufficient • Division management • Human Resources • Committee of • Internal audit internal control mechanisms. General groups Financial Risks department Meetings of the • Business systems EXTERNAL AUDITO R • Management Boards and information • Risk management companies The second line of defence ensu- of the companies technology department res the efficient risk management Supervisory • Functions, • Real Estate • Internal audit departments, offices department of the Group, and the internal audit Boards of the • Environment companies • Employees department, which is the third line of • Energy Trading defence, provides to the assurance to • Finance the management bodies of the Group. • Strategy • Legal Services

General Meeting

The shares of Eesti Energia are owned by the Republic of Estonia. In the 2012 financial year Group subsidiary Televõrgu AS was sold The Ministry of Economic Affairs and Communications, repre- in accordance with an earlier decision of the sole shareholder. sented by the Minister of Economic Affairs and Communications Other decisions: in the general meeting, holds sole shareholder rights. • Approval of Eesti Energia’s results for the financial year The annual general meeting to approve the annual report is held 2011 and the distribution of net profit; at least once a year and no later than four months after the end • Extension of Supervisory Board members´ appointment of the financial year. terms;

In 2012 the general meeting approved the decision to increase • Discontinuation of electricity generation from renewable th the share capital by 150 million euros by means of issuing new energy sources in the 11 power generation unit of Eesti shares. Energia Narva Elektrijaamad AS.

Five general meetings were held. Eesti Energia Annual Report 2012 Corporate Governance 52 Contents

Supervisory Board

The Eesti Energia supervisory board has eight members, half of whom are appointed by the Minister of Economic Affairs and Communications as sole shareholder, and the other half by the Minister of Finance.

Jüri Käo (47) Meelis Atonen (46) Rein Kilk (59) Märt Vooglaid (44) Chairman Member Member Member Date appointed 30 May 2007 16 May 2005 30 May 2007 21 September 2011 Expiration of term 25 May 2013 19 May 2014 25 May 2013 20 September 2014

Kalle Palling (27) Andres Saame (53) Toomas Tauts (40) Toomas Luman (53) Member Member Member Member Date appointed 26 November 2009 1 July 2011 1 July 2011 17 March 1998 Expiration of term 26 November 2015 30 June 2014 30 June 2014 20 September 2015 Eesti Energia Annual Report 2012 Corporate Governance

53 Contents

The primary functions of the Supervisory Board are: the Audit Committee run by the Supervisory Board. Members • to enforce the strategy agreed at the General Meeting, of the Supervisory Board are not paid severance pay or other additional payments beyond those for participation in the work • to approve major strategic and tactical decisions, and to of the Supervisory Board. supervise the work of the Management Board of the Group. The work of the Supervisory Board is organised by the Chairman Participation of Supervisory Board Members in Meetings and of the Supervisory Board. The requirements and expectations the Total Remuneration Paid: for the Supervisory Board members are set forth in the State Assets Act. The Eesti Energia Supervisory Board is guided by its Name Participation Total remu- Total remu- Change own rules of procedure, the Articles of Association, the General in meetings neration in neration in Meeting and the State Assets Act. No changes took place in 2011(€) 2012 (€) 2012 among Supervisory Board members. Jüri Käo 10 5,675.40 5,808.40 2.3% Rein Kilk 10 4,256.52 4,256.52 0.0% Supervisory Board meetings generally take place once a month, Kalle Palling 10 4,256.52 4,256.52 0.0% except during the summer. In the financial year 2012 the Super- Meelis Atonen 9 3,901.81 3,990.52 2.3% visory Board held 10 meetings. The Supervisory Board fulfilled Toomas Luman 5 2,482.97 2,128.26 (14.3)% all its legal obligations and approved the following: Andres Saame* 9 2,128.26 3,990.52 87.5% • Group´s budget for the financial year 2012; Toomas Tauts* 8 1,773.55 3,547.10 100.0% • Group´s annual report for the financial year 2011; Märt Vooglaid* 8 1,418.84 3,547.10 150.0% • Issuance of Eurobonds worth 300 million euros; • Dicontinuation of electricity generation from renewable energy sources in the 11th power generation unit of Eesti Energia Narva Elektrijaamad AS; Supervisory Boards of Subsidiaries • Withdrawal of Harri Mikk, member of the Management The powers and responsibilities of the Supervisory Boards of Eesti Board and head of the Minerals, Oil and Biofuels Division. Energia’s subsidiaries are set forth in their Articles of Association. The Supervisory Boards are generally comprised of members of The work of the Supervisory Board is organised by attorney at the Eesti Energia Management Board. The exceptions include law Sven Papp of the law firm of Raidla Lejins & Norcous. The the following subsidiaries and associates: principles of remuneration for the members of the Eesti Energia Supervisory Board are regulated by the State Assets Act, under • Enefit American Oil which the decisions on the level and conditions of payment are (Harri Mikk, Rikki Lauren Hrenko, Margus Kaasik, Stuart Rose), taken by the sole stockholder or sole shareholder. A regulation from the Minister of Finance sets the limits on the remuneration • Enefit Jordan B.V. of the members of the Supervisory Board. A further payment (Harri Mikk, Margus Kaasik, Andres Anijalg, Swee Huat Chan, can be made for participation in the work of bodies such as Seok Yeoh Hong, Mohammad Maaitah), Eesti Energia Annual Report 2012 Corporate Governance 54 * Andres Saame and Toomas Tauts were appointed on 1 July 2011 and Märt Vooglaid on 21 Septembril 2011 Contents

• Enefit Outotec Technology OÜ once a week and if necessary voting can take place electronically. (Harri Mikk, Margus Kaasik, Indrek Aarna, Peter Weber, During the financial year 2012, 44 meetings and 4 electronic Andreas Orth, Mathias Noll), meetings were held.

• Narva Soojusvõrk AS The principles of remuneration for the members of Eesti Energia (Tõnu Aas, Valery Trubin, Vladimir Šiškov, Vladimir Kalatš, Management Board are regulated by the State Assets Act, under Aleksei Mägi). which the level of remuneration is set by the Supervisory Board. Meetings of the Supervisory Boards of subsidiaries take place as Members of the Management Board are paid their remunera- needed and are called for in accordance with the Group’s internal tion for fulfilling their responsibilities as Members of the Board. rules, the subsidiary’s Articles of Association, the law and the The remuneration is set out in the agreement signed with the agreements with the company’s other shareholders. Management Board member and can only be amended by mutual agreement. Management Board members are also paid bonuses within the restrictions set by the State Assets Act and the results Management Board of the Group, with maximum bonus of four monthly salaries. The Management Board of Eesti Energia AS is responsible for Bonus must be justified and reflect achievement of the Group’s operational management. There are five members of the Mana- targets, value added and its market position. Severance pay may gement Board, who are appointed by the Supervisory Board. The be paid only if the Supervisory Board recalls a member of the Chairman of the Board, who also performs the functions of the Management Board at its own initiative before the completion Managing Director, is appointed separately. At the end of financial of the member’s term. The amount of severance pay may not year 2012 Harri Mikk withdrew from the Management Board. exceed three months’ remuneration for the Management Board His resignation was approved by the Supervisory Board on 20 member. December. Management Board meetings generally take place

Participation of Management Board Members in Meetings and the Total Remuneration Paid:

Name Participation in Participation in Total remuneration in Total remuneration in Change meetings electronic voting 2011 (€) 2012 (€) Sandor Liive 42 1 135,826.09 150,971.50 11. 2 % Margus Kaasik 41 3 93,322.62 102,639.18 10.0% Margus Rink 41 4 93,459.15 103,880.16 11. 2 % Raine Pajo 40 2 93,353.72 102,838.59 10.2% Harri Mikk 35 3 92,604.13 109,552.54 18.3%

The CEO and members of the Management Boards of the subsidiaries are appointed by the Supervisory

Boards of the subsidiaries. Eesti Energia Annual Report 2012 Corporate Governance 55 Contents

MEMBERS OF THE BOARD:: EXPERIENCE: EDUCATION:

Sandor Liive (42) • Tallinn Technical University, degree in Financial Management Chairman of the Board and CEO • 1998–2005 CFO, Eesti Energia • Tallinn Technical University, studying for doctorate Date appointed: 1 December 2005 • 1995–1998 CFO, head of Treasury, • Stanford Graduate School of Business (The effective (Member of the Board Tallinna Sadam use of power, 2012) since 31March 1998) • IMD, Lausanne, Switzerland (2012, 2004) Expiration of term: • INSEAD (Advanced Management Program, 2007) 30 November 2014

Margus Kaasik (39) Member of Board, CFO • 2001–2005 Head of Management • Tallinn university of Technology, Faculty of Accounting, Eesti Energia Economics, diploma in Business Administration Date appointed: • 2000–2001 Financial Manager, • Tallinn university of Technology, Faculty of 1 December 2005 Distribution network service provider Jaotusvõrk Economics, Master in Business Administration Expiration of term: • 1994–1999 CFO, Koger & Sumberg Grupp 30 November 2014

Margus Rink (40) Member of Board, • 1996–2008 different positions including • University of Tartu, degree in Financial Management Head of Retail Business division Head of Personal and Retail Banking, Hansapank (current Swedbank) • University of Tartu, MA of Business Administration Date appointed: • INSEAD (International Executive Programme, 2005) 14 April 2008 • Oxford Said Business School (Advanced Expiration of term: Management and Leadership Programme, 2012) 13 April 2016

Raine Pajo (36) Member of Board, • 2000–2006 various positions including • Tallinn University of Technology, degree in Electrical Head of the Electricity and Member of the Board, Head of Deve- Engineering Heat Generation division lopment Department, Director of the Electrical Grid Planning Division, Põhivõrk • Tallinn University of Technology, M.Sc. and Doctor Date appointed: (current Elering) of Engineering 1December 2006 • 1999–2000 Finnish TSO Fingrid • Tallinn University of Technology, MA in Business Administration Expiration of term: 30 November 2014

Harri Mikk (39) Member of Board, • 2001–2006 General Counsel, Eesti Energia • University of Tartu, BA in Law Head of Minerals, • 2000–2001 Domestic Policy Advisor, Office of • University of Hamburg, Master of Laws Oil and Biofuels division the President of the Republic of Estonia Date appointed:

1 December 2006 • 1994–2000 various positions, Ministry of Eesti Energia Annual Report 2012 Corporate Governance Justice of the Republic of Estonia Expiration of term: 56 31 December 2012 Contents

Clear and Accepted Principles SHAREHOLDER CUSTOMER Fields of operations Countries of operations of Management Opportunitities

Goals of Eesti Energia

Organisation and assets

Eesti Energia treats the unambiguous and simple principles of Management Regulations Economic principles Regulators environment management as a whole supporting integrated multi-directional Competitors Liquidity Technical capability Creditors Reporting exchange of information. The Group’s Management Board is principles Threats responsible for the development and implementation of these Supervision principles. principles

Risk management principles

Eesti Energia’s revenue Client satisfaction

Business Divisions for sales transactions and transactions in the Electricity and The business divisions in the Group bring together companies Heat Generation Division, for which the limit is 60,000 that work in similar areas or that support each other. Each divi- euros; sion is run by a management group which comprises the head of the division, who is a member of the Management Board of • to approve the initiation of investment projects over Eesti Energia AS, members of the Management Boards of the 300,000 euros in value and the addition of such projects subsidiaries and entities within the division, and other specialists to the strategic plan, including the preliminary analysis and where needed. The role of the management group is: research, before the project is discussed by the Group’s Management Board or the company’s Supervisory Board; • to coordinate and monitor the implementation of key • to set transfer prices within the division; decisions; • to monitor strategic projects within the division; • to ensure cooperation between the companies in the division; • to monitor the results of the division and the division’s companies, and to update forecasts; • to develop a strategic plan for the division; • to give feedback to companies in the division; • to approve the strategic decisions of the division; • to organise the exchange of information and cooperation Eesti Energia Annual Report 2012 Corporate Governance • to approve transactions over 300,000 euros in value except between the companies in the division, and to resolve 57 disagreements between them. Contents

The meetings of the division management groups generally take Exception from the Management place once a week. No material changes took place during the financial year 2012 in the work of the division management Structure groups. Under the Electricity Market Act, Elektrilevi, as the distribution network operator, must ensure, among other things, that the access to customer and business data is separated between Support Services network operators and electricity sellers by procedures and technological solutions. For this purpose Eesti Energia has imp- The support services that are run at Group level to help us achieve lemented exceptions from the management structure, which our business goals are: ensure independence when deciding on investments, conducting • Strategy, procurements and maintaining the confidentiality of information about customer contracts. We also clearly separate Elektrilevi • Human resources and training, from other segments as far as financial reporting is concerned. • Environment safety management, • Real estate and transport management, In the financial year 2012 there were no major changes to our management principles. The focus still remains on increasing • Fire safety, emergency rescue and security services, efficiency, maximising the use of the Group’s resources and • Treasury, accounting and management accounting, on optimal outsourcing of services. Two new members were added to Elektrilevi Management Board in 2012; the name of • IT management and development, the company was changed and the organisation was reformed. • Legal services, Major developments in the information systems supporting the management structure also took place to provide services to • Communications and marketing, various electricity sellers in the light of electricity market opening • Risk management and internal audit. for all retail customers from the beginning of 2013. Eesti Energia Annual Report 2012 Corporate Governance

58 Contents

Agreed Reporting Principles SHAREHOLDER CUSTOMER Fields of operations Countries of operations Opportunitities

Goals of Eesti Energia

Organisation and assets Getting sufficient and timely information is the basis of top- Management Regulations Economic quality management. It is important that reporting is factual principles Regulators environment Competitors Liquidity and forward-looking, allowing the best information to be used Technical capability Creditors Reporting Threats to avoid risks being realised and to turn them instead into com- principles

Supervision petitive advantage. principles

Risk management principles

Eesti Energia’s revenue Client satisfaction

Financial reporting mainly focuses on the consolidated reporting goals in order to improve our reporting. We update the informa- of financial results of the Group’s units. We give out information tion about various management and product levels at different that concerns company operations and that may have an impact intervals, which have been set depending on how urgent a matter on the price of the Eurobond in accordance with the rules of the is. In the financial year 2012 the Group made further investments London Stock Exchange using its information system. We release in the development of independent reporting, which will contribute information that is expected not to impact the Eurobond price to the separation of reporting from current management and through domestic media channels. In both cases, we adhere to responsibility and increase its reliability. Management reporting the Group’s rules for handling insider information before rele- is the task of the Group’s Management Reporting Department. asing the information.

Management reporting is mainly used internally within the Group. There is a distinction between the performance based reporting which focuses on a variety of the Group’s and companies’ results, and the project based reporting which focuses on analysing the application of investments and developments. We constantly Eesti Energia Annual Report 2012 Corporate Governance review the factors that influence the achievement of the agreed 59 Contents

Effective Supervision SHAREHOLDER CUSTOMER Fields of operations Countries of operations Opportunitities

Goals of Eesti Energia

Organisation and assets Eesti Energia Group has implemented multi-level and balanced

Management Regulations Economic supervision system, which focuses on the most serious risks. principles Regulators environment Competitors Liquidity Risk-based supervision allows us to adapt our activities in a Technical capability Creditors Reporting Threats flexible manner and support the achievement of our goals as principles

Supervision much as possible. principles

Risk management principles

Eesti Energia’s revenue Client satisfaction

Audit Committee

Eesti Energia Supervisory Board has appointed the Audit • sufficiency and efficacy of the external audit, Committee primarily from its own members and assigned Audit • development and functioning of the internal audit system, Committee’s rights and duties in accordance with the approved including risk management, procedural rules. Work of the Audit Committee is governed princi- pally by the statutes of the Audit Committee and the Authorised • legality of the company’s activities. Public Accountants Act. The Audit Committee has four members. The number of committee members is decided by Eesti Energia The Committee participates: Supervisory Board, which also nominates the chairman. The primary function of the Committee is to provide consultation to • in ensuring the independence of the external audit, the Supervisory Board in supervision related matters. • in planning and evaluating the internal audit. Meetings of the Audit Committee take place to an agreed The Committee reviews and monitors: schedule, and at least once a quarter. In the financial year 2012,

• adherence to accounting principles, seven ordinary meetings were held. Eesti Energia Annual Report 2012 Corporate Governance • preparation and approval of the financial budget and sta- 60 tements, Contents

The Audit Committee submits a report to the Supervisory Board remuneration may not exceed 50% of the total payment to a twice a year. Interim report was submitted to the Supervisory member of the Supervisory Board. The Chairman of the Audit Board by the Audit Committee on 20 September 2012. The Committee is allowed to receive payment that is 50% higher than Audit Committee’s report is submitted to the Supervisory Board these amounts. Members of the Supervisory Board are not paid before the Supervisory Board approves the annual report. The severance pay or other additional payments beyond those for Audit Committee’s approval is presented on page 70. participation in the work of the Supervisory Board.

The work of the committee is organised by Heikko Mäe, Risk In the financial year 2012 the Audit Committee fulfilled its duties Management and Internal Audit Service Director of Eesti Energia. set forth in procedural rules. Subsidiaries do not have audit committees. The internal audit function of the Group allows the Audit Committee to get any The financial audit is based on the International Standards on information about subsidiaries that it needs for its analyses. Auditing. Under Eesti Energia’s Articles of Association, the financial auditor is appointed by the General Meeting, which confirmed The principles of remuneration for members of the Eesti Energia PwC as the financial auditor for the financial years 2011–2013 Audit Committee are regulated by the State Assets Act. A directive following a competition. Depending on the country where the from the Minister of Finance sets the limit that the remuneration company is located the signatory auditor may be different. Sworn of a member of the Audit Committee cannot exceed 25% of the Auditor Ago Vilu signs the consolidated annual report. remuneration of a member of the Supervisory Board. The total

Members of Audit Committee

Jüri Käo (47) Meelis Atonen (46) Andres Saame (53) Meelis Vikerbau (54) Chairman Member Member Member Date appointed 17 December 2009 17 December 2009 22 September 2011 17 December 2009 Eesti Energia Annual Report 2012 Corporate Governance Expiration of term 16 December 2015 16 December 2015 21 September 2014 16 December 2015 61 Contents

Eesti Energia does not publish the fee paid for the audit service followed if the auditor intends to provide additional services to as we believe this could harm the results of the competition for the companies in the Group. the next period and thus have a negative financial impact on Eesti Energia. In the financial year 2012, PwC did not provide Eesti Energia any services that could have compromised the auditor’s independence. The audit plan for 2012 was approved by the Audit Committee. We find that the audit for 2012 meets all regulatory standards, PwC presented its results in two stages: international standards and other expectations.

1. the results of the interim audit were presented at the mee- ting of the Audit Committee on 20 December 2012, and

2. the results of the final audit, at the meeting of the Audit Participation of Audit Committee Members in Meetings and the Committee on 28 February 2013. Total Remuneration Paid:

Name Participation Total remu- Total remu- Change The auditor’ opinion on the annual report is presented on in meetings neration in neration in page 149. 2011 (€) 2012 (€) Jüri Käo 7 665.00 931.00 40.0% Eesti Energia considers it important to protect the indepen- Meelis Virkebau 7 889.35 1,424.00 60.1% dence of the auditor and avoid any conflicts of interest. The Meelis Atonen 7 354.84 620.97 75.0% Audit Committee has drawn up a set of principles that are to be Andres Saame* 6 88.71 532.26 500.0% Eesti Energia Annual Report 2012 Corporate Governance

62 * Andres Saame was appointed on 1 July 2011 Contents

Internal Audit The handling of insider information in Eesti Energia is subject to requirements concerning insider information as the Group The procedure of internal auditing is based on the internatio- has issued Eurobonds listed on the London Stock Exchange. nal audit standards of the International Professional Practices Proper handling of insider information is important to protect the Framework. The work of the internal audit service covers the interests of bondholders and ensure the fair trading of bonds. entire Group. All bondholders and potential investors must have access to significant information on Eesti Energia and its subsidiaries in a The internal audit department is responsible for the internal timely, consistent manner and on equal conditions, so that they audits. The department reports to the Audit Committee and the all get the same amount of information at the same time and Supervisory Board and its plans and reports are also evaluated in the same manner. and approved by the Eesti Energia Audit Committee. The role of the internal audit department is to contribute to improving the It is inevitable that at certain times, due to their position, some internal control environment, risk management and the business people connected with Eesti Energia will have more information management culture. The internal audit department personnel about the Group than investors and the public. To prevent the are guaranteed full independence and complete access to all misuse of such information, we have established procedures to the data they need. protect insider information.

A system for reporting economic interests has been introduced To our knowledge there were no cases of the misuse of insider where employees who may have conflicts of interest in their work information in the financial year 2012. can declare their own economic interests and confirm their inde- pendence through regular self-assessment. To the knowledge of The management report for the financial year 2012 was submit- Eesti Energia, the members of the Group’s Management Board ted to the Audit Committee on 28 February 2013. The internal and of the Management Boards of subsidiaries had no conflicts audit reports are available to the auditor as well. of interest in the financial year 2012 and no transactions with associated parties dissimilar from market terms.

We consider the following to be associated parties: • entities in which the shareholder of Eesti Energia has a material holding of more than 50%, • Eesti Energia’s associated companies, and • members of the Management Board and Supervisory Board and companies associated with them. Details of transactions with associated parties in the financial year 2012 can be found on page 143 of the financial statements. Eesti Energia Annual Report 2012 Corporate Governance

63 Contents

Risk Management SHAREHOLDER CUSTOMER Fields of operations Countries of operations Opportunitities

Goals of Eesti Energia

Organisation and assets The Group ensures that the management is notified promptly of Management Regulations Economic principles Regulators all highly significant risks and that these risks are reflected in the environment Competitors Liquidity Technical capability Group’s risk profile. In the financial year, the Management Board Creditors Reporting principles Threats ensured that all risks were hedged within a reasonable period. Supervision principles

Risk management principles

Eesti Energia’s revenue Client satisfaction

Risk management is based on the Group’s unified risk mana- gement principles. The process is coordinated by the risk management department. Each company in the Group ensures that risks are managed on an ongoing basis, and that they do not jeopardise achievement of the company’s goals. Taking risks is a normal part of business, but there should be certainty that each Risk management is unit can continue to carry out its functions sustainably, should the risks materialise. In other words, the Group must not incur based on the Group’s losses that exceed the limits of its risk tolerance. unified risk management Risk reports for the whole Group and for each division are sub- principles. mitted to the management groups of the divisions, the Group’s Management Board and the Audit Committee twice a year. If necessary, the risk report is also presented to the Group Super- visory Board. The risk report is a key input in the planning of internal audit activities. Eesti Energia Annual Report 2012 Corporate Governance 64 Contents

For the implemented risk management model, we have distributed risks and our risk readiness into five major categories, and we use the operations and strategies customised for the specific group to manage those risks.

BUSINESS RISKSMARKET RISKS FINANCIAL RISKS OPERATIONAL RISKS PROJECT RISKS

We take those risks to We seek to control and ENVIRONMENTAL We seek to control and We take those risks to increse revenues minimise these risks, RISKS minimise these risks as increase revenue. (except for compliance). as they are an integral they are an integral part part of our business of our business opera- operations. However, HEALTH AND SAFETY tions. taking these risks will RISKS not bring additional revenue to the compa- ny or it is not our core Risks we are not ready activity. to take as taking them would threaten our reputation and would not bring us any revenue.

In each category, we have developed specific risk management tolerance impact, which will allow us to make informed decisions strategies, risk measurement related reporting, and determined about risk hedging, risk taking or refraining from taking risks. the parties within the Group responsible for the management of those risks. To assess the Group’s risk tolerance, we continued We find that in the past financial year we based the risk mana- developing the analysis covering the Group’s cumulative risk gement on our risk appetite and stayed within its limits. Eesti Energia Annual Report 2012 Corporate Governance

65 Contents BUSINESS RISKS

Identification Assessment Management Summary

The identification of these risks The assessment of We use the measures of the compliance The most important change for us in the financial year is performed regularly by our these risks is based process to manage these risks: identifying 2012 was the closer monitoring of the conditions and business managers, product on the levels of changes in regulations, participating in regulations that affect business risk management. managers and legal advisors. uncertainty. the development of such changes, imp- As far as Estonian regulations are concerned, the Numerous business risks are lementing the changes within the orga- most attention was paid to the changes in legislation associated with regulatory nisation, ongoing compliance monitoring, concerning the restrictions applied to the renewable environment, and therefore we identifying cases of non-compliance and energy generation subsidies as well as the Electricity regard them as external risks. working with them. Market Act and the Network Regulation that regulate the electricity market opening for retail customers from 1 January 2013.

MARKET RISKS

Identification Assessment Management Summary

Market risks include the risks The assessment of Risk management strategies vary depen- As the result of the ongoing activities of the Energy associated with electricity, oil these risks is based ding on the risk position and the market. Trading department, the Finance department and the

and CO2 emission allowance on weighing various We also take the goals of the Group into Committee of Financial Risks, a crucial contribution prices as well as exchange rate risk positions against consideration in managing these risks. was made to hedging market risk for future periods and interest rate changes. As we our risk tolerance. One of the essential goals of market risk for us to achieve the expected profit set forth by the add new business activities, we management is profit maximization. management strategy. always assess the probability of additional market risks.

FINANCIAL RISKS

Identification Assessment Management Summary

Financial risks include the credit The assessment of Risk management strategies vary depen- There were no major changes in the management risk and liquidity risk associa- these risks is based ding on the risk position, credit ratings and of these risks in the past financial year. The activi- ted with our risk profile. As we on weighing various the limits applied to us by our creditors. ties of the Finance department and the Committee add new business activities, we risk positions against Earning profit is never a goal of taking of Financial Risks still aimed to assess the risks in always assess the probability of our risk tolerance. these risks. more detail and to find better strategies for a more new additional risks. informed management of these risks. We found it crucial to keep our financing opportunities versatile and competitive and to diversify risks associated with partners. Eesti Energia Annual Report 2012 Corporate Governance 66 Contents

OPERATIONAL RISKS

Identification Assessment Management Summary

Identifying these risks is a regu- Risk assessment Risk management measures include Our risk management focuses on ongoing large-scale lar task of almost all the emp- categories have been control and risk hedging measures on implementation of safety standards and regulations at loyees of our organisation. We unified throughout the levels of various processes. We use all production stages. In addition to ensuring comp- realise that reaching each and the Group and are insurance to hedge major risks that can liance, we manage other risks that can pose a threat to every employee to increase based on the goals affect our risk tolerance. us achieving the goals of the organisation or separate risk management awareness influenced by the risks processes. We also focus on the management of is not easy, so we have created and the extent of their every possible risk that endangers the adequacy of intermediate levels of process influence. performance values and indicators and use insurance owners who play an important to hedge major risks. role in the identification and management of operational risks.

