ČEZ Group Annual Report 2003 ČEZ Group: on the Way to Becoming a Leader in Central Europe

ČEZ Group Annual Report 2003 ČEZ Group: on the way to becoming a leader in Central Europe.

Stronger by uniting

The integrated ČEZ Power Group The new ČEZ Group logo is a symbol of quality, reliability, environmental stewardship, and prosperity. ČEZ Group is your strong, reliable, and stable partner who will help you to fulfill your plans and expectations in the area of energy supplies.

Operating profit (CZK millions) 7,500

4.0 Return on equity, net (%) in 2003 ČEZ Group

68,110 Electricity sold (GWh)

5,932 Profit after tax (CZK millions) ČEZ Group is the largest power group in the region of Central and Eastern Europe,

one of the top ten power corporations in Europe, and the strongest player in the

domestic power market. In its current form, ČEZ Group was created on 1 April 2003,

when ČEZ, a. s. acquired majority stakes in five electricity distribution companies

(Severočeská energetika, a.s., Severomoravská energetika, a. s., Středočeská

energetická a.s., Východočeská energetika, a.s., and Západočeská energetika, a.s.).

In addition to the generation and distribution of electricity, significant businesses in

ČEZ Group include mining of raw materials, maintenance of power plant and equipment,

telecommunication services, and scientific research.

The joint stock company ČEZ (“ČEZ, a. s.” or “ČEZ”) came into existence on 6 May 1992.

The majority owner of ČEZ, a. s. is the National Property Fund of the Czech Republic.

The core business of ČEZ, a. s. is the sale of electricity, most of which it generates in

its own facilities, and the related provision of power system ancillary services. The core 2 ČEZ Group business also includes the production, distribution and sale of heat. A more detailed

description of the core business is set forth in the company’s Articles of Association,

Article 5. Contents

Key Figures 4 Important Events of 2003 and 2004 Up to Annual Report Closing Date 6 Introduction by the Chairman of the Board of Directors 13 Interview with Selected Members of the Board of Directors and Executive Management 14 Directors and Officers 17 ČEZ Group 22 Financial Performance 25 Shareholders and Securities in Issue 34 Sales of Electricity, Heat, and Distribution Services 40 Generation and Supply of Electricity 48 Capital Investments 55 Management of Selected Processes 60 Relation to the Environment 64 Human Resources 67 Corporate Strategy 71 Power Sector Development Forecast 73

Financial Section Report of Independent Auditors 77 ČEZ Group – Consolidated Financial Statements Prepared in Accordance with International Financial Reporting Standards 78 Notes to Consolidated Financial Statements as of December 31, 2003 82 ČEZ, a. s. – Financial Statements Prepared in Accordance with Czech Accounting Standards 105

ČEZ Group Organization Chart as of 31 December 2003 110 ČEZ, a. s. Organization Chart as of 3 June 2004 112

ČEZ, a. s. Directory of Organization Units and Information Centers 114 3 Contents Glossary of Terms and Abbreviations 117 Information for Shareholders and Investors 123 Information on Persons Responsible for the Annual Report 124 Key Figures

Selected Indicators Unit 1999 CZECH REPUBLIC Installed capacity as of December 31 MW 15,216 Peak load MW 9,926 Date of peak load 1. 2. Electricity generation GWh 64,368 ČEZ Group Installed capacity as of December 31 MW 10,151 Electricity generation GWh 45,722 Heat generation TJ 13,174 Number of employees as of December 31 persons 9,749 Earnings per share (face value CZK 100) CZK/share 7.3 Current ratio 1 0.92 Debt to equity ratio 1 0.46 Return on equity (net) % 3.57 Consolidated Balance Sheet Assets CZK millions 211,489 Non current assets CZK millions 199,131 of which: Net plant in service CZK millions 94,748 Construction work in progress CZK millions 91,460 Investment in associates CZK millions 5,024 Current assets CZK millions 12,358 of which: Receivables, net CZK millions 3,503 Shareholders’ equity and liabilities CZK millions 211,489 Shareholders’ equity CZK millions 122,205 Stated capital CZK millions 59,209 Retained earnings CZK millions 62,996 Minority interests CZK millions – Long-term liabilities CZK millions 69,541 of which: Long-term debt, net of current portion CZK millions 51,084

4 Key Figures Accumulated provision for nuclear decommissioning and fuel storage CZK millions 18,457 Deffered taxes liability CZK millions 6,265 Current liabilities CZK millions 13,478 of which: Trade and other payables CZK millions 4,552 Consolidated Income Statement Revenues CZK millions 53,528 Sales of electricity CZK millions 50,678 Heat sales and other revenues CZK millions 2,850 Operating expenses CZK millions 43,579 of which: Depreciation and amortization CZK millions 9,039 Income before other expenses (income) and income taxes CZK millions 9,949 Other expenses (income) CZK millions 4,740 Income before income taxes CZK millions 5,209 Income taxes CZK millions 919 Income after income taxes CZK millions 4,290 Minority interests CZK millions – Net income CZK millions 4,290 Consolidated Cash Flow Statement Net cash provided by operating activities CZK millions 20,004 Total cash used in investing activities CZK millions (22,701) Total cash provided by (used in) financing activities CZK millions 6,307 Net effect of currency translation on cash CZK millions (260) Net increase (decrease) in cash and cash equivalents CZK millions 3,350 Cash and cash equivalents at beginning of period CZK millions 1,007 Cash and cash equivalents at end of period CZK millions 4,357

*) Including effect of change in group structure. 2,0)(636 995 3,3)311.3 (30,930) (9,935) (16,386) (21,100) 2,4 3,2 4,7 4,8 104.2 118.4 18.1 117.7 149,687 118.4 274,143 10,204 254,443 143,675 274,143 231,465 56,513 216,204 136,726 231,465 229,027 111,929 217,511 129,442 229,027 222,260 103,591 211,773 222,260 145 62 ,4 37 (19.4) 74.6 (377) (5,148) 1,945 (6,902) (642) (6,372) (1,435) (1,490) 1192,0 9013,6 188.2 56.5 66.6 35,760 174.4 150.3 152.6 6,659 19,001 7,500 270.6 77,316 118.0 86.7 99.8 79,548 84,816 11,796 107.0 22,205 100.2 11,254 42,356 44,324 28,164 30,965 129.1 52,938 59,486 55,578 13,292 90,535 21,169 153.1 59,152 14,678 15,654 41,377 23,866 35,729 19,700 53,300 59,595 56,055 10,601 84,634 59,041 212,739 12,720 17,954 111.6 113.5 39,711 21,396 110.3 43,081 15,261 49,675 64,477 109.0 52,431 99.6 77,676 138,983 59,050 106.3 14,155 14,575 61,399 20,902 12,297 49,704 11,516 70,606 83,227 70,233 87,638 11,163 59,209 17,344 13,064 54,118 11,146 10,487 76,348 92,953 11,205 16,311 13,978 52,162 10,146 74,647 10,604 15,443 12,868 50,842 10,146 73,466 10,128 15,324 ,2 ,8 ,2 ,1 95.0 4,014 4,225 2,280 2,922 ,3 ,2 ,2 ,3 70.4 4,391 76.6 6.2 x 150.3 5,932 2,280 199.5 6,451 208 841 230.3 17,611 117.4 8,421 2,922 5,268 8,421 3,375 (542) 20,578 11,721 14,721 9,123 174.8 4,357 2,640 9,123 187.1 4,169 1,386 8,934 9,366 12,541 7,237 7,063 2,755 7,237 10,999 3,364 2,119 235.8 8,651 9,377 9,870 4,040 2,756 x 5,880 18,100 5,035 8,057 3,827 5,518 9.1. 7,677 3,952 5,225 12. 8,011 13.12. 9,278 26. 1. 0020 0220 Index03/02(%) 2003 2002 2001 2000 .568 .140 67.3 92.9 48.5 69.9 4.04 0.26 0.47 10.0 6.01 0.28 0.97 14.3 6.86 0.36 0.64 15.4 5.75 0.43 0.74 12.2 1)(9 29 5)26.9 (59) (219) (89) (14) ,9 x 7,893 –––519x – – – *) 192.6

5 Key Figures 6 Important Events of 2003 and 2004 Up to Annual Report Closing Date April 2003 March 2003 February 2003 January 2003 ClosingDate Report Eventsof2003and2004UptoAnnual Important May 2003 consumption ofover9GWh. Second waveoftheelectricitymarketliberalizationprocess–isopeneduptocustomerswithannual Settlement oftransferssharesintheelectricitydistributioncompaniesandČEPS,a.s.accordancewith Corporate BankLtd.,SanpaoloIMIS.p.a.,SMBC,andWestLBAG. Austria CreditanstaltAG,BayerischeLandesbank,CreditLyonnaisS.A.,DresdnerBankMizino Bank. ParticipantsintheguaranteeincludeKreditanstaltfürWiederaufbau,ABNAMROBankN.V., loanfromtheEuropeanInvestment five-yearEUR88millionguaranteeforTrancheNo.1ofa Signing ofa the MinistryofLaborandSocialAffairsCzechRepublic,Českákonsolidačníagentura. the contractsenteredintoamongČEZ,a.s.,NationalPropertyFundofCzechRepublic,OSINEK,a.s., Fourteen eligiblecustomersacquiredinconjunctionwiththesecondwaveofmarketliberalization. Sale ofNáchodHeatPlanttoHarpenČR,s.r.o. (ČEZ, a.s.andtheeightelectricitydistributioncompanies)terminatingpublicsupportproceedings. Antitrust OfficedecidesonČEZ,a.s.appeal,settingnewconditionsforallianceamongcompetitors Extraordinary GeneralMeetingofČEZ,a.s. competitionorganizedbyCreditSuisseLife&Pensions. a Professional juryranksČEZ,a.s.oneofthetoptenemployers intheCzechRepublicfor2003 ČEZ Groupwithextensiveleveragingofsynergiesinitsmanagement. new,effective,anddynamic Consulting firmA.T.KearneyGmbHischosentocooperateon creatinga majority stakes. Extraordinary GeneralMeetingsheldinelectricitydistributioncompanieswhichČEZ,a.s.acquired 1,000MW. Temelín NuclearPowerStationreachesitsfullgenerationcapacityof2x Unit TwoofTemelínNuclearPowerStationbeginscommercialoperation. reaffirmsBBB+ratingwithchangeinoutlookfrom“stable”to“positive”. Standard &Poor’s September 2003 August 2003 July 2003 June 2003 outage didnothaveanyeffectonsupplyofelectricitytocustomersintheCzechRepublic. fewhours.This of PrunéřovIIlastedfrom14to29August.Shutdownstheotherplantsonlya Prunéřov II,andTušimiceIIPowerStationscannotsupplyelectricitytothegrid.Resultingforcedshutdown Due towinddamage400kVpowerlinesupportstructures(ownedbyČEPS,a.s.),thePrunéřovI, faspentnuclearfuelstoragefacilityintheTemelínNuclearPowerStation complex. of a Consent grantedbyStateOfficeforNuclearSafetyallowspreparations tobecommencedforconstruction three intermsofsalesrevenues. Gas, andSteam”,thenumber-twocorporationoverallintermsofearningsvalueadded,number in theCzechRepublicforyear2002category“GenerationandDistributionofElectricity,Water, competitionorganizedbytheCZECHTOP100association,ČEZ,a.s.isdeclaredtopcorporation In a recommendations hadbeenfulfilled –therestareinprocess. inspections carriedoutin1995 and1996.Theauditteamdeclaredthatthevastmajority ofthe introduced probabilitymodules forevaluatingsafetyandfulfillmentofrecommendationsfrom previous USA, GreatBritain,Russia,Spain, France,andMalaysiathepurposeofauditistoinspect newly Site auditcarriedoutbyIAEAattheTemelínNuclearPowerStation. Auditteamconsistsofexpertsfrom program forupgradingTemelínNuclearPowerStation. knowledge, thehightechnicalqualityofequipment,nuclear safety,andfireprotection,includingthe insurance pools.Inparticular,theinspectorsunderlined highlevelofemployees’professional group ofexpertsfromfournuclear Risk inspectionoftheTemelínNuclearPowerStationconducted bya seen inpowermarketsabroad. Sale ofelectricityfortheyear2004commences.ČEZ,a.s.offers substantiallybettertermsthanthose companies, andotherselectedcompaniesofČEZGroup. Change ofcompanylogoandunificationvisualstyleamongČEZ,a.s.,theelectricitydistribution Germany, France,andFinland. results ofISOEprogram(anNEAprojectsupportedbytheIAEA),CzechRepublicisfarahead ČEZ, a.s.takesfirstplaceinprotectionofnuclearpowerplantemployeesfromradiation.Accordingto is acceptedbySlovakGovernment. Late applicationbyČEZ,a.s.toparticipateintenderpurchaseequitystakeSlovenskéelektrárne,a.s. host corporation. The internationalorganizationEURELECTRICholdsitsannualconferenceinPraguewithČEZ,a.s.as 9 Eleventh AnnualGeneralMeetingofČEZ,a.s. 2002, returnedtooperation. Hydro PowerStation,damagedbythefloodofAugust First oftwoturboaggregatesattheŠtěchoviceI in theCzechcapitalmarketsaccordingtotheirinformationdisclosurepolicies. ČEZ, a.s.takessecondplaceineighthannualSignumTemporis2002competition,whichranksplayers th domestic bondissueandearlyrepaymentof5 th domestic bondissue.

7 Important Events of 2003 and 2004 Up to Annual Report Closing Date 8 Important Events of 2003 and 2004 Up to Annual Report Closing Date December 2003 November 2003 October 2003 Dukovany NuclearPowerStationdefendsits“SafeShop”certificationissuedbytheCzechWorkSafetyOffice. nuclear facilities). expresses interestinincludingalltypesofpowergenerationfacilitiesthestakebeingsold(i.e. Deadline forsubmittingbidsintenderpurchaseof49%stakeSlovenskéelektrárne,a.s.ČEZ,a.s. found thatthepowerstationhaseitherfulfilledorisworkingonfulfillingallrecommendationsfrom2001. OSART Follow-upMissiontotheDukovanyNuclearPowerStationconductedbyIAEA.Themission Association. ČEZ,a.s.alsoreceivedthe“BestAnnualReportofDecade”award. ČEZ, a.s.takesfirstplaceinthe100BestAnnualReportscompetitionorganizedbyCZECHTOP the floodof2002,isreturnedtooperation. First offourturbogenerators(no.3)attheOrlíkHydroPowerStation,whichsustainedheavydamagein purchasing amajoritystakeinoneofthreegroupsBulgariandistributioncompanies. ČEZ, a.s.handsoverdocumentationtotheBulgarianprivatizationagencyexpressingitsinterestin implemented. state thatthestation’ssafetylevelishighandrecommendationsfrom2001arebeingsuccessfully IAEA carriesoutOSARTFollow-upmissiontotheTemelínNuclearPowerStation.Themission’sfindings operation. Štěchovice IIpumped-storagehydropowerstation,damagedinfloodofAugust2002,isreturnedto ČEZ, a.s.isnotincludedonshortlistofbiddersfortheState’sinterestinSeveročeskédolya.s. VERITAS totheDukovanyNuclearPowerStationisreaffirmed. Environmental ManagementSystem(EMS)certificateissuedbyNorwegiancompanyDETNORSKE Standard &Poor’sreaffirmsBBB+ratingwithchangeinoutlookfrom“positive”to“stable”. Energy” educationalprogram. ČEZ, a.s.wins“CrystalPen”awardattheinternationalfestivalTECHFILM2003forits“Encyclopediaof Solar powerplantisputintooperationintheDukovanyNuclearPowerStationcomplex. March 2004 May 2004 February 2004 January 2004 Important Eventsof2004UptoAnnualReportClosingDate the prestigiousglobalbankingandcapitalmarketsmagazine. ČEZ, a.s.receivestopcorporategovernancerankingintheCzechRepublicfor2003fromEUROMONEY, of technologyfortheTemelínNuclearPowerStation. Acquisition ofmajoritystakeinengineeringcompanyŠKODAPRAHAa.s.,whichwastheprincipalsupplier rungs fromthepreviousyear’sranking. ČEZ, a.s.takesthirdplaceinthe“MostAdmiredCompanyofCzechRepublic”competition,upseven 2,000 Czechmanagers. education, regionaldevelopmentandotherprojects.Judgementisbasedonindependentsurveyof ČEZ, a.s.isawardedRHODOS2004imageprizeforitsgrantsconcerningcharity,culture,healthcare, technology, withareservedwattageof250kWorhigher. up tothemediumvoltagegrid,whosemeteringlocationisequippedwithhourlyprofile Third waveofelectricitymarketliberalizationprocessopensuptoallcustomershooked ČEZ, a.s.appearsontheForbeslistof2,000largestcorporationsinworld,1,125 BNP ParibasandMerrillLyncharenamedjointleadmanagersoftheneweurobondissue. revenues, earnings,assets,andmarketvalue. highest rankingofanyCzechcorporation.Theisbasedonacompilationcorporations’sales detailed information. energetika, a.s.,themaincriterionbeingpurchaseprice.Subsequently,itreceived27requestsfor ČEZ, a.s.announceditsintentiontosellshareintheelectricitydistributioncompanyPražská Signing ofČEZ,a.s.CollectiveAgreementforthe2004–2006period. th place –the

