DTEK Energy B.V.

Abbreviated Consolidated Financial Statements

31 December 2018

Independent auditor’s report

To: the management board of DTEK Energy B.V.

Report on the abbreviated consolidated financial statements 2018

Our opinion In our opinion the accompanying abbreviated consolidated financial statements 2018 of DTEK Energy B.V. (‘The Company’), are consistent, in all material respects, with the audited statutory financial statements, in accordance with the basis described in Note 3 on page 8 of the abbreviated consolidated financial statements.

The abbreviated consolidated financial statements The Company’s abbreviated consolidated financial statements derived from the audited statutory financial statements for the year ended 31 December 2018 comprise: · the abbreviated consolidated balance sheet as at 31 December 2018; · the abbreviated consolidated income statement and statement of comprehensive income for the year then ended; · the abbreviated consolidated statement of changes in equity for the year then ended; · the abbreviated consolidated statement of cash flows for the year then ended; and the related notes to the abbreviated consolidated financial statements.

The abbreviated consolidated financial statements do not contain all of the disclosures required by International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code. Reading the abbreviated consolidated financial statements and the auditor’s report there on, therefore, is not a substitute for reading the audited statutory financial statements of DTEK Energy B.V. and the auditor’s report thereon.

The audited statutory financial statements and the abbreviated consolidated financial statements do not reflect the events that occurred subsequent to the date of our report on the audited statutory financial statements.

SFYAYFKSRVRU-452905381-27

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The audited statutory financial statements and our auditor’s report thereon We expressed an unmodified audit opinion on the audited statutory financial statements in our report dated 16 April 2019. The report also includes: · A ‘Material uncertainty related to going concern’ section that draws attention to the paragraph ‘going concern’ as included in Note 3 of the consolidated financial statements (as well as in paragraph ‘going concern’ in Note 3 of the abbreviated consolidated financial statements), which states that DTEK Energy B.V. has been negatively affected by the devaluation of the national currency of Ukraine in the period 2014 to 2016. This resulted in a breach of certain bank covenants and thus gave a number of the Group’s lenders the ability to legally require repayment of the respective debt on demand. In December 2016, the Group’s bonds were restructured. Furthermore, in 2017-2018 a majority of the Group’s bank borrowings were also restructured. The Group remains in discussions with lenders towards the goal of restructuring its remaining bank borrowings, which continue to be in breach of certain bank covenants. As a consequence, in order for the Group to achieve its positive cash flow estimates for periods throughout 2019 and the first six months of 2020, the Group among other assumptions made by management, is still dependent on the willingness of the Group’s remaining lenders not to demand repayment in relation to the unrestructured part of the debt and to continue their support of the Group. This, along with other matters as described in the paragraph ‘going concern’ as included in Note 3, indicates the existence of a material uncertainty which may cast significant doubt about the ability of DTEK Energy B.V. to continue as a going concern.

Responsibilities of management for the abbreviated consolidated financial statements Management is responsible for the preparation of the abbreviated consolidated financial statements in accordance with the basis described in Note 3.

Auditor’s responsibility Our responsibility is to express an opinion on whether the abbreviated consolidated financial statements are consistent, in all material respects, with the audited statutory financial statements based on our procedures, which we conducted in accordance with Dutch Law, including the Dutch Standard 810 ‘Engagements to report on summary financial statements’.

Amsterdam, 16 April 2019 PricewaterhouseCoopers Accountants N.V.

Original has been signed by A.G.J. Gerritsen RA

DTEK Energy B.V. – SFYAYFKSRVRU-452905381-27

Page 2 of 2 CONTENTS

Independent auditor’s report

Abbreviated Consolidated Balance Sheet ...... 1 Abbreviated Consolidated Income Statement ...... 2 Abbreviated Consolidated Statement of Comprehensive Income ...... 2 Abbreviated Consolidated Statement of Changes in Equity ...... 3 Abbreviated Consolidated Statement of Cash Flows ...... 4

Notes to the Abbreviated Consolidated Financial Statements

1 The Organisation and its Operations ...... 5 2 Operating Environment of the Group ...... 7 3 Significant Accounting Policies ...... 8 4 Critical Accounting Estimates and Judgements ...... 17 5 Adoption of New or Revised Standards and Interpretations ...... 20 6 Subsidiaries with material non-controlling interest ...... 21 7 Segment Information ...... 22 8 Balances and Transactions with Related Parties ...... 25 9 Property, Plant and Equipment ...... 27 10 Intangible Assets ...... 29 11 Goodwill ...... 30 12 Financial Investments...... 32 13 Inventories ...... 33 14 Trade and Other Receivables ...... 33 15 Cash and Cash Equivalents ...... 36 16 Loss of control over the operations of entities located in non-controlled territory ...... 37 17 Share Capital ...... 39 18 Other Reserves ...... 40 19 Borrowings ...... 41 20 Other Financial Liabilities ...... 43 21 Retirement Benefit Obligations ...... 45 22 Provisions for Other Liabilities and Charges ...... 46 23 Trade and Other Payables ...... 47 24 Other Taxes Payable ...... 48 25 Revenue ...... 48 26 Cost of Sales ...... 49 27 Other Operating Income ...... 49 28 Distribution Costs ...... 49 29 General and Administrative Expenses ...... 50 30 Other Operating Expenses ...... 50 31 Finance Income and Finance Costs ...... 51 32 Income Taxes ...... 51 33 Contingencies, Commitments and Operating Risks ...... 54 34 Acquisition of entities under common control ...... 56 35 Discontinued operations ...... 57 36 Financial Risk Management ...... 60 37 Management of Capital ...... 62 38 Fair Value of Assets and Liabilities ...... 63 39 Reconciliation of Classes of Financial Instruments with Measurement Categories ...... 63 40 Changes in accounting policies ...... 64 41 Subsequent events ...... 66 DTEK Energy B.V. Abbreviated Consolidated Balance Sheet

In millions of Ukrainian Hryvnia Note 31 December 2018 31 December 201 7 ASSETS Non -current assets Property, plant and equipment 9 58,648 77,049 Intangible assets 10 1,051 1,592 Goodwill 11 3,854 4,384 Financial investments 12 12,469 11,857 Income tax prepaid 44 171 Deferred income tax asset 32 1,210 947 Trade and other receivables 14 8 407 Total non -current assets 77,284 96,407 Current assets Inventories 13 3,328 4,814 Trade and other receivables 14 14,932 24,600 Income tax prepaid 220 46 Financial investments 12 283 136 Cash and cash equivalents 15 3,582 5,611 Total current assets 22,345 35,207 TOTAL ASSETS 99,629 131,614

EQUITY Share capital 17 0 0 Share premium 9,909 9,909 Other reserves 18 23,263 29,789 Accumulated deficit (20,992) (28,366) Equity attributable to owners of the parent 12,180 11,332 Non -controlling interest in equity 348 7,729 TOTAL EQUITY 12,528 19,061

LIABILITIES Non -current liabilities Borrowings 19 48,479 47,898 Other financial liabilities 20 3,566 5,516 Retirement benefit obligations 21 5,987 5,992 Provisions for other liabilities and charges 22 974 1,159 Deferred income tax liability 32 3,272 4,724 Total non -current liabilities 62,278 65,289 Current liabilities Borrowings 19 7,520 16,384 Other financial liabilities 20 398 453 Prepayments received 2,722 7,008 Trade and other payables 23 10,275 19,072 Current income tax payable 1,029 793 Other taxes payable 24 2,879 3,554 Total current liabilities 24, 823 47, 264 TOTAL LIABILITIES 87,101 112,553 TOTAL LIABILITIES AND EQUITY 99,629 131,614

Signed by entire Management Board Approved for issue and signed by entire Supervisory on 16 April 2019 Board on 16 April 2019 Oleg Popov Timchenko Maksym Viktorovich Sergey Korovin Director Irina Mykh Robert Sheppard SCM Management B.V. Damir Akhmetov Director Catherine Stalker Johan Bastin

1 DTEK Energy B.V. Abbreviated Consolidated Income Statement

In millions of Ukrainian Hryvnia Note 201 8 201 7 Continuing operations: Revenue 25 90,786 77,043 Cost of sales 26 (71,519) (57,626) Gross profit 19,267 19,417 Other operating income 27 320 165 Distribution costs 28 (1,196) (733) General and administrative expenses 29 (2,514) (2,156) Net impairment losses on financial assets 12,14 (746) 489 Other operating expenses 30 (3,449) (4,081) Net operating foreign exchange loss (249) (460) Loss of control over the operations of entities located in 16 non-controlled territory - (3,778) Operating profit 11,433 8,863 Foreign exchange losses less gains on financing and investing activities 744 (2,613) Finance income 31 1,883 1,773 Finance costs 31 (6,789) (9,014) Profit/(loss) before income tax 7,271 (991 ) Income tax expense 32 (1,981) (995) Profit/(l oss ) for the year from continuing operations 5, 290 (1,986 ) Discontinued operations: Loss for the year from discontinued operations 35 (455) (930) Profit/(l oss ) for the year 4,835 (2,916) Profit/(loss) is attributable to: Equity holders of the Company 5,297 (2,626) Non-controlling interest (462) (290) Consolidated Statement of Comprehensive Income

In millions of Ukrainian Hryvnia Note 2018 2017 Profit/(loss) for the period 4,835 (2,916) Items that may be reclassified to profit or loss: Recycling of cash flow hedge reserve to income statement 18 159 220 Currency translation reserve 18 (100) 143 Items that will not be reclassified to profit or loss: Property, plant and equipment: - Change in estimate for asset retirement obligation 22 204 (262) - Income tax recorded on change in estimate for asset retirement obligation 32 (37) 47 - Increase in valuation of property, plant and equipment 9 - 32,003 - Decrease in valuation of property, plant and equipment 9 (3,292) (4,787) - Income tax recorded on revaluation of property, plant and equipment 32 587 (4,899) Re-measurements of post-employment benefit obligations 21 165 (1,555) Income tax recorded on re-measurements of post- employment benefit obligations 32 (10) 280 Loss of control over the operations of entities located in non-controlled territory 16 - (3,540) Income tax attributable to loss of control over the operations of entities located in non-controlled territory - 466 Other comprehensive (loss) /income for the year 18 (2,324) 18,116 Total comprehensive income for the period 2,511 15,200 Total comprehensive income attributable to: Equity holders of the Company 3,923 11,821 Non-controlling interest (1,412) 3,379 Total comprehensive income for the period 2,511 15,200 Total comprehensive income for the period attributable 3,923 11,821 to equity holders of the Company arises from: Continuing operations 5,933 10,704 Discontinued operations (2,010) 1,117

2 DTEK Energy B.V. Abbreviated Consolidated Statement of Changes in Equity

Non - controlling Total Attributable to equity holders of the Company interest Equity

Share Share Other Accumulated In millions of Ukrainian Hryvnia capital premium reserves deficit Total Balance at 1 January 2017 0 9,909 19,017 (27,742) 1,184 4,530 5,714 Loss for 2017 - - - (2,626) (2,626) (290) (2,916) Other comprehensive income for 2017 - - 14,369 78 14,447 3,669 18,116 Total comprehensive income/(loss) for 2017 - - 14,369 (2,548) 11,821 3,379 15,200 Property, plant and equipment: - Realised revaluation reserve - - (5,061) 5,061 - - - - Deferred tax related to realised revaluation reserve - - 787 (787) - - - Acquisition of entities under common control (Note 34) - - 677 (2,350) (1,673) 237 (1,436) Dividends declared - - - - - (417) (417)

Balance at 31 December 2017 0 9,909 29,789 (28,366) 11,332 7,729 19,061

Balance at 1 January 2018 0 9,909 29,789 (28,366) 11,332 7,729 19,061 Retrospective application of new standards (Note 40) - - - (1,036) (1,036) (269) (1,305) Balance at 1 January 2018 after application of new standards 0 9,909 29,789 (29,402) 10,296 7,460 17,756 Profit for 2018 - - - 5,297 5,297 (462) 4,835 Other comprehensive income/(loss) for 2018 - - (1,522) 148 (1,374) (950) (2,324) Total comprehensive income/(loss) for 2018 0 - (1,522) 5,445 3,923 (1,412) 2,511 Property, plant and equipment: - Realised revaluation reserve - - (6,103) 6,103 - - - - Deferred tax related to realised revaluation reserve - - 1,099 (1,099) - - - Acquired non-controlling interest (Note 1) - - - (2,039) (2,039) (4,874) (6,913) Discontinued operations (Note 35) - - - - - (826) (826)

Balance at 31 December 2018 0 9,909 23, 263 (2 0,992) 12,180 348 12,528

3 DTEK Energy B.V. Abbreviated Consolidated Statement of Cash Flows

In millions of Ukrainian Hryvnia Note 2018 2017

Cash flows from operating activities Profit/(loss) before income tax from continued and discontinued operations 6,861 (2,020)

Adjustments for: Depreciation of property, plant and equipment and amortisation of intangible 9,10 12,123 9,446 assets Gain on disposal transaction 35 (1,896) - Impairment of property, plant and equipment, intangible assets and goodwill 30,35 3,625 1,137 Net loss / (gain) on disposals of property, plant and equipment and intangible 73 (86) assets Assets received free of charge 27 (205) (7) Net change in provision for financial investments, trade and other receivables 12,14 1,057 (426) and prepayments made Change in provisions for other liabilities and charges 22 22 79 Non-cash operating charge to retirement benefit obligation 21 76 (619) Unrealised foreign exchange differences on operating activity (38) (147) Foreign exchange losses less gains on financing and investing activities (744) 2,589 Finance costs, net 5,161 7,438 Loss of control over the operations of entities located in non-controlled 16 - 4,425 territory Other operating non-cash transactions 65 2 Operating cash flows before working capital changes 26,180 21,811 Changes in: Trade and other receivables 3,978 428 Inventories 1,449 (839) Prepayments received (778) (280) Trade and other payables (987) (817) Repayment of restructured obligations 20 (402) (165) Other financial liabilities (354) (3) Other taxes payable and tax provision, other than income tax (461) (1,070) Cash generated from operations 28,625 19, 065 Income taxes paid (3,259) (2,665) Defined employee benefits paid 21 (619) (545) Interest paid 19 (5,375) (2,604) Interest received 171 166 Provisions utilised 22 (70) (11) Net cash generated from operating activities 19,473 13,406 Cash flows from investing activities Purchase of property, plant and equipment and intangible assets (8,115) (7,798) Acquisition of entities under common control, net of cash acquired 34 - (2,466) Withdrawal/(placement) of restricted cash 15 73 (30) Withdrawal of deposits 12 24 87 Deferred consideration and finance lease related to acquisitions paid 20 (251) - Cash loss as a result of loss of control 16 - (39) Cash consideration received for disposal group and demerger of subsidiaries 1,35 893 - net of cash disposed Net cash used in investing activities (7,376) (10,246) Cash flows from financing activities Acquisition of non-controlling interest 1 (6,913) - Repayment of borrowings 19 (7,109) (4,860) Dividends paid to non-controlling participants 6 (1) (369) Net cash used in financing activities (14,023) (5,229) Net (decrease) /increase in cash and cash equivalents (1,926) (2,069) Cash and cash equivalents at the beginning of the year 15 5,524 7,488 Exchange gains on cash and cash equivalents (30) 105 Cash and cash equivalents at the end of the year 15 3,568 5,524

4 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

1 The Organisation and its Operations

DTEK Energy B.V. (the “Company”) is a private limited liability company incorporated in the Netherlands on 16 April 2009. The Company and its subsidiaries (together referred to as “the Group” or “DTEK Energy”) are beneficially owned by Mr. Rinat Akhmetov, through various entities commonly referred to as System Capital Management (“SCM”). Mr. Akhmetov has a number of other business interests outside of the Group. Related party transactions are detailed in Note 8. DTEK Energy B.V. is a vertically integrated coal mining, power generating and trading group. Its principal activities are coal mining for further supply to its power generating facilities primarily in Ukraine. The Group’s coal mines and power generation plants are located in the Donetsk (controlled territory), Lugansk (controlled territory), Dnipropetrovsk, Lviv, Ivano-Frankivsk, Vinnitsya and Zaporizhzhya regions in Ukraine. The Group sells major part of electricity generated to Energorynok SE, the state-owned electricity metering and distribution pool, at prices determined based on the competitive pool model adopted by the National Commission for State Regulation of Energy and Public Utilities in Ukraine. In December 2018 the Group disposed its distribution business (Note 35). The principal subsidiaries are presented below: % interest held as at 31 December Name/Segment Country of 2018 2017 incorporation Coal mining and power generation DTEK Pavlogradugol PJSC 100.00 99.91 Ukraine DTEK Mine Komsomolets Donbassa PJSC 95.31 95.31 Ukraine DTEK Dobropolskaya CEP PJSC 60.06 60.06 Ukraine DTEK Oktyabrskaya CEP PJSC 60.85 60.85 Ukraine Bilozerska Mine ALC 95.44 95.44 Ukraine Mospino CPE LLC 99.00 99.00 Ukraine Pershotravensky RMZ LLC 99.00 99.00 Ukraine Tehrempostavka LLC 100.00 100.00 Ukraine CCM Kurahovskaya LLC 99.99 99.99 Ukraine CCM Pavlogradskaya LLC 99.99 99.99 Ukraine DTEK Dobropolyeugol LLC 100.00 100.00 Ukraine DTEK Rovenkiantracyte LLC 100.00 100.00 Ukraine DTEK Sverdlovantracyte LLC 100.00 100.00 Ukraine DTEK Dniproenergo JSC 98.54 73.54 Ukraine DTEK Westenergy JSC (former, DTEK Zakhidenergo PJSC) 97.24 72.24 Ukraine DTEK Skhidenergo LLC 100.00 100.00 Ukraine DTEK Mironivka CHPP LLC 100.00 - Ukraine DTEK Hungary Power Trade LLC 100.00 100.00 Hungary DTEK Trading Limited 100.00 100.00 Cyprus DTEK Trading SA 100.00 100.00 Switzerland Interenergoservis LLC 99.99 99.99 Ukraine DTEK Scientific and Project Centre LLC 100.00 100.00 Ukraine DTEK Trading LLC 100.00 100.00 Ukraine Electricity distribution DTEK Energougol ENE PJSC - 95.71 Ukraine DTEK Donetsk Grids JSC (former, DTEK Donetskoblenergo PJSC) - 71.50 Ukraine DTEK Power Grid LLC - 100.00 Ukraine DTEK Dnipro Grids JSC (former, DTEK Dniprooblenergo PJSC) - 51.66 Ukraine DTEK Krymenergo PJSC 57.71 57.71 Ukraine Kyivenergo Kyivenergo PJSC 72.40 72.40 Ukraine Other DTEK Power B.V. (former, DTEK Grids B.V.) 100.00 100.00 Netherlands DTEK Finance B.V. 100.00 100.00 Netherlands DTEK Finance PLC 100.00 100.00 United Kingdom DTEK Investments Ltd 100.00 100.00 United Kingdom DTEK Holdings Limited 100.00 100.00 Cyprus GPL Power Limited 100.00 - Cyprus GPL Ingen Power Limited 100.00 - Cyprus DTEK Servis LLC - 99.00 Ukraine DTEK Energy LLC 100.00 100.00 Ukraine Elektronaladka LLC 99.00 99.00 Ukraine Corum Trading LLC (former, Sotsis LLC) 99.00 99.00 Ukraine Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC 61.17 61.17 Ukraine Corum Druzhkivskyi Machine-Building Plant LLC 100.00 100.00 Ukraine Corum Group LLC (former, Engineering and Technical Center Mining Machines LLC) 100.00 100.00 Ukraine

5 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

1 The Organisation and its Operations (Continued)

The Company is registered at Schiphol Boulevard 231 Tower B, 5 th floor, 1118BH, Luchthaven Schiphol, the Netherlands. The address of Ukrainian’s head office is 57 Lva Tolstogo str, 01032 Kyiv Ukraine. As at 31 December 2018, the Group employed approximately 52 thousand people (31 December 2017: 73 thousand people). Decrease in a number of employees is explained by discontinued operation of the Group (refer to the Note 35). Acquisition of non-controlling interests On 5 June 2018 the Group acquired in a transaction under common control non-controlling interest of 9.5% of share capital of DTEK Dniproenergo JSC and 9.5% of share capital of DTEK Westenergy JSC for a total consideration of USD 99 million (equivalent of UAH 2,589 million) by means of acquisition of 100% of share capital of their holding company GPL Power Limited. Further, on 6 December 2018 the Group acquired in another transaction under common control additional non- controlling interest of 15.5% of share capital of DTEK Dniproenergo JSC and 15.5% of share capital of DTEK Westenergy JSC for consideration of USD 154 million (equivalent of UAH 4,324 million) by means of acquisition of 100% of share capital of their holding company GPL Ingen Power Limited. The result on acquisitions, being the difference between consideration paid in amount of USD 253 million (equivalent of UAH 6,913 million at the dates of transactions) and the carrying value of the non-controlling interest acquired, was recognized directly in equity in the amount of UAH 2,039 million. Discontinued operations In order to comply with the requirements of the changes introduced by the Electricity Market Law of Ukraine, in 2018 the Group introduced a plan to separate its electricity distribution business in the following manner: (i) completed the reorganization of PJSC Kyivenergo whereupon PJSC Kyivenergo electricity supply activities were transferred to the Group’s new subsidiary LLC Kyiv Energy Services and electricity distribution assets and activities was transferred to PJSC DTEK Kyivski Elektromerezhi, an entity which spun off from PJSC Kyivenergo; (ii) created subsidiaries of JSC DTEK Dnipro Grids (former PJSC DTEK Dniprooblenergo) and JSC DTEK Donetsk Grids (PJSC DTEK Donetskoblenergo): LLC Dnipro Energy Services and LLC Donetsk Energy Services correspondingly, which are going to conduct electricity supply activities. As part of this plan the Group spun off generation business from JSC DTEK Donetsk Grids: created new subsidiary - DTEK Mironivka CHPP LLC to which all generation related assets and liabilities were transferred; (iii) disposed all the above distribution business to the entity under common control (Note 35). Also the heat and energy generation business of Kyivenergo was discontinued in 2018 upon the end of the agreement with Kyiv City Administration and all its production assets as well as certain end customer receivables and liabilities for gas purchased were transferred to the successor assigned by Kyiv City Administration. Group reorganisation Furthermore, as part of reorganisation plan in December 2018 the Group separated DTEK Servis LLC. Net assets existing as of the date of disposal in amount UAH 153 million (including UAH 126 million of cash and cash equivalents) were transferred to the Group’s Parent (DTEK B.V.) for cash consideration of UAH 153 million. The result of this transaction was not significant to these consolidated financial statements.