PROJECT RISKS

Identification Assessment Management Summary

Experts who participate in the The assessment of To manage these risks, we mainly use In managing these risks we mainly focused on preparation, development and these risks is partly systematic monitoring and planning of analysing the risks associated with each stage of a implementation of the Group’s covered by the our activities so that we can minimise particular project and taking the impact of the risks new development and invest- assessment of ope- the impact of the risks and increase the into consideration in the assessment of the project ment projects identify these rational risks, but it is profitability of our projects. risk-return analysis. We have also organised regular risks. We have systematically wider as we must take reporting to the Management Board and the Super- implemented individual proces- into consideration all visory Board to provide the management levels with ses and operating principles for the other risk categ- the latest information. that purpose. ories. The categories we use to assess these risks depend on their influence on our goals. Eesti Energia Annual Report 2012 Corporate Governance

67 Contents

Conformity to Principles of Good Corporate Governance

We have evaluated the structure and functioning of the Group’s at the decision of the Minister of Economic Affairs and governance on the basis of the Combined Code on Corporate Communications and the Minister of Finance; Governance of the United Kingdom’s Financial Reporting Council. • the election of members of the Management Board and In the sections above, we described all aspects that are material appointment of the Chairman of the Management Board from the standpoint of corporate governance. takes place at the decision of the Supervisory Board;

Having evaluated the structure and the actual functioning of the • no remuneration committee has been set up, as the Group’s management system, we believe that, in essential part, principles of remuneration of members of the manage- the Group’s arrangements and activities are in conformity with ment bodies of state-owned companies are governed by the Combined Code. Our activities are likewise in conformity with Articles 85 and 86 of the State Assets Act; Estonian law, which provides in more detail for the regulation of • the self-assessment of the activities of the Supervisory the principles laid out in the Combined Code. Board is at variance from the Combined Code, as under Subsection 84 (1) of the State Assets Act, a Supervisory The following legislative non-conformities were found between Board member is obliged to report to the minister who the Combined Code and our activities in the 2012 financial year: appointed him or her; • no nomination committee has been set up, as under Artic- les 80 and 81 of the State Assets Act, the appointment of • chapter D on dialogue with institutional investors and chap- Supervisory Board members takes place at the decision ter E on dialogue with entrepreneurs do not apply to Eesti of the Minister of Economic Affairs and Communications Energia, as it is a state-owned business. and the Minister of Finance; We find that the governance of Eesti Energia complies with the • the regularity of and rules for the re-election of Supervisory Baltic Code recommendations on management, reporting and Board members are at variance from the Combined Code, auditing. as under Articles 80 and 81 of the State Assets Act, the appointment of Supervisory Board members takes place Eesti Energia Annual Report 2012 Corporate Governance

68 Contents

Representation of the Management Board

In the financial year 2012, the Eesti Energia Management Board complied as required with the duties of members of the Management Board, and led the Eesti Energia Group to achieve its targets. The Management Board has regularly reported to the Supervisory Board, has acted within its powers and has submitted all of the information necessary for decision-making to the Supervisory Board. The Management Board is aware of and hereby confirms its responsibility for the preparation of the annual report and for the data therein.

27 February 2013

Chairman of the Management Board Members of the Management Board

Sandor Liive Margus Kaasik

Raine Pajo

Margus Rink Eesti Energia Annual Report 2012 Corporate Governance

69 Contents

Representation of the Audit Committee

The work of the Audit Committee in the financial year 2012 has been based on the statutes of the Committee and its plan of activity. No restrictions have been imposed on our actions, and the Group’s representatives have made all necessary information available to us. Well-defined reporting lines have ensured a fluent flow of necessary information to us. We have informed the members of the Management Board of our opinions and related suggestions based on the work of the Committee.

During the financial year 2012, we have assessed the following points that have an impact on the operations of the Group: • adherence to accounting principles, • the preparation and approval of the financial budget and statements, • the sufficiency and effectiveness of the external audit and assurance of its independence, • the development and functioning of the internal audit system, • the legality of the company’s activities, and • the organisation of the internal audit. he Audit Committee as the body that creates confidence and is responsible for supervision finds that the activities of the Eesti Energia Group do not show any flaws of which the management is unaware or which could have a material impact on the Annual Report for the financial year 2012.

We have submitted our assessments with the activity report to the Supervisory Board of Eesti Energia on 28 February 2013.

Andres Saame Member of the Audit Committee 28 February 2013 Eesti Energia Annual Report 2012 Corporate Governance

70 The notesonpages 71-151areanintegralpartofthese consolidatedfinancia Consolidated IncomeStatement OPERATING PROFIT in million EUR EUR million in Financial expenses income Financial method equity using associates from (loss) Profit Net financial income (-expense) Other operating expenses Impairment Payroll expenses Payroll consumables used and materials Raw Other operating income Revenue Depreciation and amortisation work-in-progress and goods finished of inventories in Change Consolidated financialstatements 1 January -31 December 1 January (380.4) (1 0) . (115 (151.6) (68.0) 100.1 100.1 822.1 (63.3) 2012 (5.2) 46.4 46.4 (0.2) (8.4) 3.2 3.2 9.9 (389.7) (135.6) 168.0 168.0 (95.6) 831.9 831.9 (71.0) 2011 (3.2) 25.6 25.6 (0.9) (7.3) (1.5) 3.9 3.9 4.1 5, 6, 8, 33 8, 6, 5, 5, 6, 33 6, 5, 5, 9,5, 33 l statements. Note 5,26 30 29 28 27 31 31 31 5 PROFIT BEFORE TAX EUR million in Diluted earnings per share (euros) share per (euros) earnings share Diluted per earnings Basic PROFIT ATTRIBUTABLE TO: PROFIT YEAR THE FOR PROFIT Parent Company the of holder Equity Corporate income tax expense Non-controlling interest

1 January -31 December 1 January (17.8) 2012 94.7 94.7 0.14 0.14 0.14 76.9 (0.4) 77.3 163.9 163.9 (14.7) 149.2 149.3 2011 0.32 0.32 0.32 (0.1) Note 5,32 38 38 5 Contents

71 Eesti Energia Annual Report 2012 Consolidated Financial Statements The notesonpages 71-151areanintegralpartofthese consolidatedfinancia Consolidated StatementofComprehensiveIncome YEAR THE FOR PROFIT YEAR THE FOR INCOME TOTAL COMPREHENSIVE ATTRIBUTABLE TO: EUR million in year the for income Other comprehensive subsidiaries foreign to attributable differences translation Currency Parent Company the of holder Equity Non-controlling interest instruments hedging of Revaluation Other comprehensive income

1 January -31 December 1 January 2012 (0.4) 10.8 76.9 88.1 87.7 11.9 (1.1) 186.9 149.2 187.0 2011 (0.1) 34.2 37.7 3.5 l statements. Note 21 Contents

72 Eesti Energia Annual Report 2012 Consolidated Financial Statements The notesonpages 71-151areanintegralpartofthese consolidatedfinancialstatements. Consolidated StatementofFinancialPosition assets Current assets Total sale for held as classified group disposal of Assets Non-current assets ASSETS EUR million in receivables other and Trade Greenhouse gas allowances Inventories instruments financial Derivative associates in Investments assets non-current Total receivables Long-term assets current Total loss or profit through value fair at assets Financial assets financial Available-for-sale instruments financial Derivative assets Intangible equipment and plant Property, equivalents cash and Cash months three than more of maturities with banks at Deposits

2,497.4 1,988.4 2,101.9 395.5 31 December 174.6 2012 48.3 90.0 26.0 58.7 60.1 21.3 1 6 11. 9.2 7.5 1.7 - - 2,036.5 1,769.5 1,658.6 255.2 125.2 2011 28.0 40.9 23.3 10.2 56.1 1 8 11. 13.6 37.9 17.9 4.9 8.1 - 11, 14, 18 11, 13, 14 11, 14, 15 11, 14, 17 11, 13, 4 11, 16 Lisa 5, 9 5, 8 5, 5, 6 5, 35 10 12 12 8 5 sale for held as classified group disposal of Liabilities equity and liabilities Total liabilities Total Current liabilities Current Non-current liabilities Non-current LIABILITIES equity Total Non-controlling interest in million EUR million in Company Parent the of holder equity to attributable reserves and Capital EQUITY Provisions Total current liabilities current Total Provisions Total non-current liabilities non-current Total income Deferred instruments financial Derivative payables other and Trade income Deferred instruments financial Derivate Other payables Borrowings Borrowings Company Parent the of holder equity to attributable reserves and equity Total earnings Retained differences rate exchange Unrealised reserve Hedge capital reserve Statutory premium Share capital Share

1,088.3 1,408.1 2,497.4 1,409.1 894.6 31 December 465.6 193.7 259.8 136.6 621.6 731.4 174.9 2012 23.9 12.9 47.2 1 5 11. 1.0 0.3 2.4 2.4 2.4 1.4 2.1 - 2,036.5 1,236.6 1,235.2 594.5 799.9 201.4 259.8 453.5 434.7 126.4 471.6 176.1 2011 (0.4) 14.4 47.2 31.1 4.0 0.2 9.2 3.5 1.4 0.4 1.5 1.9 11, 22 11, 22 11, 13 11, 13 Lisa 23 23 25 25 35 24 24 21 19 19 19 5 Contents

73 Eesti Energia Annual Report 2012 Consolidated Financial Statements The notesonpages 71-151areanintegralpartofthese consolidatedfinancia Consolidated StatementofCashFlows EUR million in activities investing from flows Cash activities operating from flows Cash flows cash Net activities financing from flows Cash period the of beginning at equivalents cash and Cash 3months than more of maturities with banks at deposits in change Net investments financial long-term from received Dividens acquired cash of net subsidiaries, of Acquisiton investments financial short-term of redemption and sale from Proceeds investments financial short-term of Purchase used being from restricted cash in change Net Cash and cash equivalents of subsidiaries classified as associates as classified subsidiaries of equivalents cash and Cash equivalents cash and cash in increase/(-)decrease Net period the of end at sale for held as equivalents cash and classified Cash equivalents cash and Cash assets intangible and equipment and plant property, of Purchase activities financing in used cash Net Dividends paid capital share the to Contribution interest non-controlling from Proceeds equipment and plant property, of grants from Proceeds equipment and plant property, of sale from Proceeds fees other and connection from Proceeds activities operating from generated cash Net received Interest paid fees loan and Interest Cash generated from operations subsidiaries of disposal from Proceeds repayments Loans granted Loans loans bank of Repayments issued bonds from Proceeds paid tax income Corporate received loans Bank activities investing in used cash Net

1 January -31 December 1 January l statements. (548.9) (499.4) 382.9 185.2 (90.0) (26.2) 150.0 (65.2) (26.4) 297.0 227.4 (16.4) (19.3) 2012 (17.1) 40.9 19.2 19.2 32.8 60.1 (5.2) 15.0 22.1 27.5 2.2 5.0 2.9 1.4 1.1 - - - - (198.6) (417.3) (13.2) (13.2) 161.8 138.1 187.9 181.4 (14.6) (56.1) (31.4) (47.9) (59.1) 2011 (17.1) 23.6 54.8 46.5 40.9 46.1 12.4 (1.0) (4.1) 2.8 6.3 0.3 5.3 5.6 0.7 1.3 - - - 11, 14, 18 11, 14, 18 11, 14, 17 15, 16 9, 36 Note 20 22 33 37 24 16 19 12 9 9 Contents

74 Eesti Energia Annual Report 2012 Consolidated Financial Statements The notesonpages 71-151areanintegralpartofthese consolidatedfinancia Consolidated StatementofChangesinEquity Equity as at 31 December 2012 31 at as December Equity in equity directly recognised company, the of owners to distributions and by contributions Total Contribution to the share capital share the to Contribution Dividends paid Total comprehensive income for the year Other comprehensive income for the year Profit for the year the for Profit Equity as at 31 December 2011 31 at as December Equity company, recognised directly in equity in directly recognised company, the of owners with transactions Total Proceeds from non-controlling interest non-controlling from Proceeds due to the acqusition of asubsidiaries of acqusition the to due interest non-controlling in Increase due to the disposal of subsidiaries of disposal the to due interest non-controlling in Decrease directly indirectly equity recognised company, the of owners to distributions and by contributions Total Other Other comprehensive income for the year Dividends paid Profit for the year the for Profit Total comprehensive income for the year in million EUR EUR million in Equity as at 31 December 2010 31 at as December Equity

capital 150.0 621.6 471.6 150.0 471.6 Share Share ------premium Company the of holder equity to Attributable 259.8 259.8 259.8 Share Share ------l statements. Statutory reserve reserve capital 47.2 47.2 47.2 ------reserves (34.6) Other 10.8 13.9 10.8 37.7 37.7 3.1 ------Retained Retained earnings 360.3 465.6 453.5 (65.2) 149.3 (65.2) (56.1) (56.1) 149.3 (56.1) 77.3 77.3 ------1,235.2 1,408.1 1,104.3 150.0 187.0 (65.2) (56.1) (56.1) 149.3 (56.1) Total 84.8 88.1 10.8 77.3 37.7 - - - controlling interest Non- (0.4) (1.3) (2.6) (0.4) (0.1) (0.1) 2.8 1.0 0.6 1.4 0.7 ------Total equity Total 1,236.6 1,409.1 1,107.1 186.9 150.0 (65.2) (56.1) 149.2 (57.4) (56.1) 84.8 10.8 76.9 87.7 (2.6) 37.7 0.6 0.7 20, 32 20, 20, 32 20, 9, 36 Note 37 Contents

75 Eesti Energia Annual Report 2012 Consolidated Financial Statements otherwise stated. unless presented, periods reporting all for used consistently been have policies reporting and accounting These below. out set are statements financial consolidated these of preparation the in used policies reporting and accounting principal The and reportingpolicies 2. Summaryofprincipalaccounting General MeetingofShareholders. the by issue for authorised and Company Parent the of Board annual report must additionally be approved by the Supervisory 2013. Under the Commercial Code of the Republic of Estonia, the February 27 on Board Management the by issue for horised These consolidated financial statements of the Group were aut listed onLondonStockExchange. AS is the Republic of Estonia. The bonds of Eesti Energia AS are 12915, Republic of Estonia. The sole shareholder of Eesti Energia The registered address of the Parent Company is Laki 24, Tallinn investments inassociateswhichoperateJordan. has Group The Germany. and USA the Finland, Baltics, the in operate Group The services. additional and maintenance sales, with complex energy solutions from heat, electricity and fuel to Eesti Energia is an international company that provides customers and theGroup’sparticipationinassociatedentities. Group) (the subsidiaries its and company) limited public form: information concerning Eesti Energia AS (parent company, legal financial the include 2012 December 31 ended year the for Group Energia Eesti of statements financial consolidated The 1. GeneralInformation Notes totheConsolidatedFinancialStatements - The consolidated financial statements of the Group have been have Group the of statements financial consolidated The 2.1 BasisofPreparation the EuropeanUnion. ting Standards(IFRS)andIFRICInterpretations, as adopted by prepared in accordance with the 1 January 2013, and have not been applied in preparing these preparing in applied been not have and 2013, January 1 after beginning periods annual for effective are interpretations A number of new standards and amendments to standards and (b) Newstandardsandinterpretations notyetadopted material impacttotheGroup. a have to expected be would that 2012 January 1 after or on beginning year financial the for time first the for effective are that interpretations or standards revised or new no are There (a) AdoptionofNeworRevisedStandardsandInterpretations 2.2 ChangesinAccountingPolicyandDisclosures statements aredisclosedinNote4. tions and estimates are significant to the consolidated financial areas involving a higher degree of judgement and where assump The policies. reporting and accounting Group’s the applying of requires management to exercise its judgement in the process also It estimates. accounting critical certain of use the requires The preparation of financial statements in conformity with IFRS instruments atfairvaluethroughprofitandloss. financial derivative (including liabilities and assets financial and the historical cost convention, as modified by available-for-sale The consolidated financial statements have been prepared under International FinancialRepor - - Contents

76 Eesti Energia Annual Report 2012 Consolidated Financial Statements of thegroup,exceptfollowingsetoutbelow: have a significant effect on the consolidated financial statements consolidated financial statements. None of these is expected to • 3. 2. 1. rehensive income rather than profit or loss. There is to be comp- other through losses and gains value fair realised be made at initial recognition, to recognise unrealised and can election irrevocable an investments, equity other all For loss. or profit through value fair at measured be will trading for held are that instruments Equity value. fair at subsequently measured be to are instruments equity All profit orloss. debt instruments are to be measured at fair value through other All features”). loan “basic only has it is, (that only interest and principal of payments represent flows cash the contractual cash flows, and (ii) the asset’s contractual collect to asset the hold to is model business entity’s the only if it is a debt instrument and both (i) the objective of An instrument is subsequently measured at amortised cost cash flowcharacteristicsoftheinstrument. for managing its financial instruments and the contractual The classification depends on the entity’s business model tised cost. The decision is to be made at initial recognition. fair value, and those to be measured subsequently at amor surement categories: those to be measured subsequently at Financial assets are required to be classified into two mea disclosures. Keyfeaturesofthestandardareasfollows: transition add and date effective its change to 2011 ber Decem in and liabilities, financial of measurement and classification the address to 2010 October in amended further was 9 IFRS assets. financial of measurement and replaces those parts of IAS 39 relating to the classification 2009 November in issued 9 IFRS 2015. January 1 from Group the for mandatory be will standard The surement. Mea and Classification : Instruments Financial 9, IFRS - - - - issue, theEuropeanUnionhadnotyetendorsedthisstandard. for statements financial consolidated these of authorisation of date the at As assets. financial Group’s the of surement The adoption of the standard may have an effect on the mea- the on effect an have may standard the of adoption The • 4. • Most of therequirements in IAS 39 for classification and long astheyrepresentareturnoninvestment. as loss, or profit in presented be to are Dividends basis. This election may be made on an instrument-by-instrument no recycling of fair value gains and losses to profit or loss. gements and unconsolidated structured entities. To meet arran joint associates, subsidiaries, in interests entity’s the with associated effects financial and risks nature, the mation that helps financial statement readers to evaluate infor disclose to entities requires 12 IFRS associates”. in “Investments 28 IAS in found currently requirements unconsolidated structured entity. It replaces the disclosure an or associate an arrangement, joint a subsidiary, a in 2014. The standard applies to entities that have an interest standard will be mandatory for the Group from 1 January The Entities. Other in Interest of Disclosure 12, IFRS nition ofsubsidiariesandassociatedcompanies. guidance. The standard may have an effect on the recog- control. This definition is supported by extensive application determine to entities all to applied are criteria same the entities”. IFRS 10 changes the definition of control so that statements” and SIC-12 “Consolidation - special purpose financial separate and “Consolidated 27 IAS in solidation standard replaces all of the guidance on control and con will be mandatory for the Group from 1 January 2014. The IFRS 10, Consolidated Financial Statements. The standard profit orlossinothercomprehensiveincome. risk of financial liabilities designated at fair value through be required to present the effects of changes in own credit unchanged to IFRS 9. The key change is that an entity will forward carried were liabilities financial of measurement - - - Contents

77 Eesti Energia Annual Report 2012 Consolidated Financial Statements • • • suggested title used by IAS 1 has changed to ‘statement to changed has 1 IAS by used title suggested they may be reclassified to profit or loss in the future. The not or whether on based groups, two into income sive entities to separate items presented in other comprehen the Group from 1 January 2013. The amendments require amendments to IAS 1. The standard will be mandatory for Income, Comprehensive Other of Items of Presentation in theparentcompany’sseparatefinancialstatements. ments. The standard may have an effect on the disclosures State Financial Consolidated 10, IFRS by replaced was guidance on control and consolidated financial statements when an entity prepares separate financial statements. The investments in subsidiaries, joint ventures and associates prescribe the accounting and disclosure requirements for January 2014. The objective of the revised standard is to amended standard will be mandatory for the Group from 1 IAS 27 (revised 2011), Separate Financial Statements. The in theconsolidatedfinancialstatements. disclosures the and value fair the in recognised liabilities effect on the estimation of the fair value of the assets and an have may standard The IFRSs. across use for rements requi disclosure and measurement value fair of source by providing a revised definition of fair value and a single dard aims to improve consistency and reduce complexity mandatory for the Group from 1 January 2013. The stan be will standard The Measurement. Value Fair 13, IFRS in theconsolidatedfinancialstatements. disclosed be to information additional requires standard sures of interests in unconsolidated structured entities The material non-controlling interests, and (iv) detailed disclo (iii) summarised financial information of subsidiaries with non-controlling interests in group activities and cash flows, rests in other entities, (ii) extended disclosures on share of controls, jointly controls, or significantly influences its inte entity an whether determining in made assumptions and in a number of areas, including (i) significant judgements disclosures requires standard new the objectives, these ------• • • IFRIC 20, Stripping Costs in the Production Phase of a of Phase Production the in Costs Stripping 20, IFRIC measurement oftransactionsandbalances. on impact no have but statements, financial its of tation Group expects the amended standard to change presen- The income’. comprehensive other and loss or profit of of financialinstruments. recognition and measurement on effect no have will but set-off. The amendment will have an impact on disclosures potential effect of netting arrangements, including rights of or effect the evaluate to statements financial entity’s an amendment requires disclosures that will enable users of The 2013. January 1 from Group the for mandatory be will standard The 7. IFRS to amendments Liabilities, Financial and Assets Financial Disclosures—Offsetting financial position. financial assets and financial liabilities in the statement of The standard may have an effect on the recognition of the systems may be considered equivalent to net settlement. enforceable right of set-off’ and that some gross settlement legally a has ‘currently of meaning the clarifying includes This criteria. offsetting the of some applying in identified inconsistencies address to 32 IAS to guidance lication Group from 1 January 2014. The amendment added app the for mandatory be will standard The 32. IAS to ments Offsetting Financial Assets and Financial Liabilities, amend consolidated financialstatements. the in costs mining the of recognition the on effect an to certain criteria being met. The interpretation may have ‘stripping activity asset’ within non-current assets, subject access to ore, the entity should recognise these costs as a produced. To the extent the benefits represent improved inventory of form the in realised are they that extent the in accordance with the principles of IAS 2, Inventories, to that benefits from the stripping activity are accounted for clarifies interpretation The 2013. January 1 from Group Surface Mine. The interpretation will be mandatory for the - - Contents

78 Eesti Energia Annual Report 2012 Consolidated Financial Statements net assets. non-controlling interest’s proportionate share of the acquiree’s the at or value fair at either basis, acquisition acquisition-by an Group recognises any non-controlling interest in the acquiree on measured initially at their fair values at the acquisition date. The are combination business a in assumed liabilities contingent tion arrangement. Identifiable assets acquired and liabilities and considera contingent a from resulting liability or asset any of the Group. The consideration transferred includes the fair value by issued interests equity the and incurred liabilities the ferred, trans- assets the of values fair the is subsidiary a of acquisition for business combinations. The consideration transferred for the The Group uses the acquisition method of accounting to account date thatcontrolceases. the from de-consolidated are and Group the to transferred is Subsidiaries are fully consolidated from the date on which control the powertogovernfinancialandoperatingpolicies,etc. and dispersion of holdings of other shareholders give the Group size the to relative rights voting Group’s the of size the where circumstances in arise may control De-facto control. de-facto is able to govern the financial and operating policies by virtue of where it does not have more than 50% of the voting power but control of existence assesses also Group The entity. another tible are considered when assessing whether the Group controls of potential voting rights that are currently exercisable or conver more than one half of the voting rights. The existence and effect of shareholding a accompanying generally policies operating over which the Group has the power to govern the financial and entities) purpose special (including entities all are Subsidiaries (a) Subsidiaries 2.3 PreparationofConsolidated Financial Statements impact ontheGroup. material a have to expected be would that effective yet not are There are no other new or revised standards or interpretations that - - fair valueattheacquisitiondatethroughprofitorloss. previously held equity interest in the acquiree is remeasured to If the business combination is achieved in stages, the acquirer’s Acquisition-related costsareexpensedasincurred. contingent considerationamendments. Cost is adjusted to reflect changes in consideration arising from ments in subsidiaries are accounted for at cost less impairment. In the Parent Company’s separate financial statements the invest adopted bytheGroup. adjusted where necessary to ensure consistency with the policies been have subsidiaries of policies accounting The eliminated. are subsidiaries its and Company Parent the between sactions expenses and unrealised profits which arise as a result of tran- lidated on a line-by-line basis. The receivables, liabilities, income, statements of the Parent Company and its subsidiaries are conso In preparation of consolidated financial statements, the financial in profitorloss. net assets of the subsidiary acquired, the difference is recognized assumed. If the consideration is lower than the fair value of the liabilities and acquired assets identifiable net the over interest the consideration transferred and the fair value of non-controlling Goodwill is initially measured as the excess of the aggregate of accounted forwithinequity. is settlement subsequent its and remeasured, not is equity as classified is that consideration Contingent income. rehensive with IAS 39 either in profit or loss or as a change to other comp accordance in recognised is liability or asset an be to deemed changes to the fair value of the contingent consideration that is Subsequent date. acquisition the at value fair at recognized is Group the by transferred be to consideration contingent Any - - - Contents

79 Eesti Energia Annual Report 2012 Consolidated Financial Statements sified toprofit orlosswhereappropriate. previously recognised in other comprehensive income is reclas influence is retained, only a proportionate share of the amounts If the ownership interest in an associate is reduced but significant on acquisition. The Group’s investment in associates includes goodwill identified hensive income (loss) of the investee after the date of acquisition. compre- the of share investor’s the recognise to decreased or initially recognised at cost, and the carrying amount is increased are and method equity the using for accounted are associates in Investments rights. voting the of 50% and 20% between of influence but not control, generally accompanying a shareholding significant has Group the which over entities all are Associates (d) Associates income arereclassifiedtoprofitorloss. mean that amounts previously recognised in other comprehensive may This liabilities. and assets related the of disposed directly had Group the if as for accounted are entity that of respect in amounts previously recognised in other comprehensive income any addition, In asset. financial or venture joint associate, an as interest retained the for accounting subsequently of purposes profit or loss. The fair value is the initial carrying amount for the control is lost, with the change in carrying amount recognised in the when date the at value fair its to remeasured is entity the in interest retained any control have to ceases Group When (c) Disposalofsubsidiaries non-controlling interestsarealsorecordedinequity. subsidiary is recorded in equity. Gains and losses on disposals to relevant share acquired of the carrying value of net assets of the difference between fair value of any consideration paid and the as transactions with the owners in their capacity as owners. The loss of control are accounted for as equity transactions – that is, Transactions with non-controlling interests that do not result in of control (b) Changesinownershipinterestssubsidiarieswithoutchange - investment. When the Group’s share of losses in an associate an in losses of share Group’s the When investment. with a corresponding adjustment to the carrying amount of the sive income is recognised directly in other comprehensive income post-acquisition movements in the associate’s other comprehen of share its and statement income the in recognised is losses or profits post-acquisition associates’ its of share Group’s The Management BoardoftheParentCompany. the is segment, the of results the evaluates and segment the which makes decisions regarding the allocation of resources to sions and analyse the results. The chief operating decision-maker, operating decision-maker in order to make management deci- same manner that reporting is performed internally to the chief the in disclosed is segments operating regarding information For the purpose of segment reporting, operating segments and 2.4 SegmentReporting consistency withthepoliciesadoptedbyGroup. ensure to necessary where adjusted been have associates of policies accounting The transferred. asset the of impairment an of evidence provides transaction the unless eliminated are unrelated investor’s interests in the associates. Unrealised losses of extent the to only statements financial Group’s the in nised recog are associate its and Group the between transactions downstream and upstream from resulting losses and Profits income statement. the in associates” the of profit/loss other of “Share to adjacent of the associate and is carrying value and recognises the amount impairment as the difference between the recoverable amount impaired. If this is the case, the Group calculates the amount of is associate the in investment the that evidence objective any is there whether date reporting each at determines Group The behalf oftheassociate. on payments made or obligations incurred has it unless losses, unsecured receivables, the Group does not recognise any further equals or exceeds its interest in the associate, including any other - - Contents