9 Important Events of 2003 and 2004 Up to Annual Report Closing Date 10 ČEZ Group

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11 ČEZ Group

12 Introduction by the Chairman of the Board of Directors

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ČEZ Grouphaswhatit e aleader company inapositivedirectionthefuture,aswell. driving thecompany’ssolidfinancialperformancein2003.I amconfidentthatourjointeffortswillcontinuetoguidethe In conclusion,allowmetothankthecompany’semployees,shareholders, andbusinesspartnersfortherolestheyplayedin shareholders, too.Goodrelationsalsoleadtogoodresults. “We helpwhereweoperate”andthat,Ithink,speaksforitself. And,certainly,thisbroaderresponsibilityisintheinterest society inallitsformsandaspects,notjustelectricpower.One aspectofoursponsorshipprogramisguidedbytheslogan company –oneofthestrongestcorporationsinCzechRepublic –anditalsohasresponsibilityforthedevelopmentof Corporations likeČEZ,a.s.areoftenreferredtoaspublicutilities andthatimpliesauniversalrole.ČEZ,a.s.isCzech ČEZ, a.s.havingresponsibilityforsociety?Isthatinshareholders’ interests? This year,ČEZ,a.s.ispublishingaseparateCorporateResponsibilityReport.Inwhatwaydoyouseecorporationlike and effectiveČEZGroupbycompletingtheintegrationofelectricitydistributioncompanies. become aleaderintheCentralEuropeanelectricitymarketthroughacquisitionsothercountriesandtocreatefunctional competition hashadanegativeimpactontheearningsofmostEuropeanpowercompanies.OthergoalsČEZGroupareto well forthefullliberalizationofelectricitymarketstartingin2006.Thereason:past,openingupmarketsto such strongone-offfactorsastheproceedsfromlastyear’ssaleofČEPS,a.s.Instead,wewillhavetoprepareourselves The goalofČEZGroupwillbetocontinueinitslong-termtrendstrongfinancialperformance.However,wecannotcounton On whatareaswillthecompanyfocusthisyearandareyourmostimportantnear-termgoals? it ismoredifficulttodefendapositionthangainit.ButIamconvincedthatoursuccesswillholdaswegoforward. ČEZ Grouphasdoneverywellto-date,butthemarketisstillnotyetcompletelyopen,andwehavealongwaytogo.Ofte two yearssincethemarketwasfirstopeneduptocompetition. How wouldyoudescribeČEZGroup’sperformanceintheliberalizedelectricitymarketCzechRepublic?Afterall,it’sbee phase. TheHungarianmarketalsoholdssomepotentialbusinessopportunities. are alsomonitoringthesituationinPoland,whereprivatizationofpowerindustryhasyettomoveoutpreparati At thismoment,ČEZ,a.s.isbiddingintwotenders–forSlovenskéelektrárne,a.s.andtheBulgariandistributioncompanies. have youalreadytakenonthisroad? ČEZ GrouphassetforitselfthegoalofbecomingaleaderinCentralandEasternEuropeanelectricitymarket.Whatsteps its competitors. presence ofcompetitionintheelectricitymarket,ČEZ,a.s.willbecapablereachingmutuallybeneficialagreementswith ČEZ, a.s.productionbasewiththeelectricitydistributioncompanies.Itisapromiseforfuturethat,despitenecess an agreementwasreachedwithE.ON,whichformalizeduponcompletionofthealreadymentionedprocessintegrating Certainly theacquisitionofstakesinCzechelectricitydistributioncompanies–majoritiesfivecases.Immediately you thinkisthebestnewsforshareholders? What, inyouropinion,wasthecompany’sbiggestaccomplishment2003?Whatdoyouappreciatemostandwhat charges relatedtoTemelínNuclearPowerStationandalsoaCZK3.5billionincreaseinnuclearprovisioning. contributing tothisdeclineincludedchangesinthenuclearpowerplantsarea–aCZK2.8billionincreasedepreciation Net incomedidnotreach2002’slevel(CZK8.4billion),anddeclinedtoCZK5.9billion(downby29.6%).Theprincipalfactors but itdidleadtoanincreaseinconsolidatedshareholders’equity. market. Ontheotherhand,saleofa66%ownershipinterestinČEPS,a.s.didnothavedirectimpactonprofitfigur electricity distributioncompaniesinČEZGroup,butalsothankstohighersalesoftheliberalizedwholesale in revenuesfromsalesofelectricity(byCZK26.6billion,or50.3%)thankstotheinclusionfinalcustomersbyth In 2003,theexpandedČEZGroup,containingequityinterestsinelectricitydistributioncompanies,achievedmajorgrowth equity method–atotalof33companies,in2002theconsolidatedgroupconsistedjustfourcompanies. Group andthereforeitisdifficulttomakeayear-on-yearcomparison.Whilein2003weconsolidated–eitherfullyorbythe First ofall,ImustsaythattheperformanceresultsČEZGroupin2003weresubstantiallyinfluencedbychanges How didtheGroup’sfinancialperformancepanoutincomparisonwith2002? Introduction by theChairmanofBoard ofDirectors Chairman oftheBoardDirectors andChiefExecutiveOfficer Martin Roman power reafter, e five We s of ary on e, n n

13 Introduction by the Chairman of the Board of Directors 14 Interview with Selected Members of the Board of Directors and Executive Management David SVOJITKA Petr VOBOŘIL and Executive Management Interview withSelected Members oftheBoard ofDirectors growth potentialfortheyearstocome. We arealsomeetingwithinvestors,bothindividuallyandingroups, toexplainthecompany’s In 2004,wearecontinuingtoputemphasisongoodrelationswith bothexistingandnewinvestors. willonlymentionthemostimportantones: I sharesthatwehaveseenin 2003,so There aremanyreasonsforthestronggrowthinČEZ’s sharesbecomeevenmoreattractiveforforeigninvestors? to ensurethatthecompany’s over 50%.Whatdoyouthinkdrovethisgrowthandwhatsteps is managementpreparingtotake longtime,theČEZshareprice hasincreasedthispastyear.Infact,itby After a years aswell. Company managementsupportsthepaymentofdividends,notjustfor2003butsubsequent EUR 400million(approximatelyCZK13billion). totalvolumeof needs, inFebruarytheBoardofDirectorsapprovedanissueeurobondsuptoa majority stakesintheelectricitydistributioncompanies.Inordertocoverallpossiblefinancial payment ofdividendstoshareholders,andacceleratedthepurchasepricefor possibleforeignacquisition, The financialplanfor2004takesintoaccounttheneedfundsa and stillkeeponraisingdividends? Does ČEZ,a.s.haveenoughsourcesoffundingtocoveralltheplannedforeignacquisitions work onstudiesrightaway. afraid,andthereforeweneedtobegin projectwilltakelongerthantheactualconstruction,I’m a subsequently, todeterminetheirlocations.Thepreparationandapprovalprocessforsuch by browncoal.Ourprincipaltasknowistodecidewhatcapacitieswillbeneededand, today, though,wehaveenoughinformationtobeginpreparationsfornewgeneratingunitsfired thoroughinvestigationintothepotentialofcoalmininginpost-2020period.Even mainly bya form ofentirelynewfacilities,andtowhatextentretrofitsexistingones,willbedetermined The renewalwillmostlybebasedondomesticbrowncoal.Towhatextentthetake plandrafted bytheMinistryofIndustryandTrade. stations isdictatedbytheEnergyPolicy–a certainextent,theresolutionofissuefindingreplacementsforourcurrentfossilpower To a lifetimes. Howdoyouexpecttoreplacethemandoverwhattimeperiod? After theyear2010,fossilpowerplantsofČEZ,a.s.willbegintoreachendtheiruseful sufficiently attractiveforustoacton. other neighboringcountries–GermanyandAustriabutfornownoneofthesehasbeen current focusthereisondistributioninBulgaria.Wehavealsoconsideredsomeopportunities current ownerswillchangeitsstrategy.Inaddition,wearealsolookingatSoutheastEurope–our companies inHungaryandSlovakiahavealreadybeenprivatized,sowecanhopethatoneofthe number-onepriorityisSlovakia.Thedistribution but asfargenerationisconcerned,ČEZ’s Poland therewillbeopportunitiestoengageinprivatizationbothdistributionandgeneration, Neighboring ones,naturally,andthatmeansfirstforemostPoland,SlovakiaHungary.In will itsetitssightson? leaderintheCentralEuropeanelectricitymarket.Whatterritories ČEZ, a.s.wantstobecomea European Union. high demandforliquidsharesfromCentralEuropeancountries priortotheirjoiningthe verystrongearningsperformanceandpromisingoutlookforfutureyears, the company’s vertical integrationbetweengenerationanddistribution, Pavel KLIKA Alan SVOBODA of exportsissustainableinthenextfewyearsaswell. believethislevel exportvolumetobearound16TWh.I For thesereasons,weexpectthisyear’s capacity incross-borderprofiles. less-than-idealmatchbetweenfreegenerationcapacityandannounced negative factorisa significantreductionincross-bordertransmissioncapacities,byupto30%.Another in termsofa substantialchange,especially Developments sincethebeginningof2004,however,indicatea generation capacity,andtheabilityofourtraderstomakebestoutallthesefactors. several factors–veryhighprices,sufficientfreecapacityincross-borderprofiles, convergenceof The extraordinarygoodpowerexportperformancein2003wastheresultofa expect toseeinfutureyears? Last year,ČEZ,a.s.wassuccessfulinforeignmarkets.Whatkindofexportvolumesdoyou generation ofatleast450GWhwithin thenextfiveyears. restrictions, weestimatethatČEZGrouphasthepotentialto reachannualbiomasspower we canexpecttoseeincreasedofferingsfrombiomasssuppliers. Withregardfortechnical If theapproachofEnergyRegulatoryAuthorityandlegislation issufficientlystableovertime, the levelof125GWh. An approximately15-foldincreaseoverthepreviousyearwillput biomassgenerationvolumeat operational testingiscompleted,thisyearwewillbeincreasing ourutilizationofthisfuel. particular, arecapableofburningbiomass.Afterthenecessary permitsareobtainedand new legislationinthisarea.Ourtechnicalequipmentgeneral, andourfluidized-bedboilersin accelerated thankstopricesupportfromtheEnergyRegulatory Authorityandthepreparationof The developmentofgenerationfromrenewablesources energy atČEZ,a.s.hasbeen progressing? Whatcouldtheweightingofthisrenewablesourceenergybein,say,fiveyears? How istheprojectofcombinedcombustionbiomasswithcoalincertainfossilplantboilers new equipment. needs intheperiodbetweennowandwhentheyareretrofittedorshutdownreplacedwith will beplannedandexecutedinordertoensuretheunitsareoptimalconditionformeetingour enormous impactontheirconditionintermsofcapabilitytomeetdesignparameters.Overhauls technical conditionofourconventionalgeneratingunits.Overhaulstheseunitshavean certainextentthishasexhaustedthe have alsocutmaintenancecosts,anditistruethattoa largemeasure.We Over thepastfewyearswehaveexceededplangenerationnumbersbya have animpactonfuturenecessaryinvestmentsinfacilitymaintenance? this In thepastfewyears,generationvolumeinfossilplantshasreachedrecordlevels.Won’t in wholesaleprices. and thoseontheCzechmarketistoolarge,thereroomindomesticforfurtherrises growth thanwasseeninEuropeanmarkets.Becausethedifferencebetweenprices In thelead-upto2004,CzechRepublicmarketexperiencedsubstantiallyslowerprice declining. result,priceshavebeenflatoreven However, thisrecoveryisnotyethappeningand,asa Germany, France,andItaly. opinion, itwasrelatedtoweatherfactorsandanticipationsofeconomicrecovery,especiallyin The enormousgrowthinpricesthatwesaw2003wasdefinitelyanexceptiontotherule.Inmy How doyouexpectelectricitypricesintheCzechandforeignmarketstomovenearterm?

15 Interview with Selected Members of the Board of Directors and Executive Management Last year, one of your most important tasks was the formation of the Nuclear Power Division. The Division was formed – how do you evaluate this step? Yes, the target organization structure of the Nuclear Power Division was formed effective 1 January 2004. This was the culmination of two years of preparations and organization changes. Except for generation (i.e. safe operation of nuclear power plant facilities, which is performed by the Dukovany Nuclear Power Station Generation Section and by the Temelín Nuclear Power Station Generation Section), each function is run directly by the joint Division management. The entire division is structured using a by-process management model covering two locations. The advantage of this model lies in clear assignment of accountability and authority in all processes. This Zdeněk LINHART accelerates know-how transfer between the two nuclear facilities. Now we are moving into a period of stabilizing the system and evaluating its functionality.

One of the goals of the Nuclear Power Division is to reduce nuclear power plant generation costs. Won’t that be at the expense of safety? It is a very demanding task, which we are preparing for in the change project. Unit generation costs are influenced by a large number of factors and we are analyzing them all to find out the potential cost savings and formulating specific project tasks. Measures include minimizing unplanned outages, complying with the timeline of planned shutdowns, completing the process of optimizing the number of employees, and reducing equipment maintenance costs, to name a few. The difficulty of the task lies mainly in the necessity of keeping nuclear power station operational safety at the required level, and that is the responsibility of the section managers.

What benefits has the electricity distribution companies integration project already brought? Can you name any specific ČEZ Group-wide cost savings or is it still too early?

16 Interview with Selected Members of the Board Directors and Executive Management The main benefit this joint project has brought is transparency, which has revealed both strong and weak points of individual electricity distribution companies. That has enabled us to quickly approach best practice results in those areas of the business that are not linked to complicated and sensitive processes. In this manner, we were able to make significant gains quickly, even before the end of 2003, even though the project itself commenced only in July. This effect allowed us to reverse negative development trends in certain financial indicators that often appear in the early phases of electricity market liberalization, and more positive results are Henning PROBST expected in 2004. The main goal of the project is to stabilize and reinforce this trend. Therefore, we need to continue to implement best practices in a many processes as possible, which will also help to make us more competitive.

Has the ongoing integration project cast light on any particular strong point of the new Group that had not been noticed before? The main accomplishment, which is sometimes underappreciated, is the fact that we managed to reorganize all five electricity distribution companies so that they have a unified organization structure as of 1 January 2004. This unified organization is very beneficial not just for our internal communication. It was the right step at the right time to prepare the electricity distribution companies for the upcoming requirement of unbundling in accordance with the latest European Union directives. Here, we succeeded in defining the correct intermediate links for the future business structure. Directors and Officers

In accordance with the Articles of Association of ČEZ, a. s., the General Meeting elects and removes members of the Supervisory Board. The Supervisory Board elects and removes members of the Board of Directors. The Board of Directors, in turn, elects and removes the Chief Executive Officer (CEO) and other executives that report directly to the CEO.

Board of Directors

Since 2000, ČEZ has used the “German model” of corporate governance, in which members of the Board of Directors generally also serve as members of executive management. Currently, a single person serves as both the Chairman of the Board of Directors and the Chief Executive Officer. This combination is a tool for effective communication within the company, in view of the company’s size and the distances between various organizational units, and it facilitates finding faster, more practical solutions to problems concerning company management. The Board of Directors is the company’s statutory body, which directs the company’s operations and acts on its behalf. The powers and responsibilities of the Board of Directors are set forth in detail in the Articles of Association of ČEZ, a. s., which are available for shareholders to inspect at the General Meeting and which are archived in the Collection of Documents of the Commercial Register maintained by the Prague Municipal Court. The Board of Directors determines the company’s strategy, plans for major investments, and its policy toward risk. Members of the Board of Directors are selected professionals who possess the necessary qualifications for the job and whose expertise contributes to the overall knowledge base of the Board. The Board of Directors includes both people with many years of knowledge and experience from within the company as well as people with experience from other sectors, who bring a new and unbiased view of the company’s management and operations. The Board of Directors is obligated to meet at least once a month. As a rule, however, meetings are held weekly. The total number of meetings held in 2003 was 58. The Secretary of the Board of Directors attends the meetings and keeps minutes. For effective management of inspection and audit processes, the Board of Directors has set up an Audit Committee consisting

of two members of the Supervisory Board, two members of the Board of Directors and the head of the Internal Audit 17 Directors and Officers department. The Audit Committee met six times in 2003 and six meetings are planned in 2004. Its key activity is to oversee the independence of the internal and external auditors and to discuss matters relating to internal and external audits. It assesses the effectiveness and efficiency of the company’s system of internal checks and balances based on information and reports from the internal and external auditors as well as information provided by company executives. In order to provide a systematic solution to filling seats in the company’s Board of Directors, the Supervisory Board set up a Personnel Committee in 2003. The Personnel Committee’s four members are elected from among the members of the Supervisory Board. ČEZ, a. s. also has committees for strategy, sales, growth management and facility renewal, as well as a Risk Committee and a Nuclear Energy Safety Committee, which deal with specific issues relating to their respective areas, take positions on them, and submit recommendations to the Chief Executive Officer or the Board of Directors. In accordance with the Articles of Association, the Supervisory Board is regularly briefed on selected matters. The list of ČEZ, a. s. employees with access to classified material is on file at the National Security Office. Members of the Board of Directors

Martin ROMAN (* 1969) Chairman of the Board of Directors since 23 February 2004 Graduate of the Charles University Law Faculty in Prague, one-year scholarship at the Economics Faculty of the University of St. Gallen (Switzerland), and a one-year study stay at Karl-Ruprechtsuniversität Heidelberg (Germany). From 1 April 2000 to 31 March 2004 he was Chief Executive Officer of ŠKODA HOLDING a.s.