6 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

2 Operating Environment of the Group

The ongoing political and economic instability in Ukraine which commenced at the end of 2013 and led to a deterioration of State finances, volatility of financial markets, illiquidity on capital markets, higher inflation and depreciation of the national currency against major foreign currencies has continued in 2016-2018, though to a much lesser extent as compared to 2014 and 2015. The inflation rate in Ukraine stood at 9.8% for 2018 (as compared to 13.7% for 2017) while GDP continued to grow at 3.3% (2.1% in 2017) according to the statistics published by the National Bank of Ukraine. During 2017-2018 there has been easing of currency control restrictions that were introduced in 2014–2015. In particular, starting from March 2018 National Bank of Ukraine allowed Ukrainian companies to pay dividends to non-residents with a limit of USD 7 million per month regardless of the period. On 21 June 2018 Verkhovna Rada of Ukraine approved Law On Currency and Currency Operations, which came into force on 9 February 2019. The Law further lifts a number of currency restrictions, in particular individuals and business are able to invest abroad without obtaining an individual license from the NBU, it is no longer required to register loans obtained from non-residents with the NBU, sanctions that involve termination of foreign economic activities and application of individual licensing to currency regulation violators is cancelled, the NBU gradually lifts other effective currency restrictions subject to favourable economic conditions and currency control is replaced by currency supervision over the compliance with the limits set. The IMF has continued to support the Ukrainian government under the four-year Extended Fund Facility (“EFF”) Programme approved in March 2015, providing the fourth tranche of approximately USD 1 billion in April 2017. In December 2018 Ukraine has received USD 1.4 billion of the first tranche under a new Stand-By Arrangement (SBA) program for Ukraine, approved by the IMF Board of Directors on 18 December 2018. Further disbursements of IMF tranches depend on the continued implementation of Ukrainian government reforms, and other economic, legal and political factors. The banking system remains fragile due to its weak level of capital, low asset quality caused by the economic situation, currency depreciation, changing regulations and other factors. The conflict in the parts of Eastern Ukraine which started in spring 2014 has not been resolved to date. In January– March 2017, there was some escalation of military confrontation along the line of contact of the conflicting parties. The National Security and Defence Council of Ukraine issued resolution in March 2017 that completely suspended any freight transportation between the controlled and non-controlled territory of Ukraine, and this continues to date. In February–March 2017, the self-proclaimed authorities in the non-controlled territory announced their intention to seize business assets located in the non-controlled territory and to require businesses to comply with various local fiscal, regulatory and other requirements which contravene Ukrainian legislation. Subsequently, on 15 March 2017 the self- proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. As a result, the Group and SCM has announced that they have lost control over the operations and assets of the entities located in the non-controlled territory. The Group has taken active measures to mitigate the loss of control over these assets, these measures include: the conversion of certain generation assets to G-grade coal who previously used Anthracite coal mainly supplied from DTEK mines located in the non-controlled parts of Donetsk and Lugansk regions; and the sourcing of Anthracite coal from international markets. The effect of the event is further disclosed in Note 16. The Group’s entities affected include:
DTEK Rovenkiantracyte LLC;
DTEK Sverdlovantracyte LLC;
DTEK Mine Komsomolets Donbassa PJSC;
Mospino CPE LLC;
one power plant belonging to DTEK Skhidenergo LLC (Zuevskaya TTP);
DTEK Donetsk Grids JSC (former, DTEK Donetskoblenergo, only non-controlled territory part);
PJSC DTEK Energougol ENE PJSC (only non-controlled territory part);
DTEK Power Grid LLC (only non-controlled territory part). As at 31 December 2018, the Group had significant balances receivable from and prepayments made to the State and entities dependant on government financing, including prepaid income taxes of UAH 264 million, VAT recoverable of UAH 2,272 million (Note 14), receivables from Energorynok SE of UAH 5,677 million net of provision. The timing of settlement of these balances is uncertain and is dependent upon the availability of State funds and amounts of future taxable profits of the Group’s subsidiaries. Following the Electricity Market Law introduced on 13 April 2017, the electricity market is currently under transformation. It is expected this will bring liberalization of the market and enhancement of competition among participants. Changes will bring to the end current state monopoly on the electricity wholesale held by the state- owned Energorynok SE, the transition to electricity sales by producers directly to suppliers and consumers, and the emergence of competitive market segments by way of dividing of oblenergos into distribution system operators and electricity suppliers, who will no longer be associated with oblenergos. According to the Electricity Market Law, the new electricity market will have five formats – bilateral agreements, a day-ahead market, an intra-day market, a balancing market, and an additional services market.

7 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies

Basis of preparation . These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union using the historical cost convention, as modified by the revaluation of property, plant and equipment (revaluation model under IAS 16 Property, plant and equipment ), and certain financial instruments measured in accordance with the requirements of IFRS 9 Financial instruments . The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. For better understanding of DTEK Energy's financial position and the results of operations, these abbreviated consolidated financial statements should be read in conjunction with the DTEK Energy's audited financial statements as of and for the year ended 31 December 2018, which include all disclosures required by International Financial Reporting Standards as adopted by European Union and the statutory provisions of Part 9, Book 2, of the Dutch Civil Code. New IFRS standards. The group has applied IFRS 9 and IFRS 15 standards for the first time for their annual reporting period commencing 1 January 2018. The Group had to change its accounting policies and make retrospective adjustments as a result of adopting these new standards. The impact of the adoption of these standards and the new accounting policies are disclosed in Note 40. Going concern. As of 31 December 2018 the Group had an excess of current liabilities over current assets of UAH 2,478 million. This was caused by the classification of UAH 6,709 million of bank borrowings including interest accrued as current that are in default as of 31 December 2018. The Group’s business is concentrated in Ukraine, the majority of its revenue is generated in Ukraine and denominated in UAH (2018: 87% and 2017: 94%, respectively), although the Group also receives some foreign currencies from its export of electricity and in the past through the export of coal. The majority of the Group’s debt is denominated in currencies other than the UAH. Due to the significant UAH devaluation during the period 2014 to 2016 management commenced discussions with lenders on both a bi-lateral and an all-party basis. However, the Group has not been able to finalise discussion with all of its lenders or execute the restructured bank debt documentation to extend the terms of all of its debt as of the date of preparation of these consolidated financial statements. In December 2016 the Group’s bonds in amount of UAH 26,089 million were restructured. During 2016-2017, the Group restructured bonds and bank borrowings together with accrued interest in total amount of UAH 40,124 million. Further, in September 2018, the Group’s bank borrowings totalling UAH 7,725 million at the date of transaction were restructured. The restructurings resulted in the changes of certain of the key terms and conditions in respect of the Restructured Debt aligned with the Override Agreement (see Note 19). However, of the remaining facilities of UAH 6,709 million including interest accrued as of 31 December 2018 excluding sundry working capital loans, aiming to achieve the same terms as accepted by all other bank lenders under the Bank Exchange Offer. Prior to the signing of these new restructuring agreements, these bank borrowings remain in default . Any repayment of debt in relation to unrestructured part of the debt (UAH 6,709 million as at 31 December 2018) will be an event of default under the current terms of the Restructured Debt and Eurobonds. Management has prepared monthly cash flow projections for periods throughout 2019 and the first six months of 2020. Judgments with regard to future electricity prices, coal volumes and the timing of settlements with various counterparties were required for the preparation of the cash flow projections. Management has estimated that the overall cash flows are positive, indicating that there is no liquidity gap in any months, based on the important assumptions in the cash flow projections, including: electricity tariffs increasing to offset the impact of cost inflation; improvement of the payment discipline of Energorynok SE; stabilisation of the UAH; the ability of the Group to export coal and electricity; and that lenders with whom the Group has yet to complete debt restructuring will not demand principal repayment. Whilst the terms of the restructuring have been agreed with the bank lenders on the basis of binding heads of terms accepted by all of the bank lenders under the Bank Exchange Offer, management acknowledges that, prior to full completion of the restructuring of the remaining debt obligations that were subject to restructuring and completion of required procedures, there is a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern, and, therefore, it may be unable to realize the Group’s assets and discharge its liabilities in the normal course of business. Taking into account ongoing restructuring process of some of the facilities and based on cash flow projections performed, management considers that the application of the going concern assumption for the preparation of these consolidated financial statements is appropriate. Use of estimates. The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group‘s accounting policies. The areas, involving a high degree of judgement, complexity, or areas where assumptions and estimations are significant to the financial statements are disclosed in Note 4.

8 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies (Continued)

Functional and presentation currency. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the Group operates (“the functional currency”). The consolidated financial statements are presented in Ukrainian Hryvnia (“UAH”), which is the Company’s functional and the Group’s presentation currency. Transactions denominated in currencies other than the relevant functional currency are translated into the functional currency, using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses, resulting from settlement of such transactions and from the translation of foreign currency denominated monetary assets and liabilities at year end, are recognised in the income statement. Translation at year end does not apply to non-monetary items including equity investments. The effects of exchange rate changes on the fair value of equity securities are recorded as part of the fair value gain or loss. Changes in the fair value of monetary securities denominated in foreign currency are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity. Translation differences in non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences in non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences in non- monetary financial assets such as equities are included in the reserve in equity. Foreign exchange differences classification . Foreign exchange transaction differences on accounts receivable, accounts payable, cash and cash equivalents and deposits placed are classified in consolidated income statement as “Net operating foreign exchange gains and losses”. In addition, a cumulative gain or loss on hedges which relate to operating activity is reclassified in the same line item when a forecast transaction occurs. Transaction differences recognised on other monetary assets and liabilities are classified in consolidated income statement as “Foreign exchange losses less gains on financing and investing activities”. As at 31 December 2018, the exchange rates used for translating foreign currency balances were USD 1 = UAH 27.69 (31 December 2017: USD 1 = UAH 28.07); EUR 1 = UAH 31.71 (31 December 2017: EUR 1 = UAH 33.49); RUB 10 = UAH 3.98 (31 December 2017: RUB 10 = UAH 4.87). The results and financial position of each consolidated entity are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at monthly average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity. All the components of consolidated equity are translated at the closing rate of that balance sheet date, except for retained earnings, which is stated at historical rates. The balancing figure goes to cumulative currency translation reserve in other reserves in equity. Consolidated financial statements. Subsidiaries are those companies and other entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. If a subsidiary is acquired in stages it is measured as the sum of the fair value of the interest previously held plus the fair value of any additional consideration transferred as of the date of the occurrence of control in the meaning of IFRS 10. Relative gain or loss from valuation of previously held interest is recognised in the income statement. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition- date fair value of any previous equity interest in the acquiree over the fair value of the group’s identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

9 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies (Continued)

Transactions with non-controlling interests. The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. Common control business combinations. Purchases of subsidiaries from parties under common control are recorded using the predecessor values. Under this method the subsidiaries results, assets and liabilities are incorporated prospectively from the date, on which business combination between entities under common control occurred. The corresponding amounts for the previous year are not restated. The assets and liabilities of the subsidiary transferred under common control are at the predecessor entity’s carrying values. The difference between the consideration given and the aggregate carrying value of the assets and liabilities (as of the date of the transaction) of the acquired entity is recorded as an adjustment to equity. No additional goodwill is created by such purchases. Reorganisations. The Group reorganisation whereby the entities or segments of the Group are demerged as separate legal entities with the only aim to meet the internal needs of a wider group of entities under common control, but remain under common control, are accounted for as follows: assets and liabilities are transferred at the carrying amount along with related fair value adjustments which were recognised on acquisition of such assets. Difference between any consideration received in exchange and the net assets transferred, inclusive of any fair value adjustments is recorded directly in equity. If entities transferred meet the criteria of discontinued operations, the results to the date of transfer and respective comparatives are presented accordingly as a single line in the income statement. Reorganisations driven by external factors are accounted under generic accounting model in accordance with IFRS 10 recognising any resulting difference between the fair value of consideration received and the carrying amount of net assets of the subsidiary at the date when control was lost as a gain or loss in income statement. Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. Reportable segments whose revenue, result or assets are ten percent or more of all the segments are reported separately. Segments falling below this threshold can be reported separately at management decision. Property, plant and equipment. The Group uses the revaluation model to measure property, plant and equipment. Fair value was based on valuations by external independent valuers. The frequency of revaluation will depend upon the movements in the fair values of the assets being revalued. Subsequent additions to property plant and equipment are recorded at cost. Cost includes expenditure directly attributable to acquisition of the items. The cost of self- constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. The cost of acquired and self-constructed qualifying assets includes borrowing costs. Any increase in the carrying amounts resulting from revaluation are credited to other reserves in equity through other comprehensive income. Decreases that offset previously recognised increases of the same asset are charged against other reserves in equity through other comprehensive income; all other decreases are charged to the income statement. However, to the extent that an impairment loss on the same revalued asset was previously recognised in the income statement, a reversal of that impairment loss is also recognised in the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the asset’s original cost is transferred from other reserves to retained earnings. When an item of property, plant and equipment is revalued the accumulated depreciation is eliminated against the gross carrying amount of the asset. Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalised with the carrying amount of the replaced component being written off. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

10 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies (Continued)

The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Property, plant and equipment are derecognised upon disposal or when no future economic benefits are expected from the continued use of the asset. Gains and losses on disposals determined by comparing proceeds with carrying amount of property, plant and equipment are recognised in the consolidated income statement. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings. Depreciation. Depreciation is charged to the consolidated income statement on a straight-line basis to allocate costs of individual assets to their residual value over their estimated useful lives. Depreciation commences on the date of acquisition or, in respect of self-constructed assets, from the time an asset is completed and ready for use. Mining assets include mineral licences and mineral reserves, which were acquired by the Group and which have finite useful lives. Mineral licenses and mineral reserves are stated at cost less accumulated amortisation and accumulated impairment losses. Mining assets are amortised on a straight-line basis over the estimated useful life. Other property, plant and equipment are depreciated on a straight line basis over its expected useful life. The typical useful lives of the Group’s other property, plant and equipment are as follows: Useful lives in years Mining assets from 10 to 60 Buildings and structures from 10 to 50 Plant and machinery from 2 to 30 Furniture, fittings and equipment from 2 to 15

Construction in progress represents the cost of property, plant and equipment, including advances to suppliers, which has not yet been completed. No depreciation is charged on such assets until they are available for use. Leases. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. Asset retirement obligations. According to the Code on Mineral Resources, Land Code of Ukraine, Mining Law, Law on Protection of Land and other legislative documents, the Group is responsible for site restoration and soil rehabilitation upon abandoning of its mines. Estimated costs of dismantling and removing an item of property, plant and equipment are added to the cost of an item of property, plant and equipment when the item is acquired, and corresponding obligation is recognised. Changes in the measurement of an existing asset retirement obligation, that result from changes in the estimated timing or amount of the outflows, or from changes in the discount rate used for measurement, are recognised in the statement of comprehensive income. Provisions in respect of abandonment and site restoration are evaluated and re-estimated annually, and are included in the consolidated financial statements at each balance sheet date at their expected net present value, using discount rates which reflect the economic environment in which the Group operates. Goodwill. Goodwill represents the excess of the consideration transferred for an acquisition over the fair value of the acquirer’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary or associate at the date of exchange. Goodwill on acquisitions of associates is included in the investment in associates. Goodwill is carried at cost less accumulated impairment losses, if any. Goodwill is allocated to cash generating units for the purposes of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business to which the goodwill arose. Other intangible assets. Intangible assets are mainly presented by “Burshtyn electricity island”. “Burshtyn electricity island” intangible asset has a definite useful life of 13 years and is depreciated on a straight line basis over this period. Other intangibles assets are amortised on a straight-line basis over estimated useful life of 1-49 years. All of the Group’s other intangible assets have definite useful lives and primarily include capitalised computer software and licenses. Acquired computer software are capitalised on the basis of the costs incurred to acquire and bring them to use. Intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs of disposal.

11 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies (Continued)

Impairment of non-financial assets . Intangible assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation are reviewed for impairment whenever events and changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less cost of disposal and value in use. For purposes of assessing impairment, assets are grouped to the lowest levels for which there are separately identifiable cash flows (cash generating unit). Non-financial assets, other than goodwill, that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Non-current assets (or disposal groups) held for distribution. Non-current assets (or disposal groups) are classified as assets held for distribution when their carrying amount is to be recovered principally through a sale transaction/contribution of assets to owners and a sale/contribution is considered highly probable. They are stated at the lower of carrying amount and fair value less costs of disposal. The Group grossed up both continuing and discontinued operations, and add a supplementary presentation of intercompany transactions for discontinued operations is made in the notes. Discontinued operations. A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, represents a separate major line of business, and is part of a single coordinated overall plan to dispose of a separate major line of business. The Group eliminates transactions between continued and discontinued business in discontinued operations. Intercompany transactions are also disclosed in the Note 35. When operations are classified as discontinued, the comparative information of Income Statement and respective Notes to the Income Statement are re-presented as if the operation had been discontinued from the start of the comparative period. Classification of financial assets. The Group classifies financial assets in the following measurement categories: fair value through profit and loss (FVTPL), fair value through other comprehensive income (FVOCI) and at amortized cost (AC). The classification and subsequent measurement of debt financial assets depends on: (i) the Group’s business model for managing the related assets portfolio and (ii) the cash flow characteristics of the asset. The business model reflects how the Group manages the assets in order to generate cash flows – whether the Group’s objective is: (i) solely to collect the contractual cash flows from the assets (“hold to collect contractual cash flows”,) or (ii) to collect both the contractual cash flows and the cash flows arising from the sale of assets (“hold to collect contractual cash flows and sell”) or, if neither of (i) and (ii) is applicable, the financial assets are classified as part of “other” business model and measured at FVTPL. Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Group undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Where the business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether the cash flows represent solely payments of principal and interest (“SPPI”). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are consistent with the SPPI feature. In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for credit risk, time value of money, other basic lending risks and profit margin. Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed. Initial recognition of financial instruments. The Group’s principal financial instruments comprise loans and borrowings, cash and cash equivalents, financial liabilities designated at fair value through profit and loss, short-term deposits and financial guarantees. The Group has various other financial instruments, such as trade debtors and trade creditors, which arise directly from its operations. Financial instruments at FVTPL are initially recorded at fair value. All other financial instruments are initially recorded at fair value adjusted for transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. After the initial recognition, an expected credit losses (ECL) allowance is recognised for financial assets measured at AC and investments in debt instruments measured at FVOCI, resulting in an immediate accounting loss.

12 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies (Continued)

Where financial instruments are acquired from parties under the common control of the ultimate shareholder, and the difference between the amount paid to acquire the instrument and its fair value in substance represents a capital contribution or distribution, such difference is recorded as a debit or credit in other reserves in equity. All purchases and sales of financial instruments that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial instrument. All other purchases and sales are recognised on the settlement date with the change in value between the commitment date and settlement date not recognised for assets carried at cost or amortised cost, and recognised in equity for assets classified as FVOCI. Reclassification of financial assets . Financial instruments are reclassified only when the business model for managing the portfolio as a whole changes. The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change in the business model. Impairment financial asset (credit loss allowance for ECL) . The Group assesses, on a forward-looking basis, the ECL for debt instruments measured at AC and FVOCI and for the exposures arising from loan commitments and financial guarantee contracts, for contract assets. The Group measures ECL and recognises Net impairment losses on financial and contract assets at each reporting date. The measurement of ECL reflects: (i) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable information that is available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of future conditions. Debt instruments measured at AC and contract assets are presented in the consolidated statement of financial position net of the allowance for ECL. For loan commitments and financial guarantees, a separate provision for ECL is recognised as a liability in the consolidated statement of financial position. For debt instruments at FVOCI, changes in amortised cost, net of allowance for ECL, are recognised in profit or loss and other changes in carrying value are recognised in OCI as gains less losses on debt instruments at FVOCI. The Group applies the IFRS 9 simplified approach to measuring expected credit losses (further, “ECLs”) which uses a lifetime expected loss allowance for trade and other receivables. For all other instruments, the Group applies a three stage model for impairment, based on changes in credit quality since initial recognition. A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1 (“performing”). Financial assets in Stage 1 have their ECL measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months or until contractual maturity (“12 Months ECL”). If the Group identifies a significant increase in credit risk (“SICR”) since initial recognition, the asset is transferred to Stage 2 (“underperforming”) and its ECL is measured based on ECL on a lifetime basis, that is, up until contractual maturity but considering increase in the credit risk . If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 (“credit-impaired”) and its ECL is measured as a Lifetime ECL. For financial assets that are purchased or originated credit-impaired (“POCI Assets”), the ECL is always measured as a Lifetime ECL. Modification of financial assets. The Group sometimes renegotiates or otherwise modifies the contractual terms of the financial assets. The Group assesses whether the modification of contractual cash flows is substantial. If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Group derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has occurred. The Group also assesses whether the new loan or debt instrument meets the SPPI criterion. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners. In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally agreed payments, the Group compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are substantially different as a result of the contractual modification. If the risks and rewards do not change, the modified asset is not substantially different from the original asset and the modification does not result in derecognition. The Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss in profit or loss. Measurement categories of financial liabilities . Financial liabilities are classified as subsequently measured at AC, except for (i) financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in securities), contingent consideration recognised by an acquirer in a business combination and other financial liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments.

13 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies (Continued)

Financial guarantees. Financial guarantees are irrevocable contracts that require the Group to make specified payments to reimburse the holder of the guarantee for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantees are initially recognised at their fair value. This amount is amortised on a straight line basis over the life of the guarantee. At the end of each reporting period, the guarantees are measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition and (ii) the best estimate of expected credit losses under IFRS 9. Derecognition of financial assets . The Group derecognises financial assets when (i) the assets are redeemed or the rights to cash flows from the assets have otherwise expired or (ii) the Group has transferred substantially all the risks and rewards of ownership of the assets or (iii) the Group has neither transferred nor retained substantially all risks and rewards of ownership but has not retained control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. Derecognition of financial liabilities . A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. A substantial modification of the terms of an existing financial liability or a part of it is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. While assessing if modification is substantial, management considers both quantitative and qualitative factors. Qualitative factors include change of form of the instrument, interest rate, change in covenants and guarantors (Note 19). The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, are recognised in profit or loss. Gains and losses on loans provided to related parties . Gains and losses on early repayment as well as unwinding of discount and foreign exchange differences on loans provided to related parties are recognised in consolidated income statements in the period when incurred. Derivative financial instruments, including hedge accounting. The Group enters, from time to time, into various derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk. Starting from 1 January 2013 until 1 July 2014 the Group applied hedge accounting to such transactions. Derivatives were initially recognised at fair value on the date a derivative contract was entered into and were subsequently re-measured at their fair value. The effective portion of changes in the fair value of derivatives that were designated and qualified as cash flow hedges was recognised in other comprehensive income. Starting from 1 July 2014 management decided to discontinue the hedge accounting application since does not expect the hedge will be highly effective in the future. The cumulative loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (from 1 January 2013 to 30 June 2014) will remain separately in equity and will be reclassified to profit or loss in the periods when the forecast transaction occurs. Movements on the hedging reserve in other comprehensive income are shown in Note 18. Cash flow hedge was discontinued prospectively. As at 31 December 2018, the accumulated in equity cumulative loss was fully utilised and reclassified to profit and loss. Income taxes. Income taxes have been provided for in the financial statements in accordance with Ukrainian, Hungarian, Dutch, Cypriot, Swiss or UK legislation enacted or substantially enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognised in the income statement unless it relates to transactions that are recognised, in the same or a different period, directly in equity or in other comprehensive income. Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes other than on income are recorded within operating expenses. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantially enacted at the balance sheet date which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised. Deferred income tax is provided on post-acquisition retained earnings and other post-acquisition movements in reserves of subsidiaries, except where the Group controls the subsidiary’s dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.