80 Eesti Energia Annual Report 2012 Consolidated Financial Statements other operatingexpenses. or income operating other as recognised are losses and gains exchange foreign other costs; and income finance as reported the revaluation of borrowings and cash and cash equivalents are recognised in other comprehensive income. Gains and losses from hedging instruments recognised as effective hedges, which are flow cash of revaluation the from losses and gains for except losses from translation are recognised in the income statement, Central Bank does not quote the particular currency. Profits and European the when currency foreign the issuing country the of or on the basis of the official exchange rate of the central bank of the European Central Bank prevailing at the balance sheet date foreign currencies are translated using the official exchange rate income statement. Monetary assets and liabilities denominated in the in reported are transactions such of settlement the from currency is used as the basis. Exchange rate differences resulting the issuing bank central the of Euro the against rate exchange official the currency, particular a quote not does Bank Central European the When date. transaction the at prevailing Bank ral currency using the official exchange rates of the European Cent Foreign currency transactions are translated into the functional Denominated inaForeignCurrency (b) ForeignCurrencyTransactionsandAssetsLiabilities lion, unlessstatedotherwise. The financial statements have been rounded to the nearest mil of the parent company and presentation currency of the Group. statements are presented in euros, that is the functional currency ronment as their functional currency. The consolidated financial Group entities use the currency of their primary economic envi- (a) FunctionalandPresentationCurrency liabilities denominatedinaforeigncurrency 2.5 Foreigncurrencytransactionsandassets - -

(c) ConsolidationofForeignSubsidiaries are usedtotranslatethefinancialstatements: presentation currency of the Group, the following exchange rates the from different is currency functional subsidiary’s the When liabilities are classifiedasnon-current. the Group are considered as current. All other assets and next financial year or during the normal operating cycle of financial year or that are expected to be settled during the next the during is date due whose Liabilities current. as considered are Group the of cycle operating normal the ted to be disposed of during the next financial year or during financial position as current or non-current. Assets expec of statement the in classified are liabilities and Assets or Non-current 2.6 Classification of Assets and Liabilities as Current lationary economy. hyper-inf - a in operates Group the in subsidiaries the of None prevailing atthebalancesheetdate. the subsidiary and are translated using the closing exchange rate of liabilities and assets the as treated are liabilities and assets the of amounts carrying the of value fair the to adjustments Goodwill which arose on the acquisition of a subsidiary and the and subsidiary a of acquisition the on arose which Goodwill • • • assets and liabilities are translated at the closing rate of the rences”. diffe rate exchange “Unrealised item equity separate a as recognised are differences exchange resulting the dates ofthetransactions);and the at rate the at translated are expenses and income case which in dates, transaction the at prevailing rates reasonable approximation of the cumulative effect of the a not is average this (unless period the of rate hange exc- average the at translated are expenses and income European Central Bank at the date of that balance sheet; - -

Contents

81 Eesti Energia Annual Report 2012 Consolidated Financial Statements the asset can be measured reliably. The replaced component or associated with the assets will flow to the Group and the cost of benefits economic future that probable is it when only asset separate a as recognised are or equipment and plant property, and equipment are added to the carrying amount of the item of plant property, of items for incurred expenditures Subsequent period oftime. or when the construction has been suspended for an extended costs is ceased when the construction of the asset is completed ruction of the asset has commenced. Capitalisation of borrowing const the and incurred been have asset the for expenditures and costs borrowing the if capitalised are costs Borrowing ted. (interest) are capitalised in the cost of the item being construc- costs borrowing related the instrument, debt other or loan a with funded is and time of period substantial a for lasts ment When the construction of an item of property, plant and equip- depreciated as separate items of property, plant and equipment. nents with significantly different useful lives, these components are If an item of property, plant and equipment consists of compo- materials, servicesandpayrollexpenses. ted items of property, plant and equipment includes the cost of self-construc the of cost The asset. the of implementation or installation, and other direct expenses related to the acquisition costs, transportation price, purchase the comprises assets rent to the acquisition of the items. The cost of purchased non-cur - attributable directly is that expenditure includes cost Historical losses. impairment any and depreciation accumulated any less presented in the statement of financial position at historical cost are equipment and plant Property, year. one over of life useful expected an with Group the of activities operating the in used Property, plant and equipment (PPE) are tangible items that are 2.7 Property,PlantandEquipment - - useful livesareasfollows: estimated The asset. the of life useful estimated the over basis straight-line a on calculated is equipment and plant property, income statement. Land is not depreciated. Depreciation of other related to ongoing maintenance and repairs are charged to the proportion of the replaced item of PPE is de-recognised. Costs operating income”or“Other operatingexpenses”respectively. “Other under items statement income the in recognised are losses and gains resulting The proceeds. the from subtracted is sold assets the of amount carrying the equipment, and plant property, of sale the from losses and gains the determine To recoverable amount is less than the carrying amount (Note 2.9). the when amount recoverable their to down written are Assets the depreciationchargeoffollowingperiodsalso changes. remaining useful life of the asset is changed, as a result of which the and estimate, accounting the in change a as treated is it estimate, previous the from significantly differs asset an of life ficant changes in development plans. When the estimated useful subsequent expenditures are recognised and in the case of signi when stocktaking, annual the during reviewed are equipment and plant property, of items of lives useful expected The Facilities, including Facilities, Buildings Other property, plant and equipment and plant property, Other including equipment, and Machinery other facilities other lines electricity other machinery and equipment and machinery other equipment plant power equipment transmission 12.5-50 years 30-40 years 10-40 years 5-40 years 3-30 years 7-20 years 3-8 years - Contents

82 Eesti Energia Annual Report 2012 Consolidated Financial Statements operating segment. Goodwill is written down to its recoverable its to down written is Goodwill segment. operating an than larger not units, of group a or unit generating cash a to allocated is Goodwill arose. goodwill the which in bination com business the of synergies the from benefit to expected are that units cash-generating those to made is allocation The it). demands circumstances in change or event an if frequently more (or period reporting each of end the at performed is test goodwill is allocated to cash-generating units and an impairment testing, impairment of purpose the for Instead, amortisation. to subject not is combination business a in acquired Goodwill the acquiree. in interest non-controlling the of value fair the and acquiree net identifiable assets, liabilities and contingent liabilities of the the of value fair net in interest Group’s the over transferred consideration the of excess the represents and ventures joint Goodwill arises on the acquisition of subsidiaries, associates and (a) Goodwill comparing their carrying amount with their recoverable amount. by annually impairment for tested are use for available yet not Intangible assetswithindefiniteusefullivesandintangible goodwill). for (except equipment and plant property, of items impairment indicators, similarly to the testing of impairment for any are there if impairment for tested are assets Intangible straight-line methodovertheusefullifeofasset. the using amortised are goodwill) for (except assets Intangible position onlyifthefollowingconditionsaremet: financial of statement the in recognised are assets Intangible 2.8 IntangibleAssets • • • the assetiscontrolledbyGroup; the costofassetcanbemeasuredreliably. attributable totheassetwillflowGroup; are that benefits economic future the that probable is it - goodwill relating to the entity sold is regarded as part of the of part as regarded is sold entity the to relating goodwill of amount carrying the subsidiary, a of disposal the on losses any impairment losses) (Note 2.9). When determining gains and statement of financial position at the carrying amount (cost less losses on goodwill are not reversed. Goodwill is reported in the amount when this is lower than the carrying amount. Impairment nised asintangibleassetswhen thefollowingcriteriaaremet: identifiable software products controlled by the Group are recog of design the to attributable directly are that costs development Software asset. intangible an as recognised is hardware related the of part integral an not is which software computer Acquired software programsarerecognisedasanexpenseincurred. computer of maintenance ongoing the with associated Costs (d) ComputerSoftware duration ofthecontractualright. expected the over basis straight-line the using amortised are rights Contractual amortisation. accumulated any less cost at carried subsequently are and acquisition on value fair at nised Contractual rights acquired in a business combination are recog (c) ContractualRights costs arenotcapitalised. training and information technical or scientific new collecting for out carried research unity, business new a up starting to related Expenses used. be to expected are products the which talised development costs are amortised over the period during criteria for recognition specified in IAS 38 have been met. Capi the of all if capitalised are costs Development processes. or research findings for the development of specific new products applying in incurred are that costs are costs Development (b) DevelopmentCosts carrying amountofthesubsidiary. • so thatitwillbeavailablefor use; it is technically feasible to complete the software product - - - Contents

83 Eesti Energia Annual Report 2012 Consolidated Financial Statements needed and the Group has a plan to sell the allowances. If the If allowances. the sell to plan a has Group the and needed the greenhouse gas emission allowances more than presumably at purchase cost or at the market price, if the Group has acquired at zero cost. Any additionally purchased allowances are recognised allowances received from the state free of charge are recognised emission gas Greenhouse asset. current as for accounted are Greenhouse gas emission allowances controllable by the Group (f) GreenhouseGasEmissionAllowances 99 years. are depreciated according to the contract period, not exceeding land of use of rights to related costs The assets. intangible as recognised are assets intangible as recognition for criteria the Payments made for rights of superficies and servitudes meeting (e) RightofUseLand lives (not exceeding seven years) using the straight-line method. useful estimated their over amortised are costs development as intangible assets in a subsequent period. Computer software recognised not are expenses as recognised initially are which software for incurred Expenditures incurred. as expense an as ment expenditures that do not meet these criteria are recognised and an appropriate portion of related overheads. Other develop Capitalised software development costs include payroll expenses • • • • • its developmentcanbereliablymeasured. the expenditure attributable to the software product during are available; product software the using and development the leting adequate technical, financial and other resources for comp rate probablefutureeconomicbenefits; it can be demonstrated how the software product will gene there isacapabilitytousethesoftwareproduct; and useit; product software the complete to intends management - - - exploration and evaluation assets include the acquisition of rights of measurement initial the in included are that Expenditures (g) ExplorationandEvaluationAssetsofMineralResources ved, aprovisionissetupforthedifference(Note2.24). quantity of greenhouse gases emitted exceeds allowances recei are present: circumstances following the of more or one when 2.9) (Note impairment for tested are assets evaluation and Exploration using thecostmodel. initial recognition, exploration and evaluation assets are measured and evaluation assets are recognised as intangible assets. After within items of property, plant and equipment, other exploration installation and completion of infrastructure facilities is capitalised property, plant and equipment. Expenditure on the construction, of items or assets intangible as classified are assets evaluation cost. Depending on the nature of the asset, the exploration and at recognised initially are assets evaluation and Exploration of extractingamineralresource. viability economic and feasibility technical the of evaluation to sical studies; exploratory drilling; sampling and activities related to explore; topographical, geological, geochemical and geophy • • • the period for which the Group has the right to explore in decided to discontinue such activities in the specific area; has Group the and resources mineral of quantities viable specific area have not led to the discovery of commercially exploration for and evaluation of mineral resources in the budgeted norplanned; luation of mineral resources in the specific area is neither substantive expenditure on future exploration for and eva in thenearfuture,andisnotexpectedtoberenewed; the specific area has expired during the period or will expire - - - Contents

84 Eesti Energia Annual Report 2012 Consolidated Financial Statements future cash flows generated by the asset to their present value. expected the discounting by calculated is use in value The use. in value its is asset the of amount recoverable the reliably, ned If the fair value of the asset less costs to sell cannot be determi amount. Therecoverableamountisthehigherof asset’s: to their recoverable amount if the latter is lower than the carrying carrying amount may not be recoverable. Assets are written down whenever events or changes in circumstances indicate that the amortisation/depreciation and land are reviewed for impairment but are tested annually for impairment. Assets that are subject to intangible assets not ready to use) are not subject to amortisation Assets that have indefinite useful lives (for example goodwill or 2.9 ImpairmentofNon-financialAssets (Note 2.22). incurred as expenses in recognised is extracted resources ral natural resources that is paid according to the volume of natu- extracted for fee The cost. zero at recognised are charge of free state the from received rights Mining period. realisation rent or non-current intangible assets depending on the expected Mining rights controllable by the Group are accounted for as cur (h) MiningRights • • • ment in the specific area is likely to proceed, the carrying develop- a although that, indicate to exist data sufficient value inuse. fair valuelesscostsofselling;and by sale. or development successful from full in recovered be to amount of the exploration and evaluation asset is unlikely - - of impairmentexist: An impairment test is carried out if any of the following indicators subsequent period. a in reversed be not shall goodwill for recognised loss ment impair- An reversed. wholly or partially be can loss impairment amount is estimated. According to the results of the estimate, the may have decreased. If any such indication exists, the recoverable periods for an asset other than goodwill may no longer exist or is any indication that the impairment loss recognised in the prior At the end of each reporting period, it is assessed whether there income statement. impairment loss is recognised immediately as an expense in the An assets. of groups or assets other by generated inflows cash inflows from continuing use that are largely independent of the cash generates that assets of group identifiable smallest the is unit cash-generating A unit). (cash-generating assets of group Impairment tests are performed either for an individual asset or impairment testisperformed. an impairment, of evidence other any identifies Group the If • • • • • • • the marketvalueofsimilarassetshasdecreased; tion have worsened, and therefore it is likely that the future the general economic environment and the market situa to beterminated. the activities of a certain cash generating unit are planned results of some operating areas are worse than expected; revenue generatedbyassetsislowerthanexpected; riorated; the physical condition of the assets has considerably dete market interestrateshaveincreased; cash flowsgeneratedbyassetswilldecrease; - - Contents

85 Eesti Energia Annual Report 2012 Consolidated Financial Statements market. Loans and receivables are included in current assets, current in included are receivables and Loans market. fixed or determinable payments that are not quoted in an active with assets financial non-derivative are receivables and Loans (c) LoansandReceivables within 12monthsoftheend ofthereportingperiods. the investment matures or management intends to dispose of it other categories. They are included in non-current assets unless either designated in this category or not classified in any of the are that non-derivatives are assets financial Available-for-sale (b) Available-for-saleFinancialAssets instruments. Assets in this category are classified as current assets. hedging effective and designated are they unless loss or profit short term. Derivatives are also recognised at fair value through assets held for trading, acquired for the purpose of selling in the financial are loss or profit through value fair at assets Financial (a) FinancialAssetsatFairValueThroughProfitorLoss nes the classification of its financial assets at initial recognition. which the financial assets were acquired. Management determi for purpose the on depends classification The receivables. and loans and available-for-sale loss, or profit through value fair at The Group classifies its financial assets in the following categories: 2.11.1 Classification 2.11 FinancialAssets the lower of carrying amount and fair value less costs of selling. use, and a sale is considered highly probable. They are stated at continuing through than rather transaction sale a through pally held for sale when their carrying amount is to be recovered princi Non-current assets (or disposal groups) are classified as assets (or DisposalGroups)Held-for-sale 2.10 Non-CurrentAssets - - than threemonths”,“Tradeandotherreceivables”. more of maturities with banks at “Deposits equivalents”, cash and “Cash lines position financial of statement the in included are receivables and loans Group’s The assets. non-current as classified are they case, such In period. reporting of end the after months 12 than more of maturities with those for except 2.11.2 RecognitionandMeasurement income. comprehensive other in recognised is assets financial for-sale The profit/loss from the changes in the fair value of the available- reporting period. comparative and current the in loss or profit through value fair at recognised assets financial on income dividend or income interest any received not has Group The 31). (Note income” “Financial line statement income the in reported is receivables and loans on and assets financial available-for-sale on income the period in which they arise or are incurred (Note 31). Interest in the income statement line “Net financial income (-expense)”in financial assets at fair value through profit or loss are presented the of value fair the in changes from arising losses and Gains carried atamortisedcostusingtheeffectiveinterestmethod. are subsequently carried at fair value. Loans and receivables are sale available-for and loss or profit through value fair at assets substantially all risks and rewards incidental to ownership. Financial expired or have been transferred and the Group has transferred when the rights to receive cash flows from the investments have sed in the income statement. Financial assets are de-recognised initially recognised at fair value, and transaction costs are expen are loss or profit through value fair at carried assets Financial costs. transaction plus value fair at recognised initially are loss Investments which are not carried at fair value through profit or sed or de-recognised using the trade-date accounting method. recogni are assets financial of sales and purchases Regular - - Contents

86 Eesti Energia Annual Report 2012 Consolidated Financial Statements ficulty, default or delinquency in interest or principal payments, dif financial significant experiencing is debtors of group a or Evidence of impairment may include indications that the debtors or groupoffinancialassets thatcanbereliablyestimated. impact on the estimated future cash flows of the financial asset of the asset (a loss event) and that loss event (or events) has an recognition initial the after occurred that events more or one of result a as impairment of evidence objective is there if only financial assets is impaired and impairment losses are incurred of group a or asset financial A impaired. is assets financial of group or asset financial a that evidence objective is there ther whe period reporting each of end the at assesses Group The (a) AssetsCarriedatAmortisedCost 2.13 ImpairmentofFinancialAssets simultaneously. to settle on a net basis or realise the asset and settle the liability right to offset the recognised amounts and there is an intention reported in the balance sheet when there is a legally enforceable amount net the and offset are liabilities and assets Financial 2.12 OffsettingFinancialInstruments quotes ofexchange. the on based is derivatives of value fair The period. reporting each of end the at conditions market the on based are which Group uses several different measures and makes assumptions The analysis. flow cash estimated and intermediaries by quotes listed market prices of instruments that are substantially the same, used. Depending on the type of financial asset, these include the are techniques valuation various assets, financial unquoted of prevailing at the end of the reporting period. To find the fair value The fair values of quoted investments are based on the bid prices - - the probability that they will enter bankruptcy or other financial with defaults. correlate that conditions economic or arrears in changes as a measurable decrease in the estimated future cash flows, such reorganisation, and where observable data indicate that there is exists for available-for-sale financial assets, the cumulative loss – also evidence that the assets are impaired. If any such evidence is cost its below security the of value fair the in decline longed investments classified as available for sale, a significant or pro- equity of case the In above. (a) in to referred criteria the uses Group the securities, debt For impaired. is assets financial of her there is objective evidence that a financial asset or a group whet period reporting each of end the at assesses group The (b) AssetsClassifiedasAvailableforSale consolidated incomestatement. the in recognised is loss impairment recognised previously the of reversal the rating), credit debtor’s the in improvement an as (such recognised was impairment the after occurring event an to objectively related be can decrease the and decreases loss impairment the of amount the period, subsequent a in If, of aninstrument’sfairvalueusingobservablemarketprice. tical expedient, the group may measure impairment on the basis effective interest rate determined under the contract. As a prac current the is loss impairment any measuring for rate discount the rate, interest variable a has investment held-to-maturity or loan a If statement. income consolidated the in recognised is loss the of amount the and reduced is asset the of amount the financial asset’s original effective interest rate. The carrying at discounted incurred) been not have that losses credit future and the present value of estimated future cash flows (excluding measured as the difference between the asset’s carrying amount is loss the of amount the category receivables and loans For - - Contents

87 Eesti Energia Annual Report 2012 Consolidated Financial Statements value of hedging derivatives is classified as a non-current asset reserve reported in equity are disclosed in Note 21. The full fair purposes are disclosed in Note 13. The movements of the hedge The fair values of derivative financial instruments used for hedging in thecashflowsofhedgeditems. changes offsetting in effective highly are transactions hedging on an ongoing basis, of whether the derivatives that are used in and inception hedge at both tests, and assessment its ments docu- also Group The transactions. hedge various undertaking items, and also its risk management objectives and strategy for hedged the and instruments hedging the between relationship the transaction the of inception the at documents Group The risk ofchangesthepricesshaleoilandelectricity. Group uses cash flow hedging instruments in order to hedge the instrument, and if it is, the nature of the item being hedged. The hedging a as designated is derivative the whether on depends period. The method for recognising the resulting gains or losses are re-measured to their fair value at the end of each reporting they recognition initial After into. entered is contract derivative a date the at value fair at recognised initially are Derivatives Activities 2.14 DerivativeFinancialInstrumentsandHedging through theprofitorloss. was recognised in profit or loss, the impairment loss is reversed objectively related to an event occurring after the impairment loss classified as available for sale increases and the increase can be instrument debt a of value fair the period, subsequent a in If, statement. income consolidated the through reversed not are instruments equity on statement income consolidated the in recognised losses Impairment loss. or profit in recognised and previously recognised in profit or loss – is removed from equity current fair value, less any impairment loss on that financial asset measured as the difference between the acquisition cost and the or liability if the remaining maturity of the hedged item is more The effective portion of changes in the fair value of derivatives of value fair the in changes of portion effective The (a) CashFlowHedge held fortradingareclassifiedascurrentassetsorliabilities. maturity of the hedged item is less than 12 months. Derivatives than 12 months and as a current asset or liability if the remaining in theincome statement. expenses operating or income operating other within included are derivatives such of value fair the in changes from arising carried at fair value through profit or loss. The gains and losses Derivatives which are not designated as hedging instruments are (b) DerivativesatFairValueThroughProfitorLoss components. all of acquisition the until loss or profit through changes with value fair at recognised are instruments, derivative of ponents com various from combined are which instruments, Hedging or operatingexpensesintheincomestatement. income operating other as recognised immediately is equity in expected to occur, the cumulative gain or loss that was reported in the income statement. When a forecast transaction is no longer recognised when the forecast transaction is ultimately recognised gain or loss existing in equity at that time remains in equity and is no longer meets the criteria for hedge accounting, any cumulative When a hedging instrument expires or is sold, or when a hedge (for instance when the forecast sale that is hedged takes place). tement in the periods when the hedged item affects profit or loss Amounts accumulated in equity are recycled in the income sta- operating expenses. or income operating other within amount net a as statement the ineffective portion is recognised immediately in the income from loss or gain The income. comprehensive other in nised recog is hedges flow cash as qualify and designated are that - - Contents

88 Eesti Energia Annual Report 2012 Consolidated Financial Statements course ofbusiness,lessapplicable variablesellingexpenses. Net realisable value is the estimated selling price in the ordinary to thepurchase. related directly costs other and transportation on expenditure price, purchase the of consists materials other and raw of cost normal operating capacity), but it excludes borrowing costs. The on (based overheads production related and costs direct other labour, direct materials, raw comprises progress in work and method is used to expense inventories. The cost of finished goods average weighted The value. realisable net or cost of lower the at position financial of statement the in stated are Inventories 2.15 Inventories accounted forasderivativesdescribedabove are treatment, use own for qualify not do that Contracts ment. contracts are evaluated to see if they qualify for own use treat- is the subject of the contracts is readily convertible to cash, the that commodity the or instrument financial another or cash in net it settle to party either permit contracts the of terms the If date arerecognisedasprepaymentsforintangibleassets. Any payments made to the counterparty before the settlement Group. the to transferred are allowances emissions and occurs recognised as intangible assets when settlement of future contract are purchased allowances emissions the sheet; balance the on electricity production purposes are not recognised as derivatives Group’s the for necessary are that allowances emissions gas greenhouse buying for contracts futures any example, For ties. are accounted for as regular purchases of underlying commodi in accordance with the Group’s expected purchase requirements held for the purpose of the receipt of the underlying commodity Derivative contracts that are entered into use and continue to be (c)Derivativesatownuse - business. of course ordinary the in performed services or sold handise merc for customers from due amounts are receivables Trade 2.16 TradeReceivables effective interest rate. the using date maturity the until remaining period the during income interest as recognised is receivable collectible the of value present the and value nominal the between difference The amount. collectible the of value present the at recognised non-current assets. Long-term receivables from customers are as presented are they not, If assets. current as classified are If collection is expected within one year or less, the receivables operating expenses. other against statement income the in credited are off written trade receivables. Subsequent recoveries of amounts previously as uncollectible, it is written off against the allowance account for within other operating expenses. When a receivable is classified statement income the in recognised is loss the of amount the and account, allowance an of use the through reduced is asset the of amount carrying The rate. interest effective original the the present value of estimated future cash flows, discounted at and amount carrying asset’s the between difference the is sion to take account of current conditions. The amount of the provi- using previous years’ experience of impairment which is adjusted rest of the receivables are collectively assessed for impairment, The individually. assessed are receivables Material impaired. is days overdue) are considered indicators that the trade receivable ganisation, and default or delinquency in payments (more than 90 probability that the debtor will enter bankruptcy or financial reor of receivables. Significant financial difficulties of the debtor, the terms original the to according due amounts all collect to able hed when there is objective evidence that the Group will not be establis- is receivables trade of impairment the for provision A losses. impairment any less method, rate interest tive effec the using cost amortised at measured subsequently and value fair at recognised initially are receivables Trade - - -

Contents

89 Eesti Energia Annual Report 2012 Consolidated Financial Statements the effectiveinterestratemethod. at fair value and subsequently measured at amortised cost using as non-current liabilities. Trade payables are initially recognised payment is due within one year or less. If not, they are presented suppliers. Accounts payables are classified as current liabilities if from business of course ordinary the in acquired been have Trade payables are obligations to pay for goods or services that 2.19 TradePayables share capital. that cannot be covered from distributable equity, or to increase for reserve capital. Reserve capital may be used to cover a loss profit of the financial year until the reserve reaches the limit set of allocation to annual statutory reserve capital is 1/20 of the net minimum amount of which is 1/10 of share capital. The amount the allocations, profit net annual from capital reserve statutory up set to Company Parent the requires Code Commercial The the equityline“Unregisteredsharecapital”. not yet registered in the Commercial Registry are recognised in incremental costs. Shares approved at the General Meeting but attributable directly as treated are they that assumption the issuance of shares are recognised as a reduction of equity under the to related directly costs transactions The issued. been have Ordinary shares are included within equity. No preferred shares 2.18 ShareCapitalandStatutoryReserve investments withoriginalmaturitiesof3monthsorless. liquid highly short-term as well as transit in cash and balances account bank hand, on cash include equivalents cash and Cash 2.17 CashandEquivalents is recognised in the income statement over the period of the of period the over statement income the in recognised is cost. Any difference between the cost and the redemption value amortised at measured subsequently are and incurred, costs Borrowings are initially recognised at fair value, net of transaction 2.20 Borrowings period inwhichtheyareincurred. the in loss or profit in recognised are costs borrowing other All is deducted from the borrowing costs eligible for capitalisation. specific borrowings pending their expenditure on qualifying assets of investment temporary the on earned income Investment ready fortheirintendeduseorsale. substantially are assets the as time such until assets, those of cost the to added are sale, or use intended their for ready get to time of period substantial a take necessarily that assets are acquisition, construction or production of qualifying assets, which General and specific borrowing costs directly attributable to the 2.21 BorrowingCosts for atleast12monthsaftertheendofreportingperiod. has an unconditional right to defer the settlement of the liability Borrowings are recognised as current liabilities unless the Group draw-down occurs. the when cost transaction a as treated and deferred is fee the case, this In down. drawn be will facility the of all or some that as transactioncostsoftheloanto the extentthatitis probable Fees paid on the establishment of loan facilities are recognised the assets. of cost the in capitalised are assets qualifying to attributable borrowing using the effective interest method. Borrowing costs Contents