Alan SVOBODA (* 1972) Vice Chairman of the Board of Directors since 3 May 2004 Holds an MBA in finance and an MA in economics from the University of Missouri in Kansas City (USA). Also a graduate of the University of West Bohemia, Plzeň, where he specialized in information and financial management. Mr. Svoboda has been certified as a Chartered Financial Analyst (CFA) by the international Association for Investment Management and Research (AIMR).

David SVOJITKA (* 1961) Member of the Board of Directors since 24 February 2003 Graduate of the National Economy Faculty of the Julius-Maximilians-Universität in Würzburg (Germany), where he specialized in monetary policy and public finance.

Jiří VÁGNER (* 1956) Member of the Board of Directors since 31 October 2003 Graduate of the Electrical Engineering Faculty of the Czech Technical University, Prague, Electric Machinery Department, as well as the Mechanical Engineering Faculty of the Brno University of Technology, where he specialized in nuclear power plant operation and management.

Petr VOBOŘIL (* 1950) Member of the Board of Directors since 6 November 2002; Chairman of the Board of Directors from 3 November 2003 to 23 February 2004; Vice Chairman of the Board of Directors from 24 February 2003 to 3 November 2003 A graduate of the Mechanical Engineering Faculty of the Czech Technical University, Prague, where he specialized in

18 Directors and Officers environmental technology, and a postgraduate course of study in heat supply development. In 1997, he completed the InterManager European standard management skills course. Member of the Supervisory Board of Středočeská energetická a.s. since May 2003.

List of former members of the ČEZ Board of Directors whose tenure ended in 2003 or by the Annual Report closing date: Pavel Hejkal (* 1958) Member of the Board of Directors from 4 July 2000 to 19 February 2004, František Hezoučký (* 1942) Vice Chairman of the Board of Directors from 5 January 1999 to 24 February 2003, Jaroslav Míl (* 1958) Chairman of the Board of Directors from 4 July 2000 to 23 October 2003, Josef Sedlák (* 1959) Vice Chairman of the Board of Directors from 3 November 2003 to 26 April 2004. Executive Management

Martin ROMAN (* 1969) Chief Executive Officer since 1 April 2004 For personal data, see his entry in the Board of Directors, above.

Petr VOBOŘIL (* 1950) Chief Strategic Development Officer since 1 October 2002; Deputy Chief Executive Officer since 3 May 2004; acting Chief Executive Officer from 10 November 2003 to 31 March 2004 For personal data, see his entry in the Board of Directors, above.

Pavel KLIKA (* 1953) Chief Conventional Power Officer since 1 November 2000 A graduate of the Czech Technical University’s Faculty of Electrical Engineering in Prague, where he majored in Power Industry Economics and Management. In January 2001 he completed a Master of Business Administration (MBA) at the Prague International Business School. He is Chairman of the Board of Directors of CEZTel, a.s., Chairman of the Supervisory Board of ČEZnet, a.s., a member of the Supervisory Board of GAPROM, s.r.o. (in liquidation) and Chairman of the Supervisory Board of Severomoravská energetika, a. s.

Zdeněk LINHART (* 1953) Chief Nuclear Power Officer since 1 January 2003 A graduate of the Mechanical Engineering Faculty of the Czech Technical University, Prague, specialization Nuclear Power Facilities. Member of the Supervisory Board of JVCD, a.s. since August 2000.

Henning PROBST (* 1957) Chief Distribution Officer since 1 January 2003 A graduate of the Business School at the Braunschweig Technical University and the University of Hamburg (Germany). In 1983 – 1984 he studied in Boston and Washington, USA. Member of the Supervisory Board of Východočeská energetika, a.s. since May 2003. 19 Directors and Officers Alan SVOBODA (* 1972) Chief Sales Officer since 1 April 2004 For personal data, see his entry in the Board of Directors, above.

David SVOJITKA (* 1961) Chief Finance and Administration Officer since 1 October 2002 For personal data, see his entry in the Board of Directors, above.

List of former members of the company’s executive management whose tenure ended in 2003 or by the Annual Report closing date: Pavel Hejkal (* 1958) Chief Sales Officer from 16 September 2000 to 31 March 2004, Jaroslav Míl (* 1958) Chief Executive Officer from 4 July 2000 to 24 October 2003. Supervisory Board

The Supervisory Board consists of twelve members, eight of which are elected and removed by the General Meeting, and four (František Haman, Václav Krejčí, Jan Ševr, Zdeněk Židlický) are elected by the employees, in accordance with the provisions of Section 200 of Act 513/1991 Sb., as amended, and are themselves employees of ČEZ, a. s. Two members of the Supervisory Board (Stanislav Kázecký, Jan Demjanovič) serve in companies that are commercially connected with ČEZ, a. s. The Supervisory Board’s powers include the power to elect members of the Board of Directors, to supervise the Board of Directors’ exercise of its powers and responsibilities and the company’s business activities, to inquire into company financial matters, to review the Report on Relations Among Affiliated Entities, to review the year-end financial statements, including profit allocation proposals, and to grant prior consent for key decisions of the Board of Directors. In accordance with the company’s Articles of Association, the Supervisory Board meets at least once a month. 20 meetings were held in 2003. Depending on the character of matters on the agenda, meetings are attended by members of the Board of Directors or company employees who present verbal reports on the matters at hand. The secretary of the Supervisory Board attends all Supervisory Board meetings and keeps minutes.

Members of the Supervisory Board

Stanislav KÁZECKÝ (* 1948) Chairman of the Supervisory Board since 24 February 2003 A graduate of the Production Economics Faculty of the University of Economics, Prague, specialization in Economics and Industrial Management. From 1994 to August 2003, he served as Chairman of the Board of Directors and CEO of ZVVZ a. s., where he is now employed as a consultant. He is a member of the Supervisory Board of EKOKLIMA akciová společnost.

Zdeněk HRUBÝ (* 1956) Vice Chairman of the Supervisory Board since 24 February 2003 A graduate of the Czech Technical University’s Faculty of Electrical Engineering in Prague, where he majored in cybernetics, Mr. Hrubý holds a postgraduate degree in economics and is currently a Deputy Minister of Finance. He is Vice Chairman of the

20 Directors and Officers Presidium of the National Property Fund of the Czech Republic, a member of the Board of Directors of Sokolovská uhelná, a. s., Vice Chairman of the Supervisory Board of ČESKÝ TELECOM, a.s., and a member of the Supervisory Board of České aerolinie a.s.

Václav KREJČÍ (* 1953) Vice Chairman of the Supervisory Board since 20 June 2002; Member of the Supervisory Board re-elected by the employees since 13 June 2002 A graduate of the Secondary Industrial School of Chemical Technology, Mr. Krejčí is currently head of the department of human resources development and internal communications at the Nuclear Power Division.

Jan DEMJANOVIČ (* 1953) Member of the Supervisory Board since 24 February 2003 A graduate of the Mechanical Engineering Faculty of the Institute of Mechanical and Textile Engineering in Liberec. Currently, Mr. Demjanovič is Sales Director and member of the Board of Directors of Severočeské doly a.s. He is Vice Chairman of the Board of Directors of Coal Energy, a.s., a member of the Board of Directors of Teplárna Ústí nad Labem, a.s., Vice Chairman of the Supervisory Board of SD - Kolejová doprava, a.s.

František HAMAN (* 1958) Member of the Supervisory Board elected by employees since 9 November 2000 A graduate of the Secondary Industry School of Building Construction. Since 1992 he is on leave in order to act as Chairman of the Basic Labor Organization at Temelín Nuclear Power Station.

Jan JUCHELKA (* 1971) Member of the Supervisory Board since 11 June 2002 A graduate of the Karviná Faculty of Business and Trade of the Silesian University in Opava. Since 1 November 2002, he has been Chairman of the Executive Committee of the National Property Fund of the Czech Republic. He is a member of the Supervisory Boards of ČESKÝ TELECOM, a.s. and Komerční banka, a.s. Jaroslav KOŠUT (* 1960) Member of the Supervisory Board since 24 February 2003 A graduate of the Faculty of Mathematics and Physics of the Charles University, Prague. In 1994, he studied economics as part of an MBA program at the U.S. Business School, Prague. He is Chairman of the Board of Directors of ZVI a.s. He is partner and company executive in the companies Via Net, s.r.o. and Brouk a Babka, s.r.o.

Martin PECINA (* 1968) Member of the Supervisory Board since 17 June 2003 A graduate of the Ostrava Mining University with a specialization in manufacturing systems with industrial robots and manipulators, the Masaryk Institute of Higher Studies in Prague, and the Sheffield Business School, Mr. Pecina holds an MBA degree and CIME qualification. He has been a Deputy Minister of Industry and Trade since February, 2003.

Václav SRBA (* 1941) Member of the Supervisory Board since 11 June 2002 A graduate of the University of Economics, Prague. Since July 2002, he has been a Deputy Minister of Industry and Trade. He is Chairman of the Czech Government’s Investment Council, a member of the Presidium of the National Property Fund of the Czech Republic, Vice Chairman of the Board of Directors of AERO Vodochody a.s., a member of the Board of Directors of THERMAL-F, a.s., Chairman of the Supervisory Board of UNIPETROL, a.s., and a member of the Supervisory Boards of Severočeská energetika, a.s. and ČEPS, a.s. As of December 2003, he is also a member of the Administrative Board of the “Duhová energie” Foundation.

Pavel SUCHÝ (* 1954) Member of the Supervisory Board since 24 February 2003 A graduate of the University of Economics, Prague, where he majored in Financial Reporting and Auditing. He has been a member of the Executive Committee of the National Property Fund of the Czech Republic since 1994. In November 2002 he was appointed First Vice Chairman of the Executive Committee of the National Property Fund of the Czech Republic. He is a member of the Boards of Directors of UNIPETROL, a.s. and Konpo,s.r.o. He has been a member of the Supervisory Board of České aerolinie a.s. since June 2003.

Jan ŠEVR (* 1947) Member of the Supervisory Board elected by the employees since 9 November 2000 21 Directors and Officers A graduate of the Secondary Industrial School of Mechanical Engineering, Mr. Ševr works at the Mělník Power Station, where he heads up the shift operations management department. He is Chairman of the Mělník Power Station Labor Organization.

Zdeněk ŽIDLICKÝ (* 1947) Member of the Supervisory Board elected by the employees since 13 June 2002 A graduate of the Secondary Industrial School of Mechanical Engineering. Since 1993, he has been on leave to act as Chairman of the Prunéřov Power Station Labor Organization. He represents the Czech Labor Union of Northwest Power Workers in the association of North Bohemian Labor Organizations and in the Inter-regional Labor Council. He is the central labor federation’s representative for power sector issues in the Economic and Social Alliance Council, where he is a member of the task force for economic policy.

List of members of the ČEZ, a. s. Supervisory Board whose tenure ended in 2003: Josef Flekal (* 1945) removed at the extraordinary General Meeting of 24 February 2003, Olga Horáková (* 1964) removed at the extraordinary General Meeting of 24 February 2003, Vratislav Vajnar (* 1944) removed at the extraordinary General Meeting of 24 February 2003, Milada Vlasáková (* 1944) removed at the extraordinary General Meeting of 24 February 2003, Oldřich Vojíř (* 1961) removed at the extraordinary General Meeting of 24 February 2003, Zdeněk Vorlíček (* 1941) removed at the Annual General Meeting of 17 June 2003. ČEZ Group

Summary of ČEZ Group Businesses

The new ČEZ Group, which was formed on 1 April 2003, consisted of a total of 94 companies as of 31 December 2003. The core business of ČEZ Group is the generation, distribution, and sale of electricity generated in the Group’s own facilities, and related provision of power grid ancillary services. In addition to electricity generation and distribution, material businesses of individual ČEZ Group companies include the generation and sale of heat, mining of raw materials, telecommunications, scientific research, as well as engineering and execution activities in the construction, maintenance, and upgrading of power plants. The Czech electric power industry as it is currently organized – with the bulk of domestic generation facilities joined together with distribution and with power transmission separate – is fully in line with the terms of electricity market liberalization set by the European Commission. The integration of the electricity distribution companies (Severočeská energetika, a.s., Severomoravská energetika, a. s., Středočeská energetická a.s., Východočeská energetika, a.s., and Západočeská energetika, a.s.) into the Group is a process that addresses developments in the liberalized market. With this step, the structure of the Czech power industry has come closer to the structures commonly seen in the power utility companies of Western Europe. In addition to ČEZ, a. s. and the electricity distribution companies, ČEZ Group includes the following other companies that engage in electricity trading and sale: rpg Energiehandel GmbH (based in Germany), Coal Energy, a.s., and První energetická a.s. ČEZ Group companies engaged in mining and processing of raw materials include: LOMY MOŘINA spol. s r.o., KOTOUČ ŠTRAMBERK, spol. s r. o., and Severočeské doly a.s. The principal business of the first two companies mentioned is the mining and sale of limestone and lime, which is used at power plants in flue-gas desulfurization processes. Severočeské doly a.s. is engaged in the mining of brown coal and is the largest supplier of this commodity to the fossil power plants of ČEZ, a. s. In the area of installation and maintenance, ČEZ Group is represented principally by the companies ČEZ ENERGOSERVIS spol. s r.o., Energetické opravny, a.s., I & C ENERGO s.r.o., SIGMA - ENERGO s.r.o., and ŠKODA PRAHA a.s. These companies focus mainly on providing comprehensive services in the area of machinery maintenance and repairs, refurbishment, and maintenance of power engineering equipment. In addition to these activities, ŠKODA PRAHA a.s. engages in engineering and execution of power plant construction and upgrade projects. The telecommunications area is represented by the companies ČEZnet, a.s., CEZTel, a.s., and Aliatel a.s.

22 ČEZ Group ČEZ Group engages in nuclear research and design of power equipment through its subsidiary, Ústav jaderného výzkumu Řež a.s. A more detailed description of ČEZ Group and a chart showing the ownership links are presented in the chapter “ČEZ Group Organization Chart”, on page 110.

ČEZ Group Restructuring

In March 2002, the Government of the Czech Republic set framework rules for restructuring the power industry, and these were further clarified in May and June, 2002. These plans were approved by the 10th Annual General Meeting of ČEZ, a. s. on 11 June 2002.

All necessary agreements were signed in June – August 2002: purchase agreement of 28 June 2002 between the National Property Fund of the Czech Republic and ČEZ, a. s. concerning the purchase of equity stakes in the eight electricity distribution companies, purchase agreement of 22 July 2002 between the Česká konsolidační agentura and ČEZ, a. s. concerning the purchase of a 1.98% equity stake in Západočeská energetika, a.s., purchase agreement of 28 June 2002 between OSINEK, a.s. and ČEZ, a. s. concerning the sale of a 51% stake in ČEPS, a.s., purchase agreement of 19 August 2002 between the Czech Republic – Ministry of Labor and Social Affairs and ČEZ, a. s. concerning the sale of a 15% equity stake in ČEPS, a.s. In January 2003, lending banks granted their consent to the proposed reintegration on the grounds that it strengthened the position of ČEZ, a. s.

On 8 July 2002, the Antitrust Office commenced proceedings on permitting the reintegration of the Czech power industry. In conjunction with ČEZ, a. s., the proceedings concerned: a) permit for competitors ČEZ, a. s. and the eight electricity distribution companies to join On 10 December 2002, the Antitrust Office made a decision permitting the competitors to join, to which it attached strict restrictive conditions. ČEZ, a. s. appealed the decision. Based on new proceedings, the Antitrust Office issued a decision on 18 March 2003 in which it stipulated a new set of conditions: 1. ČEZ, a. s. must sell the remaining 34% stake in ČEPS, a.s., 2. ČEZ, a. s. must sell all minority stakes, i.e. the stakes in the companies Jihočeská energetika, a.s., Jihomoravská energetika, a.s., and Pražská energetika, a.s., 3. ČEZ, a. s. must sell one majority stake in an electricity distribution company of its choice. The deadlines for the sales of stakes according to points 1 – 3, above, were not made public. The Board of Directors of ČEZ, a. s. resolved not to take any more steps against the Antitrust Office’s new decision, and thereby opened up the way for the transaction to be executed. b) exemption from ban on public support A decision of the Antitrust Office dated 17 March 2003 definitively terminated the proceedings and pronounced that the restructuring of the electric power industry does not constitute public support.