14 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies (Continued)

Inventories. Inventories are recorded at the lower of cost and net realisable value. The cost of inventory is assigned on the first in first out basis for raw materials and spare parts and weighted average cost for coal. Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses. Prepayments. Prepayments are carried at cost less provision for impairment. A prepayment is classified as non- current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are charged to the income statement when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in the income statement. Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with maturities of three months or less with insignificant change in fair value. Cash and cash equivalents are carried at amortised cost using the effective interest method. Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated cash flow statement. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the balance sheet date are included in other non-current assets. Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is presented in the notes as share premium. Dividends. Dividends are recognised as a liability and deducted from equity at the balance sheet date only if they are declared before or on the balance sheet date. Dividends are disclosed when they are proposed before the balance sheet date or proposed or declared after the balance sheet date but before the consolidated financial statements are authorised for issue. Value added tax (“VAT”). In Ukraine VAT is levied at two rates: 20% on sales and imports of goods within the country, works and services and 0% on the export of goods and provision of works or services to be used outside Ukraine. A taxpayer’s VAT liability equals the total amount of VAT collected within a reporting period, and arises on the earlier of the date of shipping goods to a customer or the date of receiving payment from the customer. A VAT credit is the amount that a taxpayer is entitled to offset against his VAT liability in a reporting period. Rights to VAT credit arise when a VAT invoice is received, which is issued on the earlier of the date of payment to the supplier or the date goods are received. VAT related to sales and purchases is recognised in the consolidated balance sheet on a gross basis and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, the impairment loss is recorded for the gross amount of the debtor, including VAT. Trade and other payables. Trade and other payables are recognised and initially measured under the policy for financial instruments mentioned above. Subsequently, instruments with a fixed maturity are re-measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any transaction costs and any discount or premium on settlement. Prepayments received. Prepayments received are carried at amounts originally received. Amounts of prepayments received are expected to be realised through the revenue received from usual activity of the Group. Provisions for liabilities and charges. Provisions for liabilities and charges are provisions for environmental restoration, restructuring costs and legal claims which are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Contingent assets and liabilities. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable. Contingent liabilities are not recognised in the financial statements unless it is probable that an outflow of economic resources will be required to settle the obligation and it can be reasonably estimated. Contingent liabilities are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

15 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

3 Significant Accounting Policies (Continued) Revenue recognition. The Group’s generating companies sells all electricity produced by its electricity generation plants to Energorynok SE, a state-owned electricity distribution monopoly, at prices determined based on the competitive pool model adopted by the National Electricity Regulatory Committee of Ukraine (“NERC”). Revenue from the sale of electricity is the value of units supplied during the year. Revenues from sales of goods are recognised at the point of transfer of risks and rewards associated with ownership of goods. If the goods are transported to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. Revenues are measured at the fair value of consideration received or receivable, and are shown net of value added tax and discounts. Recognition of expenses. Expenses are recorded on an accrual basis. The cost of goods sold comprises the purchase price, transportation costs, commissions relating to supply agreements and other related expenses. Finance income and costs. Finance income and costs comprise interest expense on borrowings, losses on early repayment of loans, interest income on funds invested, income on origination of financial instruments, unwinding of interest of the pension obligation and asset retirement provision, and foreign exchange gains and losses. Borrowing costs that relate to assets that take a substantial period of time to construct are capitalised as part of the cost of the asset. All other interest and other costs incurred in connection with borrowings are expensed using the effective interest rate method. Interest income is recognised as it accrues, taking into account the effective yield on the asset. Employee benefits: Defined Contributions Plan. The Group makes statutory unified social contributions to the Pension Fund of Ukraine in respect of its employees. The contributions are calculated as a percentage of current gross salary, and are expensed when incurred. Discretionary pensions and other post-employment benefits are included in labour costs in the consolidated income statement. Employee benefits: Defined Benefit Plan. Certain entities within the Group participate in a mandatory State defined retirement benefit plan, which provides for early pension benefits for employees working in certain workplaces with hazardous and unhealthy working conditions. The Group also provides lump sum benefits upon retirement subject to certain conditions. The liability recognised in the balance sheet in respect of the defined benefit pension plan is the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation is calculated annually by actuaries using the Projected Unit Credit Method. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the defined benefit liability recognised in the balance sheet. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Remeasurement of liability resulting from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Current and past service costs are recognised immediately in the income statement. Income from non-core activity. The Group undertakes, in the course of its ordinary activities, other transactions that do not generate revenue and are incidental to the main revenue-generating activities. When the Group acts as an agent the presentation of the transaction reflect the substance of the transaction by recording the net result through netting any income with related expenses arising on the same transaction with any net gain or loss presented in revenue. Accounts receivable and accounts payable are recognised on a gross basis and not offset.

16 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

4 Critical Accounting Estimates and Judgements

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include: Impairment of property, plant and equipment and goodwill. The Group is required to perform impairment tests for its cash-generating units where goodwill was recognised and for those cash-generated units where impairment indicators are identified. One of the determining factors in identifying a cash-generating unit is the ability to measure independent cash flows for that unit. For many of the Group’s identified cash-generating units a significant proportion of their output is input to another cash-generating unit. The Group also assesses whether goodwill is impaired at least on an annual basis. This requires estimation of the value in use/ fair value less costs of disposal of the cash-generating units to which goodwill is allocated. Estimating value in use/ fair value less costs of disposal requires the Group to make an estimate of expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. For detailed analysis of impairment and related sensitivities refer to Notes 9 and 11. The Group assesses whether goodwill is impaired based on the IAS 36 Impairment of assets requirements. The most recent detailed calculation made in a preceding period of the recoverable amount of a cash-generating unit to which goodwill has been allocated may be used in the impairment test of that unit in the current period provided all of the following criteria are met: (a) the assets and liabilities making up the unit have not changed significantly since the most recent recoverable amount calculation; (b) the most recent recoverable amount calculation resulted in an amount that exceeded the carrying amount of the unit by a substantial margin; and (c) based on an analysis of events that have occurred and circumstances that have changed since the most recent recoverable amount calculation, the likelihood that a current recoverable amount determination would be less than the current carrying amount of the unit is remote. Revaluation of property, plant and equipment. On an annual basis management of the Group carries out an analysis to assess whether carrying amounts of items of property, plant and equipment differ materially from that which would be determined using fair value at the end of the reporting period. The analysis is based on price indices, developments in technology, movements in exchange rates since the date of latest revaluation, profitability of underlying businesses and other relevant factors. Where the analysis indicates that the fair values of items of property plan and equipment differ materially from the carrying amounts, further revaluation is performed involving independent valuers. As most of the Group’s property, plant and equipment is of specialised nature, its fair value is determined using depreciated replacement cost (Level 3). As at 1 July 2017, the Group’s management decided to carry out a revaluation of property, plant and equipment for its mining assets, as at 1 October 2017 and 1 November 2017 for its generation and distribution assets based on changes in economic conditions of business environment and an increase of the inflation rate. Fair values of property, plant and equipment and remaining useful lives were determined by an independent appraiser. The carrying value and useful lives property, plant and equipment are affected by the estimates of depreciated replacement cost and remaining useful life. Changes in these assumptions could have a material impact to the fair value of property, plant and equipment (Note 9). When performing valuation using these methods, the key estimates and judgments applied by the independent valuers, in discussion with the Group’s internal valuation team and technicians, are as follows:
choice of information sources for construction costs analysis (actual costs recently incurred by the Group, specialised reference materials and handbooks, estimates for cost of construction of various equipment etc.);
determination of comparatives for replacement cost of certain equipment, as well as corresponding adjustments required to take into account differences in technical characteristics and condition of new and existing equipment;
selection of market data when determining market value where it is available;
timing of when the tariff for distribution will be determined based on a return on assets formulae (“RAB”); and
determination of applicable cumulative price indices or changes in foreign exchange rates which would most reliably reflect the change in fair value of assets revalued using indexation of carrying amounts.

17 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

4 Critical Accounting Estimates and Judgements (Continued)

The fair values obtained using depreciated replacement cost are validated using discounted cash flow models (income approach, Level 3), and are adjusted if the values obtained using income approach are lower than those obtained using depreciated replacement cost or indexation of carrying amounts (i.e. there is economic obsolescence). Key inputs into discounted cash flow models are consistent with the assumptions used for determination of economic ceiling (Note 9) and goodwill impairment testing (Note 11). Changes in the above estimates and judgments could have a material effect on the fair value of property, plant and equipment, which, however, is impracticable to quantify due to wide variety of assumptions and assets being valued. Control over the legal entities whose operations in the non-controlled territory were lost. As further disclosed in Note 16, on 15 March 2017 the self-proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. The Group has determined that it retains control over the legal entities whose operations were located in the non-controlled territories, as these entities are registered in the controlled territory of Ukraine and continue to serve its obligations and collect payments on receivables. Thus, the Group continues to consolidate the remaining assets and liabilities of those entities as of 31 December 2018. Management of the Group considered whether the operations lost in the non-controlled territory fall under Discontinued Operations. Management believes that operations attributable to entities located in the non-controlled territory does not represent a major business segment or geographical area and therefore, do not fall under the definition of Discontinued Operations. Recognition of revenue and fair value of liabilities in the non-controlled territory. With respect to revenue recognition (up to 15 March 2017) management has recognised revenue for certain large and regular payers. Revenue is recognised with respect to other customers on a cash basis. In accordance with IFRS liabilities are initially recognised at their fair value. Management have determined that the fair value (contractually enforceable amount of payables) of liabilities with respect to purchases of electricity of the power distributors is substantially less than their nominal amount. In accordance with the existing contract the contractually enforceable amount is tied to the collections from the end customers being less than 20% of the nominal amount of the payable. Management have assessed the fair value of liabilities with respect to power purchases by the power distributors based on anticipated and factual collections from end customers. Any increase or decrease in collections would have a similar impact on revenues, expenses, assets and liabilities. The basis for this accounting is with respect to the ability of the Group to enforce the multilateral contracts signed. Management are confident that these multilateral contracts are legally enforceable and they will be upheld if challenged. As further disclosed in Note 35, distribution entities that were impacted by these accounting estimates were discontinued during 2018 year. Continued operations of the Group are not subject to accounting principles disclosed in this paragraph. Impairment of property, plant and equipment located in the non-controlled territory. As a result of the events further disclosed in Note 16, management of the Group has performed an impairment testing of respective property, plant and equipment and determined that the value of these assets is zero, thus recognising UAH 5,359 million as a decrease of previously recognised revaluation in other comprehensive income and UAH 7,433 million as impairment charge in the consolidated income statement. Management has determined that the loss of control over the assets does not require derecognition of the property, plant and equipment. This is based on consideration that the Group still holds the legal title over the assets; the seizure of assets is illegal and might be temporary; the Group may still be able to claim some compensation for the assets through International courts. Would the judgement be made that the assets are derecognised, the whole amount of UAH 12,792 million of decrease in the carrying value of property, plant and equipment would need to be charged to the income statement and previously recognised revaluation in equity in amount of UAH 5,359 would need to be transferred to retained earnings. ECL measurement. Management estimates ECL based on an analysis of individual accounts. Factors taken into consideration include an ageing analysis of trade and other accounts receivable in comparison with the credit terms allowed to customers, and the financial position of and collection history with the customer. With respect to the impairment of receivables from the sale of heat an analysis on a whole population was performed. Should actual collections be less than management’s estimates, the Group would be required to record an additional impairment expense. Details of ECL measurement methodology are disclosed in Note 40. The estimates used to assess the impairment (if any) of trade and other accounts receivable for those entities located in Eastern Ukraine are impacted by greater uncertainty than in other areas (see discussion of operating environment in Note 2 and the loss of control over operations in Note 16). Though most of the remaining non-fully impaired balances are from related parties and the major uncertainty is with respect to the timing of settlement. Management anticipates that overdue receivables for supplied electricity to Energorynok SE will be settled in full either in cash or via set off mechanism within less than one year from the balance sheet date.

18 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

4 Critical Accounting Estimates and Judgements (Continued)

Post-employment and other employee benefit obligations. Management assesses post-employment and other employee benefit obligations using the Projected Unit Credit Method based on actuarial assumptions which represent management’s best estimates of the variables that will determine the ultimate cost of providing post-employment and other employee benefits. Since the plan is administered by the State, the Group may not have full access to information and therefore assumptions regarding when, or if, an employee takes early retirement, whether the Group would need to fund pensions for ex-employees depending on whether that ex-employee continues working in hazardous conditions, the likelihood of employees transferring from State funded pension employment to Group funded pension employment could all have a significant impact on the pension obligation. The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The major assumptions used in determining the net cost (income) for pensions include the discount rate, indexation rate and expected salary increases. Any changes in these assumptions will impact the carrying amount of pension obligations. Since there are no long-term, high quality corporate bonds issued in Ukrainian Hryvnias, significant judgement is needed in assessing an appropriate discount rate. Key assumptions and sensitivities are presented in Note 21. Deferred tax asset recognition. The net deferred tax asset represents income taxes recoverable through future deductions from taxable profits and is recorded in the balance sheet. Deferred tax assets are recorded to the extent that realisation of the related tax benefit is probable. In determining future taxable profits and the amount of tax benefits that are probable in the future, management makes judgements and applies estimation based on historic taxable profits and expectations of future income that are believed to be reasonable under the circumstances. Tax legislation. Ukrainian tax, currency and customs legislation continues to evolve. Conflicting regulations are subject to varying interpretations. Management believes its interpretations are appropriate and sustainable, but no guarantee can be provided against a challenge from the tax authorities. Prepayments for current income tax. In accordance with the existing Tax Code in Ukraine, the current income tax is paid during the year based on the level of taxable profit received in the prior fiscal year, and subsequently corrected at the end of the current fiscal year when the annual income tax return is submitted to the tax authorities. As a result of this, the Group has significant current income tax prepaid. Management believes that it will be able to settle these prepayments in foreseeable future. Related party transactions. In the normal course of business the Group enters into transactions with related parties. Judgement is applied in determining if transactions are priced at market or non-market rates, where there is no active market for such transactions. Unbundling of Distribution business . Due to a procedural delay, a legal ownership over interest held by the Group DTEK Donetsk Grids entity was not transferred to the entity under common control as at 31 December 2018 together with the other entities of Distribution business. Legal transfer is expected to be completed during the first half of 2019. At the same time the Group stopped to be exposed to variable returns from its involvement into the operations of DTEK Donetsk Grids and therefore management concluded that it lost control over it with assets and liabilities derecognised together with the whole Distribution business (Note 35). Would it be concluded that the control over DTEK Donetsk Grids was not lost in 2018, the net liabilities of this entity in the amount of UAH 1,527 million would be still carried in the consolidated balance sheet of the Group. It is further concluded by management that disposal of discontinued operations in relation to Distribution business of the Group was not a transaction with owners in their capacity as owners as it was driven by the requirements introduced by Electricity Market Law of Ukraine. As such, the result of this disposal was recorded in Consolidated Income Statement. Would it be concluded that this is a Group reorganization driven only by internal reasons, the result of the disposal would need to be recorded directly in equity and thus the consolidated profit and loss would be UAH 1,878 million lower.

19 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

5 Adoption of New or Revised Standards and Interpretations

The following new standards, which are relevant to the Group’s consolidated financial statements, have been issued, but have not been endorsed by European Union: • IFRIC 23 Uncertainty over Income Tax Treatments (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019); • Annual Improvements to IFRS Standards 2015-2017 Cycle - amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019); • Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (issued on 7 February 2018 and effective for annual periods beginning on or after 1 January 2019); • Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual periods beginning on or after 1 January 2020). • Definition of a business – Amendments to IFRS 3 (issued on 22 October 2018 and effective for acquisitions from the beginning of annual reporting period that starts on or after 1 January 2020) • Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019). • Definition of materiality – Amendments to IAS 1 and IAS 8 (issued on 31 October 2018 and effective for annual periods beginning on or after 1 January 2020) The Group is currently assessing the impact of the amendments on its consolidated financial statements. The following new standards which are relevant to the Group’s consolidated financial statements, have been issued and endorsed by European Union, but have not been effective for financial periods beginning on or after 1 January 2018: • IFRS 16 – Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019). All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. IFRS 16 will require the Group to recognise in the balance sheet assets taken in an operating lease and the related lease liabilities. Although, the current annual operating lease commitments are immaterial, the Group performed assessment of the impact of IFRS 16. Management intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to the adoption. The Group intends to measure lease liability at the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The Group has chosen, on a lease-by-lease basis, to measure that right-of-use asset at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application. According to the Group’s preliminary assessment the estimated lease liability and right-of-use asset as at 1 January 2019 equals to UAH 758 million. Management will perform more detailed analysis and will disclose the impact of the new standard in the consolidated financial statements for the year ended 31 December 2019. New and amended standards adopted by the group. The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2018: • IFRS 9, Financial Instruments (issued on 24 July 2014 and effective for annual periods beginning on or after 1 January 2018); • IFRS 15 Revenue from Contracts with Customers (issued on 28 May 2014 and effective for annual periods beginning on or after 1 January 2018). • Annual Improvements to IFRSs 2014-2016 cycle
Amendments to IFRS 1 an IAS 28 (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). • IFRIC 22 Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). The impact of the adoption of IFRS 9 and IFRS 15 and the new accounting policies are disclosed in Note 40. The other standards did not have any impact on the Group’s accounting policies and did not require retrospective adjustments.

20 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

6 Subsidiaries with material non-controlling interest

The following table provides information about each subsidiary that has non-controlling interest that is material to the Group: Proportion of Profit or Dividends non- (loss) Accumulated paid to non- Proportion controlling attributable non- controlling of non- interest’s to non- controlling interest Place of controlling voting rights controlling interest in the during the In millions of Ukrainian Hryvnia business interest held interest subsidiary year

Year ended 31 December 2018 DTEK Krymenergo PJSC Ukraine 42.30% 42.30% - (170) - DTEK Dniproenergo JSC Ukraine 1.46% 1.46% 22 195 (1) DTEK Westenergy JSC Ukraine 2.76% 2.76% (161) 133 - DTEK Dobropolskaya CEP PJSC Ukraine 39.94% 39.94% 66 261 - Kyivenergo JSC Ukraine 27.61% 27.61% (103) (384) - Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC Ukraine 38.83% 38.83% 14 247 - Total (162) 282 (1)

Year ended 31 December 2017 DTEK Krymenergo PJSC Ukraine 42.30% 42.30% 5 (170) - DTEK Dniprooblenergo PJSC Ukraine 48.34% 48.34% 16 1,906 (75) DTEK Donetskoblenergo PJSC Ukraine 28.50% 28.50% (50) (904) - DTEK Dobropolskaya CEP PJSC Ukraine 39.94% 39.94% 59 195 - Kyivenergo JSC Ukraine 27.61% 27.61% (139) 1,029 (1) DTEK Dniproenergo PJSC Ukraine 26.46% 26.46% 256 3,564 (293) DTEK Westenergy JSC Ukraine 27.76% 27.76% (429) 1,831 - Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC Ukraine 38.83% 38.83% (3) 233 - Total (285) 7,684 (369)

The summarised financial information of these subsidiaries was as follows at 31 December 2018 and 2017: Total compre- Curre Non- Non- hensive nt current Current current Profit / income / Cash In millions of Ukrainian Hryvnia assets assets liabilities liabilities Revenue (loss) (loss) flows

Year ended 31 December 2018 DTEK Krymenergo PJSC - 5 406 - - - - - DTEK Dniproenergo JSC 10,689 11,831 7,543 1,560 16,748 (46) (53) 1 DTEK Westenergy JSC 3,153 11,979 7,755 2,438 25,274 (1,730) (1,656) 34 DTEK Dobropolskaya CEP PJSC 448 344 117 22 535 166 166 - Kyivenergo JSC 946 18 2,275 81 11,500 (374) (374) (198) Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC 1,144 264 733 39 1,133 36 36 6 Total 16,380 24,441 18,829 4,140 55,190 (1,948) (1,881) (157) Year ended 31 December 2017 DTEK Krymenergo PJSC - 5 406 - - 13 13 - DTEK Dniprooblenergo PJSC 1,759 5,667 2,906 577 28,459 33 1,833 (463) DTEK Donetskoblenergo PJSC 1,194 767 3,100 2,033 4,589 (176) (145) 35 DTEK Dobropolskaya CEP PJSC 293 337 119 24 455 147 142 - Kyivenergo JSC 7,216 7,042 10,066 461 26,235 (502) 1,345 11 DTEK Dniproenergo PJSC 8,758 13,314 6,783 1,819 15,373 967 4,355 (391) DTEK Westenergy JSC 4,074 13,841 8,862 2,458 21,341 (1,544) 4,420 (157) Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC 1,210 203 776 37 145 (8) (8) - Total 24,504 41,176 33,018 7,409 96,597 (1,070) 11,955 (965)

21 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

6 Subsidiaries with material non-controlling interest (Continued)

Accumulated non-controlling interest in Kyivenergo JSC decreased during 2018 as a result of reorganization of PJSC Kyivenergo whereupon PJSC Kyivenergo electricity distribution assets and activities was transferred to PJSC DTEK Kyivski Elektromerezhi, an entity which spun off from PJSC Kyivenergo (Note 1).