90 Eesti Energia Annual Report 2012 Consolidated Financial Statements from the payment of dividends is accounted for as a liability and additional income tax expense. The corporate income tax arising any without dividends distribute to possible is it circumstances, certain In 21/79. is earnings retained of out paid dividends net the on rate tax the 2008, January 1 From price. transfer the of adjustments and disbursements related non-business guests, entertaining of costs donations, gifts, benefits, fringe dends, divi on paid is tax income Corporate Estonia. in taxed not is entities by earned profit annual the Act, Tax Income the Under (a) CorporateIncomeTaxonDividendsinEstonia 2.22 Taxation - in Estonia do not have any differences between the tax bases of Due to the nature of the taxation system, the entities registered month followingthepaymentofdividends. the of day 10th the on due is liability tax income The paid. are of the actual payment date or the period for which the dividends expense in the period in which dividends are declared, regardless earnings isdisclosedinthenotestofinancialstatement. retained of distribution the accompany would which liability tax sed in the statement of financial position. The maximum income which would arise upon the payment of dividends is not recogni liability tax income contingent A arise. liabilities and assets tax assets and their carrying amounts and hence, no deferred income - Contents

91 Eesti Energia Annual Report 2012 Consolidated Financial Statements (c) IncomeTaxRatesinForeignCountriesWhichthe GroupOperates The followingtaxeshadaneffectontheGroup’sexpenses: (b) OtherTaxesinEstonia the USA the Finland Lithuania Latvia Jordan expenses related non-business on tax income Corporate shale oil on tax Excise oil shale on tax Excise gas natural on tax Excise electricity on tax Excise trucks heavy Tax on tax Land charges utilisation Water shale oil for right extraction for Fee charges Pollution Tax Sales tax income benefit Fringe Unemployment insurance tax tax security Social Tax Income earned by resident legal persons is taxed at an income tax rate of 35% of rate tax income an at taxed is persons legal resident by earned Income 2011 31 24.5% of 26%) December (until rate tax income an at taxed is persons legal resident by earned Income 15% of rate tax income an at taxed is persons legal resident by earned Income 15% of rate tax income an at taxed is persons legal resident by earned Income 14-30% of rate tax income an at taxed is Jordan in persons legal resident by earned Income expenses related 21/79 non-business on 0.15 giga-joule per euros oil shale of kg 1000 15.01 per euros gas m3 natural of 1000 per 23.45 euros electricity of MWh per 4.47 euros quarter per truck per euros –232.60 3.50 annum per land of 0.1–2.5% value taxable on used). 2011 (in water used water 1.59–132.23 ground or 1.59-145.46 ground m3 pond of or 1000 per m3 pond of 1000 per euros euros 2011 extracted) (in shale oil of 1.10 tonne per extracted euros shale oil of tonne per 1.32 euros waste of type and tonnage on based and storage, waste and soil water, ground air, water, the of contamination for Paid and electricity of sales of heat (except and Tallinn of e-commerce) territory the in individuals to services and 2011 goods of 31 sale 1% December Until from employees to paid benefits 21/79 fringe of employees to paid 1.4% payroll the of benefits fringe of and employees to paid payroll 33% the of rate Tax Contents

92 Eesti Energia Annual Report 2012 Consolidated Financial Statements tax liabilities had neither any deferred income tax assets nor deferred income Group the 2011, December 31 and 2012 December 31 at As difference willnotreverseintheforeseeablefuture. temporary the that probable is it and difference temporary the except where the Group can control the timing of the reversal of differences arising on investments in subsidiaries and associates, temporary all on tax income deferred recognises Group The which thetemporarydifferencescanbeutilised. that is probable that future taxable profit will be available against extent the to only recognised are assets tax income Deferred laws effectiveattheendofreportingperiod. tax and rates tax the using settled is liability the or realised is rate that is expected to be enacted in the period when the asset profit nor loss. Deferred income tax is determined using the tax taxable nor accounting neither affects transaction the of time a transaction other than a business combination and that at the for if they arise from initial recognition of assets and liabilities in accounted not is tax income deferred goodwill; of recognition red tax liabilities are not recognised if they arise from the initial Defer- method. liability the under recognised are liabilities and their carrying amounts and tax bases. Deferred income tax assets between arisen have differences temporary when subsidiaries Deferred income tax assets and liabilities are recognised in foreign (d) DeferredIncomeTax of the employment contract (holiday pay or other similar pay) similar other or pay (holiday contract employment the of as social security taxes, benefits related to the temporary halting Short-term employee benefits include wages and salaries as well Short-term EmployeeBenefits 2.23 EmployeeBenefits sation forwork-relatedinjuries (Note2.24). collective agreements and other agreements and the compen- from arising benefits the cover to up set been have Provisions Other EmployeeBenefits the courseofrestructuring(Note2.24). Redundancy provisions are set up for redundancies occurring in end of the reporting period are discounted to their present value. the after months 12 than more due falling Benefits offer. the measured based on the number of employees expected to accept are benefits termination the redundancy, voluntary encourage without possibility of withdrawal. In the case of an offer made to employees current of employment the terminate to plan a has entity the when termination a to committed demonstrably is it these benefits. The Group recognises termination benefits when for exchange in redundancy voluntary accepts employee an whenever or date, retirement normal the before Group the by Termination benefits are payable when employment is terminated Termination Benefits the forecast benefit, from which all paid amounts are deducted. Group will set up a liability (accrued expense) for the amount of the paid, be to expected are benefits which for return in vices ser provided has employee the period reporting the during If the endofperiodduringwhichemployeeworked. in which the employee worked, and other benefits payable after contract will occur within 12 months from the end of the period when it is assumed that the temporary halting of the employment - Contents

93 Eesti Energia Annual Report 2012 Consolidated Financial Statements were setup. they which for expenses the cover to only used are Provisions a consequenceofusetheitemduringparticular period. as or acquired is item the when either incurred obligation, tion restora or removal dismantlement, the to related is provision included within the acquisition cost of an item of PPE when the setting up provisions are charged to operating expenses or are to related costs The estimates. best current reflect to adjusted Provisions are reviewed at the end of each reporting period and criteria aremet). is the case, the provision is recognised (if the other recognition will be needed to settle the class of obligations as a whole. If that vidual item,itmaybeprobablethatsomeoutflowofresources likelihood of an outflow of resources may be small for any indi- by considering the class of obligations as a whole. Although the outflow of resources will be required in settlement is determined an that probability the obligations, similar several are there If not setuptocoverfutureoperatinglosses. are Provisions involved. be may experts independent required, Provisions are recognised based on management’s estimates. If the passageoftimeisrecognisedasaninterestexpense. to due provision the in increase The obligation. the to specific risks the and money of value time the of assessments market to settle the obligation using an interest rate that reflects current are measured at the present value of the expenditures necessary Provisions made. be can amount the of estimate reliable a and an outflow of resources will be required to settle the obligation, constructive obligation as a result of past events, it is probable that Provisions are recognised when the Group has a present legal or 2.24 Provisions - asset. The amount of the reimbursement may not exceed the exceed not may reimbursement the of amount The asset. the obligation. The reimbursement shall be treated as a separate certain that reimbursement will be received if the Group settles virtually is it when, only and when, recognised be shall sement reimbur the party, another by reimbursed be to expected is Where some or all of the expenditure required to settle a provision up theprovisions. gained from the termination of mining operations is used to set experience prior and opinion Experts’ law. by required is it if quarries, and mines of closing the to related costs the cover to up set are operations mining of termination the for Provisions (c) ProvisionsfortheTerminationofMiningOperations performing environmental work are used to set up the provisions. environmental damage. Experts’ opinions and prior experience in the Group has a constructive present obligation to liquidate this that demonstrated have policies environmental past Group’s the when or law by required is this when period reporting the of end the before occurred have that damages environmental cover to recognised are provisions protection Environmental (b) EnvironmentalProtectionProvisions obligation. according to court orders over the estimated period of such an employees former to payments future to related expenditure cover to recognised are injuries work-related for Provisions the estimated number of people eligible for the compensation. costs. The provision is based on the terms of the obligation and these cover to up set is provision a employees, former their to If the Group has the obligation to pay post-employment benefits Injury Compensation (a) ProvisionsforPost-employmentBenefitsandWork-related amount oftheprovision. - Contents

94 Eesti Energia Annual Report 2012 Consolidated Financial Statements quantities and amounts. equal by reduced are 2.8) (Note assets intangible the and sion provi- the both emitted, gases greenhouse the for state the to the Group surrenders the greenhouse gas emission allowances or at the market prices at the end of the reporting period. When the prices fixed in the committed purchase arrangements, if any, allowances; the remaining provision is measured either based on covered by allowances acquired is measured at the cost of these be to expected is that Provision difference. the for up set is provision a state, the from charge of free received allowances emissions. If the quantity of greenhouse gases emitted exceeds gas greenhouse to relating legislation from arising obligations A provision for greenhouse gas emissions is set up to meet the (f) ProvisionsforGreenhouseGasEmissions property, plantandequipment. of cost the within included is assets of costs dismantling the of value present The costs. these incur to obligation constructive present a has Group the that demonstrated has practice past Group’s the if or law by required is assets of dismantling the if assets of dismantling future the to relating costs estimated the The provisions for the dismantling of assets are set up to cover (e) ProvisionfortheDismantlingCostofAssets that plan or announcing its main features to those affected by it. implement to starting by restructuring the out carry will it that the Group has raised a valid expectation among those affected if and plan; the of implementation the of timing the services, of employees who will be compensated for termination of their number approximate and function location, the affected, tions the business or part of a business concerned, the principal loca has announced a restructuring plan, identifying the expenditure, Group the if redundancy employee to related costs the cover to recognised been have benefits termination for Provisions (d) ProvisionforTerminationBenefits - (g) ProvisionsforOnerousContracts amount which is the lower of the cost of fulfilling it (revenues it fulfilling of cost the of lower the is which amount the in up set is provision The it. under received be to expected benefits economic the exceed contract the under obligations luded a contract in which the unavoidable costs of meeting the A provision for onerous contract is set up if the Group has conc or estimated based on past consumption patterns. Additionally, remote counter reading systems based on actual consumption, by read customers, by reported are readings Meter tomers. cus of readings meter of basis the on recognised is Revenue (a) SaleofElectricityandGrid Services when alltheconditionsrelatedtotransactionare evident. been met. The amount of revenue can be measured reliably only have below presented criteria additional the and buyer, the to seller the from transferred been have ownership to incidental rewards and risks significant all Group, the to flow will benefits can be reliably measured and it is probable that future economic tions. Revenue is recognised only when the amount of revenue transac intra-group of elimination the after discounts and tax ordinary course of business. Revenue is shown net of value-added receivable for the sale of goods and provision of services in the or received consideration of value fair the comprises Revenue 2.26 RevenueRecognition contingent liabilities. bilities, are disclosed in the notes to the financial statements as lia circumstances certain in become may which but reliability, sufficient with measured be cannot obligation the of amount resources will be required to settle the obligation, or where the of outflow an that probable not is it where obligations Possible 2.25 ContingentLiabilities any compensationorpenaltiesarisingfromfailuretofulfillit. and contract) the fulfilling of occurred expenses less received - - - - Contents

95 Eesti Energia Annual Report 2012 Consolidated Financial Statements interest incomeisaccounted foronacashbasis. the cases such In uncertain. is interest of receipt the unless rate, interest effective the using recognised is income Interest reliably. measured be can revenue of amount the and Group the to flow will transaction the with associated benefits nomic Interest income is recognised when it is probable that the eco- (d) InterestIncome contracts, underaccruedexpenses. profits, the balance is shown as due to customers on construction recognised plus incurred costs exceed period reporting the of statement of financial position. Where progress billings at the end the in income accrued as recorded is revenue recognised but costs associated with the service contract were incurred. Unbilled contract the which in periods accounting the in and proportion the in recognised is profit and revenue contract method, this Under method. completion of stage the using recognised is Revenue from unfinished and finished but undelivered services (c) RevenueRecognitionUndertheStageofCompletionMethod of financialpositionaslong-termdeferredincome. 32 years. Deferred connection fees are carried in the statement is fees connection of period amortisation The connections. the for acquired assets of lives useful average estimated the over income as recognised and deferred is fees connection from revenue The network. the to them connect to order in built be to infrastructure of costs actual the on based fee connection a When connecting to the electricity network, the clients must pay (b) RecognitionofConnectionFees consumption andsaleofelectricity. ting period, resulting in a more precise estimation of the actual repor the of end the by reported incorrectly or reported not either readings of impact potential the of made are estimates - the righttoreceivepayment. Dividend income is recognised when the Group has established (e) DividendIncome 2.27 GovernmentGrants a straight-line basisovertheleaseterm. terms. Rental income is recognised in the income statement on lease operating under out leased assets to applied are ment The accounting policies for items of property, plant and equip- (b) TheGroupastheLessor by incentivesgrantedthelessor. income statement over the lease term in equal portions, reduced the to charged are leases operating under made Payments (a) TheGroupastheLessee as operatingleases. classified are leases Other leases. finance as classified are see significant risks and rewards incidental to ownership to the les- all transfer which Leases payments. of series or payment a for return in time of period agreed an for asset an use to right the A lease is an agreement whereby the lessor conveys to the lessee 2.28 Leases life ofthedepreciableasset. and the grant is recognised as income over the estimated useful related to the government grant. Related assets are depreciated received as a government grant is recognised as deferred income nised in the statement of financial position at cost. The amount Assets acquiredthroughgovernmentgrantsareinitiallyrecog- the costswhichtheyareintendedtocompensate. nised as income over the periods necessary to match them with Group will comply with all attached conditions. Grants are recog the and received be will grant the that assurance reasonable is there when value, fair at recognised are grants Government - Contents

96 Eesti Energia Annual Report 2012 Consolidated Financial Statements financial risks are managed in accordance with the principles the with accordance in managed are risks financial maintenance of the Group’s risk management system. The Group’s and implementation development, the for responsible is and management risk in engaged is committee auditing and Board internal audit department under the Chairman of the Management risks and minimise the volatility of financial results. The risk and The purpose of financial risk management is to mitigate financial risk exposures. certain hedge to instruments financial derivative uses Group mise adverse effects on the Group’s financial performance. The mini- to seeks and markets financial of unpredictability the on focuses programme management risk overall Group’s The risk. fair value interest rate risk and price risk), credit risk and liquidity and flow cash risk, currency includes (which risk market risks: financial of variety a by accompanied are activities Group’s The 3.1 FinancialRisks 3. FinancialRiskManagement under thecontrolorsignificantinfluenceofstate. the Republic of Estonia, the related parties also include entities to 100% belong AS Energia Eesti of shares the As decisions. operating and financial Group’s the influence significantly or control can who entities and individuals other and AS Energia Eesti of Boards Management and Supervisory the of members ments, the related parties include the associates of the Group, the For the purposes of preparing the consolidated financial state- 2.30 RelatedPartyTransactions announced. and a payable to shareholders at the moment the dividends are earnings retained of reduction a as recognised are Dividends 2.29 DividendDistribution 1. CurrencyRisk (a) MarketRisks in thefinancedepartmentofParentCompany. managed are risks currency and rate interest liquidity, Group’s The level. Group the at Board Management the by established dollars. US in denominated liabilities and assets financial of balances following the had Group the period, reporting of end the At the transactionsconcludedinUSdollars. included transactions these of majority The companies. Group concluded in a currency other than the functional currency of the addition, a few other procurement and other contracts have been dollars that is not hedged with future transactions (Note 13). In US in denominated oil shale of transactions sales the of part the with connection in arises risk currency main Group’s The in eurostoavoidcurrencyrisk. concluded also are contracts export electricity and borrowings long-term All risk. currency of free be to considered are euros rate changes. The financial assets and liabilities denominated in ments or cash flows will fluctuate in the future due to exchange instru financial of value fair the that risk the is risk Currency In million EUR million In Cash and cash equivalents (Note 18) (Note equivalents cash and Cash Trade and other payables other and Trade receivables other and Trade 31 December 2012 15.3 0.2 7.3 2011 8.0 1.8 0.1 - Contents

97 Eesti Energia Annual Report 2012 Consolidated Financial Statements price and the market price in the reporting period. According period. reporting the in price market the and price tion partner undertakes to pay the difference between the fixed price of shale oil. With these transactions, the Group or a transac the in risk the hedge to used are transactions option and Swap the pricelevelofgreenhouse gasemissionallowances. the price difference between the market price of electricity and of electricity through the power exchange Nord Pool depends on each trading hour. The volume of derivative transactions for sales are entered into for the sale of a specific volume of electricity at price of electricity, forward and option contracts are used which emission allowances. To hedge the risk related to changes in the gas greenhouse of purchase and services and goods of sale the to related risks price the hedge to derivatives various uses the purchase of greenhouse gas emission allowances. The Group to and oil, shale and electricity of sale the to related risks price the are services and goods of risks price significant most The 2.1 ThePriceRiskofCommodities at fairvaluethroughprofitorlossareimpactedbypricerisk. of resources used in production, and financial assets recognised provided by the Group under free market conditions, the purchase foreign exchange risk. The sale of goods produced and services changes in the market prices resulting from interest rate risk or than other reasons for future the in fluctuate will instruments Price risk is the risk that the fair value and cash flows of financial 2. PriceRisk Note 18. in disclosed is currencies by equivalents cash and cash The vables andtradeotherpayables. recei other and trade equivalents, cash and cash of balances the of revaluation the of result a as higher/lower) million 0.8 year would have been EUR 2.2 million higher/lower (2011: EUR financial the for profit Group’s the constant), remaining factors other (with lower or higher 13%) 2011: December (31 10% Had the US dollar’s exchange rate at 31 December 2012 been - -

which transactions can be concluded. The volume of transactions minimum price level is set for price risk hedge transactions, after The period. each for separately determined is hedged, being ses. The volume of the underlying assets, the risks of which are transactions is to ensure predefined profits after variable expen to the risk hedging principles of the Group, the goal of hedging that financial expenses increasewheninterest ratesincrease. Group from floating interest rate borrowings and lies in the danger in market interest rates. Cash flow interest rate risk arises to the changes to due future the in fluctuate will flows cash or ments Interest rate risk is the risk that the fair value of financial instru- 3. CashFlowandFairValueInterestRateRisk significant impactontheGroup’snetprofit. had have not would loss or profit through value fair at assets financial of value fair the in change possible reasonably Any of thefund’snetassets. value market the in change a of result a as change may funds loss means that the market value of interest and money market or profit through value fair at assets financial of risk price The or Loss 2.2 ThePriceRiskofFinancialAssetsatFairValueThroughProfit gas emissionallowances. greenhouse of shortage expected the on based year the hout throug- basis dispersed a on purchased is quantity missing the Board, Management the by approved allowances emission gas (Note 13). According to the trading rules concerning greenhouse emissions allowed, the Group uses option and future transactions risk from changes in the price of the amount of greenhouse gas the lower To state. the by charge of free allocated allowances CO The need to buy greenhouse gas emission allowances arises when contract priceoffered. the and period underlying the of horizon time the on depends 2 emissions exceed the number of greenhouse gas emission - Contents

98 Eesti Energia Annual Report 2012 Consolidated Financial Statements of thefinancialrisks. The list of emitents and partners is approved by the committee domestic andforeignfinancialinstruments: following the in deposited be can funds monetary Short-term funds oftheGroup,followingprinciplesarefollowed According to the principles of depositing of available monetary value, and trade and other receivables are exposed to credit risk. sits, available-for-sale financial assets, derivatives with a positive that party’s inability to meet its obligations. Cash in bank depo- of because instrument financial a to party other the by caused loss monetary a incur will Group the that risk the is risk Credit (b) CreditRisk would not have had significant impact on the Group’s net profit. the fair value of financial assets at fair value through profit or loss in change possible reasonably Any Group. the to flows cash for fixed interest rates and they do not result in an interest rate risk Overnight deposits and term deposits have been entered into with effect ontheGroup’sborrowings. that the changes in the market interest rate don’t have material rates (31 December 2011: fixed 98% and floating 2%). Due to the Group’s borrowings were fixed and 1% had floating interest of 99% year-end, financial the at As followed. is 50% over be should portfolio the in borrowings rate interest fixed of share the that principle the risks, rate interest Group’s the managing For risk. rate interest the assess to used is analysis Sensitivity • • • • • • freely negotiablebondsand otherdebtinstruments deposits ofcreditinstitutions; money marketfundsandinterestratefunds; optimal returnconsideringtheprevioustwogoals. ensuring liquidityattherightmoment; preserving capital the followingcriteria: may deposit available funds only in financial instruments meeting According to the Group’s risk management principles, the Group credit committees. special of jurisdiction the in are agreements Special agency. collection a or court the at filed is petition collection a that, paid, the clients will be cut off from the electricity network. After not are they if that warning the with invoices overdue about customers to messages sends system warning and reminder departments specifically set up for this purpose. The automated The unpaid invoices of clients are handled on a daily basis in the diversification. requirements for the maturities of the financial instruments and certain are there addition In euros. in nominated instruments The available monetary funds can be deposited only in financial tions) institu credit (except enterprises other of instruments debt other and Bonds funds market Money international organisations of instruments debt governments, by secured instruments debt instruments, debt other and bond Government institutions credit of bonds and Deposits instrument Financial - Minimal credit rating Aa3/AA- rating credit Minimal A3 ments invest of rating average Minimal Aa3/AA- rating minimal minimal rating A3/A- Criteria - Contents

99 Eesti Energia Annual Report 2012 Consolidated Financial Statements * the Group has issued 6- year international bonds for EUR 300 EUR for bonds international year 6- issued has Group the In order to finance its extensive capital expenditure programme, such asloans,bondsandcommercial papers. risk is managed through the use of various financial instruments Liquidity inflows. cash insufficient to due obligations financial its meet to unable is Group the that risk the is risk Liquidity (c) LiquidityRisk in Note34. disclosed is guarantee financial the about Information 14. and More detailed information on credit risk is disclosed in Notes 12 receivables donotcontainanyimpairedassets. loss beyond the provisions already recorded. The types of other of risk significant no is there that believes management tors, the collection of receivables can be impacted by economic fac- Trade receivables are shown net of impairment losses. Although at theendofreportingperiod: as follows as was risk credit to exposed amount maximum The In million EUR million In Total tradeandother receivableslessprepayments Total amount exposed to credit risk credit to exposed amount Total 11, 3.3, (Notes 13 14) and value positive with Derivatives 34) (Note guarantee financial of amount Nominal 11, 3.3, (Notes 14 15) and assets financial Available-for-sale 11(Note 18) and banks at 3months than lower maturities with deposits term and accounts Bank Trade and other receivables (Notes 11 (Notes 12)* and receivables other and Trade 11 (Notes 17) and months three than more of maturities with banks at Deposits 90.0 90.0 20.4 16.7 - 347.5 160.3 31 December 2012 60.1 122.3 217.6 2011 40.9 22.5 10.2 21.7 - national bonds for EUR 300 million (31 December 2011: 300 2011: December (31 million 300 EUR for bonds national million and (31 December 2011: 0 million EUR) 15-year inter- Group has obtained credit ratings from the agencies Standard agencies the from ratings credit obtained has Group 22). To lower the level of the interest rate on the borrowings, the 144.9 million (31 December 2011: 146.3 million euros) (Note EUR of total a for loans drawn has and 22) (Note EUR) million period, except for borrowings, are shown at their carrying amount. reporting the of end the after months 12 within due payables shown in the table are contractual undiscounted cash flows. The with net payments) by the maturity date of liabilities. All amounts Group’s current and non-current liabilities (including derivatives The following liquidity analysis includes the division between the manage theliquidityofsubsidiaries. to Group the within used are limits account Bank year. a once for a 12-month period and approved by the Supervisory Board prepared are forecasts flow cash The million). 56.0 EUR 2011: December (31 million 151.8 EUR of assets) financial for-sale financial assets at fair value through profit or loss and available- months, three than more of maturities with banks at deposits equivalents, cash and cash (including balances monetary spare had Group the year, financial the of end the at As 22). (Note of EUR 495.0 million (31 December 2011: EUR 595.0 million) As at 31 December 2012, the Group had undrawn loan facilities Moody’s assignedtheratingBaa1. in March 2012, Standard & Poor’s assigned the rating BBB+ and prices and cash flows. For the bond transaction which took place related to the opening of the energy market and the volatility of pressure competitive increased the highlighted agency rating from stable to negative. Among the reasons for the change, the Moody’s changed the outlook of the Group’s credit rating Baa1 2011: BBB+ stable ja Baa1 stable). On the 8th of January 2013 were BBB+ stable and Baa1 stable, respectively (31 December ratings the 2012, December 31 at as Moody’s; and Poor’s & Contents 100 Eesti Energia Annual Report 2012 Consolidated Financial Statements * * * The informationaboutthedividendsthatwillbedeclared andbecomepayableaftertheendofreportingperiodisdinNote19. disclose Division ofliabilitiesbymaturitydateasat31December2011(inmillionEUR): Division ofliabilitiesbymaturitydateasat31December2012(inmillionEUR): Interest expenses havebeen estimatedonthe basisoftheinterest ratesprevailingasat 31December2011. Interest expenses have beenestimatedonthebasisof theinterestratesprevailingasat31December 2012. Total Borrowings (Notes 3.2, 11 3.2, 22)* (Notes and Borrowings Tax liabilities and payables to employees (Note 23) (Note employees to payables and Tax liabilities 11 (Notes 23) and payables other and Trade Potential financial guarantee obligations (Notes 11, (Notes 34) 23 and obligations guarantee financial Potential 11 3.3, 13) (Notes and Derivatives 11 3.2, 22)** (Notes and Borrowings Derivatives (Notes 3.3, 11 3.3, 13) (Notes and Derivatives Trade and other payables (Notes 11 (Notes 23) and payables other and Trade Total Potential financial guarantee obligations (Notes 11, (Notes 34) 23 and obligations guarantee financial Potential 23) (Note employees to payables and Tax liabilities Less than 1year than Less Less than 1year than Less 202.6 129.6 203.8 123.3 16.0 45.7 50.9 25.3 9.2 2.1 2.2 2.1 Between 1 and 5years 1and Between Between 1 and 5years 1and Between 173.3 1 5 . 112 152.4 89.8 20.4 18.2 0.3 0.4 2.4 1.9 - - Later than 5years than Later Later than 5years than Later 784.5 784.5 503 503 ------Total undiscounted undiscounted Total Total undiscounted undiscounted Total cash flows cash cash flows cash 1,161.6 608.8 962.2 130.0 818.1 125.7 50.9 20.4 22.5 45.7 11.1 2.4 Carrying amount Carrying Carrying amount Carrying 436.2 623.1 732.8 130.0 1.9 911. 125.7 50.9 45.7 11.1 2.4 0.1 0.1 Contents 101 Eesti Energia Annual Report 2012 Consolidated Financial Statements to assetsratiowereasfollows(inmillionEUR): 31 December 2011, the net debt to EBITDA ratio and the equity and 2012 December 31 at As assets. total the of 50% least at not exceed EBITDA more than three times and equity should be The Group follows a strategy according to which net debt should of Estonia(Notes19and20). budget are defined by order of the Government of the Republic state the to AS Energia Eesti by payable dividends the year, Ministry of Economic Affairs and Communications. Each financial the through Estonia of Republic the by made are capital share of decreases or increases and distribution dividend concerning Decisions state. the to belong AS Energia Eesti of shares All 3.2 ManagementofEquityRisk In million EUR million In Equity/assets debt/EBITDA Net Assets EBITDA Equity debt Net 3.1, (Notes 11,assets 15, 16, 17 18 and ) financial available-for-sale and loss or profit through value fair at assets financial months, three than more of maturities with banks at deposits equivalents, cash and cash Less: Debt (Notes 3.1, (Notes Debt 11 22) and 732.8 581.0 1,409.1 2,497.4 (151.8) 278.4 2.09 31 December 2012 56% 380.2 436.2 2,036.5 1,236.6 265.1 61% (56.0) 1.43 2011 not materially differ from the carrying amounts reported in the in reported amounts carrying the from differ materially not position as at 31 December 2012 and 31 December 2011 do financial of statement the in cost amortised at reported lities liabi and assets of values fair the that estimates Group The 3.3 FairValue as at31December2012and2011: are measured at fair value by the level in the fair value hierarchy The following tables present the Group’s assets and liabilities that similar financialinstrumentsoftheGroup. tual cash flows at the market interest rate which is available for of financial liabilities is determined by discounting the contrac- value fair the purposes, disclosure For value. fair their to equal and payable less impairments is estimated to be approximately receivable accounts current of amount carrying The 22). (Note bonds of exception the with statements, financial consolidated In million EUR million In Total financial liabilities (Notes 3.1, (Notes 11 13) liabilities and financial Total (Notes 3.1,(Notes 11 13) and hedging for used Derivatives Trading derivatives (Notes 11 (Notes 13) and derivatives Trading Total financial assets (Notes 3.1, (Notes 11, assets 13, financial 14 16)Total and 13 14) (Notes and hedges flow Cash Trading derivatives (Notes 13 14) (Notes and derivatives Trading 11(Notes 16) and loss or profit through value fair at assets Financial observable with inputs inputs with in markets markets in technique technique Valuation (Level 2) (Level 31 December 2012 31 December 18.4 13.5 2.4 3.2 2.3 0.1 1.7 13.5 Total 18.4 2.4 3.2 2.3 0.1 1.7 - Contents 102 Eesti Energia Annual Report 2012 Consolidated Financial Statements the interestrate1.6%. with discounted been have that flows cash future the on based level 3. The fair value of the available-for-sale financial assets is in included is instrument an data, market observable on based rument are observable. If one or more significant inputs are not significant inputs required to establish the fair value of the inst- specific estimates. An instrument is included in level 2 if all the entity on possible as little as rely and available is it where data market observable of use the maximise techniques valuation These techniques. valuation using determined is market active an in traded not are that instruments financial of value fair The assets heldbytheGroupiscurrentbidprice. an arm’s length basis. The quoted market price used for financial represent actual and regularly occurring market transactions on prices those and agency, regulatory or service, pricing group, and regularly available from an exchange, dealer, broker, industry period. A market is regarded as active if quoted prices are readily reporting the of end the at prices market quoted on based is markets active in traded instruments financial of value fair The In million EUR million In Trading derivatives (Notes 13 14) (Notes and derivatives Trading 3.1, (Notes 11, assets 14 15) and financial Available-for-sale 11 (Notes 16) and loss or profit through value fair at assets Financial Cash flow hedges (Notes 13 14) (Notes and hedges flow Cash Total financial assets (Notes 3.1, (Notes 11, assets 13, 14 16) financial Total and Total financial liabilities (Notes 3.1, (Notes 11 13) liabilities and financial Total Derivatives used for hedging (Notes 3.1, (Notes 11 hedging 13) for and used Derivatives conditions. current in growth and sustainability Group’s the ensure to res Management believes that it has adopted all necessary measu - position. financial and activities Group’s the on crisis economic Management cannot completely reliably predict the effect of the long-term threatsinclude: and short continuing major the opinion, management’s In Group’s business. the on crisis economic general related of impact the and crisis liquidity global the of effects the evaluated has Management 3.4 ImpactoftheEconomicCrisisonGroup Valuation technique with with technique Valuation • • inputs observable in in observable inputs reasonable pricetocarryoutinvestmentplans. a with funds of source get to able be not may Group the impairment lossesthanpreviously; larger and receivables Group’s the of impairment to lead may debtors of problems solvency potential the markets (Level 2) (Level markets 10,1 26.6 11.1 1 6 11. 11.1 4.9 - Valuation technique with with technique Valuation inputs not observable in in observable not inputs 31 December 201131 December markets (Level 3) (Level markets 10.2 10.2 - - - - - 11.6 Total 36.8 10.2 10,1 11.1 11.1 4.9