When the above decisions entered into legal force on 1 April 2003, ČEZ, a. s. became a joint owner of all the Czech electricity distribution companies. In May, extraordinary General Meetings were held by those electricity distribution companies in which ČEZ gained majority stakes in order to commence cooperation and leverage synergies within the entire ČEZ Group. In July,

a project designed to facilitate the effective operation of ČEZ Group as a whole was commenced with the support of the 23 ČEZ Group consulting company A.T. Kearney GmbH, which was chosen in a tender. In May, ČEZ presented the procedure and priorities for meeting the conditions stipulated by the Antitrust Office, including mutual consolidation of equity stakes in the electricity distribution companies with other co-owners. In June, an agreement was reached with the E.ON group and on 4 July 2003, transaction documents were signed, on the basis of which ČEZ gained E.ON’s stakes in Západočeská energetika, a.s. and Východočeská energetika, a.s. in exchange for its minority stakes in Jihočeská energetika, a.s. and Jihomoravská energetika, a.s. The deal also includes a call/put option on E.ON’s shares in Severomoravská energetika, a. s. and Severočeská energetika, a.s., which can be exercised during 2004. The option, if exercised, would increase ČEZ’s stake in Severočeská energetika, a.s. by 5.93% to 56.93% and its stake in Severomoravská energetika, a. s. by 30.28% to 89.36%. The acquisition of shares as of 1 April 2003 gave ČEZ the obligation to offer to buy out minority shareholders of Západočeská energetika, a.s. and Středočeská energetická a.s. The share price offered in the buyout was based on an expert appraisal and the buyout offer was approved by the Securities Commission. The buyout took place between the 2nd and the 30th of June, 2003, and the resulting trades were settled in the months of July and August. The mandatory buyout offer for Středočeská energetická a.s. was accepted by that company’s significant minority shareholder RWE (34.98%), and the buyout offer for Západočeská energetika, a.s. was accepted by the minority shareholder Energie AG Oberösterreich (11.18%). In conjunction with the acquisition of stakes from E.ON, ČEZ was required to make a public takeover offer. Buyouts of shares in Západočeská energetika, a.s. took place from 3 September to 1 October 2003, and shares of Východočeská energetika, a.s. were purchased from 15 September – 13 October 2003. Because the price offered by ČEZ for shares of Západočeská energetika, a.s. was greater than the price offered in June 2003, the difference in the price was paid out to all shareholders who sold their shares in the first buyout round. The execution of the transactions described above will make it possible to increase the effectiveness and flexibility of management in the new ČEZ Group and to strengthen its position in the liberalized markets of the Central Europe region. In accordance with a contractual obligation concerning a new expert appraisal of shares in ČEPS, a.s. being transferred by ČEZ, said shares were newly appraised (at CZK 15.224 billion), on the basis of which OSINEK, a.s. and the Ministry of Labor and Social Affairs were paid the differences as follows: ČEZ, a. s. paid the difference in the stake’s appraisal to the Ministry of Labor and Social Affairs and, at the same time, the amounts on the bills of exchange which ČEZ will use to pay for the acquired stakes were reduced. Of the total amount of CZK 32.140 billion, ČEZ, a. s. paid CZK 1.505 billion to the National Property Fund of the Czech Republic and CZK 0.196 billion to the Česká konsolidační agentura at the time the shares were transferred. In June 2003, the company paid another CZK 0.274 billion due to a decline in the price of the stake in ČEPS, a.s. acquired by the Ministry of Labor and Social Affairs. The remaining amount to be paid was divided into four CZK 3.735 billion installments. Two installments were paid in 2003, the third was paid in May 2004, and the last installment will be paid by the end of June 2004. The difference between the prices of the exchanged stakes was paid to E.ON following the settlement of the transaction on 30 September 2003.

ČEZ, a. s. Stakes in the Electricity Distribution Companies in 2003 (%)

Company at 30 June 2003 at 31 December 2003 Severočeská energetika, a.s. 51.00 51.00 Severomoravská energetika, a. s. 59.08 59.08 Středočeská energetická a.s. 58.30 97.72 Východočeská energetika, a.s. 50.07 98.83 Západočeská energetika, a.s. 50.26 99.13 Jihočeská energetika, a.s. 34.01 0.00 Jihomoravská energetika, a.s. 35.21 1.71 Pražská energetika, a.s. 34.00 34.00

On 14 January 2004, ČEZ, a. s. increased its stake in engineering company ŠKODA PRAHA a.s. by CZK 700 million from

24 ČEZ Group 29.8% to 68.88% by a monetary contribution that was settled by capitalizing a receivable owed to ČEZ, a. s. by said company, under signed Settlement Agreement.

Consolidation of ČEZ Group Accounting Results

In accordance with the acquisition of shares in the electricity distribution companies, it was decided effective 1 April 2003 to carry out a fundamental expansion of the previous consolidation group, to include not just the new direct and indirect acquisitions, but also other subsidiaries and affiliates whose shares were owned by the company as of 31 December 2002, but had not yet been made part of the consolidation group. The consolidation group was structured with regard for the significance of the individual subsidiaries and affiliates using data on their shareholders’ equity, total assets, total sales and earnings results. Shares in companies classified as available-for-sale investments and companies in bankruptcy or liquidation were not included in the consolidation group. Other companies not included are not significant, representing less than one percent of the hypothetical consolidation group that would arise were these subsidiaries and affiliates to be included. The consolidation group as of 31 December 2003 consisted of a total of 33 companies: the parent company, 22 subsidiaries (full consolidation) and 10 associates (equity method consolidation). The first consolidation of the accounting results of the new consolidation group was conducted as of 30 June 2003. Consolidation rules and a unified structure of input data were drawn up far enough in advance to allow for the compilation of consolidated financial statements according to International Financial Reporting Standards and the consolidation of other data set forth in the Notes to Financial Statements. For consolidation purposes, a specialized software was implemented based on a tender. This software, which is administered by the parent company, allows direct entry of data by subsidiaries using a special Internet application. 2003 2002 2001 CZK 1.2billion. to applyinfutureyears. changeinthetax ratesexpec reductionindeferredtaxliability,whichwas itselfduemainlytoa income –significantlyfroma ČEZ Groupcorporateincometax, atCZK0.2billion(down3.2year-on-year),resulted –asidefromthelowergross directincreaseofconsolidatedshareholders’equity. including therelatedincometax,wasreportedasa directimpactonČEZGroupnetincome.Because thesalewastoanentityundercommoncontrol,profit, did nothavea interest in CZK 0.6billion(114%)andotherfinancialexpensesfell,alsoby CZK 0.6billion.Ontheotherhand,duetolowercapitalizati shareinthe netincomeofassociates)grewby In otherexpenses(income),incomefromassociates(i.e.the Group’s provisioning wasupCZK3.5billionin2003.Impairmentprovisions forfinancialinvestmentswerealsohigher(byCZK1.5billi this step,aswellanupdateoftheestimatedamountandtimeline ofcostsfordecommissioningnuclearfacilities, result nearly halfoftheoverallincrease)andextensionnuclearpower plantoperatingperiodsfrom30to40years.Asa units forcommercialoperationattheTemelínNuclearPowerStation (causingdepreciationchargestorisebyCZK2.8billion,o to theincreaseinoperatingcostsincludedchangesnuclearpowerplantsarea–commissioningofbothgenerating totalofCZK5.9billion(50.3%).InadditiontotheexpansionČEZGroup,otherfactorscontrib amortization, whichrosebya significantportionofdepreciationand energy purchasing,CZK4.1billion(107%)growthinpersonnelexpenses,anda CZK13.8billion(188%)increasein like inrevenues,thebiggestfactorherewasexpansionofČEZGroup,resultinga figureand, Operating costsreachedCZK77.3billion.Thisrepresentsgrowthof33billion(74.4%)overthepreviousyear’s resultofactivitiesnewČEZGroupmembers. 100% (upCZK2.6billion)asa Revenues fromsalesofelectricitygrewbyCZK26.6billion(50.3%)toreach79.5billion.Otherrevenuesnearly expansion. The mainreasonforthegrowthinČEZGroupoperatingrevenuestoCZK84.8billion(up52.6%)wasGroup’s Formation ofProfit(CZKbillions) CZK3.2billiondecreaseinincometaxexpense. a reported minorityinterests(CZK0.5billion)–allofwhichaddsuptoCZK5.7billionandwaspartiallycompensatedforby CZK1.4billionincreasein theexcessofothercostsoverincome,andnewly CZK3.8billiondropinoperatingprofits,a a The declineinČEZGroupnetincomefromCZK8.4billionto5.9(downby2.5billion,or29.6%)wascaused 2003 aredifficulttocomparethoseofpastyears. the consolidationgroupcontainedonlytwosubsidiariesandoneassociate,ČEZGroupfinancialperformanceresultsfor used toconsolidatetheaccountingresultsofthiscompanychangedfromfullconsolidationequitymethod.Sincein2002 majority stakeinČEPS,a.s.wassold,andthereforethemethod members oftheconsolidationgroup.Assamedate,a effective 1April2003,fiveelectricitydistributioncompaniesinwhichČEZ,a.s.acquiredmajorityequitystakesbecame The financialperformanceresultsofČEZGroupfortheyear2003weresignificantlyimpactedbychangesinstructure; Revenues, Costs,andEarnings Financial Performance 0 net income income taxesandminorityinterests expenses, includingotherexpenses(income) conjunction withthecommissioningofTemelínNuclearPowerStation forcommercialoperation,interestcostsroseby According toInternationalFinancialReportingStandards(IFRS), thesaleofownershipinterestinČEPS,a.s. 42.8 43.8 20 78.2 40 . 9.1 4.2 . 8.4 3.4 60 . 5.9 0.7 80 84.8 55.6 56.1 total on of on). uting ted of r

25 Financial Performance 26 Financial Performance 2003 2002 2001 2003 2002 2001 deferred incomecarriedbythe electricity distributioncompaniesintheirbalancesheets. in liabilitiestowardsuppliersand paymentsreceivedonaccount.Accruedliabilitiesgrewby CZK 8.3billion–duemostlyto particular bybillsofexchangeissued byČEZ,a.s.tofinancethepurchaseofequitystakes(CZK 7.5billion),andanincreas totalofCZK42.4billion.Thisincreasewascaused ČEZ Groupcurrentliabilitiesgrewsubstantially–byCZK26.7billion toa CZK4.8 billionreductioninloansandbonds.However, CZK 0.4billionincreaseinotherlong-termliabilitieswereoffset bya Long-term liabilitiesremainedpracticallyunchanged,since theCZK4.3billiongrowthinnuclearprovisioningand Structure ofEquityandLiabilitiesas31.12.(CZKbillions) equity byCZK5.0billion.Equitywasfurtherincreasedthe2003netincomeandreduceddividendpaidfor2002. of stakesintheelectricitydistributioncompaniesfromNationalPropertyFundandČeskákonsolidačníagenturareduced shareholders’ equityasfollows:thesaleofstakeinČEPS,a.s.causedtogrowbyCZK7.2billionandpurchase levelofCZK149.7billion.Ownershiptransfersaffectedthe The shareholders’equityofČEZGroupgrewbyCZK6.0billiontoa Structure ofAssetsas31.12.(CZKbillions) levelofCZK7.1billion. CZK3billionincreaseinreceivables–toa the electricitydistributioncompaniesledtoa and otherfinancialassets,atCZK8.6billion,wereup2.9billion.IncurrenttheexpansionofČEZGrouptoinclu (expressing thevaluationofaffiliatesincludedinconsolidationgroup)grewbyCZK5.1billionto11.0billion.Inves construction workinprogressfellfromCZK56.5billionto10.2(declineof81.9%).Investmentassociates distribution companies.Inparticular,inconjunctionwiththecommissioningofUnitTwoTemelínNuclearPowerStation, fixed(predominantlygeneration)assetshaverelativelyhighervaluethantheofelectri by thefactthatČEZ’s The totalassetsfigureforČEZGroupreachedCZK274.1billion.Thisrepresentsyear-on-yeargrowthofonly18%,whichisgive 0 0 current assets construction workinprogress total property,plant,equipmentandothernon-currentassets long-term liabilities retained earnings stated capital 9064.5 59.0 908. 59.6 84.6 59.0 59.1 105.6 50 50 159.7 77.7 90.5 100 100 244.2 150 150 111.9 59.5 short-term liabilities minority interests deferred taxesliability 56.5 200 200 9.9 12.6 14.7 17.9 11.5 15.3 15.7 7.9 10.2 42.4 250 250 19.7 274.1 231.5 229.0 total total 274.1 231.5 229.0 tments city de in e n 2003 2002 2001 taxes paid. Structure ofOperatingCashFlow(CZKbillions) CZK2.6billiondividendwaspaid. exceeded newborrowingbyCZK2.5billionanda Net cashflowsfromfinancingactivities,atCZK5.1billion,canbebrokendownasfollows:installmentsonborrowedcapital assets, atCZK9.6billion.ProceedsfromthesaleofmajoritystakeinČEPS,a.s.reached12.2 substantialportionofproceedsfromsalefixed Two ofthesethreestakeshavealreadybeensoldandtheyconstitutea totalofCZK23.9bill and investments(inparticularthethreeminoritystakesinelectricitydistributioncompanies)reacheda stakes inelectricitydistributioncompaniesreachedCZK28.4billion,outlaystoacquiretangibleandintangiblefixedassets The amountofcashusedininvestingactivitiestripled–fromCZK9.9billionto30.9billion.Outlaysacquirefivemaj by and theCZK3billionincreaseinbalanceofnuclearprovisions.Further,operatingcashflowwasincreasedyear-on-year income beforetaxfornon-cashtransactions,primarilytheCZK5.9billionincreaseindepreciationandamortization Operating cashflowgrewfromCZK19.0billionto35.8billion.Themostimportantfactorshereweretheadjustmentof Cash Flows Z . ilo hnei h aac fcretast n iblte n CZK3.4billiondeclineincorporateincome CZK5.7billionchangeinthebalanceofcurrentassetsandliabilitiesa a 0 depreciation andamortizationassetwrite-offs net cashprovidedbyoperatingactivities amortization ofnuclearfuel changes inassetsandliabilities income beforetaxes . 17.6 6.7 5 1811.7 11.8 339414160.4 1.6 1.4 9.4 13.3 90-. -3.4 -3.3 19.0 10 22-2.1 22.2 15 35.8 others interest paid,netofcapitalized income taxespaid foreign exchangerategain provision fornucleardecommissioningandfuelstorage 20 . 0.6 0.1 2.1 18-0.7 -1.8 -0.4 25 -0.2 0.7 5.8 30 . . 2.0 3.7 3.5 35 -1.9 ority ion. -1.6

27 Financial Performance 28 Financial Performance insesábnaCK5 05SME 2005 9,916 2007 3 1,283 51 50 CZK USD (maturing in2005orlater) Long-term BankLoans Current portionpayablewithin1year Total Živnostenská banka Nordic InvestmentBank V akCK215271.6 04mortgageloan billofexchangeacceptedbySME Stateguarantee,foreigncurrency 2005 Stateguarantee 2005 January2006 January2004 2007 171 152 30 2 1,709 10.6.2004 300 27 2008–2009 30 48 267 interestratehedgedup 616 246 CZK EUR mortgage CZK foreigncurrencyhedgingof24% 261.5 CZK Stateguarantee,foreigncurrency 55 2013 USD 2004–2006 2012–2013 31.12.2004 2013 172 1.9.2004 CZK 2004 31.12.2007 2,647 25 1,117 USD 144 257 1,085 20 Komerční banka 43 3,441 2006 44 Komerční banka 2007 100 ING Bank 169 250 55 ING Bank 2005 CZK 43 EUR 35 Stateguarantee,foreigncurrency Collateral 40 EUR CZK IBRD CZK CZK HVB Bank USD 113 2007–2008 Fortis Bank 360 EUR 50 2,660 European InvestmentBank European InvestmentBank 20 CZK 317 European InvestmentBank CZK Matures Erste Bank Deutsche Bank EUR MaximumBalance ČSOB USD ČSOB Currency ČSOB Česká spořitelna Česká spořitelna Citibank International Bank Austria Creditor ČEZ GroupLong-termLoans,IncludingCurrentPortion(CZKmillions) Bank andOtherLoansMaturityThereof oečíbnaCK7 820 SME 2007 28 71 CZK *) Komerční banka SME –Severomoravskáenergetika,a.s. onAon n at31.12.2003 Loan Amountin Given Currency 12,607 2,691 declaration ofcreditassistancefromSME hedging of100%principalandinterest of principalandinterestupuntil2005 until 15.3.2007for89%ofprincipal hedging of17%principal hedging of78%principal *) *) declaration ofpatronage declaration ofpatronage *) *) muto U 8mlin hswsarenewaloftheoriginalseven-yearguaranteefor1 amount ofEUR88million.Thiswasa The proceedsfromthisissuewereusedtofinanceearlyrepaymentofthe5 value. ThearrangerandleadmanageroftheissueisČeskoslovenskáobchodníbanka,a.s. totalvolumeofCZK3billion,bearsinterestat3.35%p.a.andmaturesin2008.Theissuewassoldfor100.05% offace with a totalofnineissuesplannedinitsnewbondprogram.Thefirstissue In June2003,ČEZissuedthefirstissueofbondsouta arranger isKreditanstaltfürWiederaufbau. was enteredintoin1996.TheleadarrangerofthetransactionisSumitomoMitsuiBankingCorporationEuropeLimited,and nArl20,ČZetrdit five-yearguaranteeforthe1 In April2003,ČEZenteredintoa Total LoansMaturingin2004 Current portionoflong-termloansmaturingin2004 Total Other Živnostenská banka Komerční banka Komerční banka Komerční banka ING Bank Deutsche Bank ČSOB ČSOB Česká spořitelna Česká spořitelna Česká spořitelna ABN AMROBank Creditor ČEZ GroupShort-termBankLoansandOverdraftFacilities(CZKmillions) power station. tranchethatwasusedtofinanceinstrumentationandcontrolsystemsforunitsonetwoofthis corresponded toa consortiumledbyBrussels-basedFortisBank.Bothoftheserepaymentamounts loanfroma USD 4.7millionwasrepaidona syndicate of banksledbyLondon-basedCitibankand loanprovidedbya Power Station.USD23.8millionwasrepaidona In 2003,ČEZcontinuedtodulyrepayloansthatittookout financesuppliesfromWestinghousefortheTemelínNuclear payment transactionsintolinewiththosenegotiatedbyČEZ. entered intobilateralagreementswiththeindividualelectricitydistributioncompanieswhichbroughttermsappliedto gained accesstobetterinterestratesoncurrentaccountbalancesandoverdraftfacilities.Atthesametime,Komerčníbanka, agreement withKomerčníbanka,a.s.,underwhichelectricitydistributioncompanieswhoaremembersofthenewČEZGroup virtualcash-pool ČEZ andtheelectricitydistributioncompaniesinwhichholdsmajorityequitystakesenteredintoa bill ofexchangeprogram.Thistookthevolumeshort-termbindingcreditlinestoCZK6billion. During 2003,ČEZrenewedagreementswithbanksontheprovisionofshort-termback-upcreditlinesinconjunction significantreductionininterestcosts. older bondissue,ČEZachieveda st rnh faloanfromtheEuropeanInvestmentBankinan tranche ofa th domestic bondissueof1996.Byreplacingthis st tranche ofEUR100million,which urnyBalanceat31.12.2003 Currency Z 8 12 8.5 22 850 14 19 CZK CZK 0.5 48 CZK 8 CZK CZK 180 CZK 1,000 CZK 150 CZK CZK CZK CZK CZK CZK 5,011 2,691 2,320 a.s. ir ,