7 Segment Information

The Management Board is the Group’s chief operating decision-maker. The management has determined the operating segments used for disclosure by the Group based on reports reviewed by the Management Board for the purposes of assessing performance. The Management Board considers the business from a product perspective taking into account the vertical integration of the Group. The Management Board assesses the performance of the operating segments based on a measure of Adjusted EBIT. This measurement basis represents profit for the year after excluding the following income statement items: foreign exchange losses less gains, income tax expense, impairment of property, plant and equipment, any effect of loss of control over the operations of entities located in non-controlled territory, charity payments to related parties, certain maintenance of social infrastructure costs, finance income and expenses except for gains/losses on initial recognition and early repayment of financial instruments from non-related parties, interest on bank deposits, unwinding of discount on the long-term restructured accounts receivable and impairment of financial investments. The following operating segments are analysed by the Management Board being also the reportable segments:
Coal mining and power generation on thermal power plants, coal resale, electricity export;
Electricity distribution;
Kyivenergo; and
Other Revenues presented in ‘Other’ segment mainly include revenues from gas resale for third parties, sales of services and revenues of Corum companies, acquired by the Group on 28 November 2017, that are engaged in supporting the Group’s underground mining operations. Revenues from gas resale within the Group for the purpose of internal consumption are presented in ‘Coal and power generation’ segment. The Group’s mining and power generation operations are vertically integrated and while the operating businesses are organised and managed separately, with each segment offering different products and serving different markets, there remains significant inter-dependence between the segments. The primary reporting format, business segments, is based on the Group’s management and internal reporting structure. Prices between the segments were set based on references to the market prices. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment revenue includes transfer between business segments. Those transfers are eliminated on consolidation. In 2018 the Group performed the reorganization of PJSC Kyivenergo (refer to the Note 35), according to which electricity supply and distribution business of PJSC Kyivenergo was separated as at 28 February 2018. For the purposes of segment reporting the Group presented electricity supply and distribution business of PJSC Kyivenergo within ‘Electricity distribution’ segment starting from 1 March 2018. Would management continue to consider electricity supply and distribution business of the entity as a part of ‘Kyivenergo’ segment, revenue and segment result of this segment for the 2018 would be higher by UAH 10,627 million and UAH 127 million respectively. As disclosed in the Note 35 following the restructuring plan, in December 2018 the Group has transferred control over its’ electricity distribution operations to an entity under common control. The Management Board of the Group continues to analyse ‘Electricity distribution’ revenue and segment result till the date of disposal. The Group employed approximately 52 thousand people at the end of 2018 (2017: 73 thousand people), which are allocated as follows within the Group’s operating segments: coal and power generation – 46 thousand people (2017: 47 thousand people); electricity distribution - nil thousand people (2017: 9 thousand people); Kyivenergo - nil thousand people (2017: 10 thousand people); other – 7 thousand people (2017: 7 thousand people). The main reason for the reduction in employees is due to the discontinued operations that resulted in disposal of electricity distribution and Kyivenergo businesses (refer to the Note 35).

22 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

7 Segment Information (Continued)

Segment information for the reportable segments of the Group for the year ended 31 December 2018 is as follows: Coal and power Electricity In millions of Ukrainian Hryvnia generation distribution Kyivenergo Other Elimination Total

Sales – external 74,155 54,422 11,497 16,452 - 156,526 Sales to other segments 65 1,237 3 3,044 (4,349) - Total revenue 74,220 55,659 11,500 19,496 (4,349) 156,526 Heat tariff compensation ------Total revenue and heat tariff compensation 74,220 55,659 11,500 19,496 (4,349) 156,526 Sales of discontinued operations other than those to continued operations (65,919) Sales of continued operations to discontinued operations 179 Revenue from continued operations 90,786

Segment result from continued operations 14,083 - - (388) (53) 13,642 Segment result from discontinued operations - 478 321 - - 799 Total segment result 14,083 478 321 (388) (53) 14,441 Net operating foreign exchange loss (249) Foreign exchange losses less gains on financing and investing activities 744 Impairment of property, plant and equipment, intangible assets and goodwill (3,625) Provision attributable to financial investments (229) Finance costs not included in segment result (5,547) Gain on disposal transaction (Note 35) - 1,878 18 - - 1,896 (Loss)/profit before income tax from discontinued operations (Note 35) - 493 (83) - - 410 Unallocated expenses (570) Profit before income tax from continued operations 7,271

Capital expenditure 5,469 1,550 103 465 - 7,587

Material non cash item included in segment result: Net movement in provision for impairment of trade and other receivables and prepayments made (361) (287) 388 (53) - (313) Depreciation and amortisation (10,263) (1,286) (451) (202) - (12,202) Non-recoverable VAT (115) (18) (105) (32) - (270) Finance income / (costs) 1 (114) 156 38 - 81

23 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

7 Segment Information (Continued)

Segment information for the reportable segments of the Group for the year ended 31 December 2017 is as follows: Coal and power Electricity In millions of Ukrainian Hryvnia generation distribution Kyivenergo Other Elimination Total

Sales – external 62,945 41,755 26,234 10,039 - 140,973 Sales to other segments 3,902 1,120 - 2,549 (7,571) - Total revenue 66,847 42,875 26,234 12,588 (7,571) 140,973 Heat tariff compensation 40 - 725 - - 765 Total revenue and heat tariff compensation 66,887 42,875 26,959 12,588 (7,571) 141,738 Sales of discontinued operations other than those to continued operations (68,714) Sales of continued operations to discontinued operations 4,019 Revenue from continued operations 77,043

Segment result from continued operations 14,951 - - (548) - 14,403 Segment result from discontinued operations - 788 (304) - - 484 Total segment result 14,951 788 (304) (548) - 14,887 Net operating foreign exchange loss (467) Foreign exchange losses less gains on financing and investing activities (2,589) Loss of control over the operations of entities located in non-controlled territory (Note 16) (3,590) (639) - (196) - (4,425) Charitable donations and sponsorship to related parties (Note 8) (240) Impairment of property, plant and equipment (Note 9) (789) (113) (235) - - (1,137) Finance costs not included in segment result (7,975) Loss/(profit) before income tax from discontinued operations (Note 35) - (255) 1,284 - - 1,029 Unallocated expenses (74) Loss before income tax from continued operations (991)

Capital expenditure 6,078 992 1,199 147 - 8,416 Decrease in valuation of property, plant and equipment through OCI (4,297) (313) (177) - - (4,787)

Material non cash item included in segment result: Net movement in provision for impairment of trade and other receivables and prepayments made 311 295 (177) (3) - 426 Depreciation and amortisation (7,529) (769) (839) (34) - (9,171) Non-recoverable VAT (140) (9) (40) (30) - (219) Finance income (costs) 2 348 11 9 - 370

24 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

7 Segment Information (Continued)

The total of non-current assets other than financial instruments and deferred tax assets (there are no employment benefit assets and rights arising under insurance contracts) located in Ukraine is UAH 63,643 million (2017: UAH 83,196 million). As at 31 December 2018 and 2017 the Group has no non-current assets, located in other countries than Ukraine. Customers concentration, exceeding 10% of total revenues is presented below:

Coal and power Electricity In millions of Ukrainian Hryvnia generation distribution Kyivenergo Other Total

2018 Energorynok SE 56,905 - 2,868 - 59,773 Entities under common control of SCM and DTEK B.V. Group subsidiaries 1,741 10,918 34 10,009 22,702

Total 58, 64 6 10, 918 2,902 10,00 9 82, 475

2017 Energorynok SE 49,685 - 4,447 - 54,132 Entities under common control of SCM and DTEK B.V. Group subsidiaries 1,705 10,219 117 6,807 18,848

Total 51,390 10,219 4,564 6,807 72,980

Geographical information In millions of Ukrainian Hryvnia 2018 2017

Ukraine 144,279 133,060 Other European countries 12,247 8,502 Other - 176

Total revenues and heat tariff compensation 156,526 141,738

The Company’s revenues are presented by legal address of the customer under direct sales contracts.

8 Balances and Transactions with Related Parties

Related parties are defined in IAS 24, Related Party Disclosures . Parties are generally considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Other related parties represent entities with significant concentration of transactions, but which are not under common control. The nature of the related party relationships for those related parties with whom the Group entered into significant transactions or had significant balances outstanding at 31 December 2018 are detailed below.

2018 2017 Entities Entities under Associates under Associates common DTEK BV and Joint common DTEK BV and Joint control of Group Ventures control of Group Venture of In millions of Ukrainian Hryvnia SCM subsidiaries of SCM SCM subsidiaries SCM Prepayments for property, plant and equipment 17 - - 82 1 - Loans provided to related parties (Note 12) - 12,406 - - 11,815 - Financial aids provided to related parties (Note 12) - 257 - - 60 - Trade and other receivables 3,088 1,498 138 3,159 2,684 109 Restricted deposits 26 - - 76 - - Cash and cash equivalents – current account 522 - - 1,449 - - Guarantee under the borrowings of related parties (Note 20) - (789) - - (1,065) - Other financial liabilities and interest accrual (2) (279) - (2) (15) - Trade and other payables (664) (2,500) - (1,122) (3,040) (1) Prepayments received (447) (2) (103) (863) (8) (3)

25 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

8 Balances and Transactions with Related Parties (Continued)

The income and expense items with related parties for the years ended 31 December were as follows: 2018 2017 Entities Entities under Associates under Associates common DTEK BV and Joint common DTEK BV and Joint control of Group Ventures of control of Group Venture of In millions of Ukrainian Hryvnia SCM subsidiaries SCM SCM subsidiaries SCM

Sales of electricity * 10,952 - 2,550 10,618 - 2,466 Sales of gas 8,872 - 1,752 6,351 210 1,432 Sales of coking coal 299 - - 714 - 21 Sales of steam coal 1,442 - 2 705 - 1 Sales of services and other materials 1,017 120 6 149 101 14 Other operating income 280 8 - 138 10 - Purchase of coal and fuel (24) (5,426) - (72) (4,426) - Purchase of production materials and spare parts (1,862) (42) - (1,035) - (1) Purchase of gas - (14,184) - (1) (11,458) - Purchase of electricity* - (107) - - - - Purchase of non-current assets (161) - - (1,745) - - Purchase of services (4,748) (187) - (3,230) (251) (1) Charitable donations and sponsorship - - - (240) - - Interest income on bank deposits 116 - - 69 - - Interest income on loans issued - 779 - - 754 -

* Sales/purchase of electricity primary relates to discontinued operations of the Group (refer to Note 35).

Revenue, trade and other receivable The trade receivable balances as at 31 December 2018 due from entities under common control and associates are non-interest bearing. As a result of discontinued operations (Note 35) Group recognised trade receivables from distribution entities (DTEK Power Grid LLC, DTEK Energougol ENE PJSC and DTEK Donetsk Grids JSC) in the nominal amount of UAH 1,789 million. Balances from related parties as at 31 December 2018 and 2017 are unsecured and settlements are made either in cash, in the form of debt set-off or by means of exchanging promissory notes issued by the settling counterparties or third parties to the transaction. Purchases, trade and other payables Purchases and outstanding trade and other payables as at 31 December 2018 and 2017 comprised mainly balances due to related parties for provision of railway services, supplies of gas, iron shoring for mines, raw materials and steaming coal. Balances payable are non-interest bearing and are repayable in the normal course of business. Key management personnel compensation Key management personnel consist of six top executives (2017: seven top executives). In 2018 total compensation to key management personnel amounted to UAH 115 million (2017: UAH 109 million). Compensation to the key management personnel consists of salary and bonus payments.

26 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

9 Property, Plant and Equipment

Movements in the carrying amount of property, plant and equipment were as follows: Furniture, Buildings and Plant and fittings and Construction In millions of Ukrainian Hryvnia Mining assets structures machinery equipment in progress Total

At 1 January 2017 Cost or valuation 15,577 22,123 33,862 3,451 4,954 79,967 Accumulated depreciation and impairment (1,579) (4,543) (8,541) (1,180) - (15,843) NBV at 1 January 2017 13,998 17,580 25,321 2,271 4,954 64,124

Additions 695 1,019 3,563 313 2,826 8,416 Disposals - (233) (30) (16) - (279) Depreciation charge (1,027) (1,944) (5,856) (502) - (9,329) Net increase in valuation of property, plant and equipment 3,663 7,831 15,211 511 - 27,216 Impairment of property, plant and equipment (253) (238) (314) 53 (385) (1,137) Loss of control over the operations of entities located in non-controlled territory(Note 16) (4,686) (2,860) (3,897) (165) (1,184) (12,792) Acquisition of entities under common control (Note 34) - 694 122 6 8 830 Transfer 217 129 642 120 (1,108) - NBV at 31 December 2017 12,607 21,978 34,762 2,591 5,111 77,049

At 31 December 2017 Cost or valuation 16,677 26,854 42,829 4,296 6,082 96,738 Accumulated depreciation and impairment (4,070) (4,876) (8,067) (1,705) (971) (19,689) NBV at 31 December 2017 12,607 21,978 34,762 2,591 5,111 77,049

Additions 812 606 3,447 375 2,347 7, 587 Disposals - (534) (332) (52) (24) (94 2) Depreciation charge (1,182) (2,468) (7,760) (589) - (1 1,999 ) Net decrease in valuation of property, plant and equipment - (1,823) (1,340) (129) - (3,292) Impairment of property, plant and equipment - (1,141) (660) (91) (680) (2,572) Disposal group (Note 35) - (3,203) (2,334) (291) (1,355) (7,183) Transfer 1,951 (1,244) 1,683 82 (2,472) - NBV at 31 December 2018 14,188 12,1 71 27, 466 1, 896 2, 927 58,648

At 31 December 2018 Cost or valuation 19,422 16,619 41,258 2,838 3,898 84 ,035 Accumulated depreciation and impairment (5,234) (4,448) (13,792) (942) (971) (25,387) NBV at 31 December 2018 14,188 12,171 27,466 1,896 2,927 58,648 NBV without revaluation at 31 December 2017 4,441 4,825 14,278 1,830 4,038 29,412 NBV without revaluation at 31 December 2018 4,982 497 13,174 1,669 1,854 22,176

In 2017 the Group engaged independent appraisers to determine the fair value of its property, plant and equipment. Fair value was determined with reference to depreciated replacement cost or market-based evidence, in accordance with International Valuation Standards. As a result of the revaluation performed management reassessed the useful lives of the Group’s property, plant and equipment. This change affected the depreciation charge for the second half of 2017 and will impact depreciation onwards. The Group makes use of the exemption as allowed by IAS 8 for not disclosing the estimated effect due to impracticability. The majority of the structures, plant and machinery are specialised in nature and are rarely sold in the open market in Ukraine other than as part of a continuing business. The market for similar property, plant and equipment is not active in Ukraine and does not provide a sufficient number of sales of comparable assets to allow for using a market-based approach for determining fair value. Consequently, the fair value of structures, plant and machinery was primarily determined using depreciated replacement cost. This method considers the cost to reproduce or replace the property, plant and equipment, adjusted for physical, functional or economic depreciation, and obsolescence.

27 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

9 Property, Plant and Equipment (Continued)

The depreciated replacement cost was estimated based on internal sources and analysis of Ukrainian and international markets for similar property, plant and equipment. Specifically, the depreciated replacement cost was based on the actual physical characteristics of assets (volume, length, etc.) multiplied by the cost to replace (as based on price indices), this was then further adjusted by the remaining useful life and the economic ceiling as determined on each cash generating unit. Various market data was collected from published information, catalogues, statistical data etc., and industry experts and suppliers. As at 31 December 2018 total net book value of property, plant and equipment under finance lease is UAH 1,239 million (31 December 2017: UAH 1,237 million). As at 31 December 2018 and 2017, no property, plant and equipment have been pledged to third parties as collateral for borrowings (Note 33). In 2018, the depreciation expense of UAH 9,745 million (2017: UAH 7,289 million) was included in cost of sales, UAH 255 million (2017: UAH 296 million) in other operating expenses, UAH 65 million (2017: UAH 59 million) in general and administrative expenses, UAH 34 million (2017: UAH 29 million) in distribution expenses, UAH 95 million was capitalised (2017: UAH 94 million) and UAH 1,805 million relate to discontinued operations (2017: UAH 1,562 million). During 2018 the Group continued the construction of qualifying assets. This construction is financed through special- purpose and other borrowings. Borrowing costs capitalised during 2018 were UAH 76 million (2017: UAH 89 million). The rate 9.73% was used to estimate borrowing costs subject to capitalisation (2017: 9.44%). The recoverable amount has been determined based on fair value less costs of disposal calculations. Assumptions used in impairment testing of property, plant are consistent with those used in goodwill impairment test (Note 11), except for the following, which relate to certain assets which do not have goodwill allocated to them. Impairment assessment in 2018 Discontinued operations in 2018 include impairment loss recognised by the Group in 2018 relating to the distribution entities and was mainly driven by decrease in anticipated RAB rate with respect to the old production base assets. Impairment was recognised based on the recoverable amount being lower than their net book value. The recoverable amount has been determined based on fair value less cost of disposal calculations. These calculations use cash flow projections based on financial budgets approved by management covering period till 2030. Cash flows beyond this period are extrapolated using the estimated growth rates. The growth rates do not exceed the long-term average growth rate for the business sector of the economy in which the CGU operate. The excess was written-off as an impairment of property, plant and equipment in the income statement in amount of UAH 2,001 million and in the other comprehensive income in the amount of UAH 3,292 million (Note 35). Remaining impairment of UAH 571 million was recognized on individual assets level (UAH 99 million was related to discontinued operations and UAH 472 million was related to disposal of subsidiary), and charged to the income statement. Assumptions used for fair value less cost of disposal calculations to which the recoverable amount is most sensitive were: Return on assets based tariff (“RAB”). Management assumes that from 1 January 2020 the Group’s distribution entities will be transferred to the announced incentive regulation of tariffs for natural monopolies. Under this regulation, the overall profitability of the distribution entity is determined as a product of return on assets base (“RAB”) and predetermined rate of return, adjusted for approved operating costs. Transition to the RAB based incentive tariff setting mechanism will have a significant positive effect on the operating cash flows of the respective distribution entities. Discount rate. The discount rate of 18.1% used is after-tax, and reflect specific risks of the relevant businesses. Impairment assessment in 2017 As discussed further in Note 16, following the loss of control over operations in the non-controlled territory all property, plant and equipment located there was fully impaired. As a result of revaluation of property, plant and equipment, certain items were identified with recoverable amount being lower than their net book value before revaluation due to physical condition or economic obsolescence. The excess was written-off as an impairment of property, plant and equipment in the income statement in amount of UAH 1,137 million. This comprised UAH 616 million of impairment represented by slow moving construction in progress and equipment with poor physical condition determined at the individual asset level and UAH 521 million determined at the level of cash-generating (CGU) unit related to one electricity generating plant in the east of Ukraine whose financial performance deteriorated due to increase in the cost of coal sourced following the events in the NCT in March 2017. Key Assumptions used in valuation and determination of economic ceiling in 2017. Determination of tariff in the new market. It is anticipated in the assessment of the fair value that from 2019 the electricity market in Ukraine will move from a regulated tariff for generation to a market tariff arising from direct contracts. Management assumed that the pricing model under the new market conditions will be based on the tariff of the most costly generation station. Based on this assumption a tariff has been calculated and applied to projected volumes to arrive at their gross cash inflows related to the sale of electricity. Should the tariff in the new market be

28 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

9 Property, Plant and Equipment (Continued) determined on another basis, being different from the most costly coal fired station in the grid, this will result in reduction of the carrying amount of property, plant and equipment. The amount of such reduction is impractical to estimate because it is not clear how the new market pricing will be determined. Generation volumes. Management have assumed that generation volumes for coal-fired stations will be reduced on average by 0.7% annually. If projected volumes were to reduce by 2% annually, this would result in reduction to the carrying amount of property, plant and equipment by UAH 4,742 million with the corresponding reduction being primarily to revaluation reserve in equity. Infrastructure. Management have assumed that from 2019 the operator of the national electricity grid will complete construction of certain announced capital expenditures to facilitate the increase of the electricity flow between certain Group generation stations. If such connection is not built then this would result in the impairment of property, plant and equipment by approximately UAH 623 million to the income statement. Railway tariff. Management assumes that the cost of railway transportation will grow on average by 56% in 2018, but then reduce by 18% in 2019 and remain relatively flat for the next four years. If following the increase in 2018, the cost of railway transportation grows in line with anticipated industrial inflation, this would result in a reduction of property, plant and equipment by UAH 4,436 million with the corresponding reduction in revaluation reserve in equity. Mine production volumes. Management assumed that the production volume of the mines of Dobropolyeugol LLC will increase from the current level of 2.3 million tons per annum to 3.3 million tons per annum by 2020. Should the production volume stay at the level of 2017, this would result in reduction of property, plant and equipment by UAH 3,428 million with a corresponding reduction in revaluation reserve in equity and UAH 808 of impairment charge to the income statement. Return on assets based tariff (“RAB”). Management assumes that from 1 January 2020 the Group’s distribution entities will be transferred to the announced incentive regulation of tariffs for natural monopolies. Under this regulation, the overall profitability of the distribution entity is determined as assets base multiplied by predetermined rate of return (“RAB”), adjusted for approved operating costs. Transition to the RAB based incentive tariff setting mechanism will have a significant positive effect on the operating cash flows of the respective distribution entities. The carrying value of property, plant and equipment will not be impacted unless the transition to RAB is delayed beyond 2021.

10 Intangible Assets

As at 31 December, intangible assets comprise: In millions of Ukrainian Hryvnia 2018 2017 Burshtyn electricity island 844 984 Other intangible assets 207 608 Total 1,051 1,592

Intangible asset “Burshtyn electricity island” is a unique technological capability of DTEK Westenergy JSC related to supply of electricity to the European Union. The movements of other intangible assets were as follows: Accumulated amortisation and In millions of Ukrainian Hryvnia Cost impairment Net book value As at 1 January 2017 2,674 (1,035) 1,639 Additions / (Charge) for the year 241 (211) 30 Acquisition of entities under common control (Note 34) 5 - 5 Loss of control over the operations of entities located in non-controlled territory(Note 16) - (82) (82) As at 31 December 2017 2,920 (1,328) 1,592

Additions / (Charge) for the year 267 (219) 48 Disposals (46) 35 (11) Disposal group (Note 35) (152) 97 (55) Impairment of intangible assets (654) 131 (523) As at 31 December 2018 2,335 (1,284) 1,051

29 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

10 Intangible assets (Continued)

In 2018, the amortisation expense of UAH 178 million (2017: UAH 147 million), was included in cost of sales, and UAH 35 million (2017: UAH 24 million) in general and administrative expenses, UAH 4 million (2017: UAH 3 million) was included in other operating expenses and 2 million (2017: UAH 37 million) refer to discontinued operations. As at 31 December 2018 the remaining useful life of “Burshtyn electricity island” intangible asset was 6 years (31 December 2017: 7 years).