Contents 103 Eesti Energia Annual Report 2012 Consolidated Financial Statements estimates for the cash flows arising from the use of the assets, the of use the from arising flows cash the for estimates When carrying out impairment tests, management uses various recoverable amount of items of property, plant and equipment. As needed, the Group performs impairment tests to determine the Equipment (b) EvaluationoftheRecoverable AmountofProperty,Plantand 11.1 million(2011:EUR9.2million). EUR by change would charge depreciation annual the 10%, by changed were rates depreciation If 6). (Note million) 91.8 EUR (2011: million 110.5 EUR was period reporting the of charge billion (31 December 2011: EUR 1.7 billion), and the depreciation of property, plant and equipment of the Group totalled EUR 2.0 the estimates. As at 31 December 2012, the net book amount than longer been sometimes have lives useful actual the that shown has experience Previous used. be will asset the which ment are based on management’s estimate of the period during The estimated useful lives of items of property, plant and equip and Equipment (a) DeterminationoftheUsefulLivesItemsProperty,Plant on the financial information disclosed in the financial statements. The estimates presented below have the most significant impact of thechange. estimates are recognised in the income statement of the period ultimately differ from these estimates. Changes in management’s best knowledge of current events and actions, actual results may tements. Although these estimates are based on management’s assets and contingent liabilities in the notes to the financial sta of assets and liabilities, and the disclosure of off-balance sheet amounts reported the impact that assumptions and estimates The preparation of the financial statements requires the use of Accounting EstimatesandAssumptions Assumptions 4. CriticalAccountingEstimatesand - - recognised impairment could be partially or wholly reversed. The either additional impairment could be recognised, or previously future, the in changes situation the If electricity. of price sales the and consumption environment, economic general the of inflation and growth rates. The estimates are based on forecasts sales, maintenance, and repairs of assets, as well as estimates for the conditions of future events. When the impairment of inven- general background information and potential assumptions and knowledge and it takes into consideration historical experience, best its on relies management the inventories, valuing When (d) InventoryValuation by thirdparties. covered expenditure and damages, environmental restore to future the in available technology norms, legislative in changes possible of result a as recognised provisions the from differ settlement of the expenditure. The actual expenditure may also amount of future expenditure, inflation rates, and the timing of used to determine the present value of provisions, including the been have estimates and assumptions of number A uncertain. The amount and timing of the settlement of these obligations is 36.8 million (31 December 2011: EUR 45.5 million) (Note 25). employees related and greenhouse gas emissions totalling EUR operations, mining of termination protection, environmental for provisions up set had Group the 2012, December 31 at As (c) RecognitionandRevaluationofProvisions the comparativeperiodisdisclosedinNote6. and period reporting the in incurred losses impairment about Information assets. these for return of rate reasonable a tees guaran services and goods of sale the from derived revenue the limits, expected the within remain services distribution and shale oil electricity, of sale the to related investments and ses expen income, the If assets. these on earned be to return of rate reasonable the determines which Board Competition the producing electricity and distributing electricity are impacted by shale, oil mining for used assets fixed of amounts recoverable - - Contents 104 Eesti Energia Annual Report 2012 Consolidated Financial Statements 90 days as at the end of reporting period will not be collected be not will period reporting of end the at as days 90 periods and how many doubtful receivables overdue more than subsequent in collected be will receivables doubtful many how on experience years’ previous using period reporting each of end the at as adjusted is receivables doubtful of amount The receivables which are 90 days overdue are written down in full. 000 invoices outstanding (including receivables not yet due). All 500 over had Group the period, reporting the of end the at As lity to meet payment terms (delay of payment of over 90 days). major financial difficulties of the debtor and the debtor’s inabi- or bankruptcy the include may loss impairment an indicating remaining receivables are assessed as a group. The circumstances The collection of material receivables is assessed individually. The (g) EvaluationofDoubtfulReceivables (2011: EUR0.5million)(Notes24,26and33). income from connection fees would increase by EUR 0.5 million annual the 10%, by reduced were connections for acquired assets the of lives useful average estimated the If million). 4.6 tion and other service fees totalled EUR 4.7 million (2011: EUR connections, which is 32 years. In the reporting period, connec over the estimated average useful lives of the assets acquired for income as recognised are fees service other and Connection (f) RecognitionofConnectionandOtherServiceFees Note 34. in disclosed is information Further situation. the of knowledge best the on based future the in events possible of conditions the economic and social environment and the assumptions and ment considers historical experience, general information about When estimating contingent assets and liabilities, the manage- (e) ContingentAssetsandLiabilities December 2011:EUR37.9million)(Note10). 2012, the Group had inventories totalling EUR 48.3 million (31 December 31 at As considered. are resale for goods of value realisable net the and potential sales the determined, is tories - The Group has conducted a significant number of future transac (h) EffectivenessTestingofHedgingInstruments 2011: EUR3.5million)(Note12). December (31 million 3.2 EUR totalled receivables doubtful Group’s the 2012, December 31 at As period. subsequent a in million) (Note21). -0.4 EUR 2011: December (31 million 11.5 EUR was reserve statement. As at 31 December 2012, the amount of the hedge the changes in the fair value should be recognised in the income from gain/loss total the ineffective, be to out turn instruments transactions concerning electricity and liquid fuels. When hedging sales future for estimates management’s on based is hedging of effectiveness the of evaluation The income. comprehensive other through accounted are instruments hedging effective of meaning that the gains and losses from changes in the fair value applied, is accounting hedge which to regard with oil shale and tions to hedge the risk of the changes in the prices of electricity - Contents 105 Eesti Energia Annual Report 2012 Consolidated Financial Statements do notformaseparatebusiness segment. other support services, are presented separately, although these different typesofproductsofferedandtheclients: the on based segments operating four into divided is Group management board. The internal management structure of the company’s parent the by evaluated and board management company’s parent the to provided regularly are that presented are measures financial relevant the reporting segment the In ting decision maker, the parent company’s management board. assessment and the allocation of resources by the chief opera- performance system, reporting the for basis the is which ture, segments is based on the Group’s internal management struc- operating into division the purposes, reporting segment For 5. SegmentReporting In addition Corporate Functions, that covers administration and • • • • rican OilGroup). Enefit Outotec Technology OÜ, Enefit U.S., LLC, Enefit Ame Group, Tehnoloogiatööstus Energia Eesti AS, Õlitööstus ness units Eesti Energia Kaevandused Group, Eesti Energia Minerals, Oil, Biofuels (consisting of companies and busi- Valka, OÜPogi); Heat & Power Enefit SIA OÜ, Koostootmisjaam Tabasalu Energia Eesti OÜ, Tuuleelektrijaam Aulepa Energia Eesti Soojusvõrk, Narva AS Oy, Solidus Energiakaubandus, Elektrijaam, Iru Väikekoostootmine, and Taastuvenergia AS, Elektrijaamad Narva Energia Eesti units business and companies of (consisting Generation Heat and Electricity Elektrilevi (consistingofcompanyOÜ); Televõrgu AS); Eesti Energia Võrguehitus AS and until 17 February 2012 Teenindus, ja Müük SIA, Enefit UAB, Enefit Energiamüük, Retail Business (consisting of companies and business units -

without Elektrilevi. The comparative figures have been changed presented been has Business Retail the and segment rating ope an as disclosed separately been has OÜ Elektrilevi which of result a as 2011, year the of statements financial solidated the segment reporting has been changed compared to the con of presentation the statements financial consolidated these In Heat Generationsegment. and Electricity the of part was Soojus Kohtla-Järve AS disposal, its Until 36). (Note completed was Soojus Kohtla-Järve AS in On 8 March 2011 the transaction of the sale of the shareholding segment inthemanagementstructure. regulated business. Mining is not treated as a separate operating a 2012 December 31. until was which segment, Biofuels and tional information has been disclosed on Mining in Minerals, Oil addi statements financial the of users the of benefits the For and saleofpowerequipment. production the and fuels, liquid of production the shale, oil of Estonia. Minerals, Oil, Biofuels covers the mining and processing energy trading in the wholesale market, both inside and outside and stations, heat-and-power combined and power various in heat and electricity of generation the covers Generation Heat and Electricity services. related other and services distribution providing in business regulated involves Elektrilevi Lithuania. and Latvia Estonia, in sold is energy Electrical consumers. end bution services, electrical installation work and other services to distri energy, electrical of sale the covers Business Retail The considered aspartoftheRetailBusinesssegment. was Elektrilevi structure management internal Group’s earlier In market. electricity the of opening full of context the in seller electricity from operator network distribution of independence accordingly. The change was caused due the need to emphasize - - - - Contents 106 Eesti Energia Annual Report 2012 Consolidated Financial Statements On 28 April 2011 the transaction of the sale of 11% sharehol- The Estonian Competition Authority has an established metho- ding in Enefit Jordan B.V. was completed after which the Group dology for calculating prices to be used when approving prices. does not have control over Enefit Jordan B.V. and its subsidiaries When granting approval for these prices, the Estonian Competition (Jordan Oil Shale Energy Company and Attarat Power Company) Authority considers the costs which allow companies to fulfill any more. As the result Enefit Jordan B.V. Group is recognised the legal obligations and conditions attached to their activity as associate (Note 9). licences and ensure justified profitability on invested capital. The Estonian Competition Authority considers the annual ave- On 17 February 2012 the transaction of the sale of the 100% rage residual value of non-current assets plus 5% of non-group shareholding in Televõrgu AS was completed (Note 35 and 36). sales revenue as invested capital. The rate for justified profita- Until its disposal, Televõrgu AS was part of the Retail Business bility is the Company’s weighted average cost of capital (WACC). segment. From 1 of January 2013 Estonian electricity market is completely open and only network fees need to be approved by the Estonian Operating income and expenses are allocated to different seg- Competition Authority. ments based on internal invoicing prepared by business units. The prices for inter-segmental transfers are based on the prices The revenue, expenses, unrealised profits, receivables and lia- approved by the Estonian Competition Authority or are agreed bilities arising as a result of transactions between business units based on market prices. Under the Electricity Market Act of and companies of the same segment have been eliminated. Estonia, until 31. December 2012 the following indicators needed to be approved by the Estonian Competition Authority The business segments have not been aggregated for segment reporting purposes. • the price limit for oil shale sold to Narva Elektrijaamad for the production of heat and electricity • the price limit for electricity sold from Narva Elektrijaamad to the closed market • the weighted average price limit for electricity sold to meet sales obligations • network fees.

107 Segment InformationforReportableSegmentstheYearEnded31December2012 5. SegmentReporting,continued EUR million in 31) (Note income Interest intangibles and assets Total Impairment loss (Notes 6 and 33) 6and (Notes loss Impairment 25) (Note provisions in change and of up Setting 26) (Note revenue Total 31) (Note expenses Interest Corporate income tax (Note 32) (Note tax income Corporate 9) (Note method equity using associates from (loss) Profit 33) 8and 6, (Notes amortisatsion and Depreciation including property, plant and equipment, equipment, and plant property, including including investments in associates (Note 9) (Note associates in investments including Capital expenditure (Notes 6 and 8) 6and (Notes expenditure Capital year the for Profit profit Operating Inter-segment revenue Average number of employees (Note 29) (Note employees of number Average Total liabilities Total 26), including (Note customers external from Revenue services and goods other oil shale shale oil heat services network of sales sales electricity domestic exports electricity

Business 209.6 613.2 278.0 (46.0) 324.0 101.7 Retail 70.2 62.8 (0.3) (0.9) (0.4) 12.5 13.6 5.6 0.9 0.1 ------Elektrilevi 488.1 226.8 774.9 220.6 (40.8) 735.4 817.3 (10.6) 231.7 34.8 99.6 45.4 (4.9) 6.2 ------Heat Generation Electricity and and Electricity (282.5) 995.3 988.1 284.8 469.3 186.8 (26.0) 567.4 (40.9) (63.3) 833.1 (27.9) 99.2 34.9 35.5 (8.0) 12.6 11.1 3.2 4.6 5.5 0.7 - - - Minerals, Oil, Biofuels Oil, Minerals, 4,648.0 (169.9) 506.0 300.0 342.7 (28.7) 130.1 (12.8) 1.6 411. 111.4 Total 23.6 10.2 28.7 (8.9) (0.9) 20.1 77.8 42.7 1.6 ------of which Mining which of 3,120.2 (171.3) 158.4 203.4 (24.9) 1 3 . 115 96.9 28.7 (0.2) (0.9) 32.1 31.3 (3.1) 3.4 2.4 1.6 1.5 1.9 ------Corporate Functions 1,711.4 506.0 758.9 (29.9) (30.4) 30.3 29.5 79.7 (3.3) 51.0 (5.1) 0.2 0.4 0.4 1.8 ------Eliminations (1,591.9) (1,139.0) (533.2) 533.2 (42.3) (47.8) 36.6 72.2 (2.0) (0.9) 15.7 0.0 ------1,088.3 7,572.6 2,497.4 2,047.1 15.0) . (115 308.8 233.2 (63.3) 100.1 822.1 822.1 513.4 (17.8) Total 40.4 35.5 76.9 28.7 (0.2) 77.8 21.3 (7.9) 97.7 3.2 5.0 - Contents 108 Eesti Energia Annual Report 2012 Consolidated Financial Statements Segment InformationforReportableSegmentstheYearended31December2011 5. SegmentReporting,continued EUR million in year the for Profit 31) (Note income Interest profit Operating equity method (Note 9) (Note method equity using associates from (loss) Profit Corporate income tax (Note 32) (Note tax income Corporate Setting up of and change in provisions (Note 25) (Note provisions in change and of up Setting 31) (Note expenses Interest 8) 6and (Notes 9) (Note Capital expenditure associates in investments including (Notes 6, 8 and 33) 8and 6, (Notes Depreciation and amortisatsion 26) (Note revenue Total assets Total Impairment loss (Notes 6 and 33) 6and (Notes loss Impairment Average number of employees (Note 29) (Note employees of number Average intangibles and Inter-segment revenue Total liabilities Total including property, plant and equipment, equipment, and plant property, including 26), including (Note customers external from Revenue services and goods other heat shale oil services network of sales sales electricity domestic exports electricity oil shale

Business 655.0 202.4 270.4 318.2 Retail (47.8) 88.7 57.4 54.1 (2.9) (6.7) (4.6) 13.9 (1.0) (1.2) 1.2 1.5 0.1 ------Elektrilevi 708.0 456.1 188.3 198.5 816.7 194.3 676.7 (10.6) (37.7) 73.3 (4.2) 27.9 17.3 6.0 ------Heat Generation Electricity and and Electricity 1,343.5 (272.1) 368.4 229.0 791.2 (26.8) 130.0 652.7 218.5 (18.2) 501.1 (10.1) 38.2 79.9 16.6 14.6 10.4 52.1 37.4 (1.5) 6.8 0.5 0.1 - - Minerals, Oil, Biofuels Oil, Minerals, 4,455.2 (187.6) 248.2 330.4 325.2 415.3 (24.6) 197.8 137.6 Total 60.9 60.9 32.8 70.9 43.9 (3.6) 12.9 (1.4) (5.1) 0.7 0.1 - - - - - of which Mining which of 3,131.8 (178.2) (22.0) 138.4 213.3 90.2 90.9 32.8 13.8 (2.9) 35.1 31.7 17.5 (2.1) 2.3 0.7 1.9 1.4 ------Corporate Functions 1,293.3 452.7 314.9 (18.9) (19.4) 38.4 74.0 (2.9) 19.5 (3.5) 37.1 0.6 0.6 4.9 ------Eliminations (1,260.0) (782.9) (530.6) 530.6 (48.4) (33.4) (3.2) 15.3 47.0 1 8 11. (0.1) ------2,036.5 7,585.3 1,714.7 799.9 204.9 168.0 332.4 507.8 149.2 (95.6) 831.9 831.9 (14.7) Total 60.9 32.8 23.3 92.3 (0.9) 15.3 71.2 37.4 (7.5) (1.5) 4.0 - Contents 109 Eesti Energia Annual Report 2012 Consolidated Financial Statements * Recognisedasassets ofCorporateFunctions. have arisenfromtheoperationsofsegment. that expenses and revenues all segment a of profit operating and segment the of financing the or operations the from risen have that liabilities the segment a of liabilities the segment, the of operations the in used assets the include segment a of assets The statements. financial consolidated the of that with consistent manner a in measured are segments reportable of profit operating and liabilities assets, the for company parent the of board management the to provided amounts The eliminations ofrevenue(2011:EUR15.7million). Business to Elektrilevi, which accounted of EUR 18.6 million of total million) and the sale of construction and repair services by Retail 274.9 million, of total eliminations of revenue (2011: EUR 265,4 Electricity and Heat Generation to Retail, which accounted for EUR revenue (2011: EUR 147.1 million); and the sale of electricity by which accounted for EUR 134.9 million, of total eliminations of Generation, Heat and Electricity to Biofuels and Oil Minerals, by shale oil of sale the with connection in principally sactions, tran inter-segment to relate revenue sales of Eliminations 5. SegmentReporting,continued -

Consolidated AssetsasFollows: Reportable Segments’AssetsareReconciledtoTotal Consolidated LiabilitiesasFollows: Reportable Segments’LiabilitiesareReconciledtoTotal capitalised duringthereportingperiodisdislosedinNote31. costs borrowing the of amount The million). 22.2 EUR 2011: intagible assets in the amount of EUR 45.2 million (31 December the Group level in the cost of property, plant and equipment and on capitalised costs borrowing the include eliminations Other in million EUR EUR million in in million EUR EUR million in financial position financial of statement consolidated per assets Total Other Other eliminations of financial position financial of statement consolidated per liabilities Total segments reportable for liabilities Segment segments reportable for assets Segment Unrealised profit/loss and other eliminations other and profit/loss Unrealised Intra-segment payables Intra-segment Functions Corporate of Liabilities subsidiaries* in investments of amount carrying The Functions Corporate of Assets Intra-segment receivables Intra-segment Total eliminations Total eliminations Eliminations: Eliminations: (1,591.9) (1,139.0) (1,128.0) (1,128.7) 1,088.3 2,497.4 1,468.4 2,377.9 (488.2) 1,711.4 758.9 31 December 31 December 2012 2012 1.0) (11. 25.0 (1,260.0) 2,036.5 2,003.2 1,293.3 (782.9) (489.9) 1,130.1 (776.5) (775.1) 799.9 452.7 2011 2011 (7.8) 6.4

Contents

110 Eesti Energia Annual Report 2012 Consolidated Financial Statements * External RevenuebyLocationofClients and shaleoilproduction. where it has started a development project for oil shale mining huania. In 2011, the Group acquired assets in the USA (Note 37), Lit and Latvia Estonia, are regions geographical main Group’s The countries. other in sold also are services and goods other some and electricity but Estonia, in mostly operates Group The sold isdisclosedinNote26. Additional information about revenues from products and services Total ConsolidatedOperatingProfitasFollows: Reportable Segments’OperatingProfitsareReconciledto 5. SegmentReporting,continued in million EUR EUR million in in million EUR EUR million in Other thanfinancial instrumentsandinvestmentsinassociates. Other Other countries Nordic countries Latvia Lithuania Estonia segments reportable for profits operating Segment Total external revenue (Note 26) (Note revenue external Total Other eliminations Functions Corporate of profit Operating income statement consolidated per profit operating Total Eliminations: 1 January -31 December 1 January -31 December 1 January 822.1 642.5 100.1 107.2 2012 2012 44.5 75.6 (2.0) 50.1 (5.1) 9.4 168.0 831.9 675.0 174.1 2011 2011 48.4 (3.2) (2.9) 74.7 27.5 6.3 - Allocation ofNon-currentAssetsbyLocation* amounted to10%ormoreoftheGroup’srevenues. transactions from revenues whose clients any period parable The Group did not have in the reporting period nor in the com - in million EUR EUR million in Total (Notes 6 and 8) 6and (Notes Total Germany Latvia USA Estonia 2,047.1 1,994.8 31 December 2012 10.0 37.5 4.8 1,672.8 1,714.7 2011 33.7 8.2 - Contents

111 Eesti Energia Annual Report 2012 Consolidated Financial Statements 6. Property,PlantandEquipment Property, plant and equipment as at 31 December 2011 31 at as December equipment and plant Property, 2011 -31 December 1January Movements, Property, plant and equipment as at 31 December 2010 31 at as December equipment and plant Property, EUR million in as at 31 December 2011 5) 4and 31 at (Notes as December equipment and plant property, Total Prepayments progress in Construction amount book Net Acquisition of subsidiary (Note 37) (Note subsidiary of Acquisition Accumulated depreciation Cost Impairment loss (Notes 4, 5 and 33) 4, 5and (Notes loss Impairment 33) 4, 5and (Notes charge Depreciation 5) (Note Purchases progress in Construction 2011 -31 December 1January movements, Total differencies Exchange 35) (Note sale for held as Classified 9) (Note subsidiary of Disposal Disposals at 31 December 2010 (Notes 4 and 5) 4and 2010 (Notes 31at December as equipment and plant property, Total amount book Net Accumulated depreciation Cost Prepayments

42.2 42.2 (0.8) 41.2 41.2 Land 42.2 41.2 0.2 0.2 1.0 1.0 1.5 0.1 ------Buildings (84.8) 150.6 149.0 (87.8) (0.9) 64.3 64.3 62.8 62.8 (0.3) (4.3) 65.0 64.1 0.3 0.3 3.4 0.7 1.3 ------Facilities (297.0) (311.6) 756.8 756.8 445.2 445.2 422.6 (22.2) 719.5 444.6 478.5 33.9 33.9 33.3 33.3 (0.2) (2.2) 21.8 57.6 0.8 0.8 0.3 0.3 0.1 - - - Machinery and equipment and Machinery 1,289.2 1,201.0 1,073.2 (600.4) (627.9) 600.6 600.6 404.9 404.9 331.0 331.0 355.7 661.3 (65.1) 742.2 98.8 98.8 56.2 56.2 42.8 (8.0) (0.4) (1.5) 1.1 - - Other (0.2) (4.3) (4.3) 0.2 0.2 0.6 0.6 0.6 0.6 4.9 4.9 0.6 0.6 ------(1,031.6) 2,243.7 1,658.6 1,293.6 1,129.0 (986.6) 1,212.1 2,115.6 365.0 365.0 466.3 466.3 390.3 390.3 (10.2) (91.8) 121.4 56.2 56.2 43.2 (0.2) Total (1.5) (1.5) 0.2 0.2 3.7 Contents