29 Financial Performance 30 Financial Performance rc/annsrto150 . 14.5 n.a. 41 6.5 10.0 82.2 31.6 43 5.0 41.0 0.34 14.3 94.0 16.2 51 144.1 1 0.24 3.4 30.7 15.4 92.5 % 90.6 % 0.25 2.9 0.26 21.6 CZK/share % % 1 2.2 28.4 0.28 24.1 4.0 2.3 26.7 0.36 % 3.3 1 Price/earnings ratio 4.5 Dividend shareofprofit Earnings perCZK100share 18.815.411.3 Capital Market 6.0 3.7 29.8 1 Extent ofdepreciation 4.7 Coverage offixedassets 8.4 Fixed Assets % 6.9 Cash generationratio % 4.0 5.1 Total assetsturnover 10.0 Operational cashflowtoliabilitiesratio Current ratio Liquidity % % % % Debt serviceratio Long-term Total indebtedness(provisionsexcluded) Debt toequityratio Indebtedness indebtedness Working ratio Sales margin Return oncapitalemployed(ROCE)net Return ontotalassets(ROA)net Return onequity(ROE)net Return onequity(ROE)gross Profitability Financial indicators iiu ee B%4. 4. 40.0 40.0 1.65 2.2 40.0 1.65 2.2 50.0 % 1.65 60.0 2.2 50.0 1 60.0 1 50.0 60.0 % minimum level–WB % minimum level–EIB minimum level–WB maximum level–EIB,Eurobonds maximum level–WB,EIB nt 0120 2003 2002 2001 Units 56.958.757.4 7.9 23.721.2 % % 0.640.970.47 1 ČEZ Group successfully managed its expansion, as demonstrated by the continued positive trend in financial performance indicators and strengthening in ČEZ Group’s position in the Central European power market. Profitability indicators faltered slightly, mainly as a result of the decline in operating profit described above. Total indebtedness rose by a small margin, mostly due to the higher level of current liabilities brought by the new ČEZ Group members. On the other hand, the weighting of long-term debt fell. The reasons for this are repayment by ČEZ, a. s. and the fact that the new Group members operate with a relatively low level of debt. Liquidity fell in conjunction with the fact that current liabilities grew faster than current assets. However, growth in operating cash flow outweighed this factor by a large measure, so ČEZ Group companies have sufficient cash to finance their activities. The assets turnover ratio grew significantly, due to the fact that the new ČEZ Group members have relatively less capital tied up in fixed assets. The distribution segment and other segments do not need as much fixed assets per unit of revenues as the power generation segment does. The ratio expressing the extent to which fixed assets are covered by long-term capital declined as a result of the growth in fixed assets, part of which was covered by short-term sources of capital – bills of exchange in particular. The “Extent of depreciation” indicator continues to decline, primarily in connection with the commissioning of Unit Two of Temelín Nuclear Power Station for commercial operation. Although earnings per share declined, the capital market reacted positively to the expansion of ČEZ Group, sending the market value of the Group’s parent company, ČEZ, a. s., up substantially. 31 Financial Performance 32 ČEZ Group

“Duhová energie”–abroad rangeofproducts that has something to offer every customer,that hassomethingtooffer every and fornowprimarilythecorporatesegment.

“Duhová energie”–energy in allthecolorsofrainbow

orange energy

white energy yellow energy

red energy

green energy blue energy

violet energy ČEZ Groupm to acquaintthegeneralpublic with alltheadvantages of “Duhováenergie”bythetim the liberalizedelectricitym is openeduptohouseholdsin2006.

arketing aim

arket

33 ČEZ Group 34 Shareholders and Securities in Issue se aaes1.493 5.48 4.96 21.95 95.04 9.39 4.29 18.71 67.61 95.71 12.64 2.98 16.77 67.61 97.02 67.61 Private IndividualsTotal Asset managers Other legalentities National PropertyFundoftheCzechRepublic Legal EntitiesTotal ,0,0 000003 834 35 102 28 30 110 30 24 109 Total over 10% 5% –10% 1% –5% up to1% Total over 10million 1,000,001 –10,000,000 500,001 –1,000,000 100,001 –500,000 1 –100,000 not abletodeterminewhetheranyofthesecuritiesthataremanagedbyassetmanagersownedforeignentities. statedcapitaldirectlyat31December2003.ČEZi Foreign entities(legalandprivateindividuals)held15.6%ofČEZ’s CZK 14.3million. totalfacevalueof CZK 3.2billionandtheassetmanagerCitibanka.s.administerssecuritiesofthreeshareholdersina totalfacevalueof The assetmanagerČeskoslovenskáobchodníbanka,a.s.administerssecuritiesfor84shareholderswitha the votingrightsatendof2003. of aside fromtheNationalPropertyFund shareofover10%intheequityČEZ,a.s.Likewi other entitybesidestheNationalPropertyFundofCzechRepublichasa shareholdersasof31December2003producedbytheSecuritiesCenter,itwasdeterminedthatno listofthecompany’s Using a Shareholder Structure(%) by 19,237,000shares. by 23,105,000andthenumberofsharesheldNationalPropertyFundCzechRepublicotherlegalentitiesgrew increased by3,991,000overthesameperiod)and58werelegalentities.Thenumberofsharesheldassetmanagersdeclined shareholders. Ofthelatternumber,2,886wereprivateindividuals(thoughaggregatenumberofsharesheldby year-on-yeardecreaseof2,944 The numberofČEZ,a.s.shareholdersat31December2003was126,807,whichrepresentsa statedcapitalrecordedintheCommercialRegisteratendof2003wasCZK59,221,084,300. The totalamountofČEZ’s Development oftheShareholderStructure Shareholders and SecuritiesinIssue Shareholder StructurebyParticipationinStatedCapital Structure ofShareholders(IncludingAssetManagers)byNumberSharesHeld fwih oetc28 .34.78 6.52 4.13 7.35 2.81 5.52 of which: domestic of which: domestic oeg .701 0.18 15.43 0.16 11.36 0.17 11.25 foreign foreign the Czech Republic, no no the CzechRepublic, t3.1.20 a 1 2 02at31.12.2003 at31.12.2002 at 31.12.2001 t3.1.20 a 1 2 02at31.12. 2003 at31.12.2002 at 31.12.2001 at31.12.2003 at31.12.2002 at 31.12.2001 te hrhle a nw ohl shareexceeding 5%of other shareholderwasknowntoholda 3,4 2,5 126,807 126,799 129,751 126,807 129,743 133,146 126,634 129,751 133,141 129,581 133,146 132,979 111 000 477 422 se, s Shareholder and Investor Relations

Companies of ČEZ Group convene and run their General Meetings in accordance with applicable legislation and see to it that General Meeting resolutions are implemented in full. ČEZ Group complies with disclosure requirements towards shareholders and ensures that all shareholders are treated equally. In particular, the company takes care that shareholders are kept well informed through the Prague Stock Exchange, the press, and Group websites concerning General Meeting scheduling and resolutions, as well as dividend payment. Shareholders also have access to ČEZ Group quarterly performance reports, lists of dates when earnings announcements will be made, and securities prospectuses. When new members of the Supervisory Board are elected, the basic biographical data on the candidates are disclosed to the shareholders attending the General Meeting prior to the actual election. At General Meetings, shareholders have an opportunity to ask questions and make proposals and counterproposals. ČEZ Group also puts emphasis on effective communication with investors and Group websites are an important tool in this regard. The company’s senior management takes questions from professional circles at regular press conferences and conducts road shows for foreign investors as needed, as well as giving interviews in the mass media (television, radio, newspapers). The fundamental rules that guide ČEZ Group in disclosing information to investors are credibility, consistency, coherence, and timeliness. Shareholder and investor relations, as well as corporate governance in general, are based on the recommendations codified in the Corporate Governance Code, on the drafting of which at the national level ČEZ Group is playing a leading role. In February 2004, ČEZ, a. s. was ranked number one in the Czech Republic in the corporate governance category by EUROMONEY, the prestigious global banking and capital markets magazine. The payment of a dividend by ČEZ, a. s. for the year 2000 in a total amount of CZK 1.184 billion (approximately 21% of the reported net income – CZK 2/share) is taking place from 1 August 2001 to 31 July 2006. Payment of the 2001 dividend totaling CZK 1.480 billion (approximately 23% of the reported net income – CZK 2.50/share) is taking place from 1 August 2002 to 31 July 2007 and payment of the 2002 dividend totaling CZK 2.657 billion (approximately 40% of the reported net income – CZK 4.50/share) is taking place from 1 August 2003 to 31 July 2008 at all branches of the payment administrator, Česká spořitelna, a.s. 35 Shareholders and Securities in Issue An extraordinary General Meeting of ČEZ, a. s. was held on 24 February 2003, which: approved a draft agreement on sale of the Náchod Heat Plant enterprise; on the basis of a tender that was organized through the agency C.S. commerce service, a.s., the buyer chosen was Harpen ČR, s.r.o., removed and elected members of the Supervisory Board. The following were removed: Josef Flekal, Olga Horáková, Vratislav Vajnar, Milada Vlasáková and Oldřich Vojíř; Elected were: Jan Demjanovič, Zdeněk Hrubý, Stanislav Kázecký, Jaroslav Košut and Pavel Suchý; at a subsequent Supervisory Board meeting, Stanislav Kázecký was elected Chairman of the Supervisory Board, Zdeněk Hrubý was elected Vice Chairman, and Vice Chairman Václav Krejčí was re-elected for another term, added a resolution on item No. 15 passed at the Annual General Meeting in June 2001, concerning the incentive program of company share options.

The Annual General Meeting held on 17 June 2003 approved: the financial statements of ČEZ, a. s. and the ČEZ Group consolidated financial statements for the year ended 31 December 2002, allocation of profits, including payment of dividends (CZK 4.50/share, gross) and board member bonuses for the year 2002, amendment to the Articles of Association, donations budget of CZK 70 million, part of which is to be drawn down in 2003 and the remainder in 2004 by the date of the Annual General Meeting, update of the company’s stock option program, remuneration of members of the company’s statutory and supervisory boards; shareholders approved the Board of Directors’ proposal not to increase said remuneration and leave it at the level approved by the Annual General Meeting in 2002, removal of Supervisory Board member Zdeněk Vorlíček and election of Martin Pecina to take his place.

89 shareholders and authorized shareholder representatives were in attendance at the Annual General Meeting. The shareholders present or duly represented at the General Meeting held shares in an aggregate nominal value of CZK 41.675 billion, or 70.4% of the company’s stated capital. 36 Shareholders and Securities in Issue CZK CEZ FINANCEB.V. U.S. SecuritiesandExchangeCommission.TheissuerofbondsdenominatedinforeigncurrencyisAmsterdam-based EurobondsarelistedontheLuxembourg StockExchangeanditsYankeeBondsareregisteredwiththe The company’s ŠKODA PRAHAa.s. Severomoravská energetika,a.s.,Východočeskáa.s.,ZápadočeskáSeveročeskédolyand in additiontotheparentcompanyČEZ,a.s.itself,following:Severočeskáenergetika,a.s.,Středočeskáenergetická Companies inČEZGroupthatarelistedonthePragueStockExchangeandRM-System(off-exchangesecuritiesmarket)are, ČEZ SharePricein2003andComparisonwithPX50BI12Indexes 105 115 125 135 145 155 165 85 95 PX 50stockexchangeindex(points) ČEZ, a.s.shareprice(CZK) BI 12powersectorstockindex(points) 1 01 2month 12 11 10 9 8 7 6 5 4 3 2 points 450 500 550 600 650 700 750 800 850 Litigation

ČEZ, a. s. was not involved in any litigation that could have a material impact on earnings. Despite the rejection of a number of previous constitutional complaints against ČEZ’s actions in the matter of an ownership participation in KOTOUČ ŠTRAMBERK, spol. s r. o., the complainant filed another constitutional complaint against the Arbitration Court’s decision that the complainant’s withdrawal from the agreement on the sale of its equity interest in KOTOUČ ŠTRAMBERK, spol. s r. o. is null and void. During the reporting period, the complainant, despite the above mentioned Arbitration Court decision, withdrew from the original agreement again, resulting in the commencement of a new proceeding before the Arbitration Court. A proceeding before the Constitutional Court is pending in the matter of a constitutional complaint filed by a regional association against the České Budějovice Regional Court, which reviewed an administrative body’s decision on an appeal relating to the Temelín Nuclear Power Station. As a result of a decision of the Supreme Court in Vienna, which partially acknowledged Austrian courts’ jurisdiction over disputes the subject matter of which is ownership rights to real property, the Regional Court in Linz began hearings on the substance of a suit filed by the Province of Upper Austria against ČEZ, a. s. seeking for the court to order the cessation, to the degree compatible with the recognized state of the technology, of the effects of ionizing radiation originating from the Temelín Nuclear Power Station that reach land owned by the complainant. At the same court, a parallel suit is underway which was brought by two private individuals against ČEZ, a. s. and Westinghouse as supplier of the instrumentation and control system for the Temelín Nuclear Power Station. As of the Annual Report closing date, the suit had not yet been duly served.