11 Goodwill

Goodwill is allocated to cash-generating units (“CGUs”) which represent the lowest level within the Group at which goodwill is monitored by management. Management allocated goodwill to five main CGUs:

In millions of Ukrainian Hryvnia 2018 2017 Coal and power generation: - DTEK Dniproenergo JSC 1,999 1,999 - DTEK Westenergy JSC 1,265 1,265 - DTEK Pavlogradugol PJSC 590 590

Energy distribution: - Kyivenergo JSC - 483 - DTEK Dnipro Grids JSC - 47

Total 3,854 4,384

The recoverable amount has been determined based on fair value less cost of disposal calculations. Cash flow projections, based on strategic model approved by senior management covering the period until 2030 year. Management believes that the assumptions used reflect market participant’s expectations. Goodwill impairment testing carried forward The cash-generating units DTEK Dniproenergo JSC and DTEK Pavlogradugol PJSC had a significant headroom of the recoverable amount over the carrying amount as a result of the most recent impairment test performed by the Group management as at 31 December 2017. The composition of the assets and liabilities making up the units have not changed significantly since the last year goodwill impairment testing performed. Management has analysed the events that have occurred and circumstances that have changed since 31 December 2017, including the areas of key assumptions, and concluded that for these CGUs the likelihood that a current recoverable amount determined as at 31 December 2018 would be less than the current carrying amount of the unit is remote. As such, the relevant goodwill impairment testing details has been carried forward from the preceding period. Key assumptions for CGUs for which goodwill impairment testing details has been carried forward from the preceding period are as follows: 2017

Coal and power generation – DTEK Dniproener go JSC Post-tax discount rate per annum, % 17.6% Volumes growth rate per annum, % (4)%-11% Gross margin per annum, % From 19% to 28% in 2018 - 2030 Coal and power generation - DTEK Pavlogradugol PJSC Post-tax discount rate per annum, % 18.4% Volumes growth rate per annum, % (9)%-3% Gross margin per annum, % From 24% to 61% in 2018 – 2030

As at 31 December 2017 management assumed for DTEK Dniproenergo JSC that all blocks that are intended to be engaged in generation of electricity in a long-term perspective would be transferred to G grade coal during 2018-2019 period. If the period of transfer to G grade coal is delayed by two years, this would result in impairment of goodwill in the amount of UAH 750 million for DTEK Dniproenergo JSC as at 31 December 2017.

30 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

11 Goodwill (Continued)

Goodwill impairment testing carried out Impairment test for DTEK Westenergy JSC was carried out as of 31 December 2018 and impairment tests for Kyivenergo JSC and DTEK Dnipro Grids JSC were carried out as of 30 November 2018. As a part of the Group restructuring, distribution assets of Kyivenergo JSC were spun-off to a new legal entity PJSC DTEK Kyivski Elektromerezhi. Goodwill recognised at the business combination of Kyivenergo JSC in 2012 was completely allocated to distribution business, being a separate cash-generating unit within the legal entity. Upon the spun-off respective goodwill was fully transferred to PJSC DTEK Kyivski Elektromerezhi, entity that took over the assets of the distribution business of Kyivenergo JSC. As part of impairment test carried out by the management of the Group, the goodwill related to PJSC DTEK Kyivski Elektromerezhi and DTEK Dnipro Grids JSC being a part of the disposal group was fully impaired (Note 35). The primary impairment triggers were the revision the estimate related to the market participants expectations regarding the return on asset based (RAB) rate on the old base of the fixed assets compared to anticipated as at 31 December 2017 and increase in discount rate. Key assumptions for CGUs for which goodwill impairment testing has been performed in 2018 are as follows: Impairment testing: 2018 2017

Coal and power generation – DTEK Westenergy JSC Post-tax discount rate per annum, % 19.0% 17.6% Volumes growth rate per annum, % (24)%-31% (24)%-31% Gross margin per annum, % From 7% to 22% in 2019 From 11% to 21% in - 2030 2018 - 2030 Electricity distribution – PJSC DTEK Kyivski Elektromerezhi (2017: DTEK Kyivenergo PJSC) Post-tax discount rate per annum, % 18.10% 16.15% Volumes growth rate per annum, % 0.73% 2.5%-8.9% Gross margin per annum, % From 26.7% to 44.7% in From 2.5% to 10.9% in 2019-2030 2018 - 2030 Period of transition to RAB 1Q 2020 1Q 2020 Electricity distribution – DTEK Dnipro Grids JSC Post-tax discount rate per annum, % 18.10% 15.8% Volumes growth rate per annum, % 0.89% 1%-1.7% Gross margin per annum, % From 21.9% to 38.3% in From 2% to 7.9% in 2019-2030 2018 – 2030 Period of transition to RAB 1Q 2020 1Q 2020

The assumptions used in the impairment testing models for external coal sales prices in the period from 2018 to 2019 are based on the most recent API2 index forecasts adjusted for freight costs. For the period from 2020 to 2030 the price trend was based on forecast USD inflation based on the data from IHS global insight. Forecasted volumes of electricity generation for DTEK Westenergy JSC (being volumes of Ladyzhyn and Dobrotvor power generation stations) ranged from 5,682 million kWh in 2019 to 5,149 million kWh in 2030 (31 December 2017: 5,968 million kWh in 2018 to 5,149 million kWh in 2030). Forecasts from industry experts and other external reputable sources, as well as internal analysis were used by management to determine price levels used in the impairment test. Actual electricity generation volumes in 2018 amounted to 5,884 million kWh for DTEK Westenergy JSC (2017: 7,115 million kWh). The values assigned to the key assumptions represent management’s best assessment of future trends in the business and are based on both external and internal sources. The Management believes that the assumptions used reflect market participant’s expectations.

31 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

11 Goodwill (Continued)

The following tables illustrate the headroom derived from the impairment test using the assumptions disclosed above, and, for reasonably possible changes, the amount by which each key assumption must change in isolation in order for the estimated recoverable amount to equal its carrying value:

Headroom Increase of Decrease in Decrease in Decrease (In millions discount selling tariff / coal volume in gross of Ukrainian rate by prices growth by growth by margin by CGU Hryvnia) (p.p.) (p.p.) (p.p.) (p.p.) At 31 December 2018 DTEK Westenergy JSC 454 0.9 0.1 0.1 0.4 At 31 December 2017 DTEK Pavlogradugol PJSC 2,308 4.1 0.3 0.4 1.6 DTEK Dniproenergo JSC 8,034 5.1 0.9 2.1 6.3 DTEK Westenergy JSC 155 0.2 0.1 0.1 0.3 Kyivenergo JSC 468 0.7 0.1 0.1 0.2 DTEK Dnipro Grids JSC 4,891 10.6 0.2 1.6 1.2

Based on the above assumptions, management determined that the fair value less cost of disposal exceeds the carrying value of goodwill as at 31 December 2018.

12 Financial Investments

As at 31 December, non-current financial investments comprised:

In millions of Ukrainian Hryvnia 2018 1 January 2018* 2017

Loans provided to related parties (Note 8) 12,406 11,497 11,815 Equity securities: - quoted 33 38 38 Deposits placed 30 4 4

Total 12,469 11,539 11,857

As at 31 December, current financial investments were as follows:

In millions of Ukrainian Hryvnia 2018 1 January 2018* 2017 Financial aids provided to related parties (Note 8) 257 58 60 Restricted deposits 26 76 76

Total 283 13 4 13 6

* effect from the first application of IFRS 9

Equity securities are carried at fair value. Non-current loans to related parties in amount of UAH 12,406 million (31 December 2017: UAH 11,815 million) are presented by the loans issued to subsidiary of DTEK Oil&Gas B.V., an entity under common control. DTEK Oil&Gas B.V. is incorporated in the Netherlands and has the majority of its assets in Ukraine and outside of non-controlled territory. The loans are due in 2023 and 2024. Subsequently to initial recognition, current interest rates under provided loans were revised from 7% per year to 8% per year for 2020-2021 and to 9% per year for 2022-2024. Respective effect of change in interest rates comprised UAH 474 million and was recognised as gain on modification of loans provided to related parties in finance income for 2018 (Note 31). The loans provided to related parties are carried at amortised cost with effective interest rate of 8% at origination date and are pledged under the New Notes (Note 33). As at 31 December 2018 loans and financial aids provided to related parties in the amount of UAH 9,718 million were denominated in US dollars (31 December 2017: UAH 9,195 million); UAH 2,688 million were denominated in Euro (31 December 2017: UAH 2,620 million) and UAH 257 million (31 December 2017: UAH 60 million) denominated in Ukrainian hryvnia. Financial aids provided to related parties in amount of UAH 203 million as at 31 December 2018 was recognised due from discontinued operation.

32 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

12 Financial Investments (Continued)

The impact of adoption of IFRS 9 resulted in recognition of provision for loans provided to related parties totalling UAH 320 million at 1 January 2018. Further, the Group has charged the additional provision for the 12 month 2018 in amount of UAH 229 million resulting from increase in credit spread on corporate bonds used as a basis for IFRS 9 expected credit losses measurement. As at 1 January 2018 provision was measured based on 12-month ECL (stage 1). During 2017 management revised expected settlement period of interest accrued on loans issued. Revised period is based on existing contractual terms and suggests that all interest accrued will be repaid at maturity together with the outstanding principal. Consequently, all accrued and not paid interest as at 31 December 2017 was reclassified from current to non-current. Respective effect of changes in expected settlement period comprised UAH 1,573 million and was recognised as a finance costs (Note 31).

13 Inventories

As at 31 December, inventories were as follows:

In millions of Ukrainian Hryvnia 2018 2017 Coal 1,923 3,102 Production materials 610 774 Fuel supplies 401 475 Spare parts 367 418 Goods for resale 27 45

Total inventories 3,328 4,814

14 Trade and Other Receivables

As at 31 December, non-current trade and other receivables were as follows:

In millions of Ukrainian Hryvnia 2018 1 January 2018* 2017 Restructured trade receivables (less discounting effect of 2 237 327 UAH 1 million) (2017: UAH 335 million) Other financial receivables (less provision of UAH 73 million and discounting effect of UAH 15 million) (2017: 6 13 80 discounting effect of UAH 31 million)

Total non -current trade and other receivables 8 250 407 * effect from the first application of IFRS 9

As at 31 December, current trade and other receivables were as follows:

In millions of Ukrainian Hryvnia 2018 1 January 2018* 2017 Trade receivables (less provision of UAH 1,676 million) 9,507 15,227 16,153 (2017: UAH 7,447 million) Restructured trade receivables (less discounting effect of 9 161 207 UAH 1 million (2017: UAH 17 million) Other financial receivables (less provision of UAH 1,076 1,423 741 775 million) (2017: UAH 895 million)

Total financial receivables 10,939 16, 129 17, 135

Prepayments to suppliers (less provision of UAH 590 1,347 4,162 4,162 million) (2017: UAH 1,209 million) VAT recoverable (less provision of UAH nil million) 2,272 2,376 2,376 (2017: UAH 85 million) Heat tariff compensation receivable - 730 730 Other non-financial receivables (less provision of UAH 30 374 197 197 million) (2017: UAH 72 million)

Total non -financial receivables 3,993 7, 465 7,465

Total current trade and other receivables 14,932 23,59 4 24,600

* effect from the first application of IFRS 9

33 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

14 Trade and Other Receivables (Continued)

As at 31 December 2018 current and non-current trade and other receivables in amount of UAH 12,925 million (31 December 2017: UAH 23,481 million) were due from customers located in the controlled territory and UAH 2,015 million (31 December 2017: UAH 1,526 million) were due from entities registered in the controlled territory but having production assets and operations in the non-controlled territory of Ukraine. Heat tariff compensation receivable as at 31 December 2017 in the amount of UAH 730 million was settled during 2018 by cash. Trade and other receivables in amount of UAH 1,342 million as at 31 December 2018 was recognised due from discontinued operation. As at 31 December 2018, 7% of trade and other receivables are denominated in currency, other than UAH (31 December 2017: 13%). Movements in the impairment provision for trade and other receivables were as follows: 2018 Financial Non -financial In millions of Ukrainian Hryvnia receivables receivables Provision for impairment at 1 January 8,342 1,366 Impact from the adoption of IFRS 9 on opening balances 1,163 - Provision for impairment during the year 1,780 118 Reversal of provision (1,221) (20) Impact of changes in estimates and assumptions 171 - Exchange rate difference (9) - Discontinued operations (7,401) (144) Amounts written off during the year as uncollectible and other movements - (700)

Provision for impairment at 31 December 2, 825 620

2017 Financial Non -financial In millions of Ukrainian Hryvnia receivables receivables Provision for impairment at 1 January 8,389 1,132 Provision for impairment during the year 1,620 203 Reversal of provision (2,238) (11) Exchange rate difference 13 - Amounts impaired due to loss of control over the operations of entities - located in non-controlled territory (Note 16) 692 Acquisition of entities under common control 72 60 Amounts written off during the year as uncollectible and other movements (206) (18)

Provision for impairment at 31 December 8,342 1,366

In 2018 net increase in provision attributable to companies which were discontinued amounted to UAH 213 million (2017: UAH 129 million of net reversal of provision). As at 31 December 2018, the Group has charged the additional provision for the 12 month 2018 due to changes in estimates and assumptions in amount of UAH 171 million resulting from increase in credit spread on corporate and government bonds used as a basis for IFRS 9 expected credit losses measurement.

34 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

14 Trade and Other Receivables (Continued)

The following table provides information about the exposure to credit risk and ECLs for financial receivables as at 31 December 2018: Gross Expected loss carrying Lifetime In millions of Ukrainian Hryvnia rate amount ECL Basis

Financial receivables from Adjusted yield to maturity on 4.26% - 6.47% 4,204 (238) related parties corporate bonds Financial receivables from Adjusted yield to maturity on 4.86% 5,482 (267) Energorynok SE government bonds Financial receivables from Adjusted yield to maturity on 4.86% 854 (42) Kyiv City Administration government bonds Financial receivables from Based on statistics of the National 15.77% 31 (5) Individuals Bank of Ukraine Trade and other receivables 10.0% 1,022 (102) Historical payment discipline from other counterparties

For trade and other receivables with overdue period for more than 1 year with gross carrying amount of UAH 2,196 million, loss allowance was calculated based on historical default rates that fall within 97-100%. Analysis by credit quality of current financial trade and other receivables (including restructured) as at 31 December 2017 was as follows: 2017 Trade Other financial In millions of Ukrainian Hryvnia receivables receivables Current and not impaired – exposure to - Energorynok SE 2,694 - - Large Ukrainian corporates 98 6 - Medium sized companies 1,054 39 - Households 1,757 1 - Restructured balances of State owned and other customers 207 -

Total current and not impaired 5,810 46

Past due and individually impaired (gross) - less than 30 days overdue 2,085 39 - 30 to 90 days overdue 1,580 77 - 90 to 180 days overdue 701 58 - 180 to 360 days overdue 3,736 416 - over 360 days overdue 9,895 1,034

Total past due and individually impaired 17,997 1,624 Less impairment provision (7,447) (895)

Total 16,360 775

35 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

15 Cash and Cash Equivalents

As at 31 December, cash and cash equivalents were as follows:

In millions of Ukrainian Hryvnia 2018 2017

Bank balances payable on demand 3,442 4,395 Term deposits with maturity of less than three months 126 1,129 Restricted cash 14 87

Total cash and cash equivalents 3,582 5,611

As at 31 December 2018, cash and cash equivalents of UAH 138 million were denominated in US dollars (31 December 2017: UAH 1,745 million), and UAH 1,813 million were denominated in EUR (31 December 2017: UAH 1,082 million). Remaining balances were denominated in Ukrainian hryvnia. As at 31 December 2018 and 2017, no term deposits with original maturity of less than three months were pledged as collateral for borrowings or bank guarantees received. For the purposes of the cash-flow statements amounts of restricted cash were not included in cash and cash equivalents balance. The bank balances and term deposits are neither past due nor impaired. Analysis by credit quality of bank balances and term deposits is as follows: 2018 2017 Bank Bank balances balances payable on Term Restricted payable on Term Restricted In millions of Ukrainian Hryvnia demand deposits cash demand deposits cash

Rating by Moody's Investors Service

- A1 rated 4 ------A3 rated 1,651 - - 2,586 - - - Ba2 rated - - - 2 148 80 - Baa3 rated 12 ------Caa1 rated 2 - - 6 - - - Caa2 rated 1,326 - 4 - - - - Caa3 rated - - - 732 - 4 - Non-rated* 447 126 10 1,069 981 3

Total 3,442 126 14 4,395 1,129 87

* Non-rated banks rank in the top 10 Ukrainian banks by size of total assets and capital (per National Bank of Ukraine).

36 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

16 Loss of control over the operations of entities located in non-controlled territory

In early March 2017 a number of threats were reported in the Ukrainian and online media of the potential seizure by the self-proclaimed authorities of production assets located in the non-controlled territory in the Donbass region of Ukraine. Management took all available actions to retain control over the assets and the systems that permitted these assets to operate. Subsequently, on 15 March 2017 the self-proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. The entities impacted include: DTEK Rovenkiantracyte LLC, DTEK Sverdlovantracyte LLC, DTEK Mine Komsomolets Donbassa PJSC, Mospino CPE LLC, one power plant belonging to DTEK Skhidenergo LLC (Zuevskaya TTP), DTEK Donetskoblenergo (only non-controlled territory part), PJSC DTEK Energougol ENE PJSC (only non-controlled territory part) and DTEK Power Grid LLC (only non-controlled territory part). The Group considered this as a theft of assets and informed the relevant Ukrainian law enforcement authorities. The Group has determined that it retains control over the legal entities impacted in the non-controlled territories, as these entities are formally registered in the controlled territory of Ukraine. For illustrative purposes, the Group prepared consolidated Income Statement and Statement of Comprehensive income of the assets over which the Group lost control to show the effect of its operation until the moment the control was lost:

Period from 1 January In millions of Ukrainian Hryvnia 2017 to 15 March 2017 Revenue 2,381 Cost of sales (1,873) Gross profit 508 Distribution costs (95) General and administrative expenses (67) Other operating expenses, net (278) Operating profit 68 Finance income 1 Finance costs (413) Loss before income tax (344) Income tax benefit 50 Loss for the period (294) Loss attributable to: Owners of the Company (253) Non-controlling interest (41) Loss for the period (294) Other comprehensive loss: Items that will not be reclassified to profit or loss: Property, plant and equipment: - Change in estimate for asset retirement obligation (38) - Income tax recorded on change in estimate for asset retirement obligation 7 Other comprehensive loss for the period (31) Total comprehensive loss for the period (325) Total comprehensive loss attributable to: Owners of the Company (284) Non-controlling interest (41) Total comprehensive loss for the period (325)

As a result of losing control over the assets located in the non-controlled territory in March 2017, management of the Group has decided to charge impairment provision on certain assets. Moreover, the Group also released certain liabilities of the entities located in the non-controlled territory. Loss before income tax of UAH 4,425 million and UAH 3,540 million was charged to the income statement and other comprehensive income, respectively, in 2017 as follows:

37 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

16 Loss of control over the operations of entities located in non-controlled territory (Continued)

Recognised in Recognised in Other In millions of Ukrainian Hryvnia Note income statement comprehensive income Total Assets Property plant and equipment 9 7,433 5,359 12,792 Intangible assets 10 82 - 82 Deferred tax assets (gross) 592 290 882 Inventory 1,051 - 1,051 Trade and other receivables 692 - 692 Cash and cash equivalents 39 - 39

Total assets 9,889 5,649 15,538

Liabilities Deferred tax liability (gross) (519) (756) (1,275) Deferred consideration for acquisition 20 (3,148) - (3,148) Retirement benefit obligations 21 (1,181) (1,332) (2,513) Asset retirement provision 22 (503) (487) (990) Accruals for employees’ bonuses (40) - (40)

Total liabilities (5,391) (2,575) (7,966)

Net result, including: 4,498 3,074 7,572

Loss of control over the operations of entities located in non-controlled territory 4,425 3,540 7,965 Deferred tax charge 32 73 (466) (393)

Property plant and equipment. As a result of losing control, management performed an impairment test for a property, plant and equipment located in the non-controlled territory using the fair value less cost of disposal model (Level 3) and determined that the recoverable value of these assets is zero. Coal and power generation segment in the non-controlled territory includes the following three CGUs: coal mining entity DTEK Rovenkiantracyte LLC; coal mining entity DTEK Sverdlovantracyte LLC; and combined CGU of the coal mining entity DTEK Mine Komsomolets Donbassa PJSC and ZuTES power station being a part of DTEK Skhidenergo LLC. The impairment loss attributable to coal and power generation segment comprised UAH 6,985 million recognised in the income statement and UAH 5,152 million recognised in other comprehensive income. Distribution segment includes the following CGUs: DTEK Donetskoblenergo (non-controlled territory part), PJSC DTEK Energougol ENE PJSC (non-controlled territory part) and DTEK Power Grid LLC (non-controlled territory part). The impairment loss attributable to distribution and other segments comprised UAH 448 million recognised in the income statement and UAH 207 million recognised in other comprehensive income. The above mentioned companies of the distribution and other segments also have assets in the controlled area of Ukraine that have not been impaired. Deferred consideration for acquisition. Deferred consideration for acquisition relates primarily to acquisition of coal mines DTEK Rovenkiantracyte LLC and DTEK Sverdlovantracyte LLC, located in the non-controlled territory of Ukraine. As at 15 March 2017, the Group’s management recognised impairment of the mines’ assets attributable to above mentioned entities. In addition, the Group obtained certificates of Ukrainian Chamber of Commerce regarding Force Majeure according to which the Group has the right to release its liabilities for non-fulfilment (improper fulfilment) of its obligations in the non-controlled territory of Ukraine. As a result, deferred consideration for acquisition in the amount of UAH 3,148 million was released and presented as part of operating income within the line “Loss of control over the operations of entities located in non-controlled territory”. Retirement benefit obligations. As a consequence of the loss of control over the operations of entities located in the non-controlled territory and the resultant dismissal of employees of these subsidiaries, management remeasured the retirement benefit obligation. The decrease in the obligation was primarily a result of applying an assumption that a majority of employees (dismissed during 2015-2017) and pensioners will stay in the non-controlled territory and thus are unable to gain required experience to be entitled for preferential retirement and claim for their preferential pensions under Ukrainian legislation. The resulting UAH 1,332 million gain from the change of assumptions in relation to retirement benefit obligations was recorded in other comprehensive income in 2017. Further, the obligations under collective agreements were decreased to reflect the loss of control over the operations producing such coal/domestic fuel for settlement of these obligations. The resulting UAH 1,181 million curtailment gain was recorded in income statement within the line “Loss of control over the operations of entities located in non-controlled territory”.

38 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

16 Loss of control over the operations of entities located in non-controlled territory (Continued)

Asset retirement provision. The Group performed re-estimation of abandonment and site restoration provision as at 15 March 2017 in respect of mines located in the non-controlled territory of Ukraine. The Group considers that asset retirement provision attributable to mines DTEK Rovenkiantracyte LLC, DTEK Sverdlovantracyte LLC, DTEK Mine Komsomolets Donbassa PJSC does not further meets the criteria of provision, as reliable estimate of the amount of obligation is impracticable due to limited access to the mines’ physical characteristics, useful life, etc. The release of assets retirement provision comprised UAH 503 million recognised in the income statement and UAH 487 million recognised in other comprehensive income. Trade and other accounts payable. Trade and other accounts payable of the companies located in the non- controlled territory of Ukraine are primary presented by restructured payable to Energorynok SE, payable to electricity suppliers, payable for restructured taxes, accruals for salaries and related charges, other accounts payable. As a result of loss of control, the Group still retains the legal constructive obligation to fulfil these obligations, therefore the Group did not derecognise its trade and other accounts payable relating to obligations incurred prior to the loss of control in March 2017 of the entities located in the non-controlled territory of Ukraine. Deferred tax asset/liability. Due to uncertainty of future taxable income of the entities located in the non-controlled territory of Ukraine, the Group has derecognised deferred tax assets in excess of deferred tax liabilities in previous accounting periods. Deferred tax liabilities of the entities located in the non-controlled territory of Ukraine attributable to property, plant and equipment were also derecognised due to impairment of related property, plant and equipment, over which the control was lost in current accounting period. Management have sought to actively manage and limit the impact of these events on the Group’s operations by adopting a number of contingency arrangements.