112 Eesti Energia Annual Report 2012 Consolidated Financial Statements Power Plant and discount rate of 11% for Narva Power Plant. Power Narva for 11% of rate discount and Plant Power Iru for 10% of rate discount the using discounted were flows cash future expected The assets. the of use in value the on based determined was amount recoverable The nised. recog was Plant Power Narva of million 58.3 EUR and Plant Power Iru of million 2.8 EUR of loss impairment an test the of results the to According impairment. for tested were Plant Power Narva and Plant Power Iru of assets the 2012 In production capacitiesofthoseassets. the on demand decreased the by caused was impairment The 10%. of rate discount the using discounted were flows cash future expected The assets. the of use in value the on based Plant was recognised. The recoverable amount was determined 1.1 million of Iru Power Plant and EUR 0.4 million of Baltic Power EUR of loss impairment an test the of results the to According impairment. for tested were plant power Baltic the of 12 and 10 9, Units Energy and Plant Power Iru of assets the 2011 In 6. Property,PlantandEquipment,continued Materiaalne põhivara seisuga 31. detsember 2012 miljonites eurodes miljonites Movements, 1 January - 31 December 2012 -31 December 1January Movements, 5) 2012 4and (Notes 31 at as December equipment and plant property, Total Prepayments progress in Construction amount book Net Cost Accumulated depreciation Disposals 5) (Note Purchases Total movements, 1 January - 31 December 2012 -31 December 1January movements, Total Impairment loss (Notes 4, 5 and 33) 4, 5and (Notes loss Impairment 33) 4, 5and (Notes charge Depreciation

Land (0.8) 42.7 42.7 42.7 0.5 0.5 1.3 ------

Buildings (95.9) 157.1 (2.0) (0.8) (5.0) 61.2 (5.1) 62.1 8.9 8.9 0.9 0.9 - environmental charges have been increased by the evaluation of ges are based on rates fixed by the law and from the year 2016 moment of calculation. Until the year 2015 environmental char the at market the of curve forward using found are allowances CO and electricity assets, the of value the Assessing shale haveincreasedsignificantly. oil of usage and mining the to related rates tax environmental longer supported from the beginning of 2013. In addition, several no is Plant Power Balti in generation electricity for biomass of no longer received three CO by European Commission subject to which the power plants will caused by free reasons. The most import of these is the decision mainly was assets Plant Power Narva of impairment The written downofEUR2.2milliontothefairvalueassets. In addition, the value of Painkula co-generation plant project was it has to be purchased from the market or at auctions. Also, use Facilities (321.5) 493.8 (26.0) 815.3 530.7 52.2 52.2 36.9 36.9 79.7 (1.5) - - Machinery and equipment and Machinery 2 emission allowances in 2013 and 1,455.6 (726.7) 1,351.9 278.7 278.7 728.9 (56.8) 581.4 414.8 (79.1) (0.2) 41.6 Other (0.3) (4.5) 0.4 0.4 5.5 5.5 0.7 1.0 1.0 - - - - 2 emission (1,148.6) 2,476.2 1,988.4 1,327.6 (1 5) . (110 329.8 329.8 505.4 505.4 (63.3) 619.2 Total 41.6 (1.8) -

Contents

113 Eesti Energia Annual Report 2012 Consolidated Financial Statements 7. OperatingLease (Note 31). capitalisation for eligible costs borrowing of amount the mine The capitalisation rate of 4.7% (2011: 4.6%) was used to deter demand ontheproductioncapacitiesofthoseassets. The impairment of the other assets was caused by the decreased years costshavebeenincreasedbyexpectedinflation. following the for and budget approved the on based are 2013 the management. Operating costs of the power plant for the year 6. Property,PlantandEquipment,continued Rental and maintenance income maintenance and Rental in million EUR million in Rental expense 26) (Note income maintenance and rental Total 30) (Note expense rental Total

Buildings Facilities Buildings vehicles Transport equipment and machinery Other of which contingent rent contingent which of

1 January -31 December 1 January 2012 3.5 0.8 1.3 0.6 1.2 1.3 1.6 0.1

2011 4.4 1.9 0.6 0.6 0.9 2.9 1.2 0.7 - operating leaseterms Buildings andfacilitiesleasedoutunder mostly cancellablewithshort-term notice. are lessee, is Group the where agreements, lease Operating lease agreement.Theagreementwillexpirein 2033. non-cancellable under out leased been has terminal oil The Operating LeaseContractsbyDueDates Future MinimumLeaseReceivablesUnderNon-cancellable Note 7. in disclosed is assets lease from Income out. leased asset the of part the of basis the on calculated been have tion deprecia and Cost income. rental earning for partly and operations own Group’s the in used partly are assets Leased income rental Total Rental income EUR million in EUR million in > 5years 1 -5years < 1year amount book Net charge Depreciation year financial the of beginning the at depreciation Accumulated Cost

1 January -31 December 1 January 31 December 2012 2012 (0.2) (2.7) 15.4 1 6 11. 2.5 0.8 3.0 5.4 2011 2011 (0.2) (2.5) 19.5 14.9 2.6 5.3 0.9 3.7 -

Contents

114 Eesti Energia Annual Report 2012 Consolidated Financial Statements Intangible Non-currentAssets 8. IntangibleAssets EUR million in Intangible assets as at 31 December 2010 31 at as December assets Intangible Movements, 1 January - 31 December 2011 -31 December 1January Movements, Intangible assets as at 31 December 2011 31 at as December assets Intangible 2012 31 at as December assets Intangible Movements, 1 January - 31 December 2012 -31 December 1January Movements, Accumulated amortisation Cost Net book amount amount book Net Intangible assets not yet available for use for available yet not assets Intangible Purchases 2010 5) (Note 31 at as December assets intangible Total Acquisition of subsidiaries (Note 37) (Note subsidiaries of Acquisition Amortisation charge (Notes 5 and 33) 5and (Notes charge Amortisation of associates (Note 9) (Note associates of as assets intangible Classified Classified as held for sale (Note 35) (Note sale for held as Classified Accumulated amortisation Cost differencies Exchange Net book amount amount book Net Total movements, 1 January - 31 December 2011 -31 December 1January movements, Total Intangible assets not yet available for use for available yet not assets Intangible Total intangible assets as at 31 December 2011 5) 31 at (Note as December assets intangible Total Amortisation charge (Notes 5 and 33) 5and (Notes charge Amortisation Purchases Total intangible assets as at 31 December 2012 5) (Note 31 at as December assets intangible Total Exchange differencies Exchange Total movements, 1 January - 31 December 2012 -31 December 1January movements, Total Intangible assets not yet available for use for available yet not assets Intangible Net book amount amount book Net Accumulated amortisation Cost Goodwill 2.5 2.5 2.5 2.5 1.0 2.5 3.5 3.5 1.0 3.5 3.5 3.5 3.5 ------Computer software (3.5) (2.1) 18.8 18.9 (4.5) 23.6 16.3 17.3 13.2 14.3 21.8 (5.5) (9.3) 6.3 6.3 5.0 5.0 4.1 4.6 1.5 2.5 4.6 0.1 - - - - - Right of use of land (0.2) (0.2) (0.2) (0.5) (0.5) 2.2 2.2 2.4 2.2 2.0 2.0 2.0 2.0 2.5 2.5 ------assets for mineral mineral for assets and evaluation evaluation and Exploration resources (0.2) (2.7) (0.3) 2.9 2.9 1.1 1.1 2.8 3.9 3.9 3.9 3.1 1.1 1.1 1.1 1.1 ------Contractual rights 27.9 (0.1) (0.1) (0.1) 30.5 (0.3) (0.6) 30.4 30.7 30.4 30.4 30.7 30.7 0.2 0.2 0.3 0.3 2.7 0.1 0.3 0.2 ------Total 28.9 28.9 10.0 (3.8) 12.5 (2.4) (2.7) (0.1) 32.8 23.3 (0.9) 58.7 (4.5) 53.6 56.1 63.9 (6.0) 59.6 13.2 (9.8) 54.1 8.0 8.0 2.5 2.5 8.0 2.6 2.5 4.6 Contents

115 Eesti Energia Annual Report 2012 Consolidated Financial Statements during these tests. identified was impairment No impairment. for reviewed were assets The 37). (Note resources mineral of assets evaluation ted in the state of Utah, USA are recognised as exploration and loca mine shale oil an of exploration the to related costs The Resources Mineral of Assets and Evaluation Exploration Key AssumptionsUsedinDeterminingValueUse tests. these during identified was impairment No level. risk its and Company the of operations of area of basis the on determined cost of capital (WACC) is used as the discount rate, which is being forecasts of the Estonian energy balance. The weighted average the and data historical on based are forecasts flow cash The an investment horizon regularly used in the electricity business. on based is periods the of selection The years. 20 next the to their value in use and using the cash flow forecast prepared up The recoverable amount of assets is determined on the basis of units cash-generating by goodwill of Allocation Goodwill 8. IntangibleAssets,continued

EUR million in December 2011 December 31 at amount Carrying 2012 December 31 at amount Carrying Valka co-generation plant Mining Discount rate Paide co-generation plant

Mining 2.5 2.5 co-generation Paide plant 10.0% 10.0% 1 % 0 11. 0.6 0.6 31 December 2012

co-generation

10.0% 10.0% 1 % 0 11. Valka 2011 plant 0.4 0.4 - Contractual Rights the evaluation of the assets. No indications were identified, that useful life is 20 years. Management has evaluated the need for estimated which 37), (Note million 27.7 EUR of amount the in ains the value of mining rights acquired in the state of Utah, USA The amount of contractual rights acquired in theyear 2011 cont were surrendedtostate. allowances emission gas greenhouse of tonnes) 12,373,576 (2011: 0 tonnes) were sold. In 2012, 12,304,855 tonnes (2011: tonnes 3,454,141 and acquired were allowances gas house green of tonnes) 3,533,000 (2011: tonnes 2,109,141 2012, In assets. current intangible as recognised is acqui red allowances gas greenhouse of value The Intangible CurrentAssets-GreenhouseGasAllowances would indicateimpairmentoftheassets. period the of end the at allowances gas Greenhouse period the of beginning the at allowances gas Greenhouse EUR million in cost in recognised which of person legal other to Surrendered Revaluation (Note 28) (Note Revaluation value fair the in recognised which of emissions (Note 25) (Note emissions gas greenhouse the for state to Surrendered Sold Acquired 1 January -31 December 1 January (25.8) (10.0) 2012 28.0 28.0 (0.2) 11.6 11.6 17.8 11.6 11.6 1.8 - - (19.9) (49.1) 28.0 28.0 45.2 45.2 2011 18.0 18.0 10.0 10.0 51.8 - - - - -

Contents

116 Eesti Energia Annual Report 2012 Consolidated Financial Statements as associate. recognised is Group B.V. Jordan Enefit result the As more. any (Jordan Oil Shale Energy Company and Attarat Power Company) does not have control over Enefit Jordan B.V. and its subsidiaries ding inEnefitJordanB.V.wascompletedafterwhichtheGroup On 28 April 2011 the transaction of the sale of 11% sharehol- Change inInvestmentsAssociates 9. InvestmentsinAssociates Book value at the end of the period (Note 5) (Note period the of end the at value Book in million EUR EUR million in period the of beginning the at value Book income 33) and 5 (Notes Profit (loss) from associates using equity method equity using associates from (loss) Profit of which recognised in other comprehensive value fair at associates of Recognition comprehensive associate the by other declared Dividends in statement recognised income which the of in recognised which of 1 January -31 December 1 January 2012 23.3 23.3 (0.2) (0.3) (0.5) (1.5) 21.3 - 2011 (0.3) (0.9) 13.2 11. 8 8 11. (1.4) 23.3 0.6 0.6 Derecognised AssetsandLiabilities Gain on disposal of subsidiary (Note 27) (Note subsidiary of disposal on Gain Sales proceeds associates the of value Fair liabilities and assets derecognised Total differences rate exchange Unrealised Non-controlling interest payables other and Trade 8) (Note assets Intangible 6) (Note equipment and plant Property, equivalents cash and Cash EUR million in

28 April 2011 April 28 (0.9) (0.6) (4.4) 16.3 13.2 0.2 0.2 0.2 2.7 1.0 2.2 Contents

117 Eesti Energia Annual Report 2012 Consolidated Financial Statements * Andmed sidusettevõtjatekohta 9. InvestmentsinAssociates,continued any relevantdecisionsregardingEnefitJordanB.V.Group withouttheconsentofminorityholding. Enefit Jordan B.V. Group is recognised as associate as according to the Shareholders’ Agreement, the Group does not have the right to make Orica Eesti OÜ* Eesti Orica B.V. Group Jordan Enefit Nordic Energy Link Group Link Energy Nordic OÜ* Eesti Orica Group Link Energy Nordic Company B.V. Group Jordan Enefit Company EUR million in EUR million in The financialyear of OricaEestiOÜisfrom1October to30September. Netherlands Netherlands Location Location Estonia, Estonia, Estonia Estonia Finland Finland Jordan Jordan Assets Assets 31 December 2012 31 December 31 December 201131 December 109.9 85.5 15.3 81.2 13.4 13.1 11.1 Liabilities Liabilities 82.2 58.9 52.9 21.3 12.7 8.0 7.6 Operating income Operating income Operating 1 January - 31 December 2012 -31 December 1 January 1 January - 31 December 2011 -31 December 1 January 39.4 25.0 24.7 14.4 14.4 - - Net profit Net profit Net (4.0) (4.3) 2.0 4.3 3.9 1.3 1.7 31 December 2012 31 December 31 December 201131 December Ownership (%)Ownership (%)Ownership 65.0 65.0 35.0 35.0 39.9 39.9 Contents

118 Eesti Energia Annual Report 2012 Consolidated Financial Statements (2011: EUR0.2million). materials and materials raw of inventories slow-moving and damaged down wrote Group the period, reporting the In 10. Inventories EUR million in warehouses at Raw materials and materials Work-in-progress Finished goods Total inventories (Note 4) (Note inventories Total Prepayments to suppliers shale oil Stored oil Shale Other Other work-in-progress quarries in works Stripping Total work-in-progress goods finished Other goods finished Total

totalling EUR 1.6 million 31 December 2012 48.3 27.5 24.7 17.7 0.2 0.2 2.9 2.7 1.7 1.1 2011 18.4 37.9 14.8 17.4 2.0 0.3 2.4 0.1 1.2 1.7 11. DivisionofFinancialInstrumentsbyCategory EUR million in position financial of statement the in items asset Financial 2011 31 at December As financial position financial of statement the in items asset Financial 2012 31 at December As position financial of statement the in items asset financial Total position financial of statement the in items asset financial Total prepayments (Notes 3.1 12) (Notes and prepayments excluding receivables other and Trade (Notes 3.1,(Notes 13 3.3, 14) and instruments financial Derivative (Notes 3.1,(Notes 14 18) 3.2, and equivalents cash and Cash or loss (Notes 3.1, 16) (Notes and 3.3 3.2, loss or profit through value fair at assets Financial (Notes 3.1, 15)(Notes and 3.3 3.2, assets financial Available-for-sale (Notes 3.1,(Notes 14 18) 3.2, and equivalents cash and Cash 3.1, 16) (Notes and 3.3 3.2, loss or profit through value fair at assets Financial more than 3 months (Notes 3.1, 17) (Notes and 3.2 3months than more of maturities with banks at deposits Term 3.1 12) (Notes and payments pre excluding receivables other and Trade (Notes 3.1,(Notes 13 3.3, 14) and instruments financial Derivative - receivables Loans and Loans 163.2 160.3 310.4 122.3 90.0 60.1 40.9 - - - - - Financial profit or profit through assets assets at fair at value value 16.5 loss 1 6 11. 4.9 3.2 1.7 4.9 ------Held-to- financial maturity assets 10.2 10.2 ------Derivatives accounting is applied is for which for hedge 13.5 10.1 13.5 10.1 ------

200.0 328.8 160.3 122.3 Total 90.0 60.1 16.7 40.9 10.2 21.7 1.7 4.9 Contents

119 Eesti Energia Annual Report 2012 Consolidated Financial Statements 11. DivisionofFinancialInstrumentsbyCategory,continued EUR million in Total financial liability items in the statement of financial position financial of statement the in items liability financial Total position financial of statement the in items liability Financial 2011 31 at December As Total financial liability items in the statement of financial position financial of statement the in items liability financial Total position financial of statement the in items liability Financial 2012 31 at December As Derivative financial instruments (Notes 3.1, 13) (Notes and 3.3 instruments financial Derivative 3.1 23) (Notes and payables other and Trade Borrowings (Notes 3.1, 22) (Notes and 3.2 Borrowings Derivative financial instruments (Notes 3.1, 13) (Notes and 3.3 instruments financial Derivative Trade and other payables (Notes 3.1 23) (Notes and payables other and Trade Borrowings (Notes 3.1, 22) (Notes and 3.2 Borrowings Liabilities at fair value value fair at Liabilities through profit or loss or profit through 0.1 0.1 ------Derivatives for which hedge hedge which for Derivatives accounting is applied accounting 11.1 11.1 2.3 2.3 - - - - Other financial financial Other liabilities liabilities 858.5 566.2 732.8 125.7 436.2 130.0 - - 860.9 732.8 577.3 125.7 Total Total 436.2 130.0 11.1 2.4 Contents 120 Eesti Energia Annual Report 2012 Consolidated Financial Statements account asa guarantee forthetransactions. are recognised financial resources that are held on SEB Futures used being from restricted cash Under 15%). (2011: 15% rate loan granted to the associate Enefit Jordan B.V. with the interest 13.1 million). The receivables from associates include the termless allowances totalling EUR 34.3 million (31 December 2011: EUR Prepayments include prepayments for greenhouse gas emission 12. TradeandOtherReceivables in million EUR EUR million in receivables other and trade Short-term receivables trade Total receivables Trade (Notes 3.1 11) and (Notes receivables other and trade Total receivables Total long-term 14) (Note receivables long-term Other income Accrued Receivables from associates (Note 14) (Note associates from Receivables Prepayments Long-term receivables receivables other and trade short-term Total 14) (Note receivables Other 14) (Note used being from restricted Cash 14) (Note associates from Receivables Prepayments income accrued Total Accounts receivable of completion method (Note 14) (Note method completion of stage the under customers from due Amounts Accrued interest (Note 14) (Note interest Accrued Allowance for doubtful receivables (Note 4) (Note receivables doubtful for Allowance Other accrued income (Note 14) (Note income accrued Other

200.6 174.6 31 December 1 .1 112 1 3 . 115 2012 (3.2) 26.0 28.3 12.0 13.0 11.6 18.7 0.2 5.5 5.9 2.4 1.0 1.5 125.2 104.8 101.3 143.1 2011 (3.5) 10.3 10.5 17.9 5.4 3.5 2.3 0.9 4.5 2.4 7.4 - - prepayments for services and goods is not covered by securi by covered not is goods and services for prepayments differ from their carrying amounts. Collection of receivables and The fair values of receivables and prepayments do not significantly recession aretakenintoaccount duringevaluation. economic global the like impacts extraordinary and individual other Also period. later a in collected not are due past days 90 in a later period and how many of the receivables not more than how many of the receivables classified as doubtful are collected vables 90 days past due is monitored using prior experience of days past due are written down in full. The total amount of recei 90 receivables all Group, the of policies accounting the Under Analysis ofAccountsReceivable disclosed inNote3.1. is dollars US in denominated receivables of amount The euros. in are prepayments and receivables Group’s the of Most ties. EUR million in classified as doubtful not but due receivable Accounts 14) (Note due yet not receivable Accounts down written receivable Accounts not classified as doubtful but due receivable accounts Total Total accounts receivable receivable accounts Total down written receivable accounts Total 1-30 days past due 1-30 past days 3-6 months past due past 3-6 months 61-90 days past due 61-90 past days due 31-60 past days more than 6 months past due past 6months than more

1.3 115. 31 December 2012 10.9 97.7 6.7 0.3 5.5 9.9 1.2 0.7 104.8 2011 81.3 17.2 6.3 9.0 2.9 3.4 3.1 5.1 - -

Contents 121 Eesti Energia Annual Report 2012 Consolidated Financial Statements The otherreceivablesdonotcontainanyimpairedassets. Changes inAllowanceforDoubtfulReceivables 12. TradeandOtherReceivables,continued beginning of the period the of beginning the at receivables doubtful for Allowance EUR million in the period (Note 4) (Note period the of end the at receivables doubtful for Allowance period accounting the during collections and doubtful as Classified sale for held as Classified irrecoverable as Classified 1 January -31 December 1 January 2012 (3.2) (3.5) (0.4) 0.7 - 2011 (3.3) (3.5) (0.9) 0.6 0.1 Revenue UndertheStageofCompletionMethod manufacturing and network equpiment design and construction. equipment power mostly are projects construction Long-term EUR million in Unfinished projects at the end of the period the of end the at projects Unfinished year financial the in projects Total revenue from construction Total gains calculated on construction projects construction on calculated gains Total year financial the in Total expenses on construction projects Revenue of unfinished projects projects unfinished of Revenue Gains/losses calculated on unfinished projects unfinished on calculated Gains/losses projects unfinished on expenses Total completion method of stage the under customers to due Amounts 14) (Note method completion of stage the under customers from due Amounts submitted billing Progress (20.4) (40.2) (37.0) 31 December 2012 (0.1) 20.7 42.4 0.3 2.2 5.5 (36.9) (23.2) (19.5) 2011 40.9 24.0 4.0 0.8 4.5 -

Contents 122 Eesti Energia Annual Report 2012 Consolidated Financial Statements comprehensive income and is recognised either as revenue or revenue as either recognised is and income comprehensive other through recognised is purposes hedging for concluded transactions of value fair the in change the of portion effective tions of high probability on the power exchange Nord Pool. The transac electricity estimated the is hedged being instrument designated as cash flow hedging instruments, here the underlying are electricity, of price the in risk the hedge to is which of goal the transactions, The euros. in denominated is price their and or purchase of a fixed volume of electricity at each trading hour sale the for into entered been have contracts forward All ricity. elect of price the in changes on income earn or electricity of price the in changes of risk the manage to is electricity selling and buying for contracts option and forward the of goal The Electricity Forward and Option Contracts forBuyingandSelling 13. DerivativeFinancialInstruments derivatives trading as allowances emissions gas greenhouse selling and buying for contracts Option Total derivative financial instruments (Notes 3.1, 11 (Notes 3.3, 14) and instruments financial derivative Total hedges flow cash as oil shale selling for contracts option and Swap derivatives trading as electricity selling and buying for contracts Option hedges flow cash as electricity selling and buying for contracts Forward EUR million in portion current Total Option contracts for buying and selling greenhouse gas emissions allowances as trading derivatives trading as allowances emissions gas greenhouse selling and buying for contracts Option Option contracts for buying and selling electricity as trading derivatives trading as electricity selling and buying for contracts Option hedges flow cash as electricity selling and buying for contracts Forward Total non-current portion Swap and option contracts for selling shale oil as cash flow hedges flow cash as oil shale selling for contracts option and Swap including non-current portion: including non-current

- -

quotes onNordPool. The basis for determining the fair value of the instruments is the through profitorloss. classified as trading derivatives carried at fair value with changes and 797,160 MWh for the year 2013 ). Option transactions are 2012 year the for hedged been had MWh 605,558 2011: ber year 2013 and 5,904,240 MWh for the year 2014 (31 Decem the for hedged been had MWh 2,242,214 2012, December in 2013-2014 (31 December 2011: in 2012-2013). As at 31 of which is to hedge the risk in the price of electricity will realise goal the electricity selling and buying of contracts forward The sales transactionsareunlikelytooccurinagivenperiod. that evident is it when expenses operating other or occur ricity reduction of revenue at the time the sales transactions of elect Assets Assets 31 December 2012 31 December 16.7 12.5 9.2 3.2 7.5 0.4 1.0 7.1 - - - Liabilities 0.3 2.4 0.3 2.3 2.1 0.1 - - - - - Assets Assets 31 December 201131 December 13.6 10.2 21.7 10.1 0.5 0.5 8.1 9.6 1.6 1.4 1.4 Liabilities 11.1 11.1 9.2 1.9 1.9 ------Contents 123 Eesti Energia Annual Report 2012 Consolidated Financial Statements volume of shale oil in future periods and they are designated as specified a of sale the for concluded been have transactions The oil. shale for changes price of risk the hedge to is oil shale The goal of the swap and option contracts for buying and selling Swap andOptionContractsforSellingShaleOil are denominatedineuros. fair value of transactions is the quotes of SEB Futures. The prices the determining for basis The statement. income the in losses value changes of these transactions are recognised as gains or emission allowances are classified as trading derivatives. The fair gas greenhouse selling and buying for contracts option The Emissions Allowances Option contractsforBuyingandSellingGreenhouseGas 13. DerivativeFinancialInstruments,continued are denominated in euros and US dollars. Hedging instruments, quotes by Platt´s European Marketscan and Nymex. The prices the is transactions of value fair the determining for basis The transactions. sales oil shale probable highly is hedged be to cash flow hedging instruments, where the underlying instrument for theyear2012and96000tonnes2013). tonnes for the year 2014 (31 December 2011: 96 900 tonnes 709 tonnes had been hedged for the year 2013 and 468 519 December 2011: in 2012-2013). As at 31 December 2012 312 risk of price changes of shale oil will realise in 2013-2014. (31 and option contracts for selling shale oil which aim to hedge the profit or loss until the acquisition of all components. The swap- through changes with value fair at recognised are instruments, derivative of components various from combined are which Contents 124 Eesti Energia Annual Report 2012 Consolidated Financial Statements of clientsandotherpartiestothecontract. rating agencies or, in their absence, the earlier credit behaviour by assigned ratings credit the is down written not and yet due The basis for estimating the credit quality of financial assets not 14. CreditQualityofFinancialAssets As at31December 2012and31December 2011,theGroupdid nothaveanymajor creditriskconcentrations. do notinvolvematerialcredit risk,asthereisnoevidenceofcircumstancesthatwould indicate impairmentloss. According to the estimate of the management the other receivables and accrued income without a credit rating from an independent party receivables Trade miljonites eurodes miljonites Total accrued interest (Note 12) (Note interest accrued Total Accrued interest Accrued 12) (Note receivables trade Total 6months) than shorter hip relations (client clients new from Receivables rating of A1 of rating credit Moody’s with banks from Receivables Aa3 of rating credit Moody’s with banks from Receivables date due the exceeded have 6 months last the in who 6months), than longer tionship rela (client clients existing from Receivables date due the exceeded not have 6 months last the in who 6months), than longer tionship rela (client clients existing from Receivables

- - - 31 December 2012 35.5 97.7 54.1 0.2 8.1 0.1 0.1 2011 81.3 39.1 41.6 0.6 - - - EUR million in Bank accounts and short-term deposits in banks in deposits short-term and accounts Bank income accrued and receivables Other Deposits at banks with maturities of more than 3months than more of maturities with banks at Deposits 3.1, 11(Notes 18) 3.2, and banks in deposits short-term and accounts bank Total Derivatives with positive value (Notes 3.1, 11 (Notes 3.3, 13) value and positive with Derivatives instruments financial Derivative 3.1, 11(Notes 17) 3.2, and 3months than more of maturities with banks at deposits Total assets financial Available-for-sale 12) (Note receivables other Total Aa3 of rating credit Moody’s with banks At Aa2 of rating credit Moody’s with At banks A3 of rating credit Moody’s with At banks A2 of rating credit Moody’s with At banks A1 of rating credit Moody’s with At banks Aa3 of rating credit Moody’s with At banks house clearing OMX Nasdaq through Derivatives A2 of rating credit Moody’s with value positive with Derivatives A1 of rating credit Moody’s with value positive with Derivatives Aa3 of rating credit Moody’s with value positive with Derivatives Aa1 of rating credit Moody’s with value positive with Derivatives A2 of rating credit Moody’s with At banks A1 of rating credit Moody’s with At banks Other receivables with Moody’s credit rating of A1 of rating credit Moody’s with receivables Other credit rating of A2 (Notes 3.1, (Notes A2 of 11 3.3, 15) rating and credit Moody’s with institution acredit of units Fund party independent an from rating credit without Receivables