Credit Rating

The parent company, ČEZ, a. s., received a long-term rating of BBB+ with a stable outlook from Standard & Poor’s. During 2003, the agency first increased the outlook to positive in conjunction with the acquisition from the State of interests in the eight

electricity distribution companies, and later returned it to stable in respect of ČEZ’s interest in participating in privatization 37 Shareholders and Securities in Issue processes in countries of Central and Eastern Europe. In January 2002, Moody’s reaffirmed the Baa1 rating with stable outlook, and that remains in effect until now. Of the subsidiaries, Standard & Poor’s rated two companies in April 2003. The agency reaffirmed Západočeská energetika’s long-term A- rating with stable outlook and gave it a short-term rating of A-2. Severomoravská energetika’s long-term BBB rating was reaffirmed, but with a change in outlook from stable to positive, and its short-term rating was set at A-2. In March 2004, both companies asked Standard & Poor’s to cease rating them on the grounds that both companies had been integrated into ČEZ Group. From now on, both Standard & Poor’s and Moody’s will rate ČEZ Group as a single unit. 38 Shareholders and Securities in Issue 10) a) ČEZ,a.s. Types andVolumesofSecurities *) b) OtherČEZGroupMembers 11) According totheissueconditions,bondsarenotguaranteedbyStateoranybank. The companyhasnotissuedanyconvertiblebonds. Amount ofsharecapitalremainingtobepaidin:0. 9) 8) 7) 6) 5) 4) 3) 2) 1) Secured byanirrevocableguarantee. 2 3 1 Offering price:100.05%. Number ofsharesoutstanding:591,949,421;afterstatedcapitalincrease:592,088,461. 100. As of15February1999,thefirstandsecondshareissuesweresplitintoshareswithfacevalueCZK 51,731,161. Number ofsharesissued: 1,100. 1,000,bydecisionoftheGeneralMeeting20September1993raisedtoCZK Face valueattimeofissueCZK Closing dateisof8June2004. Offering price:99.602%. USD 22millionboughtbackbyissuerinfirsthalfof1998. B.V. FINANCE Issued byCEZ Bond programwithmaximumvolumeofoutstandingbondsCZK30billion–duration10years. Starting in2006,thebondswillbearinterestatavariableratedefinedasCPI+4.2%. 1,862,905,005)andfacevalue(CZK4.5billion). Yield isthedifferencebetweenvalueofbondatissue(CZK The numberofsharesissuedbeforeandaftertheregistrationPrivatizationProjectsupplementswas2,290,6652,304,569, nd rd st Eurobond issue Eurobond issue Eurobond issue 2 1 Yankee bonds 9 5 8 7 6 nd st th th th th th share issue share issue bond issue odiseC00519 .6 99834 04boe oonrCZK10,000 bookedtoowner CZK10,000 2004 bookedtoowner 83/4% 9.22% 2008 zerocoupon 111/16% 7.6.1999 26.1.1999 26.1.1999 CZ0003501090 27.6.1996 CZ0003501058 CZ0003501066 bond issue CZ0003500662 bond issue bond issue bond issue share split euiyII su aeItrs auiyFr FaceValue Form Maturity Interest Issuedate ISIN Security euiyII su aeItrs auiyFr FaceValue Form Maturity Interest IssueDate ISIN Security od Z030935 .19 MPIO .%20 okdt errCZK10,000 bookedtobearer 2005 6MPRIBOR +0.4% 5.3.1998 CZ0003500993 bonds bonds 6) 3) 2) 1) *) Z030549 .20 MPIO .%20 okdt we CZK10,000 bookedtoowner 2005 6MPRIBOR+1.3% 9.2.2000 CZ0003700544 CZK100 CZK1,000 CZK1,100 bookedtoowner bookedtoowner bookedtoowner 3.35% x x x x x 23.6.2003 x CZ0003501348 15.2.1999 8.1994 6.5.1992 CZ0005112300 CZ0005104950 CS0008441952 8) 11) 8) 8) 8) 0 0 9972%20 okdt we EUR1,000 USD10,000 bookedtoowner bookedtoowner 2006 1999 7.25% 87/8% 20. 10.1999 15. 12.1994 7 .19 /%20 okdt we USD1,000 bookedtoowner 2007 71/8% 17. 7.1997 .6 04458 01boe oonrEUR1,000 bookedtoowner 2011 45/8% 8. 6.2004 7) 5) 4) 08boe obae CZK10,000 bookedtobearer CZK1,000,000 CZK1,000,000 bookedtoowner 2008 bookedtoowner 2014 2009 respectively. EUR 100,000 EUR 100,000 EUR 10,000 EUR 10,000 CZK 59.2billion CZK 56.9billion S 5 ilo JP ognCtbn x Citibank J.P.Morgan USD 150million USD 200million U 0 ilo Cei useFrtBso hs ahta rsesLmtd x ChaseManhattanTrusteesLimited CreditSuisseFirstBoston EUR 200million EUR 400million CZK 3.0billion Z . ilo osqFnneRifiebn x x Raiffeisenbank CreditLyonnaisBank ConseqFinance INGBaringsCapitalMarkets CZK 0.5billion CZK 1.0billion Z . ilo Čsásoien ek přtlax x x Českáspořitelna Citibank Citibank Českáspořitelna 27.6.2003 INGBaringsCapitalMarkets INGBaringsCapitalMarkets Českáspořitelna CZK 3.0billion Českáspořitelna,Komerčníbanka,INGBaringsCapitalMarkets CZK 2.5billion CZK 4.5billion CZK 3.0billion CZK 2.3billion oueMngrAmnsrtrEarlyRepayment Administrator Manager Volume oueMngrAmnsrtrEarlyRepayment Administrator Manager Volume 10) 7) 9) ..Mra,MrilLnh aoo rtesTeCaeMnatnBn x TheChaseManhattan Bank J.P. Morgan,MerrillLynch,SalomonBrothers N aia,MrilLnhJP ognCaeBn x J.P.MorganChaseBank BNP Paribas,MerrillLynch SBČO x ČSOB ČSOB xxxxxxxxx

39 Shareholders and Securities in Issue 40 Sales of Electricity, Heat, and Distribution Services 2003 2002 2001 the optionofusingintradayelectricitymarketand“buffering” marketforregulationenergy. commoditiesexchangeand,startingin2004,therewillalsobe Since 2002,thedomesticmarkettradingsystemalsoincludesa settlement ofdeviationsbetweentheamountselectricityactually suppliedanddeliveredthecontracted-foramounts. fixed supplyamountsforeachhour)underthe“TakeorPay”principle. TheOTEalsoprovidesfortheevaluation,clearing,and setsupplydiagram(consistingofdefined, and theyserveto“topup”tradingdiagrams.Tradeordersare filledintermsofa contracts. ThevolumestradedonthespotmarketorganizedbyElectricityMarketOperator(OTE)aresmallincomparison traders, finalcustomers,andtheelectricitymarketoperator.Thebulkoftradingtakesplaceonbasisbila Market playersincludeelectricityproducersand,partially,thetransmissiongridoperator,distributionoperators, operator, asamended. rules fororganizationoftheelectricitymarketandprinciplesdeterminingpricesapplicabletoactivities Czech RepublicelectricitymarketaresetbyDecreeoftheEnergyRegulatoryAuthority(ERA)no.373/2001Sb.,whichstipulates Energy Sectors(the“EnergyAct”)andtheimplementingregulationonsaidact.Therulesgoverningorganizationof No. 278/2003Sb.,whichisanamendmenttoAct458/2000onConditionsforBusinessandStateAdministrationinthe The legalframeworkfortheprocessofopeningupCzechRepublicelectricitymarkettocompetitionisgivenbyAct Conditions intheElectricityMarket ČEZ GroupSalesRevenues,bySegment(CZKbillions) new,“distribution”segmenttotheGroupstructure. electricity distributioncompanies,therebyaddinga majority interestinČEPS,a.s.–thetransmissiongridoperatorand,atsametime,acquiredmajorityinterests sold a Up to1April2003,ČEZGroupcoveredonlytwosegments–powergenerationandtransmission.OnČEZ,a.s. Organization Chartonpage111. company areassignedonlytoonesegment.TheassignmentofcompaniesparticularsegmentsisshownintheČEZGroup segmentbasedonitscorebusiness.Costsandrevenuesofeach transmission, andother–eachcompanyisassignedtoa The earningsresultsofindividualGroupcompaniesarebrokendownintofourmainsegments–generation,distribution, services; research;designofpowerplantandequipment,etc. sale ofheat;ancillaryservices;miningrawmaterials;maintenancepowerplantandequipment;telecommunications numberofbusinesses:generationandsaleelectricity;generation,distribution, ČEZ Groupcompaniesareengagedina Sales ofElectricity, Heat,andDistribution Services 0 transmission generation 40.6 43.7 44.7 25 3.6 11.9 11.3 50 822.4 38.2 other distribution 75 84.8 55.6 56.0 total teral five 2003 2002 2001 ČEZ GroupElectricitySales,byTerritory(GWh) and fromcombinedgenerationofpowerheat. monopolies), andpricessetbytheStateaspartofitspolicysupportingelectricitygeneratedfromrenewablesourcesen The Statealsoregulatespriceschargedfortransmissionofelectricity,systemservices(thebygrid moreflexibleapproachtosales. distribution companiestodeepentheircustomerfocusandtakea purchase electricityonanindividualbasis)inthecustomerportfolioisgrowing,andthisputtingmoredemands prices. However,theweightofeligiblecustomers(whochoosetheirelectricitysupplierandnegotiatepriceatwhichthey regulation). Thedistributioncompanies,ontheotherhand,sellsomeelectricityatmarketpricesandrestgovernment-r The pricesforwhichČEZ,a.s.sellselectricityaresetbycontract(startingin2002,theynolongersubjecttogovernme the domesticmarketisinfluencedbypricemovementsinneighboringcountries–especiallyliquidGermanmarket. including theopeningofmarkettoelectricityimports,sincebeginning2002.Forthisreason,priceelectric All electricityproducersintheCzechRepublic,includingthoseČEZGroup,havebeenfullyexposedtocompetition, opened upcompletely–toallelectricitycustomersincludinghouseholds. remaining customersexcepthouseholdswillgaintherighttochoosetheirsuppliers,andasofJanuary2006marketbe result,in2004theCzechelectricitymarketis50%opentofinalcustomers.Starting2005,all electricity supplier.Asa reservedwattageof250kWorhigherhavetherighttochoosetheir is equippedwithhourlyprofilemeteringtechnology,a the newtimeline,asof1January2004allelectricitycustomershookeduptomediumvoltagegrid,whosemeteringlocation In ordertoacceleratetheelectricitymarketliberalizationprocess,legislationwaspassedreviseprocesstimeline.Un electricity customerswithanannualconsumptionof9GWhormore,correspondingtoapproximately28%themarket. annual consumptionhigherthan40GWh,startingon1January2003theeligiblecustomergroupwasexpandedtoincludeall electricitysupplier)waslimitedtocustomers grids). Whilein2002,eligiblecustomerstatus(i.e.theabilitytochooseone’s The processisbasedontheprincipleofregulatedthird-partygridaccess(bothtotransmissionanddistribution electricitymarketliberalizationprocess,whichbeganon1January2002. 2003 wasthesecondyearofCzechRepublic’s 0 trading outsidetheCzechRepublic(sales) export domestic 36,245 38,721 20,000 48,883 40,000 608921 16,008 2127 12,122 19,227 60,000 895 total 69,005 53,174 50,850 egulated with ity in ergy der nt

41 Sales of Electricity, Heat, and Distribution Services Electricity Sales

1) ČEZ, a. s. In the new conditions applying to electricity trading in the domestic market, ČEZ, a. s. offers and sells electricity in the form of standardized products which it launched on the liberalized market under the brand name “Duhová energie”. The offering for 2003 contained a total of eleven products – ten “time-band” products, i.e. supplies with a constant hourly wattage at various times of the day, allowing the customer to combine them together to cover the bulk of its anticipated purchasing diagram, and one flexible product with variable, customer-determined hourly supply values.

ČEZ’s strategy for selling electricity in the domestic market in 2003 was as follows: to sell most electricity in advance, even before the year started, by actively offering it to customers, to prepare a transparent offering that does not discriminate against any qualified bidders for electricity supplies in the domestic market – an offering that is capable of standing up in competition against electricity imports from abroad, to communicate the offering to all domestic potential bidders who are permitted to purchase electricity from ČEZ. The strategy chosen to accomplish this consisted of limited-time offers published by ČEZ, a. s. in the form of a print advertisement – with a reference to the ČEZ website for details (descriptions, prices and supply terms for individual products).

Within the main “Duhová energie” domestic market 2003 sales campaign, which was launched in August 2002, approximately 92% of the prepared offering for 2003 was sold by 31 December 2002. During 2003, ČEZ, a. s. made use of its free generation capacity by selling it both on the Czech Republic spot market, organized by the OTE, and through bilateral spot contracts. ČEZ’s biggest domestic electricity customers are the electricity distribution companies, which are required by law to supply electricity to protected customers (those who for the time being cannot choose their electricity supplier). Sales to the electricity distribution companies account for approximately 89.5% of overall ČEZ, a. s. domestic market sales. In 2003, eligible customers also purchased electricity directly from ČEZ, a. s. Their share of overall ČEZ, a. s. domestic electricity

42 Sales of Electricity, Heat, and Distribution Services sales was approximately 4.2%. Electricity exports were another significant component of ČEZ, a. s. sales activities, having an impact on the overall amount of electricity sold in 2003. ČEZ, a. s. reinforced its position as the second largest electricity exporter in Europe. Through its Munich-based subsidiary, rpg Energiehandel GmbH, ČEZ also began to sell electricity to medium-sized final customers in the German market as well as through the power exchange in Leipzig. In response to customer demand, ČEZ, a. s. expanded the line-up of “Duhová energie” products for 2004 to include four modifications of the time-band products (two quarterly products and two long peak business day products) to a total of 15 products offered. Approximately 96% of the anticipated total volume of “Duhová energie” sales in the domestic market in 2004 had already been sold as of 31 December 2003. 2) Other Members of ČEZ Group In addition to ČEZ, a. s., electricity is sold by other members of ČEZ Group as well: the electricity distribution companies and První energetická, which operates a grid control facility. Unlike ČEZ, a. s., the electricity distribution companies operate partially in the regulated segment and partially in the liberalized market. In the regulated segment, they sell electricity to protected customers for the prices set by the Energy Regulatory Authority. To better serve this segment, the distribution companies are building out modern communications channels in the form of call centers and successfully engaging in communications through the Internet and electronic mail. Starting in October 2003, household electricity prices in selected distribution service areas were lowered to below the maximum prices set by the Energy Regulatory Authority. In the liberalized market, the electricity distribution companies supply electricity to the ever expanding group of eligible customers. Starting in 2003, the electricity distribution companies can acquire eligible customers using the “Duhová energie” brand and its strong marketing support, in addition to their own brands. Environmental issues and responsibility for the environment are not omitted in trading. Ever since 2001, customers in one of the distribution service areas have been offered a “Green Electricity” product (generated from renewable sources of energy), which is helping to do away with the myth that the electric power industry’s impact on the environment is always and necessarily negative. As part of the ČEZ Group project “Vision 2008”, which is currently being launched, certain sales operations will be consolidated with the objective of ensuring that they are as effective as possible and to offer customers the best possible sales terms. The plan also includes introducing a customer loyalty program with a number of benefits for participating customers. Also in preparation are program packages for specific customer groups. The expansion of ČEZ Group to include the electricity distribution companies also resulted in a huge year-on-year increase in ČEZ Group’s share of the overall supply of electricity to final customers to cover domestic demand for electricity – from 1.4% to 57.5%. 43 Sales of Electricity, Heat, and Distribution Services ČEZ Group Electricity Procurement and Supply (GWh)

2001 2002 2003 Index 03/02 (%) Procurement: Generated in-house (gross) 52,162 54,118 61,399 113.5 Purchased from other producers 3,274 2,018 10,701 > 200.0 Purchased from OTE – deviations 881 1,002 113.7 Purchased from OTE – organized spot trading 19 7 36.8 Purchased to cover own consumption 17 18 21 116.7 Purchased outside the Czech Republic 688 1,338 919 68.7 Purchased from electricity distribution companies 47 Purchased from traders 3,235 Total 56,141 58,392 77,331 132.4 Supply: Sold in the domestic market 38,721 36,245 48,883 134.9 Sold to electricity distribution companies 36,942 31,466 14,107 44.8 Sold to OTE – positive regulation work 1,356 576 42.5 Sold to OTE – negative regulation work (385) (481) 124.9 Sold to OTE – deviations 137 809 > 200.0 Sold to OTE – organized spot trading 225 169 75.1 Sold to eligible customers 69 9,467 > 200.0 Sold to protected customers 21,259 Sold to traders 2,593 1,935 74.6 Sold to ČEPS, a.s. to cover losses 1,393 598 719 120.2 Other domestic sales 386 186 324 174.2 Export 12,122 16,008 19,227 120.1 44 Sales of Electricity, Heat, and Distribution Services Trading outside the Czech Republic (sales) 7 921 895 97.2 Total Sales 50,850 53,174 69,005 129.8 Other ČEZ Group consumption 5,231 5,218 5,665 108.6 Losses 60 2,661 Total 56,141 58,392 77,331 132.4 Distribution Services

ČEZ Group electricity distribution companies distribute and supply electricity to a substantial portion of the protected customer market in the Czech Republic. In 2003, they distributed a total of 43,488 GWh of electricity using a grid with an extended length of 149,774 km and 3,408,995 metering locations. ČEZ Group member distribution companies purchased a total of 20,951 GWh of electricity from ČEZ, a. s. ČEZ Group sold 21,259 GWh of electricity to protected customers and 9,467 GWh to eligible customers in 2003. To ensure optimum flows of electricity and reliability of supply in their distribution service areas, the electricity distribution companies also own and operate grid control facilities.

Heat Trade

ČEZ Group is one of the three largest producers of heat in the Czech Republic. Nearly all Group heat supplies are based on combined generation of power and heat. During 2003, ČEZ, a. s. sold the Náchod Heat Plant. Nevertheless, supplies of heat by ČEZ Group to customers increased in year-on-year terms by 14.6%, mostly as a result of Group enlargement. However, the declining trend in heat demand seen in previous years continued, driven in particular by improvements in building insulation.