17 Share Capital

The authorised share capital of DTEK Energy B.V. equals to fully paid share capital and comprises 3,000 ordinary shares with a par value of Euro 10.0 per share in total amount of Euro 30,000. All shares carry one vote.

39 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

18 Other Reserves

Additional Currency paid in Hedge Revaluation translation In millions of Ukrainian Hryvnia capital reserve reserve reserve Total

Balance at 1 January 2017 (4,199) (379) 20,685 2,910 19,017 Other comprehensive income/(loss) for the period: Change in estimate relating to asset - - (215) - (215) retirement provision net of tax Net increase/decrease in valuation of - - 18,336 - 18,336 property, plant and equipment net of tax Reclassification adjustment in relation to - 220 - - 220 cash flow hedges Loss of control over the operations of entities located in non-controlled territory: - De-recognition of asset retirement - - 437 - 437 obligation net of tax - Impairment of property plant and - - (4,552) - (4,552) equipment net of tax Currency translation reserve - - - 143 143 Other movement in other reserves posted directly through equity: Realised revaluation reserve net of tax - - (4,274) - (4,274) Acquisition of entities under common - - 677 - 677 control (Note 34)

Balance at 31 December 2017 (4,199) (159) 31,094 3,053 29,789

Other comprehensive income/(loss) for the period: Change in estimate relating to asset - - 167 - 167 retirement provision net of tax Reclassification adjustment in relation to - 159 - - 159 cash flow hedges Currency translation reserve - - - (100) (100 ) Impairment of property plant and - - (1,748) - (1,748) equipment net of tax Other movement in other reserves posted directly through equity: Realised revaluation reserve net of tax - - (5,004) - (5,004 )

Balance at 31 December 2018 (4,199) - 24, 509 2,953 23, 263

The revaluation reserve, hedge reserve and currency translation reserve are not distributable to the shareholders until they are transferred to retained earnings. Retained earnings of the Group represent the earnings of the Group entities from the date they have been established or acquired by the entities under common control. Group subsidiaries distribute profits as dividends or transfer them to reserves on the basis of their statutory financial statements prepared in accordance with local GAAP as appropriate. Ukrainian legislation identifies the basis of distribution as retained earnings only, however this legislation and other statutory laws and regulations are open to legal interpretation and, accordingly, management believes at present it would not be appropriate to disclose the amount of distributable reserves in these consolidated financial statements. A portion of accumulated loss in hedge reserve in equity for the period when the hedge accounting was applied (from 1 January 2013 to 30 June 2014) in amount of UAH 159 million (2017: UAH 220 million) was reclassified to income statement to net operating forex exchange losses.

40 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

19 Borrowings

As at 31 December, borrowings were as follows:

In millions of Ukrainian Hryvnia 2018 2017 Non -current Eurobonds 34,261 32,841 Bank borrowings 14,218 15,057

48,479 47,898 Current Bank borrowings 6,569 13,543 Interest accrual 951 2,841 7,520 16,384

Total borrowings 55,999 64,282

Cash and non-cash movements in borrowings during the period are as follows:

In millions of Ukrainian Hryvnia 2018 2017

Opening balance as at 1 January 64,282 56,848 Cash movements Repayment of borrowings (7,109) (4,860) Interest paid (5,375) (2,604) Non-cash movements Recognition of Bank Borrowings upon restructuring 5,955 18,681 Extinguishment of Bank Borrowings upon restructuring (5,955) (14,035) Interest accrued during the period 5,281 5,571 Foreign exchange (gain)/loss (1,185) 3,132 Extinguishment of Bank Borrowings due to conversion to Eurobonds (1,770) (2,012) Recognition of Eurobonds upon restructuring 1,875 3,561 Closing balance as at 31 December 55,999 64,282

Interest accrued during the period include borrowing costs capitalised on the construction of qualifying assets (Note 9). Interest costs accrued on Eurobonds represents interest that was added to the principal amount of Eurobonds prior to restructuring in accordance with the terms of the Standstill arrangement. As at 31 December, the Group’s borrowings were denominated in the following currencies:

In millions of Ukrainian Hryvnia 2018 2017 Borrowings denominated in: - UAH 1,232 1,340 - US Dollars 45,488 47,967 - Euros 9,279 6,248 - Roubles - 8,727

Total borrowings 55,999 64,282

41 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

19 Borrowings (Continued)

As at 31 December, the maturity of the Group’s loans and borrowings were as follows:

In millions of Ukrainian Hryvnia 2018 2017 Loans and borrowings due: - within 1 year 7,520 16,384 - between 1 and 5 years 30,922 6,032 - after 5 years 17,557 41,866

Total borrowings 55,999 64,282

The effective interest rates and currency denomination of borrowings as at the balance sheet date were as follows: 2018 2017 In % per annum UAH USD EUR UAH USD EUR RUB 7% 7% 6.5% 6.5%; 6.5%; 5% - 20% 5% - 22% Libor 1m + Libor1m+ Libor 1m + Libor1m+ UIRD 3mUIRD + UIRD 3mUIRD + 0.375%-7% 0.375%-7% 4.45%-5.2% Euribor 3m + Euribor3m+ Euribor 3m + Euribor3m+ Euribor3m+ Euribor3m+ Euribor3m+ 5% - 10.75% 5% - 10.75% Euribor 3m+ Mosprime 3m +

Total borrowings 1,232 45,488 9,279 1,340 47,967 6,248 8,727

Bank borrowings. On 29 March 2017, the Group restructured a significant portion of its bank borrowings totalling USD 492 million (equivalent of UAH 13,321 million as at the date of transaction) by way of signing an Override agreement (the “Override Agreement”). On 22 August 2017, the Group also restructured its bank borrowings owing to PJSC UkrsotsBank totaling UAH 714 million (as at date of transaction) by the way of signing additional agreement to original facility agreement with the bank (the “Ukrsotsbank Agreement”). In addition to this, as further disclosed in Note 20, part of the financial liability designated at fair value through income statement in amount of USD 178 million (equivalent of UAH 4,840 million as at date of transaction) was converted to bank borrowings and included in Recognition of Bank Borrowings upon restructuring line. Further, the Group recognised discount in amount of UAH 194 million applying effective interest method on respective conversion included in the same disclosure line. The Override Agreement and the Ukrsotsbank Agreement resulted in modification of certain of the key terms and conditions of the underlying loan documentation. Approximately 50 percent of the interest accrued for the year ended 31 December 2017 were capitalised and included into the principal amount. In December 2017 the Override Agreement and the Ukrsotsbank Agreement were amended and starting from 28 December 2017 and 1 January 2018, respectively, interest accrued was payable in whole amount. In September 2018, the Group restructured its RUB denominated bank borrowings on the terms substantially similar to those of other restructured bank debt documentation. As a result of the restructuring, bank borrowings totalling RUB 4,108 million (UAH 1,770 million as at date of the transaction) were converted to Eurobonds and remaining part of RUB 14,106 (UAH 5,955 million as at date of the transaction) were redenominated in EUR. Further, the Group recognized foreign exchange loss totalling UAH 105 million on conversion of RUB-denominated bank borrowings to USD-denominated Eurobonds. The maturity dates of the Restructured Bank Debt were extended to 30 June 2023. Further, the interest rates for the Restructured Bank Debt denominated in USD were amended to Libor+5%, in EUR - Euribor+5%, in UAH - UIRD+5% respectively. A cash sweep mechanism was introduced that establishes that any excessive available cash balance over a threshold of USD 110 million shall be used to prepay the principal of the Restructured Bank Debt. The differences between the terms of Bank Borrowings prior to restructuring and the terms of Restructured Bank Debt Documentation are considered substantial by management based on combination of qualitative and quantitative factors, including changes in the covenants, interest rates and in the repayment schedule.

42 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

19 Borrowings (Continued)

Consequently, the transaction was accounted for as an Extinguishment of Bank Borrowings and the Recognition of Bank Borrowings upon restructuring. Management believes that remaining unrestructured bank borrowings including interest accrued totaling UAH 6,709 million as at 31 December 2018 (31 December 2017: UAH 15,528 million) will be subject to separate new restructuring documentation with terms and conditions substantially similar to the Restructured Bank Debt Documentation. Prior to the signing of these new documentation, these bank borrowings remain in default. Eurobonds. In December 2016, the Group restructured all of its existing Eurobonds and exchanged them for new Eurobonds (the “New Notes”) with an aggregate principal amount of USD 1,275 million (equivalent of UAH 34,670 million as at 31 December 2016). The transaction was accounted as extinguishment of existing Eurobonds and recognition of New Notes. The amount includes USD 300 million, being the amount of bank debt that the Group’s bank lenders elected to exchange for New Notes at par in accordance with the debt exchange offer (the "Bank Exchange Offer”). As consequence, bank debt in the amount of USD 133 million (equivalent of UAH 3,609 million as at date of transaction) was exchanged to the New Notes and included in Recognition of Eurobonds upon restructuring line. This amount includes USD 74 million (equivalent of UAH 2,012 million as at the date of transaction) of bank borrowings and USD 59 million (equivalent of UAH 1,597 million as at the date of transaction) part of financial liability designated at fair value through profit and loss converted to New Notes (Note 20). Further, the Group capitalised commissions on respective conversion in amount of UAH 48 million included in the same disclosure line. On 20 September 2018 as result of restructuring the part of loans in amount of USD 67 million were converted to the New Notes. As at 31 December 2018, the remaining portion of the Bank Exchange Offer totalling USD 100 million has not been converted to the New Notes and classified as current bank borrowings (as at 31 December 2017: USD 167 million). According to the New Notes, approximately 50 percent of the interest accrued during the period ending 31 December 2017 were capitalised and added to the principal amount of New Notes. Fifty percent of the principal amount of the New Notes outstanding on 29 December 2023 will be redeemed by the Group on such date. Since 2018 the management has decided not to capitalise the interest accrued. In 2018 the interest accrued was paid in whole amount. The maturity of New Notes was extended to 31 December 2024. The nominal interest rate under the New Notes is 10.75%. Collaterals for bank borrowings and Eurobonds are disclosed in Note 33. Covenants . The New Notes and restructured bank debt contain specific covenants, including but not limited to limitations on distribution to shareholders (unless such distribution is made pursuant to mandatory requirements of the law), limits on capital expenditure, restrictions on permissible business activities, requirement to perform transactions on an arm’s length basis, requirement to make periodic disclosure of financial information, permissible levels of additional financial indebtedness and cash interest cover. Following the signing of the restructured bank debt documentation the Group is in compliance with the covenants relating to this debt. Covenants on the remaining unrestructured bank borrowings remain in breach as at 31 December 2018, this debt has been classified as current and amounts to UAH 6,709 million as of 31 December 2017 (31 December 2017: UAH 15,528 million). Events of default are comprehensive and include cross-default to other debt of the Group. However, the cross-default clauses in the New Notes and Restructured Bank Debt Documentation excludes existing cross default in relation to the remaining unrestructured bank borrowings.

20 Other Financial Liabilities

As at 31 December, non-current financial liabilities comprised:

In millions of Ukrainian Hryvnia 2018 2017 Deferred consideration for acquisition 1,877 1,678 Guarantee under the borrowings of related parties (Note 8) 789 1,065 Payable for finance lease 502 447 Restructured trade payables 340 2,269 Loans payable to related parties (Note 8) 12 13 Restructured taxes payable 4 9 Other long-term financial liabilities 42 35

Total non -current other financial liabilities 3,566 5, 516

43 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

20 Other Financial Liabilities (Continued)

As at 31 December, current financial liabilities of the Group comprised:

In millions of Ukrainian Hryvnia 2018 201 7 Current portion of deferred consideration 216 107 Current portion of restructured trade payable 73 229 Payable for finance lease 57 28 Restructured taxes payable 28 85 Loans payable to related parties 24 4

Total current other financial liabilities 398 453

Deferred consideration for acquisition and payable for finance lease relates primarily to acquisition of coal mines. It is carried at amortised cost at an effective discount rate of 16.56% per annum and matures in 2059 and 2057 respectively. Liability for deferred consideration attributable to acquisition of coal mines DTEK Rovenkiantracyte LLC and DTEK Sverdlovantracyte LLC in the amount of UAH 3,148 million was released to income statement because of loss of control of control over the operations of entities located in non-controlled territory (see Note 16). The unwinding of discount attributable to deferred consideration and finance lease for the period comprised UAH 370 million (2017: UAH 453 million). Excess of actual inflation rate over expected inflation used for estimated value of future lease payments was accounted as loss on change in estimate and comprised UAH 273 million (2017: UAH 174 million). Restructured trade payables include UAH 111 million (31 December 2017: UAH 114 million) of restructured trade payable for state-owned Vugillya Ukrayiny, UAH nil million (31 December 2017: UAH 2,325 million) of restructured payable to the energy seller monopolist Energorynok SE which sells the energy to distribution companies of the Group, UAH 245 million of restructured trade payables (31 December 2017: nil) that arose as a result of discontinued operations. Remaining balance in amount of UAH 57 million (31 December 2017: 59 UAH million) relates to different suppliers. During 2017, UAH 1,625 million nominal values of trade payables to Energorynok SE were restructured with maturity up to 2020-2021 based on court decisions. As a result of restructuring, gain on initial recognition of restructured trade payables in the amount UAH 879 million was recognised in finance income and included in other income/(expenses) in discontinued operations. In April 2018 these restructured trade payables of Energorynok SE in amount of UAH 1,743 million were reclassified from non-current to current due to new court decision. In December 2018 UAH 2,509 million of restructured trade payables were discontinued as a part of net assets in distribution unbundling transaction (Note 35). Restructured trade payables are recognised at fair value and subsequently carried at amortised cost at effective interest rate 16.5% (2017: 14.8% - 21.1%). Due to deleveraging transaction with Sberbank of Russia (“Sberbank”) in 2016 the Group issued a guarantee to Sberbank with respect to the loan transferred to Fabcell. This guarantee is subject to a limit of USD 100 million, the fair value of the guarantee as at 31 December 2018 comprised UAH 789 million (31 December 2017: UAH 1,065 million). Amortisation of guarantee for the period comprised UAH 257 mln (2016: UAH 357 mln), remaining changes are related to foreign exchange gains. Change in other financial liabilities includes the following cash flows recorded in the Consolidated Statement of Cash Flows: repayment of restructured trade payables to Energorynok SE of UAH 382 million (2017: UAH 148 million) and restructured trade payables to state-owned Vugillya Ukrayiny of UAH 20 million (2017: UAH 17 million) are included in repayment of restructured obligations in the cash flows from operating activities; repayment of payables for finance lease and deferred consideration of UAH 251 million (2017: UAH nil million) are included in cash flows from investing activities. The remaining changes in other financial liabilities are non-cash movements.

In 2018 upon the transfer of discontinued operation of distribution companies, the Group recognised a loans payable to related parties, which was previously eliminated in the consolidated financial statements. As part of acquisition of the mining assets in 2011, the Group assumed certain restructured tax obligations that are due between 2013 and 2030. The obligations have been discounted at implied rates in a range from 16.6% to 18.6%.

44 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

21 Retirement Benefit Obligations

The Group’s production companies have a legal obligation to compensate the Ukrainian state pension fund for additional pensions paid to certain categories of former employees of the Group. There are also lump sum benefits payable upon retirement and post-retirement benefit programs. In 2018 the defined benefit plan covers 123,304 people and 16,172 pensioners (2017: 114,408 and 18,390 respectively). None of the employee benefits plans stated below are funded. The defined employee benefit liability as at 31 December originated as follows:

In millions of Ukrainian Hryvnia 2018 2017 Retirement benefits 4,616 4,532 Retirement benefits - coal support 886 793 Lump sum payments 485 667

Present value of Retirement benefit obligation 5,987 5,992

The amounts recognised in the income statement were as follows:

In millions of Ukrainian Hryvnia 2018 2017 Current service cost 167 144 Interest cost 703 835 Sequester/Past service gain (91) (763) Decrease in the obligations due to the loss of control over the operations of entities located in non-controlled territory (Note 16) - (1,181)

Total 77 9 (965)

Changes in the present value of the defined benefit obligation were as follows:

In millions of Ukrainian Hryvnia Note 2018 2017 Defined benefit obligation as at 1 January 5,992 7,254 Current service cost 167 144 Interest cost 703 835 Decrease in the obligations due to the loss of control over the operations of entities located in non-controlled territory 16 - (2,513) Sequester/Past service gain (91) (763) Benefits paid (619) (545) Re-measurements of the defined benefit liability resulting from: - changes in financial assumptions (357) 1,270 - changes in demographic assumptions (154) (172) - experience adjustments 346 457 Acquisition of entities under common control 34 - 25

Defined benefit obligation as at 31 December 5,987 5,992

Re-measurement of defined benefit liability is mainly attributable to increase in pension indexation rate as a result of amendments made in October 2017 to the pension legislation. In accordance with the amendments indexation rate was linked to the growth in average salary in Ukraine and growth in average inflation over the last 3 years. This change resulted in increase in pension indexation rate. Remaining change is attributable to actual salary growth against forecast, increase in coal cost per ton and volumes of coal supplied to the participants of benefit program. In 2017 the Group recognised past service gain, which is explained by certain changes made in the Ukrainian pension legislation in October 2017: in particular, reduction in pension insurance index from 1.35% to 1% and linkage of retirement age to the length of work. These changes will lead to reduction in pensions for current plan participants in the long term. The estimate of pension obligations requires significant judgement (see Note 4). The principal actuarial assumptions used were as follows:

2018 2017 Nominal discount rate 14.03% 12.85% Nominal salary increase 5.93%-11.16% 5.00%-13.66% Pension indexation rate 5.93%-12.57% 5.00%-9.33%

45 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

21 Retirement Benefit Obligations (Continued)

Since there are no long-term high quality corporate bonds in Ukraine, the Group applies market rates on Ukrainian government bonds of appropriate maturity to discount post-employment benefit obligations. The principal actuarial assumptions for sensitivity analysis were considered independently from each other. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period. The sensitivity of the defined benefit obligation to changes in the principal assumptions is as follows: 2018 2017 Nominal discount rate increase/decrease by 1% (7,07%)/8,00% (6,98%)/7,93% Nominal salary increase/decrease by 1% 3,47%/(3,19%) 3,50%/(3,21%) Pension indexation rate increase/decrease by 1% 2,30%/(2,11%) 2,09%/(2,02%)

As at 31 December 2018, the weighted average maturity of the Group’s defined benefit obligations is 7.8 years and it varies across different Group’s subsidiaries from 5.8 to 7.9 years (31 December 2017: 7.6 years, varying from 5.4 to 9.4 years). Payments in respect of defined benefit obligations expected to be made during the year ending 31 December 2019 are UAH 624 million (2018: UAH 696 million).

22 Provisions for Other Liabilities and Charges

Movements in provisions for liabilities and charges are as follows: Asset retirement Provision for legal In millions of Ukrainian Hryvnia provision claims Total

At 1 January 2017 1,718 23 1,741

Change in estimates 262 - 262 Arising during the year 7 72 79 Unwinding of discount (Note 31) 78 - 78 Utilised (6) (5) (11) Amounts written-off due to loss of control over the operations of entities located in non-controlled territory (Note 16) (990) - (990)

At 31 December 2017 1,069 90 1,15 9

Change in estimates (204) - (204) Arising during the year 12 10 22 Unwinding of discount (Note 31) 78 - 78 Utilised (6) (64) (70) Disposal group (Note 35) - (11) (11)

At 31 December 2018 949 25 974

The asset retirement provision is attributable to the mining and energy generating activities of the Group resulting from the obligation to dismantle and remove the mines and remediate soils disturbed by the underground works and ash dumps to the extent of existing revaluation reserve. The increase of the asset retirement obligation was recorded in other reserves as the Group uses the fair value model to measure property, plant and equipment. As at 31 December 2018 the maturity of the Group’s defined assets retirement obligations varies across different Group’s subsidiaries from 3 to 82 years (31 December 2017: varying from 4 to 83 years). Key assumptions used to calculate asset retirement provision were as follows: 2018 2017 Pre-tax nominal discount rate 14,03% 12.85% Inflation long-term 5.0% 5.0% Inflation middle-term 7.0% 7.0%

46 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

23 Trade and Other Payables

As at 31 December trade and other payables were as follows:

In millions of Ukrainian Hryvnia 2018 2017

Trade payables 6,644 14,032 Liabilities for purchased property, plant and equipment 974 1,703 Dividends payable 67 105 Liabilities for purchased securities 12 12 Other creditors 1,037 1,297 Total financial payables 8,734 17,149

Accruals for employees’ unused vacations 666 726 Wages and salaries payable 875 1,197 Total non-financial payables 1,541 1,923 Total 10,275 19,072

Analysis by currency and future undiscounted cash flows of financial trade and other payables is as follows: 31 December 2018 Liabilities Liabilities for for purchased Trade purchased property, plant Dividends Other In millions of Ukrainian Hryvnia payables securities and equipment payable creditors Currency analysis: UAH denominated 4,717 12 790 67 916 USD denominated 1,683 - - - 70 EUR denominated 225 - 145 - 45 Other currency 19 - 39 - 6

Total 6,644 12 974 67 1,037

Future undiscounted cash flow analysis: Up to 3 months 6,372 3 892 67 933 From 3 to 6 months 144 - 80 - - From 6 to12 months 128 9 2 - 104

Total 6,644 12 974 67 1,037

31 December 2017 Liabilities Liabilities for for purchased Trade purchased property, plant Dividends Other In millions of Ukrainian Hryvnia payables securities and equipment payable creditors

Currency analysis: UAH denominated 13,624 12 1,471 105 1,133 USD denominated 2 - 17 - 53 EUR denominated 392 - 109 - 108 Other currency 14 - 106 - 3

Total 14,032 12 1,703 105 1,297

Future undiscounted cash flow analysis: Up to 3 months 13,784 12 1,692 105 1,118 From 3 to 6 months 61 - 11 - - From 6 to 12 months 187 - - - 179

Total 14,032 12 1,703 105 1,297

47 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

24 Other Taxes Payable

As at 31 December other taxes payable were as follows:

In millions of Ukrainian Hryvnia 2018 2017 Value-added tax 1,608 2,167 Payroll taxes 351 483 Other taxes 920 904

Total other taxes payable 2, 879 3,55 4

25 Revenue

Analysis of revenue by category is as follows:

In millions of Ukrainian Hryvnia 201 8 201 7

Sale of electricity to electricity pool 56,905 49,721 Sale of gas 15,511 12,185 Sale of electricity abroad 9,969 6,603 Sale of steaming and coking coal 6,455 6,035 Sales of machinery 1,547 445 Heat generation 292 337 Sale of electricity to final customers 107 308 Sale of fuel - 1,409

Total 90,786 77 ,0 43

Sales of machinery mainly relate to Corum companies acquired in 2017 as described in Note 34. Major share of Group’s revenue is recognised at a point of time, amount of revenue recognised over time is insignificant.