31 December 2012 48.0 90.0 36.0 60.1 39.0 23.0 29.3 16.7 15.0 12.5 18.7 31.9 3.2 0.6 0.3 4.5 0.7 0.1 - - 2011 40.9 21.0 10.2 16.0 12.8 21.7 12.0 18.7 21.3 0.2 0.2 2.3 0.1 ------Contents 125 Eesti Energia Annual Report 2012 Consolidated Financial Statements for-sale. the carrying value of the financial assets classified as available- The maximum exposure to credit risk at the reference date was flows. cash future the on based was savingsbonds the of value The Swedbank savingsbonds were denominated in euros. The fair Changes inAvailable-for-saleFinancialAssets Assets 15. Available-for-saleFinancial period the of beginning the at value Fair EUR million in in million EUR million in value): (at fair assets financial Unquoted (Notes 3.1, 3.2, 3.3, 11 3.1, 3.3, 14) and (Notes 3.2, period the of end the at value Fair 3.3, 113.3, 14) and 2012) 3.1, (Notes October date: 1.6%, maturity rate interest (fixed savingsbonds Swedbank Redeemed Disposed value nominal and cost between difference of Amortisation 1 January -31 December 1 January 31 December 2012 2012 (5.0) (5.3) 10.2 0.1 - - 2011 2011 10.2 10.0 10.2 0.2 - - The units of Danske Invest Euro Interest Fund are denominated Through ProfitorLoss 16. FinancialAssetsatFairValue financial incomeinthestatement. fund. The change in the fair value of fund units is recognised as the of assets net the of value market the on based units fund of value asset net the is units fund of value fair The euros. in Through ProfitorLoss Changes inFinancialAssetsReportedAtFairValue period the of beginning the at value Fair EUR million in EUR million in assets: financial Unquoted 11) and 3.1, 3.3 (Notes 3.2, assets financial unquoted Total (Notes 3.1, 3.2, 3.3 and 11) and 3.1, 3.3 (Notes 3.2, period the of end the at value Fair Gain from change in fair value fair in change from Gain Disposed Acquired Fund Interest Euro Invest Danske of Units 1 January -31 December 1 January (22.5) 31 December 2012 2012 19.3 4.9 1.7 1.7 1.7 - (46.5) 2011 2011 47.9 3.2 4.9 4.9 0.3 4.9 Contents 126 Eesti Energia Annual Report 2012 Consolidated Financial Statements sits were91to193days(2011:89-367days). (2011: 1.2-4.7%). In the reporting period the due dates of depo with maturities of more than 3 months were between 0.5-1.52% In the financial year, the effective interest rates of term deposits Maturities ofMorethan3Months 17. DepositsatBanksWith EUR million in months 3 than more of maturities with banks at Deposits than 3 months (Notes 3.1, 11 (Notes 14) 3.2, and 3months than more of maturities with banks at deposits Total

31 December 2012 90.0 90.0 2011 - - - 18. CashandEquivalents (2011: 0.4-3.1%). 1.8% and 0.2 between were months 3 to up of maturities with In the financial year, the effective interest rates of term deposits Cash andEquivalentsByCurrencies EUR million in EUR million in lit Lithuanian US dollar lat Latvian Euro deposits Short-term accounts Bank 3.1, 11(Notes 14) 3.2, and equivalents cash and cash Total 3.1, 11(Notes 14) 3.2, and equivalents cash and cash Total

31 December 31 December 2012 2012 60.1 60.1 52.0 42.6 17.5 0.8 7.3 - 2011 2011 40.9 40.9 28.4 39.7 12.5 1.0 0.1 0.1 Contents 127 Eesti Energia Annual Report 2012 Consolidated Financial Statements porate income tax is payable upon the distribution of dividends EUR 461,7 million (31 December 2011: EUR 453.5 million).Cor was equity distributable Group’s the 2012, December 31 at As (31 December2011:EUR0). transfer an additional EUR 3.9 million to statutory reserve capital As at 31 December 2012, Eesti Energia AS had an obligation to totalled EUR 47.2 million (31 December 2011: EUR 47.2 million). As at 31 December 2012, the Group’s statutory reserve capital 150 millionon10July2012byamonetarycontribution. 2012 the share capital of Eesti Energia AS was increased by EUR May 3 of Estonia of Government the of 196 No. Order Under share capitalisEUR1000,0million. minimum share capital is EUR 250,0 million and the maximum According to the articles of association of Eesti Energia AS, the ter of Economic Affairs at the General Meeting of Shareholders. Estonian Ministry of Economic Affairs, represented by the Minis- the is shareholders of rights the of exerciser the and shares shareholder is the Republic of Estonia. The administrator of the sole The euro. 1 is share each of value nominal The shares). registered shares (31 December 2011: 471 645 750 registred 750 645 621 had AS Energia Eesti 2012, December 31 at As Capital andRetainedEarnings 19. ShareCapital,StatutoryReserve - 2011: EUR 95.2 million). It is possible to pay out EUR 364.7 EUR out pay to possible is It million). 95.2 EUR 2011: December (31 million 97.0 EUR to amount would tax income If all retained earnings were distributed as dividends, the corporate on dividends is 21/79 of the amount payable as net dividends). to shareholders (from 1 January 2008, the corporate income tax accompanying corporateincometax. the and dividends potential equity, shareholders’ ributable dist the calculating for basis the presents table following The ding incometaxtotalsEUR19.5million. Report by the General Meeting of Shareholders. The correspon 73.5 million as dividends after the approval of the 2012 Annual EUR pay to required is AS Energia Eesti Republic, the of nment According to the dividend distribution plan disclosed by the Gover million (31 December 2011: EUR 358.3 million) as net dividends. in million EUR million in Distributable shareholder's equity shareholder's Distributable Statutory reserve capital reserve Statutory 41) (Note earnings Retained Net dividends available for distribution for available dividends Net distributed if dividends on tax income Corporate 465.6 364.7 31 December 461.7 2012 (3.9) 97.0 358.3 453.5 453.5 2011 95.2 - - - - Contents 128 Eesti Energia Annual Report 2012 Consolidated Financial Statements 21. HedgeReserve had notbeenapprovedasat31December2012. statements do not reflect this amount as a liability as the dividend 31 December 2012, totalling EUR 73.5 million. These financial ended year financial the for share per 0.12 EUR of dividends The Management Board proposed to the Annual Meeting to pay million, dividendspershareEUR0,12). the Republic of Estonia or EUR 0,14 per share (2011: EUR 56,1 to million 65,2 EUR of dividends paid Energia Eesti 2012, In 20. DividendsPerShare EUR million in period the of end the at reserve Hedge period the of beginning the at reserve Hedge Recognised as a reduction of revenue of areduction as Recognised hedges flow cash of value fair in Change 1 January -31 December 1 January 2012 (0.4) 11. 5 5 11. 9.8 2.1 (34.6) 2011 (0.4) 23.5 10.7 The bonds are denominated in euros and listed on the London the on listed and euros in denominated are bonds The 22. Borrowings Bonds Borrowings atAmortisedCost maturity datein2020and haveafixedinterestrateof4.5%. bonds were EUR 3.0 million. Other long-term bonds are with the the of issuing the to related costs Transaction 4.25%. of rate with the maturity date in 2018. The bonds have a fixed interest new long-term bonds with a nominal value EUR 300 million and Stock Exchange. In the financial year Eesti Energia AS has issued EUR million in EUR million in Short-term borrowings Short-term Long-term borrowings Long-term sales price (Note 3.3) (Note price sales quoted of basis the on bonds of value Market Nominal value of bonds (Note 3.1) (Note bonds of value Nominal loans bank long-term of portion Current Bonds issued Bonds Bank loans Bank Total borrowings short-term Total borrowings (Notes 3.1, 3.2 and 11) 3.1, and (Notes 3.2 borrowings Total borrowings Total long-term

732.8 600.0 588.3 653.2 31 December 31 December 731.4 143.1 2012 2012 1.4 1.4 436.2 300.0 290.6 286.5 434.7 144.1 2011 2011 1.5 1.5 Contents 129 Eesti Energia Annual Report 2012 Consolidated Financial Statements of which EUR 400 million can be taken into use until 22 August of EUR 495.0 million (31 December 2011: EUR 595.0 million), As at 31 December 2012 the Group had undrawn loan facilities million. 0.2 EUR of amount the in Bank SEB Latvian from drawn loan Nordic Investment Bank in the amount of EUR 32.1 million and form drawn loans the prematurely repaid Group the 2011, In has compliedwithallattachedconditions. financial ratios that the Group needs to comply with. The Group loan agreements concluded by Eesti Energia AS contain certain rest rate on loans was 3.07% (31 December 2011: 3.13%). The As at 31 December 2012, the weighted average nominal inte- 2011: 2.0-3.2%). interest rates of loans were between 0.8 and 3.2% (31 December All loans are denominated in euros. As at 31 December 2012 the Long-term BankLoansatNominalValuebyDueDate 22. Borrowings,continued EUR million in > 5aasta 1–5 aastat < 1aasta Total 144.9 31 December 1 3 . 113 2012 30.2 1.4 146.3 127.0 2011 17.8 1.5 Borrowings byPeriodthatInterestRatesareFixedfor Management estimates that the fair value of the loans at the at loans the of value fair the that estimates Management will bemadewhentheloanistakenintouse. not or interest the fix to whether Decision 2013. December 7 by made be must million 95 EUR of facilities loan undrawn the regarding decision The rate. interest floating has and 2014 Weighted AverageEffectiveInterestRatesofBorrowings carrying amountsastheriskmarginshavenotchanged. end ofreportingperioddoesnotsignificantlydifferfromtheir Bonds miljonites eurodes miljonites EUR million in Long-term bank loans bank Long-term > 5aasta 1–5 aastat < 1aasta Total (Notes 3.1, 3.2 and 11) 3.1, and (Notes 3.2 Total 732.8 699.5 31 December 31 December 2012 2012 4.7% 3.1% 24.7 8.6 436.2 414.2 2011 2011 3.2% 4.9% 12.3 9.7

Contents 130 Eesti Energia Annual Report 2012 Consolidated Financial Statements 23. TradeandOtherPayables Tax liabilities (Note 3.1) (Note Tax liabilities Other payables associates to Payables Accrued expenses Trade payables Trade Prepayments 3.1) (Note employees to Payables EUR million in payables (Note 3.1 11) and (Note payables other and trade within payables financial Total Financial payables within trade and other payables other and trade within payables Financial Total trade and other payables other and trade Total of which long-term trade and other payables other and trade long-term which of of which short-term trade and other payables other and trade short-term which of 125.7 177.3 31.detsember 174.9 1 6 . 110 2012 29.0 21.9 2.8 4.9 2.4 0.7 7.4 130.0 176.5 176.1 1.2 119. 2011 26.5 19.2 0.8 3.5 2.9 0.4 4.4 24. DeferredIncome Government Grants Connection andOtherServiceFees (ISPA), EnterpriseEstonia, Environmental InvestmentCenter. Majority of the grants have been received from the Cohesion Fund EUR million in in million EUR million in period the of beginning the at grant from income Deferred period the of beginning the at fees service other and connection Deferred fees at the end of the period period the of end the at fees service other and connection Deferred end of the period the of end the at grant from income Deferred of which short-term deferred income deferred short-term which of Transferred grants received Grants income deferred long-term which Recognised as income (Note 27) (Note income as Recognised as income (Notes 4 and 33) 4and (Notes income as recognised fees service other and Connection received fees service other and Connection which long-term deferred income deferred long-term which income deferred short-term which of

1 January -31 December 1 January -31 December 1 January 136.0 125.7 2012 2012 (0.5) (0.5) (4.7) 15.0 3.0 0.9 0.2 0.6 2.4 0.7 3.1 125.7 1.9 117. 2011 2011 (0.3) (0.4) (4.6) 12.4 0.9 1.2 0.2 0.5 0.4 0.7 0.7 Contents 131 Eesti Energia Annual Report 2012 Consolidated Financial Statements the changeindiscountrate. Recognition andchangeintheprovisionsduringfinancial year2012intheamountofEUR0.8millionresultedfrom 25. Provisions in million EUR EUR million in in million EUR EUR million in Provision for greenhouse gas emissions (Notes 8 and 28) 8 and (Notes emissions gas greenhouse for Provision 6) (Note assets of cost dismantling for Provision 29) (Note provisions related Employee 30) (Note operations mining of termination for Provision 30) (Note provisions protection Environmental Environmental protection provisions (Note 30) (Note provisions protection Environmental Provision for termination of mining operations (Note 30) (Note operations mining of termination for Provision Provision for dismantling cost of assets (Note 6) (Note assets of cost dismantling for Provision 29) (Note provisions related Employee Provision for greenhouse gas emissions (Notes 8 and 28) 8 and (Notes emissions gas greenhouse for Provision Total provisions (Notes 4 and 33) 4and (Notes provisions Total Total provisions (Notes 4 and 33) 4and (Notes provisions Total Opening balance balance Opening Opening balance balance Opening 31 December 31 December 31 December 31 December 2010 45.5 45.5 78.5 78.5 2011 18.5 15.0 10.7 47.1 2.6 2.6 4.3 3.9 3.9 9.3 9.3 9.9 2.7 and change in in change and and change in in change and Recognition Recognition Recognition Recognition provisions provisions 15.3 (6.0) 1 3 11. 5.0 3.2 6.5 2.0 0.3 0.5 2.5 - - (Note 31) (Note (Note 31) (Note Interest Interest charge charge 0.2 1.6 0.3 0.5 0.9 2.1 0.4 1.2 0.1 0.1 - - (50.4) (49.1) (15.3) (10.0) (0.8) (0.9) (3.2) (0.4) (1.3) Use Use - - - Closing balance 31 December 2012 31 December balance Closing Closing balance 31 December 2011 31 December balance Closing Short-term Short-term provision provision 12.9 14.4 5.8 2.3 4.6 9.3 1.2 1.2 1.3 1.6 - - Long-term Long-term Long-term Long-term provision provision 23.9 16.0 16.9 31.1 2.8 8.4 4.4 0.7 2.7 3.1 - - Contents 132 Eesti Energia Annual Report 2012 Consolidated Financial Statements termination benefits to Aidu quarry employees. No provisions for Employee related provisions include provisions for payments of data from Statistics Estonia on life expectancies by age groups. expectancy of the employees, period of which is determined using life remaining the during or contracts the in specified periods Long-term employee related provisions will be settled during the Employee relatedprovisionshavebeensetupfor: be settledin2013-2035. will operations mining of termination the to related Provisions Elektrijaamad in2014-2058. at the Eesti Energia Kaevandused in 2014 - 2035, and at Narva settled be will provisions protection environmental Long-term mination ofminingoperationshavebeensetupfor: Environmental protection provisions and provisions for the ter- 25. Provisions,continued • • • • • • • • • • payments ofscholarships. payment ofterminationbenefits; compensation ofwork-relatedinjuries; agreements andotheracts; payment ofbenefitslaiddownincollective cleaning contaminatedlandsurfaces; restoring landdamagedbymining; eliminating asbestosinpowerplants. maintenance ofclosedashfields; closing landfillsandneutralisingexcesswater; activities; restoring water supplies contaminated as a result of mining up to cover the future dismantling costs of the renovated power set been has assets of costs dismantling the for provision The of theseminesandquarrieshavebeenannounced. and mines have been set up as no detailed plans for the closure payments of termination benefits to employees of other quarries margins (loan lines, bonds) and evaluations of investment banks. group’s risk margins are determined by interpolating the financing tive period is added to a base rate of the respective period. The In determining the discount curve Group’s risk margin for respec evaluation oftheprovisionsfromdifferenttimehorizon. discount rate for discounting provisions. It allows more accurate average of instead used is curve discount 2012 From 5.4%). The provision are discounted at the rate of 1.75-5.44% (2011: provisions onthesedatescomparedto31December 2010. was taken into consideration (Note 34), which results in smaller 2011, December 22 of 183 no. Estonia of Government the of allocated to the Group for the years 2010-2012 by the decree was what allowances, emission gas greenhose of amount nal additio an 2012 December 31 and 2011 December 31 for emissions. Setting up the provison for greenhouse gas emissions volume of emission allowances needed to cover greenhouse gas ved from the state free of charge have been deducted from the need to be purchased additionally. The emission allowances recei based on the cost of greenhouse gas emission allowances that up set been has emissions gas greenhouse for provision The in 2034-2035. The provision for the dismantling costs is expected to be settled assets was included in the cost of property, plant and equipment. power plants. The present value of the dismantling costs of the Narva the of dump waste industrial and 11 and 8 No. blocks - - - Contents 133 Eesti Energia Annual Report 2012 Consolidated Financial Statements 26. Revenue EUR million in 5) (Note revenue Total services of Sale By By activity goods of Sale services Other 7) (Note income maintenance and Rental services of sale Total Connection fees (Notes 4, 24 and 33) 4, 24 and (Notes fees Connection services telecommunication of Sale Repair and services construction 5) (Note services network of Sales goods Other equipment Power Oil shale (Note 5) (Note shale Oil Electricity (Note 5) (Note Electricity Heat (Note 5) (Note Heat 5) (Note oil Shale goods of sale Total

1 January -31 December 1 January 566.4 406.5 822.1 233.2 255.7 2012 35.5 10.8 28.7 10.5 77.8 4.2 1.8 4.7 1.3 7.1 588.4 204.9 831.9 243.5 424.7 2011 60.9 32.8 10.9 24.4 37.4 17.1 8.2 4.6 1.9 4.1 27. OtherOperatingIncome power plantintheamountofEUR5million. Eesti in 8 Unit Energy the of breakdown the to due repair and are recognised an insurance compensation for the loss of income In fines, penalties and compensations of the financial year 2012 The greenhouse gas allowances sold allowances gas greenhouse The 24) (Note grants Government equipment and plant property, of disposal on Gain 36) 9, 33 and (Notes associates as reclassification and subsidiaries of disposal on Gain EUR million in Other Other operating income Fines, penalties and compensations income operating other Total

1 January -31 December 1 January 2012 46.4 13.6 19.7 8.0 0.5 1.5 3.1 2011 25.6 18.7 2.0 0.4 1.4 3.1 - Contents 134 Eesti Energia Annual Report 2012 Consolidated Financial Statements * used 28. RawMaterialsandConsumables (Note 8) (Note allowances gas greenhouse the of Revaluation 25) (Note expense emissions gases Greenhouse sold allowances gas greenhouse The resources mineral on tax Resource repairs and Maintenance fuel Technological Electricity Other raw materials and consumables used consumables and materials raw Other services Transmission EUR million in Total raw materials and consumables used consumables and materials raw Total groups disposal of employees the Without

1 January -31 December 1 January 380.4 2012 60.9 46.9 33.2 99.5 30.4 85.1 19.7 (1.8) 6.5 389.7 121.0 2011 49.2 28.7 76.7 19.9 41.3 41.6 1 3 11. - 29. PayrollExpenses Supervisory Board.Theterm ofappointmentfor5years. the by appointed are members Board Management The in million EUR EUR million in Payroll expenses Number of employees pay vacation and bonuses salaries, Wages, euros) (in pay monthly Average supervisory boards supervisory and management to remuneration which Of expenses payroll calculated Total provisions (Note 25) (Note provisions related employee of Recognition/reversal taxes Payroll employees to benefits and payments Other Number of employees at the end of the period* the of end the at employees of Number period* the of beginning the at employees of Number Average number of employees (Note 5) (Note employees of number Average expenses payroll Total environmental protection and operations mining of termination the for provisions the from Covered assets self-constructed of cost the in Capitalised Fringe benefits Fringe remuneration additional bonuses, Salaries, boards supervisory and management to paid Total

1 January -31 December 1 January 1 January -31 December 1 January 168.5 7,560 7,573 7,631 1,303 151.6 2012 1 .4 118 (15.7) 2012 42.7 (1.2) 2.0 5.4 1.8 1.9 0.1 7,585 156.6 135.6 (20.8) 7,631 7,455 1,218 1 .9 110 2011 2011 (0.2) 39.7 0.5 5.5 1.8 1.9 0.1

Contents 135 Eesti Energia Annual Report 2012 Consolidated Financial Statements 31. NetFinancialIncome(-expense) 30. OtherOperatingExpenses Other Other operating expenses Total income financial Financial expenses expenses office Miscellaneous costs development and Research 7) (Note expense Rental charges pollution Environmental nation provisions (Note 25) (Note provisions nation termi mining and environmental of Recognition EUR million in EUR million in expenses other Total Total financial expenses Financial income Financial Net financial income (-expense) expenses financial Other losses exchange Foreign Interest expense Total interest income (Note 5) (Note income interest Total Other financial income financial Other Interest income Interest expenses on provisions and reimburse and provisions on expenses Interest 33) (Note borrowings on expenses interest Total ments from another parties (Note 25) (Note parties another from ments Total interest expenses (Note 5) (Note expenses interest Total loans and bonds on expenses Interest Amounts capitalised on qualifying assets qualifying on capitalised Amounts

- - 1 January -31 December 1 January 1 January -31 December 1 January 2012 68.0 (30.6) 33.4 (3.5) 2012 17.8 14.1 (5.2) (8.4) (0.2) (0.3) (6.3) (7.9) 24.3 3.5 (1.6) 2.7 3.2 3.2 3.2 (19.2) 2011 (3.2) 2011 (7.3) (0.1) 33.3 71.0 19.8 (5.4) (7.5) 13.8 (2.1) 0.3 0.3 3.5 2.6 4.4 4.0 4.0 7.4 4.1 0.1 32. CorporateIncomeTax tax rate is 21/79 of the net dividend paid. If the Group receives earnings are taxed in Estonia. From 1 January 2008, the income Under the Income Tax Act, the dividends payable out of retained did nothaveanydeferred income taxassetsandliabilities. Group the 2011, December 31 and 2012 December 31 at As Average EffectiveIncomeTaxRate payable oncetheGroupdistributesitsdividends. tax income corporate the from Group the by deducted be can dividends the of distributer the by state the to paid tax income of amount the then shares, the of 10% least at has Group the where Estonia in registered companies other from dividends EUR million in Estonia Effective income tax on dividends on tax income Effective associates by paid dividends of Impact rates applicable at tax income Theoretical dividends for applicable tax Income Average effective income tax rate tax income effective Average Net dividends ries in Finland and Latvia and Finland in ries subsidia the from arising expense tax Income Income tax from liquidation proceeds liquidation from tax Income Total income tax expense (Note 5) (Note expense tax income Total - 1 January -31 December 1 January 20.5% 21/79 2012 65.2 16.9 17.8 (0.4) 17.3 0.2 0.7 20.6% 21/79 2011 14.7 (0.3) 56.1 14.6 14.9 0.1 - Contents 136 Eesti Energia Annual Report 2012 Consolidated Financial Statements to operating activities relating assets current in change Net tax before profit net Adjusted operating activities to relating liabilities current in change Net EUR million in Cash generated from operations Adjustments tax income before Profit * * 33. CashGeneratedFromOperations * Change in receivables related to operating acti operating to related receivables in Change Change in provisions (Note 25) (Note provisions in Change operating activities to relating assets current in change net Total operating activities to relating assets current other in change Net inventories in Change vities Change in trade payables trade in Change activities operating other to relating liabilities in change Net Interest and other financial income financial other and Interest 31) (Note borrowings on expense Interest activities operating to relating liabilities in change net Total Unpaid/unsettled Unpaid/unsettled gain/loss on derivatives 27) 9and (Notes investments from gains Other 9) (Note method equity using associates from (loss) Profit purchase non-current assets assets non-current purchase to received grant government of Amortisation Gain on disposal of property, plant and equipment and plant property, of disposal on Gain 36) 27 and (Note subsidiaries of disposal on Gain 26) 4, 24 and (Notes fees service other and connection from income Deferred 8) 5and (Notes assets intangible of Amortisation 6) 5and (Notes equipment and plant property, of impairment and Depreciation pre-technical the before applied. been not resources for have applied is factors definition modifying This possible interest. factors. which to commercial modifying for analyses, defined possibility already high has and that shale, oil economical place in total of technical, amount as grade, cut-off defined is desired by Resource modified been has it after Resource, place in of apart represents Resource

- 1 January -31 December 1 January (32.5) 227.4 227.4 173.8 (10.4) (10.4) 262.8 (13.6) (11.7) 2012 (2.9) (3.2) (8.7) (4.7) (3.1) 94.7 0.2 0.2 6.3 6.3 4.6 4.6 4.5 4.5 1.2 7.9 - - (34.8) 187.9 187.9 (33.0) (16.3) (12.2) 226.9 163.9 2011 (4.2) 93.3 (8.5) (2.2) (4.6) (3.4) (2.4) (1.2) (1.4) (0.1) 3.8 3.8 5.5 5.5 0.9 0.9 0.4 0.4 5.4 Contingent LiabilitiesandCommitments 34. Off-balanceSheetAssets, Oil ShaleResources (a) Off-balancesheetassets into accountwhenrecognisingtheresources. and social-economical restrictions have been adjusted and taken on the development phase the known technical, environmental by the level of exploration and economical perspective. Depending experts and is proved appropriate according to the standard both authorized the by performed is resource the of classification national standards of evaluation of resources and reserves. The inter- of requirements disclosure the on based recognised are The resources of oil shale of international development projects resources of oil shale in the official balance of natural resources. the represent Republic Estonian of shale oil of resources The below. table the in presented is associates its and Group the of possession the in shale oil of resources the of overview The in millions of tonnes of millions in USA** Jordan Estonia Inferred** Indicated** ** Measured Inferred** Measured* Measured*

0 8 6 , 3 4 0 6 , 2 0 4 5 , 2 31 December 2012 8 6 3 0 3 9 2 4 5 2011 9 5 5 Contents 137 Eesti Energia Annual Report 2012 Consolidated Financial Statements respect. tances which may give rise to a potential material liability in this Group’s management considers that there are not any circums errors they may impose additional taxes, interest and fines. The any find they if and year tax reported the after years 6 within records tax Company’s the review to right the have authorities at the Company or single case audits at any group company. Tax Tax authorities have neither started nor performed any tax audits Contingent LiabilitiesArisingFromPotentialTaxAudit (b) ContingentLiabilities 2019. to 2013 period the in charge of free allowances emission gas of electricity production up to 18 million tonnes of greenhouse modernisation of purpose the for receive may Group the tem On implementation of article 10c of EU Emissions Trading Sys- gas emissionallowanceswereadditionallyallocated(Note25). tonnes and for the year 2012 1.3 million tonnes of greenhouse million 2.5 2011 and 2010 years the For period. same the for the Group was increased compared to the previous allocation plan amount of the greenhouse gas emission allowances allocated to million tonnes) (Note 8). According to the mentioned decree the (the quantity allocated for the period 2005 - 2007 totalled 46.7 greenhouse gas emission allowances totalling 49.0 million tonnes 2012 - 2008 years the for Group Energia Eesti the of panies of Estonia no. 183 of 22 December 2011allocated to the com- The allocation plan established by the decree of the Government Emission Rights 34. Off-balanceSheetAssets,ContingentLiabilitiesandCommitments,continued

- The loan agreements concluded by the Group set certain cove- Collaterals, GuaranteesandCourtActions nants on the Group’s consolidated financial indicators. The indicators. financial consolidated Group’s the on nants (31 December2011:EUR 34.0million). million 136.6 EUR of amount the in 2015 and 2014 2013, December in allowances emissions gas greenhouse buying for contracts concluded had group the 2012 December 31 at As Contracts forBuyingGreenhouseGasEmissionsAllowances 404.9 million(31December2011:EUR1,111.6million). EUR totalling assets non-current of acquisition the to relating liabilities contractual had Group the 2012, December 31 at As Capital CommitmentsARisingfromConstructionContracts res additionalinvestmenttobemade. more rigorous from year 2016. Completing this obligation requi- comply with the environmental requirements which will become to need air atmospheric into boilers shale oil from pollutants According to the legislation of European Union and Estonia, the Norms Environmental the Comply with to Requirement (c) Commitments EUR 51.2 million (as at 31 December 2011: EUR 56.5 million). of loans drawn had Link Energy Nordic AS 2012, December 31 at As 3.1). (Notes terms contractual of breach to due Link Energy Nordic AS from loans of payment full require should banks the if banks the and Link Energy Nordic AS associate its obligations arising from the loan contracts entered into between the for 39.9% to up of guarantee a granted has Group The covenants havebeenadheredto.