ČEZ Group Heat Procurement and Supply (TJ)

ČEZ Group 2001 2002 2003 Index 03/02 (%) Procurement: Generated in-house 13,978 13,064 14,575 111.6 Purchased from other producers 4 2 20 > 200.0 Total 13,982 13,066 14,595 111.7 45 Sales of Electricity, Heat, and Distribution Services Supply: Heat plant operators 3,725 3,199 3,005 93.9 Heat distributors 1,632 1,509 2,009 133.1 Other customers 4,963 4,699 5,788 123.2 Export 153 143 140 97.9 Total Sales 10,473 9,550 10,942 114.6 In-house consumption of heat generated in heat plants 2,154 2,162 2,140 99.0 ČEZ Group Useful Supply 12,627 11,712 13,082 111.7 Losses in ČEZ Group heat supply systems 1,355 1,354 1,119 82.7 Total 13,982 13,066 14,595 111.7 46 ČEZ Group

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47 ČEZ Group 48 Generation and Supply of Electricity 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 ČEZ GroupInstalledGeneratingCapacitybyFacilityType,asof31December(MW) Locations ofČEZGroupProductionFacilitiesas31December2003 Production Base Generation andSupply ofElectricity PRUNÉŘOV I,II TISOVÁ I,II 0 HRACHOLUSKY hydro, solar,andwindplants nuclear plants fossil plants KARLOVY VARY TUŠIMICE II ČERNÉ JEZERO ŽELINA PLZEŇ LEDVICE II,III VYDRA POČERADY ,0 ,0 ,0 ,0 0001,0 total 12,000 10,000 8,000 6,000 4,000 2,000 LIPNO I,II ,1 6% 1,760(17%) 6,517 (58%) 6,517 (64%) 6,603 (54%) TEMELÍN Č. BUDĚJOVICE – STŘEKOV ÚSTÍ nadLABEM ORLÍK OBŘÍSTVÍ MĚLNÍK II,III KAMÝK PRAHA SLAPY MĚLNÍK VRANÉ ŠTĚCHOVICE II ŠTĚCHOVICE I KOŘENSKO I KOŘENSKO II HNĚVKOVICE HR. KRÁLOVÉ LES KRÁLOVSTVÍ SPÁLOV DVŮR KRÁLOVÉ CHVALETICE PŘELOUČ DUKOVANY DUKOVANY HRÁDEK NOVÝ DALEŠICE POŘÍČÍ II PARDUBICE

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M PASTVINY 2,760 (25%)

E BRNO –KNÍNIČKY 3,760 (30%) BRNO HODONÍN MRAVENEČNÍK DLOUHÉ STRÁNĚI,II 1,869 (19%) MORAVOU VESELÍ nad OSTRAVA –VÍTKOVICE 1,869 (17%) SPYTIHNĚV DĚTMAROVICE ZLÍN OSTRAVA 1,934 (16%) 2 wind 1 hardcoal-fired of ČEZGroup member company = ownedbyother name inblackletters = ownedbyČEZ,a.s. name inorangeletters coke ovengas 1 hardcoaland (from October2003) 1 solar heat andpower 1 combined 13 browncoal-fired 31 hydro 2 nuclear 4 pumped-storage 12,297 11,146 10,146 10,146 10,151 10,900 10,999 10,999 10,184 10,234 rnřvI rw ol5x2018 921996 1995 1996–1997 1998 1997 1996 1981–1982 1994;1996 1967–1968 1954–1958 1998 1997;1998 1968 210 1974–1975 5x 1970–1971;1977 1966 110 4x 55 50;1x 1x 200 5x 1977–1978 200 4x 1975–1976 110 browncoal 1x lignite 110 browncoal 2x 200 4x browncoal 200 4x browncoal browncoal browncoal browncoal blackcoal Ostrava –Vítkovice Prunéřov II Prunéřov I Hodonín Počerady Tušimice II Ledvice III Ledvice II Chvaletice Dětmarovice ula lnsi prto,Ttl370x x YearCommissioned 3,760 x InstalledCapacity(MW) 6,603 1997 1998 x 1998 1996;1998 Nuclear PlantsinOperation,Total 1961 1996–1997 Temelín Dukovany 1981 Nuclear PlantsinOperation 1957–1958 1971 1959–1960 Nuclear Plants(asof31December2003) 112 1x 55 3x **) 500 1x 12.8 *) 57;1x 3x 110 2x DesulfurizedSince Fossil PlantsTotal browncoal browncoal YearCommissioned blackcoal;browncoal browncoal browncoal InstalledCapacity(MW) FuelType Dvůr Králové Poříčí II Tisová II Tisová I Mělník III Mělník II Plant Name Fossil Plants(asof31December2003) Compliance withemissionslimitsisensuredbyusinglow-sulfurfuelandsupplementingitnaturalgas. Heat plantispartofthePoříčíPowerStationsorganizationalunit. *) **) *) rw ol1x63 215;16 1997 1955;1963 12 6.3;1x 1x brown coal lc ol2x1;1x2;1x2 951996 1995 22 25;1x 16;1x 2x black coal ,0 2002–2003 1,000 2 x 4 1985–1987 440 4 x

49 Generation and Supply of Electricity 50 Generation and Supply of Electricity eeíndMrvu1x01;1x01 1914;1923 YearCommissioned 0.15 0.12;1x 1x InstalledCapacity(MW) Hydro PlantsTotal Total Černé jezero Dlouhé StráněI Dalešice Štěchovice II Pumped StorageHydroPlants Total Brno –Komín Veselí nadMoravou Brno –Kníničky Spytihněv YearCommissioned Pardubice Předměřice nadLabem Les Království Obříství Čeňkova Pila Hracholusky Vydra Pastviny InstalledCapacity(MW) Jaroměř Práčov Hradec Králové YearCommissioned Spálov Přelouč Želina Kořensko II Dlouhé StráněII Mohelno Kořensko I Hněvkovice Lipno II InstalledCapacity(MW) Small-scale HydroPlants Total Střekov Vrané Štěchovice I Slapy Kamýk Orlík Lipno I Accumulation andRun-of-riverPlants Hydro Plants(asof31December2003) .8 .91927 0.49 0.28;3x 1 x .;1x05 1977;1999 0.56 1.2; 1x 1 x 1. 1978 1923 1995 112.5 4 x 0.106 2 x 1908 1994 1.679 2 x 0.104 1 x 0.315 2 x 1943–1944 11.25 2 x .61978 1912 1964 1953 1926 1.96 1 x 2000 2000 0.09 1 x 2.55 1 x 9.75 1 x 0.25 3 x 1936 0.94 1 x 0.16 1 x 6.94 2 x 2 1996 325 2 x . 1930 1941 1951 1953 1.5 1 x 1923 1939 3.1 1 x 1.3 2 x 1926 2.1 1 x 0.6 2 x 1992 3.2 2 x 1992 1957 1936 1.2 2 x 1.9 2 x 4.8 2 x 1.5 1 x 6.5 3 x 51947–1949,refurbished1996 45 1 x 1961 1954–1955 1959 1961–1962 48 3 x 10 4 x 91 4 x 60 2 x ,3 x x 1,931 1,147 1938 3 1 x 2 x 724 0x 60 *) Solar PowerPlants(asof31December2003) Wind PowerPlants(asof31December2003) rvnčí Jsnk onan)1x0201998 0.220 1x Dukovany Wind PowerPlantsTotal Nový Hrádek Mravenečník (JeseníkyMountains) Solar PowerPlantsTotal Originally locatedinMravenečník(JeseníkyMountains),movedtotheDukovanyNuclearPowerStationcomplex2003. *) ntle aaiy(W YearCommissioned Installed Capacity(MW) YearCommissioned Installed Capacity(MW) 0.630 1 x 0.315 1 x . 2002 0.4 4 x .6 x 2.765 .1x 0.01 .11998;2003 0.01

51 Generation and Supply of Electricity 52 Generation and Supply of Electricity 48,000 50,000 52,000 54,000 56,000 100 105 110 115 120 125 oee,we h ersconsumptionisadjustedtothelong-term temperatureaverage,demandgrowthisonly1.7%. However, whentheyear’s ineachcase). The averagetemperaturesforthe monthsofJuneandAugustwerehighabovethelong-termsliding average(+3.8°C temperatures, andthatcaused higher electricityconsumptionduetotheoperationofairconditioning andcoolingsystems. veryhotsummerwithrecordhigh lessthantheactualfigurefor2002.Onotherhand, 2003hada long-term averageand2.2°C under 2003, whenoverallelectricityconsumption figuresareimpactedbytheuseofelectricityforheating purposes,was0.1°C The growthinretailconsumptionisrelatedprimarilytometeorological conditions.TheaveragetemperatureforJanuary–April 54,807 GWh.Theincreaseindemandwasdrivenby: levelof In 2003,demandforelectricityintheCzechRepublicroseby1,137 GWh,or2.1%,comparedto2002andreacheda Czech RepublicElectricityDemand,OverTime(GWh) Comparison ofCzechRepublicGDPandElectricityDemand,OverTime(%) Czech RepublicElectricityDemand 95 pumped-storage hydroplants)by503GWh(1.6%), generation facilitycompounds,includingthoserunbyindustrial companies,butnotincludingelectricityusedforpumpingin higher industrialconsumption(wholesalecustomers, bypowerproducersandelectricityconsumedinside increased retailbusinessconsumption–upby248GWh(3.3%). increased householdconsumption–upby386GWh(2.7%), 1994 49,312 total electricitydemand Gross DomesticProduct(GDP) 1994 113.8 105.9 105.8 102.9 1995 52,155 1995 122.7 110.5 109.8 105.2 1996 54,146 1996 118.8 109.6 107.8 103.8 1997 53,163 1997 111.5 108.5 105.8 103.8 1998 52,196 1998 household electricitydemand electricity demand(householdsexcluded) 109.0 108.5 103.1 101.2 1999 50,855 1999 112.6 105.9 106.0 106.1 2000 52,292 2000 116.1 109.1 109.1 109.0 2001 53,775 2001 118.4 108.2 108.8 109.1 2002 53,670 2002 121.9 111.2 111.1 111.1 54,807 2003 2003 the 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 ero-ereetiiydmn ne 0. 158 0. 9. 9. 9. 128 0. 9. 102.1 99.8 102.8 102.8 97.4 98.2 98.2 103.8 105.8 103.2 Year-on-year electricitygenerationindex: Year-on-year electricitydemandindex Electricity GenerationintheCzechRepublic(GWh) Czech Republic–ElectricityImportsandExports(GWh) Electricity DemandandGeneration(%) mot ,9 ,3 ,9 ,6 ,6 ,3 ,1 ,4 ,9 ,9 78.9 122.5 142.4 4,095 20,308 (16,213) (11,387) 16,580 5,193 (9,539) 12,180 2,641 (10,017) 12,432 (3,276) 2,415 5,707 (2,461) 2,431 (1,188) 4,530 (3) 2,069 3,753 2,565 3,093 418 3,090 2,121 (445) 2,539 2,038 1,593 Balance Exports Imports E ru 77122141 95 98 95.5111.2102.6103.7113.5 99.8 99.5 97.7102.2104.1 98.8114.1101.6102.3109.0 99.7103.6105.6100.5100.8 – – ČEZ Czech Group Republic 0 other producers ČEZ Group 9419 9619 9819 0020 0220 Index03/02(%) 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 10,000 20,000 52,162 (70%) 54,118 (71%) 9419 9619 9819 0020 022003 2002 2001 2000 1999 1998 1997 1996 1995 1994 139(4)21,828(26%) 61,399 (74%) 30,000 40,000 50,000 22,485 (30%) 60,000 22,230 (29%) 70,000 80,000 total 83,227 76,348 74,647 73,466 64,368 65,112 64,598 64,257 60,847 58,705

53 Generation and Supply of Electricity 54 Generation and Supply of Electricity 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 ČEZ GroupElectricityGeneration(GWh) turbo aggregatesattheOrlíkPowerStationhadalsobeenrepairedandwasbackinoperation. repair, inNovembertheŠtěchoviceIIpumped-storagepowerstationcamebackon-stream,andbyyearendfirstoffour Power Stationtooperationfollowing August 2002.InJune,wemanagedtoreturnoneturboaggregateintheŠtěchoviceI andII,whichsustainedheavydamageinthefloodof with theshutdownofhydropowerstationsOrlík,ŠtěchoviceI value everinČEZGrouphistory.Thiswascausedbypoorhydrologicalconditions,especiallythesummerperiod,combined Hydro powerplants,ontheotherhand,producedlesspower.Theirgenerationvolumefellby652GWh(35.5%)tolowest Generation infossilpowerstationsgrewby799GWh(2.4%). annual generationvolumeever–13,755GWh. Nuclear PowerStationalsoimproveditsperformance,generating457GWh(3.4%)morethaninthepreviousyearforhighest highdegreeofreliability.TheDu 1,000MW,isnowutilizedforbaseloadcoverageandthefacilityexhibitinga Station, 2x totalof12,117GWhelectricity,whichis6,677(122.7%)morethanin2002.ThefullcapacityTemelínNuclear Power a commissioning ofUnitTwotheTemelínNuclearPowerStationforcommercialoperationinApril2003.Bothunitsgenerated year-on-yearincreaseinpowergenerationof7,134GWh(38.1%)wasachieved,particularbythe In nuclearpowerplants,a 7,281 GWh(13.5%)fromthepreviousyear. For thefirsttimeinhistory,generationofelectricityČEZGroupfacilitiespassed60TWh2003,reaching61.4TWh,up Electricity Generation 0 hydro, solar,andwindplants fossil plants nuclear plants 14,749 (28%) 18,738 (35%) 582(2)34,342(56%) 25,872 (42%) 0002,0 0004,0 0006,0 total 60,000 50,000 40,000 30,000 20,000 10,000 598(9)1,455(3%) 35,958 (69%) 353(2)1,837(3%) 33,543 (62%) 1,185 (2%) 61,399 54,118 52,162 50,842 45,722 47,892 48,008 48,266 46,361 45,377 kovany Capital Investments

Investment, Upgrade, and Development Policy Objectives

The main focus in capital investment was put on the nuclear power in 2003. In April, Unit Two of the Temelín Nuclear Power Station was put into commercial operation. The implementation of the program to bring the Dukovany Nuclear Power Station (especially the renovation of the instrumentation and control system) into line with operational practice of nuclear power plants in the European Union, is creating conditions for that facility’s long-term safe and environmentally viable operation. Preparations are also underway for construction of spent nuclear fuel storage facilities in the compounds of both nuclear stations. In conventional power, capital investment is focused on revamping equipment, ensuring that existing generation facilities are reliable and safe with the objective of their optimal utilization and efforts to further rationalize operations, automate them and make them more environmentally friendly. The innovation policy is focused in particular on creating conditions for reliable facilities operation and further improvements in operating economy. For the coming period, preparations are underway to enable biomass to be burned in a mixture with coal in fluidized-bed, grate, and selected powder boilers. Another significant area is improving conditions for utilization of power generation by-products to produce construction materials and in reclamation of fly-ash disposal sites.