Geographical analysis of revenue is presented in Note 7.

As at 31 December 2018 amount of contract liabilities from contracts with customers comprised UAH 2,237 million (31 December 2017: UAH 6,823). Amount of contract liabilities is included in prepayments received line in the consolidated balance sheet. The amount of revenue that was recognized during 2018 year in relation to the opening balance approximately corresponds to the amount of this contract liability as at 31 December 2017 out of which UAH 2,997 million was included in the revenue of discontinued operations.

48 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

26 Cost of Sales

In millions of Ukrainian Hryvnia 201 8 201 7 Cost of gas purchased for resale 15,372 11,823 Cost of electricity purchased for resale abroad 10,142 7,073 Depreciation of property, plant and equipment and amortisation of intangible assets 9,923 7,436 Transportation services and utilities 8,485 7,081 Staff cost, including payroll taxes 8,056 6,341 Coal purchased from third parties 6,864 6,323 Production materials 3,424 2,513 Cost of coal purchased for resale 3,288 2,574 Fuel supplies 2,029 3,174 Taxes, other than income tax 1,989 1,918 Production overheads 1,454 1,205 Equipment maintenance and repairs 435 362 Change in inventory 7 (341) Other costs 51 144

Total 71,519 57,626

As at 31 December 2018, staff costs include payroll in the amount of UAH 5,595 million (31 December 2017: UAH 4,928 million), payroll related taxes in the amount of UAH 1,392 million (31 December 2017: UAH 1,219 million), unused vacation and bonuses provisions in the amount of UAH 881 million (31 December 2017: UAH 785 million), past service gain in the amount of UAH 154 million (31 December 2017: past service costs UAH (613) million) and other personnel costs in the amount of UAH 34 million (31 December 2017: UAH 22 million). 27 Other Operating Income

In millions of Ukrainian Hryvnia 201 8 201 7 Assets received free of charge 205 7 Penalties 11 38 Income from extinguishment of accounts payable 7 3 Gain on sales of property, plant and equipment - 13 Gain on sales of inventory - 13 Other 97 91

Total 320 165

28 Distribution Costs

In millions of Ukrainian Hryvnia 201 8 201 7 Transportation 976 454 Staff cost, including payroll taxes 43 38 Depreciation 34 29 Other costs 143 212

Total 1,196 733

As at 31 December 2018, staff costs include payroll in the amount of UAH 35 million (31 December 2017: UAH 31 million), payroll related taxes in the amount of UAH 7 million (31 December 2017: UAH 7 million), unused vacation and bonus provisions in the amount of UAH 1 million (31 December 2017: UAH nil million).

49 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

29 General and Administrative Expenses

In millions of Ukrainian Hryvnia 2018 2017 Staff cost, including payroll taxes 1,404 1,230 Professional fees 633 558 Office costs 203 176 Depreciation of property, plant and equipment and amortisation of intangible assets 100 83 Taxes, other than income tax 27 13 Transportation 5 3 Other costs 142 93

Total 2,514 2,156

As at 31 December 2018, staff costs include payroll in the amount of UAH 898 million (31 December 2017: UAH 772 million), payroll related taxes in the amount of UAH 162 million (31 December 2017: UAH 139 million), unused vacation and bonuses provisions in the amount of UAH 305 million (31 December 2017: UAH 282 million) and other personnel costs in the amount of UAH 39 million (31 December 2017: UAH 37 million).

30 Other Operating Expenses

In millions of Ukrainian Hryvnia 2018 2017

Impairment of property, plant and equipment and intangible assets 995 811 Social payments 518 435 Expenses on idle capacity 323 846 Maintenance of social infrastructure 176 118 Charitable donations and sponsorship 163 624 Non-recoverable VAT 146 169 Expenses of rent property, plant and equipment 123 56 Net movement in provision for impairment of non-financial receivables and prepayments made (Note 14) 98 192 Loss from sales of services 81 106 Loss on sales of property, plant and equipment 73 - Penalties 45 190 Increase in provision for other liabilities and charges 2 27 Other 706 507

Total 3,44 9 4,081

Expenses on idle capacity represents payroll, depreciation and other costs incurred at mines being not operating at full capacity due to unexpected accidents on mines and maintenance of mines with suspended extraction.

In 2018 the Group has changed presentation of impairment loss of Property, Plant and Equipment and Intangible Assets. Starting from 2018 year, the Group presents impairment losses by the function of expense. In Financial Statements for the year ended 31 December 2017 these expenses were presented as a separate line item in the Consolidated Income Statement.

50 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

31 Finance Income and Finance Costs

In millions of Ukrainian Hryvnia 2018 2017

Interest income on loans issued to related parties 779 790 Gain on modification of loans provided to related parties (Note 12) 474 - Amortisation of guarantee provided to related party 257 357 Interest income on bank deposits 163 126 Unwinding of discount on loans provided to related parties 156 100 Gain on initial recognition of long term borrowings upon Restructuring - 194 Gain on initial recognition of long term accounts payable - 13 Unwinding of discount on long-term restructured accounts receivable - 10 Other finance income 54 183

Total finance income 1,883 1,773 Interest expense - Bank borrowings 1,237 1,811 - Eurobonds issued 3,968 3,671 Unwinding of discounts on pension obligations 686 814 Unwinding of discounts on deferred consideration related to acquisition and finance lease (Note 20) 370 453 Loss on change in estimates on deferred consideration related to acquisition and finance lease (Note 20) 273 174 Unwinding of discounts on long term accounts payable 108 102 Unwinding of discounts on assets retirement provision (Note 22) 78 78 Loss on early repayment of long-term payables 68 13 Effect of changes in expected settlement period on loans provided to related parties (Note 12) - 1,573 Professional fees 269 Interest on restructured taxes - 7 Other finance costs 1 49

Total finance costs 6,789 9,014

32 Income Taxes

Income tax expense comprises the following:

In millions of Ukrainian Hryvnia 2018 201 7 Continuing operations: Current tax 3,374 2,476 Deferred tax (1,393) (1,481) Income tax from continued operations 1,981 995 Income tax from discontinued operations (Note 35) 45 (99)

Income tax expense 2, 026 896

Deferred income tax related to items recognised in other comprehensive income:

In millions of Ukrainian Hryvnia 2018 2017 Re-measurement of post-employment benefit obligations 10 (40) Change in estimate relating to asset retirement provision recorded in equity 37 3 (Decrease) / increase in valuation of property, plant and equipment (587) 4,143

Income tax charge through other comprehensive income (540 ) 4, 106

The Group is subject to taxation in several tax jurisdictions, depending on the residence of its subsidiaries (primarily in Ukraine).

51 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

32 Income Taxes (Continued)

Reconciliation between the expected and the actual taxation charge is provided below.

In millions of Ukrainian Hryvnia 2018 2017 Profit/(loss) from continuing operations 7,271 (991) Loss from discontinued operations (410) (1,029) Total profit/( loss ) before income tax, including: 6,861 (2 ,020 ) Profit/(loss) before income tax of Ukrainian companies 6,805 (3,418) Profit before income tax of non-Ukrainian companies 56 1,398

Income tax at statutory rates of 18% (Ukrainian operations) 1,225 (615) Related tax effect calculated at different rates 25% (Dutch operations) 670 114 Related tax effect calculated at different rates 12,5% (Cyprus operations) (238) (595) Related tax effect calculated at different rates 12% (Switzerland operations) 36 789 Related tax effect calculated at different rates 20% (UK operations) (190) (195) Related tax effect calculated at different rates 40% (Hungary operations) (26) 19 Tax effect of items not deductible or assessable for taxation purposes: - non-deductible expenses 553 160 - non-taxable income (304) (248) Utilization of previously unrecognised tax losses (198) (283) Non-taxable result on disposal of subsidiaries (521) - Unrecognised deferred tax on tax losses carried forward 184 961 Tax effect of non-taxable forex losses/(gains) on foreign subsidiaries, net 15 (2) Unrecognised deferred tax on impairment of property, plant and equipment 402 547 Write-down of deferred tax assets on other deductible temporary differences 411 - Write-down of deferred tax assets previously recognised on tax losses carried forward 7 244 Income tax expense 2, 026 896

The parent and its subsidiaries are separate tax payers and therefore the deferred tax assets and liabilities are presented on an individual basis. The deferred tax liabilities and assets reflected in the consolidated balance sheets as at 31 December are as follows:

In millions of Ukrainian Hryvnia 2018 2017 Deferred tax asset 1,210 947 Deferred tax liability (3,272) (4,724)

Net deferred tax liability (2, 062 ) (3,77 7)

52 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

32 Income Taxes (Continued)

Impact from the Credited/ Credited/ Disposal In millions of Ukrainian 1 January adoption of IFRS (charged) to (charged) group 31 December Hryvnia 2018 9 to equity income to OCI (Note 35) 2018

Tax effect of deductible temporary differences

Retirement benefit 1,026 - (23) (10) - 993 obligations Trade and other 827 178 (25) - (266) 714 receivables Financial investments 566 - (169) - - 397 Deferred consideration and 406 - 32 - - 438 finance lease Provisions for other 208 - 4 (37) - 175 liabilities and charges Inventories 100 - 49 - - 149 Trade and other 45 - (3) - - 42 payables Tax losses 10 - 23 - - 33 Prepayments 6 - (6) - - - received Gross deferred tax 3,194 178 (118) (47) (266) 2,941 asset Less offsetting with (2,247) - 675 - (159) (1,731) deferred tax liabilities Recognised 947 178 557 (47) (425) 1,210 deferred tax asset

Tax effect of taxable temporary differences Property, plant and (6,971) - 1,540 587 (159) (5,003) equipment Gross deferred tax (6,971) - 1,540 587 (159) (5,003) liability Less offsetting with 2,247 - (675) - 159 1,731 deferred tax assets Recognised (4,724) - 865 587 - (3,272) deferred tax liability Recognised net (3,777) 178 1,422 540 (425) (2,062) deferred tax liability

53 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

32 Income Taxes (Continued)

Loss of control (Note 16) 1 Credited/ Credited/ Credited/ Credited/ 31 In millions of Ukrainian January Acquisition (charged) (charged) (charged) (charged) December Hryvnia 2017 (Note 34) to income to OCI to income to OCI 2017

Tax effect of deductible temporary differences

Retirement benefit 1,103 3 (49) 280 (71) (240) 1,026 obligations Trade and other 792 7 119 - (91) - 827 receivables Financial investments 188 - 378 - - - 566 Deferred consideration 581 - 187 - (362) - 406 and finance lease Provisions for other 259 - 18 47 (66) (50) 208 liabilities and charges Inventories 64 - 36 - - - 100 Trade and other payables 61 - (16) - - - 45 Tax losses 290 - (280) - - - 10 Prepayments received 7 5 (4) - (2) - 6 Gross deferred tax 3,345 15 389 327 (592) (290) 3,194 asset Less offsetting with (2,334) - 87 - - (2,247) deferred tax liabilities Recognised deferred 1,011 15 476 327 (592) (290) 947 tax asset

Tax effect of taxable temporary differences

Property, plant and (4,541) (133) 1,327 (4,899) 519 756 (6,971) equipment Gross deferred tax (4,541) (133) 1,327 (4,899) 519 756 (6,971) liability Less offsetting with 2,334 - (87) - 2,247 deferred tax assets Recognised deferred (2,207) (133) 1,240 (4,899) 519 756 (4,724) tax liability Recognised net (1,196) (118) 1,716 (4,572) (73) 466 (3,777) deferred tax liability

As at 31 December 2018, the Group has not recorded a deferred tax liability in respect of taxable temporary differences of UAH 2,227 million (31 December 2017: UAH 1,775 million) associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future. As at 31 December 2018, net recognised deferred tax liability of UAH 1,105 million is expected to be recovered or settled within twelve months after the reporting period (31 December 2017: UAH 1,398 million). The deferred tax asset on unused tax losses not recognised as at 31 December 2018 comprised UAH 5,722 million (31 December 2017: UAH 5,996 million). In the context of the Group’s current structure, tax losses and current tax assets of different Group companies may not be offset against current tax liabilities and taxable profits of other Group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity.

33 Contingencies, Commitments and Operating Risks

Tax legislation . Ukrainian tax and customs legislation is subject to varying interpretations and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant authorities, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

54 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

33 Contingencies, Commitments and Operating Risks (Continued)

The Group conducts intercompany transactions. It is possible with evolution of the interpretation of tax law in Ukraine and changes in the approach of tax authorities under the new Tax Code, that such transactions could be challenged in the future. The impact of any such challenge cannot be estimated; however, management believes that it should not be significant. The Group has income tax liabilities in various countries. The ultimate tax consequences of many transactions and calculations are uncertain, partly because of uncertainty concerning their timing. The Group continually assesses such matters and where final tax sums differ from the estimates such differences are recognised as income tax provisions in the period in which the differences become apparent. As at 31 December 2018 the Group’s contingent liabilities in relation to uncertain tax positions are equal to UAH 414 million (31 December 2017: UAH 323 million). On 1 September 2013 the Law “On Changes to the Tax Code of Ukraine in respect of transfer pricing rules” came into effect. These transfer pricing rules were much more detailed than previous legislation and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). Legislation allows the tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), if the transaction price is not arm's length and not supported by relevant documentation. Since 1 January 2015, the transfer pricing rules were amended so that transactions between Ukrainian companies (irrespective whether they are related parties or not) ceased to be treated as controlled transactions. Management believes it is taking appropriate measures to ensure compliance with the transfer pricing legislation. Legal proceedings and tax litigations . From time to time and in the normal course of business, claims against the Group are received. Management believes that it has provided for all material losses in these financial statements. As at 31 December 2018 the Group’s contingent liabilities in relation to legal claims on the Group’s contractual obligations and contingent liabilities in relation to tax litigations are equal to UAH 3,327 million (31 December 2017: UAH 4,897 million). During 2016 the Group's subsidiaries entered into additional agreements with the State Property Fund based on the changes in lease legislation. Due to possible different interpretations of the new legislation and additional agreements, management assessed that there is a possible risk that outstanding amount of deferred consideration for acquisition and finance lease recognised as at 31 December 2018 may be further increased by UAH 184 million (31 December 2017: by UAH 208 million). Capital expenditure commitments. The Group is committed to fund investment programs of mining assets acquired in 2011-2012 totalling UAH 7,727 million during the period 2011 through 2016. Outstanding amount under fund investment program was fully related to assets located in non-controlled territory. On 15 March 2017 the self- proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. As a result of this action and the receipt of Force Majeure certificates (see Note 16), the Group is released from any outstanding commitment in respect of mining asset located in the non-controlled territory. As at 31 December 2018 the Group has purchase commitments for the property, plant and equipment in the amount of UAH 50 million (31 December 2017: UAH 194 million). Assets pledged and restricted. At 31 December the Group has the following assets pledged as collateral or restricted: 2018 2017 Asset Related Asset Related In millions of Ukrainian Hryvnia pledged liability pledged liability

Loans provided to related parties (Note 12) 12,406 34,261 11,815 32,841 Restricted deposits (Note 12) 26 - 76 - Cash and cash equivalents (Note 15) 14 - 87 -

Total 12,4 46 34,261 11,978 32,841

55 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

33 Contingencies, Commitments and Operating Risks (Continued)

Following the terms of restructuring of the new senior Notes (Eurobonds) in December 2017, any proceeds obtained from the loans issued to related party as disclosed in Note 12 are restricted and should be used for repayment of the new senior Notes (Note 19). As at 31 December 2018 the movable and immovable property of the Group having value of UAH 21 million is encumbered with a tax lien (31 December 2017: UAH 510 million). The Group has pledged proceeds from future sales of electricity and part of future volume of electricity as security for certain borrowings. Total amount of the pledge is set in the pledge agreements, and the maximum exposure of the group is limited to the outstanding loan balance and related liabilities. As at 31 December 2018 future sales proceeds and the volume of electricity production in amount of UAH 1,015 million were pledged as security for borrowings amounting UAH 781 million (31 December 2017: future sales proceeds and production of electricity totalling UAH 1,013 million were pledged as security for the borrowings of UAH 781 million). The Group has pledged proceeds from future export sales of coal as security for its borrowings. As at 31 December 2018 future sales proceeds of coal in amount of UAH 21,626 million were pledged as security for borrowings amounting to UAH 5,479 million (31 December 2017: UAH 21,951 million for UAH 7,742 million borrowings). Environmental matters. The enforcement of environmental regulation in Ukraine is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material. Management believes that there are no significant liabilities for environmental damage. Compliance with covenants. The Group is subject to certain covenants related primarily to its Eurobonds and bank borrowings. Non-compliance with such covenants may result in negative consequences for the Group, including increase in the cost of borrowings, declaration of default and demand for immediate repayment of borrowings. As at 31 December 2018 and 2017 the Group was in breach of certain covenants under a number of bank borrowings agreements (see Note 19). Insurance. The insurance industry in Ukraine is developing and many forms of insurance protection common in other parts of the world are not yet generally available. At present, Group’s insurance policy incorporates “All Risks” Property Damage and Business Interruption coverage for generation and several mining companies. In particular, the policy covers losses resulting from loss or damage of property, plant and equipment, loss of profit resulting from business interruption and loss or damage of wagons of third party transportation provider. The Group does not have full coverage for third party liability in respect of property or environmental damage arising from accidents on the Group’s property or relating to the Group’s operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have an adverse effect on the Group’s operations. Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under non- cancellable operating leases are as follows:

In millions of Ukrainian Hryvnia 2018 2017

Later than 1 year and not later than 5 years 473 547

Total operating lease commitments 473 547

Lease of land. The Group leases the land on which its assets are located. The annual lease payment in 2018 amounted to UAH 294 million (2017: UAH 343 million).

34 Acquisition of entities under common control

On 28 November 2017 the Group acquired 100% of Corum Druzhkivskyi Machine-Building Plant LLC (‘DMBP’) and 100% of Engineering and Technical Center Mining Machines LLC (ETC). On 30 November 2017 the Group acquired 61.17% of Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC (‘Svitlo Shakhtarya’), together ”Corum companies”. These entities are engaged in the following businesses: Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC (“Svitlo Shakhtarya”), is a producer of equipment for mining; Corum Druzhkivskyi Machine-Building Plant LLC (“DMBP”), is an owner of property, plant and equipment which is leased to Corum Group subsidiaries; Engineering and Technical Center Mining Machines LLC (“ETC”) is the owner of patents for models and equipment, which are used in the production activities of Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC and the entity that is still in the Corum Group. These businesses are engaged in supporting the Group’s underground mining operations and were purchased to enable better oversight over their operation and create cost efficiencies.

56 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

34 Acquisition of entities under common control (Continued)

The following table describes summary predecessor carrying values of the net assets acquired at the date of acquisition of Corum companies: Svitlo In millions of Ukrainian Hryvnia Shakhtarya DMBP ETC Total

Property, plant and equipment 179 651 - 830 Intangible assets - - 5 5 Deferred income tax asset 15 - - 15 Inventories 311 29 - 340 Trade and other receivables 923 91 27 1, 041 Retirement benefit obligation (25) - - (25) Deferred income tax liability (11) (122) - (133) Trade and other payables (783) (213) (47) (1,043) Carrying value of net assets/(liabilities) of acquired entities 609 436 (15) 1,030

Less: non-controlling interest (237) - - (2 37 ) Add: settlement of pre-existing payables to the Group 216 - - 216 Net assets acquired 588 436 (15) 1,0 09

Purchase consideration paid (876) (1,590) - (2,466) Settlement of pre-existing receivables from acquire (216) - - (216)

Accumulated deficit recognised as a result of acquisition of subsidiaries under common control 504 1,154 15 1,673

Cash flows on acquisition of subsidiaries Cash and cash equivalents of the subsidiaries - - - - Consideration paid for acquisition of subsidiaries 876 1,590 - 2,466

Net outflow of cash on acquisition of subsidiaries 876 1,590 - 2,466

The non-controlling interest represents the share of the net assets are determined based on predecessor values of the acquiree attributable to the owners of the non-controlling interest. All three entities were part of the Corum Group and were under common control of SCM. The Group accounted acquisition of these entities as a common control transaction, recognising deficit in amount UAH 1,673 million directly in retained earnings in amount UAH 2,350 million less revaluation reserve 677 million in other reserves. This charge was calculated as cash consideration transferred less the predecessor carrying amount of assets and liabilities of acquired entities and less non-controlling interest recognised. The acquired entities results, assets and liabilities incorporated from the date of business combination between entities under common control as described in Note 3. There were no contingent liabilities recognized as a result of the acquisition. The amount of acquisition related costs was not significant. Revenue and net loss of the three entities included in the consolidated income statement from the date of acquisition totalled UAH 145 million and UAH 26 million, respectively. If the acquisition had occurred on 1 January 2017, the Group’s revenue for 2017 would increase by UAH 913 million, and net loss for 2017 would increase by UAH 243 million.

35 Discontinued operations

During 2018 some operations of the Group representing major lines of the business were discontinued. As a result, respective disposal groups were derecognised from the consolidated net assets, when derecognition criteria were met.

Electricity Distribution

Following the restructuring plan and in line with regulation requirements for separation of grids business, the Group has transferred control over DTEK Donetsk Grids (formerly known as DTEK Donetskoblenergo), DTEK Energougol ENE, DTEK Power Grids, DTEK Dnipro Grids (formerly known as DTEK Dniproblenergo), DTEK Kyiv Grids, DTEK Grids, DTEK Kyiv Energy Services LLC, DTEK Dnipro Energy Services LLC, DTEK Donetsk Energy Services LLD, to an entity under common control for a cash consideration of UAH 2,212 million (USD 79 million). The completion date for the transaction was 07 December 2018. As all these entities represented a separate major line of the Group’s business – result of all such operations is disclosed as a single line in the income statements and presented as discontinued operations.