Contents 138 Eesti Energia Annual Report 2012 Consolidated Financial Statements Liabilities ofdisposalgroupclassifiedasheldforsale Assets ofDisposalGroupClassifiedasHeldforSale for thesaleofshareholdinginTelevõrguAS(Note36). contract sales a into entered Group the 2012 January 16 On buyer. potential the with negotiations conducting was and AS Televõrgu of process sale the of middle the in was Group the AS were presented as held for sale in these financial reports as As at 31 December 2011 the assets and liabilities of Televõrgu group classifiedasheldforsale 35. Assetsandliabilitesofdisposal EUR million in EUR million in Total liabilities classified as held for sale for held as classified liabilities Total sale for held as classified assets Total 8) 6and (Notes assets intangible and equipment and plant Property, Trade and other payables other and Trade Inventories receivables other and Trade 31 December 31 December 2012 2012 ------2011 2011 10.3 1 8 11. 4.0 4.0 0.1 1.4 Net AssetsoftheSubsidiaryDisposed Televõrgu ASwaspartoftheRetailBusinesssegment. disposal, its Until completed. was AS Televõrgu in shareholding 100% the of sale the of transaction the 2012 February 17 On (a) TelevõrguAS 36. EUR million in transaction in flows in Cash Total cash inflows in transaction in inflows cash Total in bank accounts bank in subsidiary of equivalents cash and Cash sale from Proceeds Gain on sale (Note 33) (Note sale on Gain price Sales disposed subsidiary th of assets net Total payables other and Trade assets Intangible equipment and plant Property, Inventories receivables other and Trade equivalents cash and Cash Disposal ofsubsidiaries 17 February 2012 17 February 22.1 22.4 22.4 10.2 (0.3) (3.9) 13.6 8.8 2.0 0.3 0.1 0.1 Contents 139 Eesti Energia Annual Report 2012 Consolidated Financial Statements Net AssetsoftheSubsidiaryDisposed of theElectricityandHeatGenerationsegment. part was Soojus Kohtla-Järve AS disposal, its Until concentrate. the Estonian Competition Authority had given the permission to Energia. The transaction was completed on 8 March 2011 after the sale of the shareholding in AS Kohtla-Järve Soojus to OÜ VKG 22 December 2010 the Group entered into a sales contract for (b) ASKohtla-JärveSoojus 36. DisposalofSubsidiaries,continued EUR million in transaction in inflows cash Total transaction in flows in Cash Gain on sale (Note 33) (Note sale on Gain price Sales greenhouse gas allowances of amount the compensate to obligation The assets net the of share interest’s Non-controlling disposed subsidiary th of assets net Total Provisions income Deferred payables other and Trade Borrowings equipment and plant Property, Cash and cash equivalents of subsidiary in bank accounts bank in subsidiary of equivalents cash and Cash sale from Proceeds Inventories receivables other and Trade equivalents cash and Cash

8 March 20118 March (2.0) (5.8) (3.4) (1.5) (7.7) (0.1) 16.0 5.0 0.2 0.2 5.6 5.6 4.3 2.4 4.1 1.5 (a) SIAEnefitPower&HeatValka No businesscombinationsoccurredin2012. Other EntitiesAcquired 37. BusinessCombinationsand date. lities assumed and the non-controlling interest at the acquisition Enefit Power & Heat Valka, the fair value of assets aquired, liabi SIA for paid consideration the summarises table following The ment projectoftheco-generationplant. amounted to EUR 0.6 million and is attributable to the develop recognition, separate for qualify not did that acquisition, the co-generation of electricity and heat. The goodwill arising from effective develop to and Group the of portfolio generation sify diver to was company the of acquisition the of purpose The completed. a new biofuel-fired electricity and heat co-generation plant was that operate on biofuel and fuel oil and in 2012 the building of acquired company generates thermal energy in two boiler plants The enterprise. the of 90% owns Group the which after capital, share the increased and Valka) Heat & Power Enefit SIA name (new Kompanija” Bioenergo “Valkas SIA company Latvian of shares the of 75% acquired Group the 2011 January 17 On - - -

Contents 140 Eesti Energia Annual Report 2012 Consolidated Financial Statements contributed by SIA Enefit Power & Heat Valka was EUR 0,6 million. hensive income from 17 January 2011 to 31 December 2011 The revenue included in the consolidated statement of compre interest inthefairvalueof thenetidentifiableassetsacquired. non-controlling the to according estimated was Valka Heat & The fair value of the non-controlling interest in SIA Enefit Power of thereceivables. amount contractual the to equal was that million, 0.1 EUR was date acquisition the at receivables trade the of value fair The receipt ofthesubsidyfromEuropeanUnion. additional consideration of EUR 0.2 million will be paid after the an contract the to According 2011. December 31 ended year the for statement income consolidated the in expenses rating Acquisition-related costs have been charged to the other ope- continued 37. BusinessCombinationsandOtherEntitiesAcquired, Total 8) (Note Goodwill Non-controlling interest assets net identifiable Total assumed liabilites and acquired assets identifiable of amounts Recognised acquisition of cost Total Consideration EUR million in Trade and other payables other and Trade Borrowings 8) (Note assets Intangible 6) (Note equipment and plant Property, receivables Trade future the in paid be to Cash paid Cash

(0.2) (0.1) (0.1) 0.8 0.8 0.3 0.3 0.6 0.6 0.2 0.2 0.3 0.3 0.1 0.8 0.2 0.6 - Osaühing Pogi, whose primary activities include the produc- the include activities primary whose Pogi, Osaühing in share 66.5% acquired Group the 2011 October 10 On (b) OsaühingPogi million overthesameperiod. SIA Enefit Power & Heat Valka also contributed loss of EUR 0,3 and thenon-controllinginterestatacquisitiondate. Osaühing Pogi, the fair value of assets aquired, liabilities assumed for paid consideration the summarises table following The of theco-generationplant. to EUR 0.4 million and is attributable to the development project acquisition, that did not qualify for separate recognition, amounted generation of electricity and heat. The goodwill arising from the co- effective develop to and Group the of portfolio generation diversify to was company the of acquisition the of purpose The will becompletedin2013. plant co-generation new The biomass. using plant generation started building a new effective and environmentally friendly co- has company The Paide. town in heat of sales and heat of tion Total 8) (Note Goodwill Non-controlling interest assets net identifiable Total assumed liabilites and acquired assets identifiable of amounts Recognised acquisition of cost Total Consideration EUR million in Trade and other payables other and Trade Borrowings 6) (Note equipment and plant Property, Inventories receivables other and Trade Cash paid paid Cash

(0.5) (0.2) (0.5) 0.4 0.4 1.2 1.2 1.3 1.3 0.3 0.3 0.4 0.4 1.3 1.2 1.2

Contents 141 Eesti Energia Annual Report 2012 Consolidated Financial Statements of EUR1.6millionandprofit0million. revenue show would 2011 income of statement consolidated Had Osaühing Pogi been consolidated from 1 January 2011, the also contributedprofitofEUR0millionoverthesameperiod. contributed by Osaühing Pogi was EUR 0.6 million. Osaühing Pogi hensive income from 10 October 2011 to 31 December 2011 The revenue included in the consolidated statement of compre fair valueofthenetidentifiableassetsacquired. the in interest non-controlling the to according estimated was Pogi Osaühing in interest non-controlling the of value fair The of thereceivables. amount contractual the to equal was that million, 0.2 EUR was date acquisition the at receivables trade the of value fair The year ended31December2011. the for statement income consolidated the in expenses rating Acquisition-related costs have been charged to the other ope- continued 37. BusinessCombinationsandOtherEntitiesAcquired, - leted on 30 March 2011. The management estimates that the that estimates management The 2011. March 30 on leted comp- was transaction The million). 29.6 (EUR million 42 USD name Enefit American Oil) in the USA for the purchase price of 100% of the shares of the Oil Shale Exploration Company (new On 14 January 2011 the Group signed a contract for acquiring (c) EnefitAmericanOil Other EntitiesAcquired were acquireddonotconstituteabusiness. that assets the as combination business a not was transaction assets and liabilities and assets identifiable the between cost the of Allocation liabilities and assets Total Trade and other payables other and Trade 8) (Note rights Contractual 6) (Note equipment and plant Property,

29.6 (0.2) 27.7 2.1 Contents 142 Eesti Energia Annual Report 2012 Consolidated Financial Statements ficant influenceofthestate. signi- or control the under entities include also parties Related influence. significant or control have persons these which over supervisory boards of the parent company, and other companies and management the of members associates, include parties related the statements, financial Group’s the preparing In nia. The sole shareholder of Eesti Energia AS is the Republic of Esto 39. RelatedPartyTransactions share (Note19). 150 million new shares with the nominal value of one euro per Eesti Energia AS was increased by EUR 150 million by releasing the Government of Estonia of 3 May 2012, the share capital of basic earnings per share all the periods. Under Order No. 196 of no potential ordinary shares, diluted earnings per share equal to are there As outstanding. shares ordinary of number average weighted the by company the of holders equity the to butable attri- profit dividing by calculated are share per earnings Basic 38. EarningsPerShare Basic earnings per share (EUR) share per earnings Basic (million) shares of number average Weighted company (million EUR) the of holders equity the to attributable Profit Diluted earnings per share (EUR) share per earnings Diluted 1 January -31 December 1 January 571.2 2012 77.3 0.14 0.14 149.3 471.6 2011 0.32 0.32 - are concludedusingagreedprices. transactions other All used. are Authority Competition Estonian the by set prices the electricity, selling and purchasing In payment of3months’remunerationasterminationbenefits. ber of the Management Board, the service contracts stipulate the Upon premature termination of the service contract with a mem in thereportingperiodorcomparativeperiod. in Note 23. No impairment loss from receivables was recognised associates are disclosed in Note 12 and payables to associates from Receivables 29. Note in disclosed is Boards Supervisory The remuneration paid to the members of the Management and or significantinfluence. control has state the which over entities the with transactions individually-significant any conclude didn’t Group the 2012 In influence significant have Board Supervisory and Management of members the which over entities with Transactions EUR million in associates with Transactions Proceeds from sale of goods and services and goods of sale from Proceeds services and goods of Purchase Purchases of goods and services and goods of Purchases Loans granted Loans Financial expenses 1 January -31 December 1 January 2012 26.5 4.2 2.3 2.9 1.7 2011 27.4 3.2 0.6 3.5 4.0 -

Contents 143 Eesti Energia Annual Report 2012 Consolidated Financial Statements company. parent the of statements financial separate the in cost at ted statements. Investments in subsidiaries and associates are repor have been used in the preparation of the consolidated financial that policies accounting same the using prepared been have Estonia. The primary financial statements of the parent company of Act Accounting the by required is which of disclosure the the primary separate financial statements of the parent company, Financial information disclosed on the parent company includes Parent Company 41. FinancialInformationonthe commercial profitoftheelectricitysellerisadded. reasonable a and Spot Pool Nord of price the by calculated is service universal the as sold electricity the of price The service. universal using stay they or price market the on based sellers electricity the with contracts conclude Customers ended. has regulation price electricity former and clients the all for open From 1 January 2013 Estonian electricity market is completely 40. EventsAftertheReportingPeriod -

Statement ofComprehensiveIncome Income Statement TOTAL COMPREHENSIVE INCOME FOR THE YEAR YEAR THE FOR PROFIT OPERATING PROFIT YEAR FINANCIAL THE FOR PROFIT NET PROFIT BEFORE TAX EUR million in EUR million in Other Other comprehensive income for the year instruments hedge risk of Revaluation Other comprehensive income Depreciation, andamortisation impairment expenses Payroll Other operating expenses used consumables and materials Raw grants Government Other operating income Revenue Other Other expenses Total financial income and expenses Financial expenses income Financial

1 January -31 December 1 January 1 January -31 December 1 January (355.7) (30.6) (27.2) (31.5) (12.5) 412.3 107.1 2012 2012 (8.4) 75.6 28.3 81.9 81.9 84.8 81.9 6.3 2.9 0.1 2.9 (356.8) (23.3) (16.2) (18.7) 391.5 119.7 2011 2011 (6.8) (1.2) 82.0 82.0 82.0 29.2 67.9 37.7 84.1 14.1 37.7 0.2 Contents 144 Eesti Energia Annual Report 2012 Consolidated Financial Statements Statement ofFinancialPosition 41. FinancialInformationontheParentCompany,continued Equity Assets EUR million in Non-current assets Total equity Total assets Total Current assets Property, plant and equipment and plant Property, Inventories Hedge reserve capital reserve Statutory premium Share capital Share Total current assets equivalents cash and Cash 3 months than more of maturities with banks at Deposits loss or profit through value fair at assets Financial assets financial Available-for-sale instruments financial Derivative Total non-current assets subsidiaries from Receivables instruments financial Derivative associates in Investments Investments in subsidiaries in Investments assets Intangible Retained Retained earnings receivables other and Trade 1,240.1 1,240.1 2,090.7 1,138.3 952.4 259.8 194.8 992.7 299.1 621.6 221.9 31 December 497.1 2012 90.0 22.0 12.4 47.2 45.1 9.6 8.7 0.1 7.0 1.7 - 1,070.5 1,070.5 1,590.1 208.6 498.8 674.2 282.4 915.9 259.8 471.6 157.8 617.0 2011 22.0 33.9 10.2 15.6 47.2 13.1 9.5 4.9 8.1 0.1 - Liabilities in million EUR EUR million in Total liabilities Total Current liabilities Current Non-current liabilities Non-current equity and liabilities Total Borrowings Borrowings Total current liabilities current Total Provisions instruments financial Derivative payables other and Trade liabilities non-current Total Provisions Deferred income Other payables

2,090.7 850.6 732.5 731.3 31 December 1 .1 118 1 .1 116 2012 0.2 0.2 0.9 0.4 0.1 1.4 1,590.1 436.0 519.6 434.7 2011 83.6 81.3 0.8 0.3 0.9 0.1 0.1 1.4 Contents 145 Eesti Energia Annual Report 2012 Consolidated Financial Statements Cash FlowStatement 41. FinancialInformationontheParentCompany,continued Cash flowsCash from operating activities EUR million in Net cash flows from operating activities operating from flows cash Net received Interest costs paid borrowing and Interest Net change in liabilities relating to operating activities operating to relating liabilities in change Net operating activities to relating assets current in change Net Adjusted net profit Adjustments Profit before tax before Profit Change in provisions in Change receivables doubtful from Loss Depreciation of property, plant and equipment and plant property, of Depreciation Interest income borrowings on expense Interest operating activities to relating liabilities in change net Total operating activities other to related liabilities in change Net payables trade in Change operating activities to relating assets current in change net Total operating activities other to relating assets current in change Net inventories in Change activities operating to relating receivables in Change Gain/loss on unpaid/unsettled derivatives investments on gains/losses Other asubsidiary of sale from Profit Profit/loss from sale of property, plant and equipment and plant property, of sale from Profit/loss assets non-current hase purc to received grant government of Amortisation assets intangible of Amortisation - 1 January -31 December 1 January (26.2) (37.2) (20.8) (22.8) (65.8) (14.9) (41.9) 2012 35.9 35.9 34.4 34.4 30.2 30.2 10.0 10.0 30.4 30.4 10.5 (1.1) 81.9 0.2 0.2 2.0 2.0 4.0 4.0 0.4 0.4 3.1 3.1 0.1 7.9 - (17.2) (12.2) (27.4) (69.1) 23.2 23.2 (8.0) 2011 (9.3) 16.6 16.6 27.9 27.9 (0.6) 19.2 (3.2) (5.3) 13.5 (7.5) (0.1) 82.0 2.2 2.2 9.0 9.0 4.6 4.6 0.7 0.1 - activities investing from flows Cash activities financing from flows Cash Net cash flows cash Net Contribution to the share capital of subsidiaries of capital share the to Contribution investments financial short-term of Purchase financial investments financial short-term of redemption and sale from Proceeds Proceeds from sale of property, plant and equipment and plant property, of sale from Proceeds assets intangible and equipment and plant property, of Purchase than 3months than more of maturities with deposits term in change Net subsidiaries from received Dividends used being from restricted cash in change Net Bank loans received loans Bank subsidiaries of sale from Proceeds in million EUR EUR million in Change in overnight deposit received from subsidiaries from received deposit overnight in Change loans bank of Repayments Dividends paid capital share the to Contribution Net increase/decrease in cash and cash equivalents cash and cash in increase/decrease Net period the of end the at equivalents cash and Cash activities financing from generated cash Total Change in overdraft granted to subsidiaries to granted overdraft in Change subsidiaries to granted loans of Repayments subsidiaries to granted Loans subsidiaries of Purchase subsidiary of liquidation from Proceeds Proceeds from bonds issued bonds from Proceeds activities investing in used cash Net loans other of Repayments granted loans Other Cash and cash equivalents at the beginning of the period the of beginning the at equivalents cash and Cash 1 January -31 December 1 January (379.2) (325.3) 380.4 380.4 (90.0) 150.0 (65.2) (26.4) (53.9) 297.0 (16.5) (19.3) 2012 65.2 65.2 32.8 32.8 25.0 25.0 33.9 22.4 11. 2 2 11. 11. 2 2 11. (3.6) (4.2) 45.1 3.0 8.9 8.9 0.6 0.6 0.7 - - - (208.1) (30.4) (12.5) (12.5) (58.9) 136.0 (79.7) (37.8) 181.4 (56.1) (19.7) (17.9) 2011 46.4 46.4 33.9 16.3 46.1 (0.3) 56.1 (2.3) (4.1) 1.3 1.3 4.6 4.6 7.8 0.1 7.4 - - - Contents 146 Eesti Energia Annual Report 2012 Consolidated Financial Statements Statement ofChangesinEquity 41. FinancialInformationontheParentCompany,continued EUR million in equity as at 31 December 2011 19) 31 at (Note as December equity Adjusted unconsolidated recognised directly in equity directly recognised company, the of owners with transactions Total Dividends paid as at 31 December 2010 19) (Note 31 at as December Adjusted unconsolidated equity method equity using influence significant and controlling under holdings of amount Carrying influence significant and controlling under holdings of amount Carrying 2010 31 at as December Equity Other Other comprehensive income for the year Profit for the year the for Profit influence significant and controlling under holdings of amount Carrying Equity as at 31 December 2011 31 at as December Equity method equity using influence significant and controlling under holdings of amount Carrying Business combination under common control equity in of the company, recognised directly to distributions and by contributions Total Total comprehensive income for the year

owners owners capital 471.6 471.6 471.6 Share Share ------premium 259.8 259.8 259.8 Share Share ------reserve capital reserve Statutory 47.2 47.2 47.2 ------Reserve (28.2) (34.6) Hedge Hedge (0.4) 37.7 37.7 (9.9) (6.4) 37.7 9.5 - - - - - differences translation translation Currency 3.5 3.5 3.5 3.5 ------Retained Retained earnings (498.8) (501.3) 360.3 360.3 453.5 453.5 604.8 604.8 256.7 256.7 669.9 (56.1) (56.3) 282.4 (56.1) 82.0 82.0 82.0 82.0 (0.2) - 1,235.2 1,235.2 1,007.2 1,104.3 1,104.3 (498.8) 1,070.5 (501.3) 663.5 663.5 598.4 598.4 (56.1) 119.7 119.7 (56.3) (56.1) 82.0 82.0 (0.2) 37.7 37.7 Total Contents 147 Eesti Energia Annual Report 2012 Consolidated Financial Statements make paymentstoitsshareholders. Under the Accounting Act of Estonia, adjusted unconsolidated retained earnings are the amount from which a public limited company can Statement ofChangesinEquity 41. FinancialInformationontheParentCompany,continued EUR million in equity as at 31 December 2012 19) (Note 31 at as December equity Adjusted unconsolidated Equity as at 31 December 2012 31 at as December Equity equity in directly recognised company, the of owners with transactions Total method equity using influence significant and controlling under holdings of amount Carrying influence significant and controlling under holdings of amount Carrying equity in directly recognised company, the of owners to distributions and by contributions Total Dividends paid capital share the to Contribution as at 31 December 2011 19) 31 at (Note as December Adjusted unconsolidated equity Other Other comprehensive income for the year year the for Profit method equity using influence significant and controlling under holdings of amount Carrying influence significant and controlling under holdings of amount Carrying Equity as at 31 December 2011 31 at as December Equity Total comprehensive income for the year

capital 150.0 150.0 621.6 471.6 150.0 Share Share - - - - premium 259.8 259.8 Share Share ------reserve capital reserve Statutory 47.2 47.2 ------Reserve Hedge Hedge (0.4) (0.9) (9.9) 12.4 1 5 11. 2.9 9.5 2.9 - - - - - differences translation translation Currency 3.5 3.5 3.5 3.5 2.4 2.4 ------Retained Retained earnings (498.8) (497.1) 453.6 453.6 (65.2) (65.2) 669.9 (65.2) 465.6 282.4 663.6 299.1 81.9 81.9 - - 1,235.2 1,235.2 1,070.5 1,408.1 (498.8) 1,240.1 (497.1) 663.5 663.5 (65.2) 150.0 665.1 84.8 84.8 84.8 84.8 Total 81.9 2.9 Contents 148 Eesti Energia Annual Report 2012 Consolidated Financial Statements :+7 1 80 :+7 1 90 www.pwc.ee 1900, 614 +372 F: Estonia 1800, 614 Tallinn, +372 10141 T: 15, mnt Pärnu PricewaterhouseCoopers, translation. AS this over precedence takes report our of version language original the opinions, or views information, of interpretation  2013 February 27 No.325 Certificate Auditor’s Vilu Ago financial their and 2012, Union. December European 31 the of by as adopted subsidiaries as its Standards and Reporting PricewaterhouseCoopers Financial AS International AS Energia with Eesti accordance of in position ended financial then the year respects, material the all for flows in fairly, cash present and statements performance financial consolidated the opinion, opinion. our audit accounting In our of for reasonableness basis the a the provide and for to used appropriate not policies and but accounting sufficient circumstances, Opinion is of statements. the obtained appropriateness financial have in the consolidated we appropriate internal evaluating evidence the considers are includes audit of auditor that also the presentation the procedures that audit overall assessments, believe audit An the risk We design control. evaluating judgment, those to internal auditor’s as making order entity’s well the In in the as on error. statements of management, or depend financial effectiveness by fraud selected consolidated the made procedures to the misstatement. on The due estimates of opinion material whether statements. presentation from an statements, financial fair free financial expressing consolidated and are consolidated of the preparation the statements purpose in entity’s of financial disclosures the misstatement consolidated and material to the amounts of relevant whether standards the risks control about Those about the Auditing. assurance evidence on of reasonable audit Standards assessment International obtain obtain the with to to accordance including audit procedures in the performing audit perform our involves conducted and audit We plan An audit. and our requirements on ethical based statements with financial comply consolidated misstatement, these we on material that opinion from require an free express are to that is responsibility statements the Our financial by consolidated adopted of as preparation Standards the Reporting enable Financial to International Responsibility necessary Auditor’s with is accordance determines in error. Board statements or Management financial the fraud consolidated as to these control due of internal whether presentation such fair for significant and and of preparation Union, summary the European a for comprising responsible notes is and and Board ended, 2012 Management December then 31 year the of Statements for Financial as Consolidated flows position the financial cash for of of Responsibility statement statement Board’s Management consolidated and equity the comprise in which changes subsidiaries, information. of explanatory its statement other and income, and comprehensive AS policies accounting of Energia statement Eesti statement, of income statements consolidated financial the consolidated accompanying the audited have We AS Energia Eesti of Shareholder the To original) Estonian the of (Translation REPORT AUDITOR’S INDEPENDENT hsvrino u eoti rnlto rmteoiia,wihwspeae nEtna.Alpsil aehsbe ae oesr httetasaini nacrt ersnaino h rgnl oee,i l atr of matters all in However, original. the of representation accurate an is translation the that ensure to taken been has care possible All Estonian. in prepared was which original, the from translation a is report our of version This  rsiHõrrak Kristi uio’ etfct No.548 Certificate Auditor’s Contents 149 Eesti Energia Annual Report 2012 Consolidated Financial Statements the retainedearningsofEestiEnergiaGroupasat31December2012follows: The ManagementBoardthusproposesundersection332oftheCommercialCodeEstoniatoallocate the GovernmentofRepublic,EestiEnergiaASisrequiredtopay73,480,000EURasdividendsin2013. approved by the Government of Estonia at the proposal of the Minister of Finance. According to the dividend distribution plan disclosed by be shall interest controlling has state the where entity an by payable dividends the that states Act Assets State the of 77 § of 1 Paragraph The retainedearningsofEestiEnergiaGroupasat31December2012were465,623,346.80EUR. Profit AllocationProposal 3. 2. 1. financing needsoftheEestiEnergiaGroup. not todistributetheremainingretainedearningsof388,277,140.81EUR,duecontinuing to transferthestatutoryreservecapital3,866,205.99EUR; to pay73,480,000.00EURasdividendsshareholder; Contents 150 Eesti Energia Annual Report 2012 Consolidated Financial Statements The ManagementBoardhaspreparedthemanagementreport,consolidatedfinancialstatementsandprofitallocationprop osal. the consolidatedfinancialstatements,auditor’sreportandprofitallocationproposal. The AnnualReportoftheEestiEnergiaGroupforfinancialyearendedon31December2012consistsmanagementrep ort, to theAnnualReportforFinancialYear 2012 Signatures oftheManagementBoard Sandor Liive Chairman oftheManagementBoard 27 February2013 MANAGEMENT BOARD Margus Rink Raine Pajo Margus Kaasik Members oftheManagementBoard Contents 151 Eesti Energia Annual Report 2012 Consolidated Financial Statements Eesti Energia AS Laki 24, 12915 Tallinn, Estonia tel +372 715 2222 fax +372 715 2200 [email protected] I www.energia.ee