57 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

35 Discontinued operations (Continued)

In millions of UAH 7 December 2018 Property, plant and equipment 6,985 Intangible assets 55 Income tax prepaid 83 Deferred income tax asset 425 Trade and other receivables - LT 123 Inventories 206 Trade and other receivables - ST 4,499 Current income tax 32 Cash and cash equivalents 1,571 Other financial liabilities - LT (792) Provisions for other liabilities and charges (11) Other financial liabilities - ST (1,717) Prepayments received (3,508) Trade and other payables (4,684) Other taxes payable (347) Total carrying amount of net assets discontinued 2,920 Non-controlling interest 826

Total carrying amount of net assets discontinued attributable to 2,094 Equity holders of the Company Fair value of cash consideration received 2,212 Recognition of financial receivables at Fair Value (previously 2,240 eliminated as intercompany) Recognition of financial payables at Fair Value (previously eliminated (480) as intercompany) Gain on disposal transaction 1,878

Balances included into carrying amount of net assets discontinued do not include payables and receivables of discontinued operations to and from the continued operations. Upon the unbundling respective receivable and payable balances were recognized in the Group Financial Statement at fair value.

Analysis of the result of discontinued operations (2018: for the period before the disposal date – 7 December 2018) is as follows: In millions of UAH 2018 2017 Revenue 56,831 54,262 Cost of sales (55,511) (53,490) Other income and expenses, net (1,061) 234 Loss of control over the operations of entities located in non- - (647) controlled territory Impairment of property, plant and equipment and goodwill (2,630) (104) Gain on disposal transaction 1,878 - (Loss)/p rofit before tax of discontinued operations (493) 255 Income tax benefit 334 18 (Loss)/p rofit from discontinued operations (159) 273 (L oss) /profit is attributable to: Equity holders of the Company (48) 129 Non-controlling interest (111) 144

Analysis of the net cash flows of discontinued operations (2018: for the period before the disposal date – 7 December 2018) is as follows:

In millions of UAH 2018 2017 Net cash generated from operating activities 2,174 1,373 Net cash used in investing activities (1,620) (1,719) Net increase / (decrease) in cash and cash equivalents 554 (346)

Elimination adjustments were posted against revenue and expenses of discontinued operations. As a result revenue of electricity distribution was decreased by UAH 1,416 million with respective reduction in cost of sales including UAH 1,237 million sales of discontinued operations to continued and UAH 179 million sales of continued operations to discontinued (2017: UAH 1,120 million being sales of discontinued operations to continued).

58 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

35 Discontinued operations (Continued)

Discontinued operations in 2018 include impairment loss recognised by the Group in 2018 relating to the distribution entities and was mainly driven by decrease in RAB rate (Note 9). The excess was written-off as an impairment of goodwill and property, plant and equipment in the income statement in amount of UAH 530 million and UAH 2,001 million respectively and in the other comprehensive income in the amount of UAH 3,292 million.

Kyivenergo

In March 2018 the Group completed reorganization of PJSC Kyivenergo whereupon PJSC Kyivenergo electricity supply activities were transferred to the Group’s new subsidiary LLC Kyiv Energy Services and electricity distribution assets and activities was transferred to PJSC DTEK Kyivski Elektromerezhi, an entity which spun off from PJSC Kyivenergo.

The agreement with the Kyiv City Administration for the provision of heat and electricity generation to the residents and local companies of Kyiv city was prolonged after 28 April 2018 and has expired on 31 July 2018. As a result, the Group has transferred tangible assets attributable to heat and electricity generation business of PJSC Kyivenergo to the new operator appointed by Kyiv City Administration. In addition, on 8 October 2018, the Group has transferred trade payables to Naftogaz of Ukraine and respective trade receivables for heat supplied totaling UAH 2,390 million to the operator appointed by Kyiv City Administration.

Result of Kyivenergo is separated in the income statements and presented as discontinued operations.

In millions of UAH 8 October 2018 Property, plant and equipment 198 Inventories 27 Trade and other receivables - ST 2,756 Trade and other payables (2,774) Total carrying amount of net assets discontinued 207 Fair value of cash consideration received 225 Gain on disposal transaction 18

Analysis of the result of discontinued operations (2018: for the period before the disposal date - 8 October 2018) is as follows:

In millions of UAH 2018 2017 Revenue including heat tariff compensation 9,088 10,433 Cost of sales (9,510) (11,108) Other income and expenses, net 487 (387) Impairment of property, plant and equipment and goodwill - (222) Gain on disposal transaction 18 - Profit/(l oss ) before tax from discontinued operations 83 (1, 284 ) Income tax (expense) / benefit (379) 81 Loss from discontinued operations (296) (1,203) Loss is attributable to: Equity holders of the Company (214) (906) Non-controlling interest (82) (297)

Analysis of the net cash flows of discontinued operations (2018: for the period before the disposal date - 8 October 2018) is as follows:

In millions of UAH 2018 2017 Net cash generated from operating activities 103 285 Net cash used in investing activities (126) (284) Net (decrease) / increase in cash and cash equivalents (23) 1

Elimination adjustments were posted against revenue and expenses of discontinued operations. As a result revenue of PJSC Kyivenergo in 2018 was decreased by UAH 3 million with respective reduction in cost of sales being sales of discontinued operations to continued (2017: UAH 4,019 million being sales of continued operations to discontinued).

For the purposes of discontinued operations disclosure, the Group presented all revenue and expenses attributable to the distribution of Kyivenergo as a part of discontinued operations of Electricity Distribution above. Consequently, the result and the net cash flows of Kyivenergo for 2018 and 2017 years presented do not include distribution of electricity. Such presentations is in line with the Group’s reorganisation plans outlined in the Note 1.

59 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

36 Financial Risk Management

The Group’s activities expose it to a variety of financial risks: market risk (including price risk, currency risk and cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management policies seek to minimise the potential adverse effects on the Group’s financial performance for those risks that are manageable or noncore to the power generating business. Risk management is carried out by a centralised treasury department working closely with the operating units, under policies approved by the supervisory board. The Group treasury identifies, evaluates and proposes risk management techniques to minimise these exposures. Credit risk. The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Group’s sales of products on credit terms and other transactions with counterparties giving rise to financial assets. Credit risk is managed on an entity by entity basis with oversight by the Group. Credit risk arises from cash and cash equivalents, financial instruments and deposits with banks, as well as credit exposure to wholesale and retail customers, including outstanding receivables and committed transactions. For Banks only upper tier Ukrainian or international banks are accepted, which are considered at time of deposit to have minimal risk of default. Customers can be analysed between Energorynok SE, which buys 100% of electricity generated, industrial consumers and other. The exposure to credit risk for other customers is approved and monitored on an ongoing basis individually for all significant customers. The Group does not require collateral in respect of trade and other receivables. The maximum exposure to credit risk at the reporting date is UAH 30,050 million (2017: UAH 37,953 million) being carrying value of financial investments, trade and other financial receivables, cash and cash equivalents and the nominal value of guarantee under the borrowings of related parties. As at 31 December 2018 carrying value of guarantee was UAH 789 million (31 December 2017: UAH 1,065 million). In case the related party fails to meet its obligation, the Group's exposure to the credit risk would be UAH 2,769 million (31 December 2017: UAH 2,807 million). The Group does not hold any collateral as security. Credit risks concentration. The Group is exposed to concentrations of credit risk. The table below shows the balance of the major counterparties at the balance sheet date.

31 December 31 December Counterparty Classification in balance sheet 2018 2017

Deutsche Bank AG Cash and cash equivalents 1,661 2,585 State Savings Bank of Ukraine PJSC* Cash and cash equivalents 1,330 737 First Ukrainian International Bank (FUIB)* Cash and cash equivalents 522 1,449 Ukrgasbank JSB* Cash and cash equivalents - 600 DTEK Oil and Gas Group Financial investments 12,406 11,815

Energorynok SE Trade and other receivables 5,215 6,542 Electricity distribution entities (DTEK B.V. Group) Trade and other receivables 1,342 - Kyiv City State Administration Trade and other receivables 812 - Corum Group Trade and other receivables 1,276 1,108 Enakievo Metallurgical Plant Trade and other receivables 483 1,083 * These banks rank in the top 10 Ukrainian banks by size of total assets and capital (per National Bank of Ukraine).

60 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

36 Financial Risk Management (Continued)

Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in (a) foreign currencies, (b) interest bearing assets and liabilities and (c) equity investments, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

Currency risk. The Group primarily operates within Ukraine and accordingly its exposure to foreign currency risk is determined mainly by borrowings, cash balances and deposits, which are denominated in or linked to USD, EUR and RUB . Increasing domestic uncertainty, led to volatility in the currency exchange market and resulted in significant downward pressure on the Ukrainian Hryvnia relative to major foreign currencies. Substantial changes in currency rates crucially impact the Group’s earning to debt ratio used for covenants. The following table presents sensitivities of profit or loss and equity before tax to reasonably possible changes in exchange rates applied at the balance sheet date relative to the functional currency of the respective Group entities, with all other variables held constant: The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the respective entity of the Group. At 31 December 2018 At 31 December 2017 Impact on Impact on Impact on Impact on In millions of Ukrainian Hryvnia profit or loss equity profit or loss equity USD strengthening by 25% (2017: 25%) (9,478) (9,478) (9,417) (9,417) USD weakening by 25% (2017: 25%) 9,478 9,478 9,417 9,417 Euro strengthening by 25% (2017: 25%) (1,262) (1,262) (759) (759) Euro weakening by 25% (2017: 25%) 1,262 1,262 759 759 RUB strengthening by 25% (2017: 25%) (6) (6) (2,209) (2,209) RUB weakening by 25% (2017: 25%) 6 6 2,209 2,209

Decrease in currency exposure to Russian ruble is explained by restructuring as disclosed in Note 19. Interest rate risk. As the Group has substantially more interest bearing liabilities than assets, the Group’s income and operating cash flows are substantially dependent of changes in market interest rate. The Group’s interest rate risk arises from long-term and short-term borrowings and loans provided to related parties. Borrowings issued at variable interest rates expose the Group to cash flow interest rate risk. Borrowings at fixed rate expose the Group to fair value interest rate risk. At 31 December 2018 and 2017, the majority of the Group’s variable interest debt is USD, RUB and EUR denominated. As at 31 December 2018, 37% of the total borrowings was provided to the Group at floating rates (31 December 2017: 43%). The Group’s exposure to fixed or variable rates is determined at the time of issuing new debt. Management uses its judgment to decide whether fixed or variable rate would be more favourable to the Group over the expected period until maturity. The risk of increase in market interest rates is monitored by the Corporate Finance Department of the Company together with the Treasury Department. The Corporate Finance Department is responsible for planning the financing structure (levels of leverage) and borrowing activities. The key objectives to financing is reduction of borrowing costs, matching currency of borrowings with currency of proceeds from operating activities, and agreeing maturity profile of borrowings with liquidity needs. The borrowing activities are reviewed on a 12-month budget. Long-term investing activities and associated funding are considered separately. The maturity dates and effective interest rates of borrowings are disclosed in Note 19. Re-pricing for fixed rate financial instruments occurs at maturity. Re-pricing of floating rate financial instruments occurs continually. At 31 December 2018, if interest rates on USD, EUR and RUB denominated borrowings had been 200 basis points higher (2017: 200 basis points higher) with all other variables held constant, post-tax gain for the year would have been UAH 336 million lower (2017: post-tax loss for the year would have been UAH 438 million higher). As described in Note 19, borrowings of the Group are at different floating rates that are not hedged as at 31 December 2018 and 31 December 2017. Other price risk. The Group has no exposure to price risk related to financial instruments.

61 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

36 Financial Risk Management (Continued)

Liquidity risk. Prudent liquidity management implies maintaining sufficient cash and marketable securities and the availability of funding to meet existing obligations as they fall due. Management monitors liquidity on a daily basis, management incentive programs use key performance indicators such as EBITDA, free cash flow and cash collections to ensure liquidity targets are actively monitored. Prepayments are commonly used to manage both liquidity and credit risks. The Group has capital construction programs which can be funded through existing business cash flows. At the reporting date, the Group remains in discussions with financial institutions with respect to restructuring of current bank borrowings (Note 19). The following table analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are undiscounted cash flows. The maturity analysis of financial liabilities at 31 December 2018 is as follows:

Up to 6 6 -12 1 - 2 2 - 5 Over 5 In millions of Ukrainian Hryvnia months months years years years Total

Liabilities Bank borrowings 7,965 452 1,383 15,477 766 26,043 Eurobonds 1,216 1,242 2,947 30,920 23,475 59, 800 Guarantee under the borrowings of related parties 2,769 - - - - 2,769

Other financial liabilities 223 178 613 1,072 35,618 37,704 Trade and other payables 8,491 243 - - - 8,734

Total future payments, including future principal and interest 20,664 2,115 4,943 47,469 59,859 135,050 payments

Decrease in trade payables and other financial liabilities is mainly explained by discontinued operations (Note 35). The maturity analysis of financial liabilities at 31 December 2017 is as follows: Up to 6 6 -12 1 - 2 2 - 5 Over 5 In millions of Ukrainian Hryvnia months months years years years Total

Liabilities Bank borrowings 16,281 1,093 617 5,650 14,224 37,865 Eurobonds 1,044 1,072 2,624 10,996 46,860 62,596 Guarantee under the borrowings of related parties 2,807 - - - - 2,807 Other financial liabilities 306 177 1,164 2,523 37,688 41,858 Trade and other payables 16,783 366 - - - 17,149

Total future payments, including future principal and interest payments 37,221 2,708 4,405 19,169 98,772 162,275

Other financial liability external represents undiscounted future cash flows for deferred consideration payable related to acquisition, finance lease liability and other balances.

37 Management of Capital

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return on capital to shareholders, issue new shares or sell assets to reduce debt. Currently there is a restriction imposed on dividends payments currencies based on agreement with the lenders and according to the limitations based by Ukrainian legislation (Note 2). Additionally, management may defer certain capital spending to enhance its debt position.

62 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

37 Management of Capital (Continued)

Consistent with others in the industry, the Group monitors capital on the basis of gearing ratio. This ratio is calculated as net liabilities divided by total capital under management. Net debt is calculated as total borrowing (current and long-term as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital under management equals equity as shown in the consolidated balance sheet. The Group has yet to determine its optimum gearing ratio. As at 31 December 2018 approximately 12% of debt is classified as current due to breach of certain financial and non-financial covenants (as at 31 December 2017: approximately 25%). The Group is actively pursuing mechanisms to extend the credit terms to match its long-term investment strategy. As at 31 December 2018 the total net debt and total capital of the Group were UAH 52,417 million and UAH 12,528 million respectively (31 December 2017: UAH 58,671 million and UAH 19,061 million), the net debt to equity ratio was 418% (31 December 2017: 308%).

38 Fair Value of Assets and Liabilities

Financial instruments carried at fair value through profit and loss . Equity securities are carried in the statement of financial position at their fair values. The fair value of equity securities represents Level 1 of fair valuation hierarchy and is determined based on quoted market prices. The group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis as at 31 December 2018.

Financial instruments carried at amortised cost. Majority of the Group financial assets and liabilities are carried at amortised cost using the effective interest method. These assets are not measured at fair value in the balance sheet. For the majority of these instruments, the fair values are not materially different to their carrying amounts, since the interest receivable/payable is either close to current market rates or the instruments are short-term in nature. Significant differences were identified for the following instruments at 31 December 2018: 31 December 2018 31 December 2017 Carrying Carrying In millions of Ukrainian Hryvnia Fair value amount Fair value amount FINANCIAL ASSETS Loans provided to related parties 11,614 12,663 10,966 11,875 FINANCIAL LIABILITIES Non-current bank borrowings * 12,742 14,218 15,335 15,057 Eurobonds 30,511 34,261 33,448 32,841 Deferred consideration 1,801 2,093 1,325 1,785

* given the current default status on current borrowings totalling UAH 6,709 million (31 December 2017: UAH 15,528 million) and the uncertainties on the timing of cash flows on their repayment, management considers it is impracticable to estimate a fair value of these borrowings. Fair value of remaining part of current borrowings being UAH 811 million (31 December 2017: UAH 856 million) approximates its carrying values. Valuation technique and description of inputs used in the fair value measurement for level 2: Valuation technique Inputs used

FINANCIAL ASSETS Loans provided to related parties Discounted cash flows Market quotes on DTEK Eurobonds

FINANCIAL LIABILITIES Bank borrowings and Eurobonds Market approach Market quotes on DTEK Eurobonds Interest on loans pursuant to statistical Deferred consideration (Note 20) Discounted cash flows data of Ukrainian banks

39 Reconciliation of Classes of Financial Instruments with Measurement Categories

All of the Group’s financial assets and financial liabilities are carried at amortised cost, except for financial liability measured at fair value through profit or loss and equity securities.

63 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

40 Changes in accounting policies

The Group has initially adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1 January 2018. The changes in accounting policies are also expected to be reflected in the Group’s consolidated financial statements as at and for the year ending 31 December 2018. IFRS 9 Financial instruments IFRS 9 was adopted without restating comparative information. The adjustments arising from the new impairment rules are therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognised in the opening balance sheet on 1 January 2018. The following tables show the adjustments recognised for each individual balance sheet line item. The adjustments are explained in more detail by standard below.

Effect from the first In millions of Ukrainian Hryvnia 31 December 2017 application of IFRS 9 1 January 2018 ASSETS Non -current assets Property, plant and equipment 77,049 - 77,049 Intangible assets 1,592 - 1,592 Goodwill 4,384 - 4,384 Financial investments 11,857 (318) 11,539 Income tax prepaid 171 - 171 Deferred income tax asset 947 178 1,125 Trade and other receivables 407 (157) 250 Total non -current assets 96,407 (297) 96,110 Current assets Inventories 4,814 - 4,814 Trade and other receivables 24,600 (1,006) 23,594 Income tax prepaid 46 - 46 Financial investments 136 (2) 134 Cash and cash equivalents 5,611 - 5,611 Total current assets 35,207 (1,00 8) 34, 199 TOTAL ASSETS 131,614 (1,305) 130,309

EQUITY Share capital 0 - 0 Share premium 9,909 - 9,909 Other reserves 29,789 - 29,789 Accumulated deficit (28,366) (1,036) (29,402) Equity attributable to owners of the parent 11,332 (1,036) 10,296 Non -controlling interest in equity 7,729 (269) 7,460 TOTAL EQUITY 19,061 (1,305) 17,756

The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements of the Group. The new accounting policies are set out below. In accordance with the transitional provisions in IFRS 9 (7.2.15) and (7.2.26), comparative figures have not been restated. The Group applies the IFRS 9 simplified approach to measuring expected credit losses (further, “ECLs”) which uses a lifetime expected loss allowance for trade and other receivables. To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and ageing. Under IFRS 9, loss allowances are measured on either of the following bases: • 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and • lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information.

64 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

40 Change in accounting policies (Continued)

The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held). Measurement of ECLs. For all significant debtors and related parties, the calculation of expected credit losses is carried out on an individual basis taking into account agreement terms, expected repayment period, internally assessed credit risks for significant debtors based on the financial performance and taking into account external credit rating, if available. ECL rate is calculated based on credit spread implicit in the average yield on bonds of similar credit risk companies and adjusted for maturity, risk free rate and liquidity premium. Credit-impaired financial assets. At each reporting date, the Group assesses whether financial assets are credit- impaired. A financial asset is ‘credit -impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Presentation of impairment. Impairment losses related to trade and other receivables, including contract assets, are disclosed separately in Net impairment losses on financial assets in the statement of profit or loss. Impact of the new impairment model. For assets in the scope of the IFRS 9 impairment model, impairment losses are generally expected to increase and become more volatile. The Group has determined that the application of IFRS 9’s impairment requirements at 1 January 2018 results in an additional impairment allowance as follows. Effect from 1 January 2018 31 December 2017 In millions of Ukrainian Hryvnia adopting IFRS 9 Trade receivables (Note 14) 7,447 1,129 8,576 Other financial receivables (Note 14) 895 34 929 Financial investments (Note 12) - 320 320 Total 8,342 1,483 9,825

The following analysis provides further detail about the calculation of ECLs related to trade receivables on the adoption of IFRS 9. The ECLs were calculated based on actual credit loss experience over the past year or publicly available observable information used as a benchmark for expected credit losses. The Group performed the calculation of ECL rates separately for different group of customers. Exposures within each group were segmented based on common credit risk characteristics such as credit risk and ageing of trade and other receivables. The following table provides information about the exposure to credit risk and ECLs for financial receivables as at 1 January 2018: Gross Expected loss carrying Lifetime In millions of Ukrainian Hryvnia rate amount ECL Basis

Financial receivables from Adjusted yield to maturity on 2.6% - 3.4% 3,077 (90) related parties corporate bonds Financial receivables from Adjusted yield to maturity on 3.0% 6,712 (202) Energorynok SE government bonds Financial receivables from Based on statistics of the National 13.1% 4,696 (613) Individuals Bank of Ukraine Trade and other receivables: - for heat and water supply 2.9% 663 (19) Historical payment discipline (Kyiv region) - for electricity supply 7.7% 384 (30) Historical payment discipline (Kyiv region) - from customers of Distribution segment – state 36.6% 1,387 (507) Historical payment discipline entities - from customers of Distribution segment – other 8.6% 228 (20) Historical payment discipline entities - from other counterparties 10.0% 757 (76) Historical payment discipline

For trade and other receivables with overdue period for more than 1 year with gross caring amount of UAH 8,363 million, loss allowance was calculated based on historical default rates that fall within 80-100%. Adoption of IFRS 9 did not result in a significant revision of the provision for these financial assets as they were substantially impaired under IAS 39.

65 DTEK Energy B.V. Notes to the Abbreviated Consolidated Financial Statements – 31 December 2018

40 Change in accounting policies (Continued)

IFRS 15 Revenue from Contracts with Customers Starting from 1 January 2018 the Group is obliged to apply IFRS 15 Revenue from Contracts with Customers. The new standard recognition requirements provide more advanced guidance on complex transactions, such as accounting for multiple-element arrangements. The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. Management reviewed number of typical sales agreements used for revenue stream of each segment: generation, distribution, heating, mining, gas, export sales. Management assessed that adjustment of the retained earnings opening balance as at 1 January 2018 is immaterial, the retained earnings opening balance as of 01 January 2018 was not restated in the Group’s consolidated financial statements.

41 Subsequent events

In January 2019, one of the entities under common control of DTEK B.V. did not make scheduled payment in relation to the bank loan where the Group is a guarantor (Note 20). The Group did not revalue the fair value of the guarantee on the balance as at 31 December 2018 because the Group’s parent is in the process of negotiation of the new terms with the bank. Management of DTEK BV takes all reasonable efforts to renegotiate the terms and no financial loss on a guarantee is expected to be incurred by the Group in excess to the value of guarantee recognised as of 31 December 2018. As at the date of these consolidated financial statements, the bank did not request repayment of the loan or the guarantee amount from the Group. There were no other significant events subsequent to the year end. .

66