ČEZ Group Additions to Property, Plant and Equipment and Other Non-current Assets, incl. Capitalized Interest (CZK millions)

1999 2000 2001 2002 2003 Additions to tangible fixed assets 21,301 20,637 14,275 10,025 11,794 of which, e.g.: Purchase of nuclear fuel 2,188 4,243 3,400 1,997 2,220 Additions to intangible fixed assets 164 403 401 339 880 Additions to financial investments 1,261 581 642 (34) 12,997 Change in payables from fixed assets acquisitions 256 (275) 388 89 (1,729) Total 22,982 21,346 15,706 10,419 23,942 55 Capital Investments Company Policy Towards Stakeholders Plans for new construction projects are discussed in accordance with Act 50/1976 Sb. on Zoning and Construction Rules (the Construction Act), as amended, and Act 100/2001 Sb. on Assessing Environmental Impacts and on Amendments to Certain Related Acts. These laws require the plans to be discussed with local government authorities, central government authorities, and citizens’ groups. Although not required to by law, ČEZ, a. s. presents planned projects at public meetings in the affected regions. 56 Capital Investments more robustforqualificationpurposes,andmodificationofspring-basedpipemountingsintheprimarysecondarycycles. electrical protectionsystems,innovationofthe220MWgeneratorsautomaticactivationsystem,makingbuildingsandequipment primary circulationpumps,andturbines),innovationoftheradiationcontrolinformationsystem,refurbishinggeneratingun Further, thefollowingprojectswerepreparedforrealizationinfutureyears:installationofnewdiagnosticsystems(reactors (optimum techniquechosen–enablingthevolumeofstoredradioactivewastetobereducedonethirditspreviouslevel). (addendum toprojectplanapproved),utilizationofgeneratingunitreservecapacityanddisposalsorbentssludges flow-through turbinecomponents(contractsigned),renovationofinstrumentationandcontrolsystems–PhaseTwo In 2003,fundamentalstepsweretakentoprepareforkeystrategiccapitalinvestmentprojects:replacementoflow-pressure modifications totheall-purposesimulator. technical modificationsallowingforthecertificationofancillaryservicesinaccordancewithTransmissionGridCode,and center (inaccordancewithinternationalrecommendationsandoftheStateOfficeforNuclearSafety), the projectforrevitalizingprotectionsystemsinnuclearpowerstation’sbuildings,andestablishmentofaback-upco of asolarpowerplant(movedtotheDukovanyNuclearPowerStationcompoundfromMravenečníksite),completion renovation oftheback-uppowersource–a110kVsubstationtoprovideUnitOne,installationandcommissioning The biggestinvestmentwasinrevampingtheinstrumentationandcontrolsystemonUnitThree.Othermajorprojectswere generation, inaccordancewithtechnologicalprogressandinternationallyrecognizedpractices. Capital investmentprojectscarriedoutin2003werefocusedprimarilyonincreasingefficiencyandthequalityofelectricity Dukovany NuclearPowerStation demolished buildings. Temelínec Dumpwascommissioned,anditiscurrentlyinfulloperationasasafefacilityfordisposingofwastefromthe buildings andthesubsequentreclamationoflandthatwasusedincourseconstruction.Beforethisprojectstarted, are intheprocessofbeingmodernized.Anothermajorprojectisdemolitionandcleanupspecial-purposeconstructionsit to-date intheoperationofbothunits.Thesystemsradiationmonitoringsurroundingareaandpersonaldosimeterchec control room)usedforoperatortraining.Thegoalistobringthesimulatorintoastatethatfullyreflectsallexperiencega steam generators,andprimarycirculationpumps.In2003,workbeganonupgradingthesimulator(areplicaofUnitOne therefore greatemphasisisplacedontheprogramofcontrolledagingtheirkeycomponentssuchasreactorvessel, Though brandnew,thepowerstationisalreadydealingwithissueofoperatingperiodsitsgeneratingunits,and Station isthenewestand,currently,mostmodernnuclearpowerplantinEurope. Power Station–amajorsupplierofsafe,reliable,clean,andinexpensiveenergytothepowersystem.TemelínNuclear Temelín NuclearPowerStationisuptoitsfullinstalledcapacityof2x1,000MW,makingit–togetherwithDukovany Station anditscommissioningforcommercialoperationon19April2003,afterallnecessarytestswerecompleted.Today, The biggesteventof2003wasthesuccessfulcompletioncomprehensivetestingonUnitTwoTemelínNuclearPower Temelín NuclearPowerStation Investments inNuclearPower ntrol ined king the e it , role; inthefuture,information systemwillbecomethestandardsolutionforČEZGroupunified informationsupport. e-Commerce. Therenewalofaportion oftheinformationsystemthroughimplementationSAPmodules alsoplayedanimportant communications. Thisareaincluded CallCentersdevelopment,CustomerRelationshipManagement (CRM)projects,and Like inpastyears,information technologieswereanothermajorinvestmentarea,helping tofacilitateactivecustomer such asworkonenergizedpowerlines. Among thefactorshelpingtofulfillthisobjectivearedevelopment andapplicationofnewworktechniquesprocedures that increasethegrid’sreliabilityandrequireonlyminimalmaintenance. purposes oftheseinvestmentsaredevelopment,renewal,andupgrading –withtheuseofenvironmentallyfriendlytechnologies renovation ofthehigh,medium,andlowvoltagegridson renovations ofhigh/mediumvoltagesubstations.Theprincipal This objectivedeterminesthestructureofconstructionprogram, whichisfocusedoninvestmentsinconstructionand standard ofqualityinsuppliestocustomers. The objectiveistocontinueincreasingreliabilityandoperational safety,improveavailabilityparametersandensureahigh Capital investmentactivitiesinallČEZGroupelectricitydistribution companiesarefocusedprimarilyonthedistributiongri Capital InvestmentintheElectricityDistributionCompanies the floodof2002. focused, amongotherthings,onrenewingandensuringthereliabilityofinstalledplantequipmentthatwasdamagedby At mostfossilandhydropowerstations,2003saweitherthecontinuationorcommencementofcapitalinvestmentprojects Other Investments contractors wasbegun. Dewatering” environmentalprojectswascompletedandpreparationworkleadingtotheselectionoffutureconstruction At theTušimice,Ledvice,andMělníkPowerStations,firstphaseofdocumentationpreparationfor“SlagRemoval power stations.Theobjectiveofthisworkistoreturnthelandinquestionbacksurroundingecosystems. 2003 sawworkcontinueontechnicalandbiologicalreclamationofashsettlingpitsatmostthecompany’sbrowncoal-fired Environmental Investments Investments inConventionalPower solution, areongoinginaccordancewithadecisionofČEZ,a.s. Activities necessaryforthepossiblerenewalofpreparationsaspentfuelstoragefacilityatSkalkasite,asfall-b Spent FuelStorageFacilityattheSkalkaSite from saidMinistry,draftingofEIAdocumentationbeganinDecember. the submissionofaNoticeIntenttoMinistryEnvironment.Uponreceiptconclusionsfact-findingphase select asupplierofthecontainersthatwillbeusedtoholdspentnuclearfuel.Thefirst,fact-finding,phasebeganinJuly tender, and,inparticular,materialsfortheEnvironmentalImpactAssessment(EIA)processanddocumentstenderto Preparation oftheconstructionprojectcontinuedwithworkondocumentationforzoningproceedings,asafetyreport Spent FuelStorageFacilityatTemelínNuclearPowerStation construction wasbegun. appeal inNovember2003.Subsequently,basedonacontractpreviouslyenteredintobetweenČEZ,a.s.andHOCHTIEFVSBa.s., proceedings, didnotenterintolegalforceuntilaftertheappealbody,VysočinaRegionGovernor’sOffice,decidedon May 2003sawtheissuanceofabuildingpermitthat,duetoanappealfiledbycertainparticipantsin Spent FuelStorageFacilityatDukovanyNuclearPowerStation Spent NuclearFuelStorage with ack d.

57 Capital Investments

58 ČEZ Group

“Duhová energie”Foundation support forpublic-benefitprojects support Our energyinfluencesourcommonspace

talent intellectual development development We feel responsibility for developing the Czech society as a whole, in all of its forms and aspects, and the specific steps we have taken demonstrate this. ČEZ, a. s. has given nearly CZK 2 billion in donations alone since 1992. healthy lifestyle

charity and humanitarian aid

Currently, the m nationwide projectost of significant the “Duhová energie” Foundation is the construction of “Duhová” Playgrounds, which will give protection of the environment kids positive ways to spend their free tim provided CZKe. 5.8 The m Foundation 59 ČEZ Group funding for this project in 2003. illion in

support for healthcare

social and legal protection of children Management of Selected Processes

Safety, Environmental, and Quality Management Systems

Through long-term, strict compliance with legal and other regulations, ČEZ has been creating conditions to prevent situations that could result in damage such as injuries, illnesses, property damage, accidents, damage to the environment, etc. A recognized title in this area is the “Safe Shop” certificate, which is awarded by the Czech Work Safety Office, and which is based on principles set by the International Labor Organization and by the OH SAS 18001 systems standard. Dukovany Nuclear Power Station has been a participant in this program since 1999, when it first obtained the certification, and it was last recertified in October 2003. Temelín Nuclear Power Station has begun preparation work and plans to obtain this certificate in 2005.

The Conventional Power Division is on track to obtain “Safe Shop” certification in the fourth quarter of 2004. Realistically, this will contribute toward: minimizing the risk of employee health damage and loss of life, strict compliance with the requirements of Czech Republic legislation based on European Union directives, increased trust in the company on the part of business partners, better work culture, improved labor conditions and social comfort, creation of conditions for the future implementation of an integrated safety, quality, and environmental management system, minimizing company losses by restricting the potential for extraordinary events to occur.

Risk Management Policy

Financial Risk Management On the basis of the risk management policy, part of the foreign currency financial portfolio is hedged against financial risk with the objective of limiting the potential impact of unfavorable developments in the financial markets. ČEZ, a. s. risk exposure is

60 Management of Selected Processes assessed on the basis of analyses of the portfolio of income and expense streams and related forecasts. In the past few years, electricity export income that ČEZ, a. s. receives directly in foreign currencies has led to a decline in currency risk. In 2003, revenues denominated in foreign currencies accounted for over 24% of overall revenues from the sale of goods and services. The development of risk exposure, market risks, and credit risks is monitored by the Risk Committee, which also determines the methods used to measure risk. ČEZ, a. s. risk exposure was monitored through predictions of the company’s future income and expenses with regard to market developments. Standard methods are used (such as Value at Risk and stress tests) as an integrated part of the liquidity and risk management system. In managing risk, the company utilizes an on-line risk module, which is one of the important components of this treasury system. Financial market transactions conducted during 2003 were mainly conversion transactions to manage liquidity and short-term currency hedging linked to planned future payments in foreign currencies. In the long-term hedging area, the structure of interest-rate hedging of certain trades underwent a partial modification. Financial risk management in the individual electricity distribution companies of ČEZ Group is not yet centralized, but it does use a centrally defined methodology. In 2003, the liquidity risk management and foreign currency risk management functions were unified, yielding a consistent, analytical view of the risk exposures of both individual companies and ČEZ Group as a whole. Management of Electricity Trading Risk The electricity market liberalization process caused an increase in market (price, volume) and credit risk, which ČEZ, a. s. addressed by launching a new system, entitled “KW3000”, to support trading activities and risk management. The system was put into routine operation in 2002. It covers all electricity transactions to meet record-keeping, audit, risk assessment, position management, and invoicing needs. As part of the process of unifying financial and trading risk management procedures, internal directives defining categories of trading risks and describing processes for managing and dealing with them were updated in July. The aim is to put in place a unified, effective system for protecting the company against the risk of losses relating to sales of electrical energy generated in-house and with other trading transactions involving electrical energy in markets in the Czech Republic and abroad. Electricity trading risk management is a high-priority area for the electricity distribution companies of ČEZ Group. In view of the character of this activity, it was decided that the first step should be to unify credit risk management procedures. During 2003, unified procedures for evaluating customer credit and defining payment terms were drafted, approved, and implemented. Market risk is managed on a non-centralized basis using methodologies developed individually by the companies. Procedures in this area will be unified in 2004.

Insurance of Property and Casualty Risks Natural hazard and machine risks in the fossil and hydro power stations are covered by a contract with a consortium of five major domestic insurers. The lead insurer on the contract is Kooperativa, pojišťovna, a.s. The insurer of property contracts concerning ČEZ, a. s. nuclear power stations is the Czech Nuclear Pool. Insurance of nuclear liability complies with the applicable provisions of the Nuclear Act. ČEZ’s statutory obligation as operator of nuclear facilities is fulfilled by insurance contracts covering liability arising out of the operation of the Dukovany and Temelín Nuclear Power Stations. Both contracts are entered into for the statutory liability limit of CZK 1.5 billion. The company also carries insurance against liability for nuclear damage arising in the course of transport of new nuclear fuel to the Temelín and Dukovany Nuclear Power Stations. Other important insurance contracts include a third-party liability policy covering the generation, transmission, transit, import

and export of electricity and the generation, distribution and sale of heat. Also of significance is liability insurance covering 61 Management of Selected Processes damage caused by members of the Board of Directors, Supervisory Board and by managing directors, which also covers governance bodies of the company’s subsidiaries. Late 2003 saw the completion of the insurance adjustment process concerning property damage caused by the flood of August 2002 at the seven hydro power plants and the Mělník fossil power plant. The overall recognized damage amount (after deductibles) was CZK 716 million and most of it has already been paid by the insurance companies. In conjunction with ČEZ’s acquisition of the electricity distribution companies, activities were commenced to support unified management of property and casualty risk insurance within ČEZ Group. Insurance contracts for immovable and movable property and grid property, plant and equipment for the year 2004 were entered into by the electricity distribution companies based on the results of a public tender organized by ČEZ, a. s. Also coordinated within ČEZ Group was the negotiation of insurance against liability for damage caused by individual electricity distribution companies and motor vehicles insurance for 2004. 62 Management of Selected Processes The balanceontheFoundation’sbankaccountasof31December2003wasCZK40.1million. program in2003. positive waysforchildrenandyouthtospendtheirfreetime.TheFoundationexpendedatotalofCZK5.8milliononthis The Foundation’smostsignificantnationwideprogramisthe“Duhová”Playgroundsprogram,whichfocusedonproviding totaling ofCZK1.7million. 23 projects.Inhealthcare,theFoundationsupportedthreehospitals–twoinPragueandoneNorthBohemiawithdonations CZK 5.7million.TheFoundationwasalsoactiveincultureandthearts.Here,itdistributedover3millionamongatotal In theeducationarea,FoundationbuiltonČEZ’scooperationwithtechnicalinstitutesanduniversities,towhichitdonate Friends ofHandicappedChildreninLouny). (forthepurchaseoftwohandbikesfor AssociationofParentsand region) and“HandbikeforHandicappedChildren” blind), “HopeforHandicappedChildren”(assistanceinequippingprotectedworkshopshomesanddaycenterstheZlín contributed towardtheoperationofseveralcharitygroupssuchas“HelpingPaws”nearPlzeň(trainingguidedogsfor The FoundationdonatednearlyCZK11milliontocharity,humanitarianandsocialprojects.Ofthisamount,2.5was The totalamountofdonationsdistributedbythe“Duhováenergie”Foundationin2003reachedCZK33.2million. List ofMostImportantProjects culture andthearts. projects inthefollowingareas:socialcauses,sports,regionaldevelopment,healthcare,environment,education,and In additiontothe“Duhováenergie”Foundation,othermembersofČEZGroupgavesponsorshipdonationsmainly to financetherenovationofSovovymlýnyandKampaMuseum. with whichithasafive-yeardonationagreementsignedin2000.Since2000,ČEZGroupdonatedtotalofCZK14.05million In additiontothe“Duhováenergie”Foundation,ČEZGroupdonatedCZK1.5millionJanandMedaMládek In 2003,ČEZGroupprovidedthe“Duhováenergie”FoundationwithCZK73.3millioninfunding. vacant), GrantCommittee(11members–representingtheČEZandelectricitydistributioncompanies). regional governmentrepresentatives,1isapublicrelationsexpert,representativeofČEZ,a.s.andposttemporar the State,and1ofthematsametimerepresentsSupervisoryBoardČEZ,a.s.,3arerepresentativeslocal The Foundation’sbodiesareasfollows:SupervisoryBoard(3members),Administrative(9members,3ofwhichrepresent “Duhová energie”forRegionsprogram,whichisfocusedonregionswhereČEZGrouppowerstationsarelocated. Foundation isČEZGroup’spartnerintheareaofsponsorshipdonations,mostwhichitdistributedframework In July2002,ČEZGroupestablishedthe“Duhováenergie”Foundation,whichcommencedoperatinginFebruary2003.The Sponsorship Program ily of d “Duhová energie” Foundation – Distribution of Sponsorship Donations in 2003

9%; CZK 3.0 million 17%; CZK 5.8 million 5%; CZK 1.7 million “Duhová energie” for Culture and the Arts “Duhová energie” for Health “Duhová energie” for Sports 14%; CZK 4.7 million “Duhová energie” for Education “Duhová energie” for the Environment “Duhová energie” for the Needy 33%; CZK 10.7 million (charity, humanitarian, social) 17%; CZK 5.7 million “Duhová” Playgrounds 5%; CZK 1.6 million

Total sponsorship donations in 2003: CZK 33.2 million

Advertising Projects

In conjunction with the purchase of previously state-owned equity shares in the electricity distribution companies, we decided to support activities in the regions as a way to get closer to our customers. For this reason, ČEZ Group has become a major advertising partner of the following projects: East Bohemia Region – “Duhová” Arena, Pardubice North Bohemia Region – “Duhová energie” Autodrome, Most West Bohemia Region – Karlovy Vary International Film Festival North Moravia Region – ČEZ Arena, Vítkovice 63 Management of Selected Processes In addition to regional projects, ČEZ Group also sponsors major nationwide projects such as the Czech National Ice-hockey Team and the Czech Olympic Team. Relation to the Environment

Air Protection

Over the past decade, ČEZ Group has achieved major reductions in emissions of the principal air pollutants. During this period, it not only brought itself into compliance with the Clean Air Act of 1991 within the stipulated time periods, but also contributed significantly to the overall improvement of air quality in the Czech Republic and to the fulfillment of the Czech Republic’s international clean air obligations. Data concerning emissions from ČEZ Group fossil plants and purity of the air in their surroundings are under constant scrutiny. Effective since late 2003, emissions and ground-level concentration measurements and calculated shares of fossil plants in overall air pollution in the surrounding area are accessible on ČEZ’s website. Since 2002, air protection in the Czech Republic is governed by new legislation that meets protection requirements of the European Union. So, for example, ČEZ Group has begun to prepare for regulation of sulfur dioxide emissions in the European Union pursuant to Directive 2003/87/EC.

ČEZ Group Reduction of Emissions, Absolute and Relative to Units of Production, Achieved between 1993 and 2003

Unit Solid Pollutants Sulfur Dioxide Nitrogen Oxides Carbon Monoxide 1993 t 55,764 724,052 124,633 17,497 2003 t 2,849 60,782 63,077 3,842 Reduction % 94.9 91.6 49.4 78.0 1993 kg/GJ *) 0.1763 2.2887 0.3940 0.0553 2003 kg/GJ *) 0.0090 0.1925 0.1997 0.0122 Reduction % 94.9 91.6 49.3 78.0

*) These emissions figures are expressed as per GJ of heat produced in the boiler room. 64 Relation to the Environment Utilization of Power Generation By-Products

2003 saw a continuation of the positive trend in utilization of power generation by-products. In the generation of electricity and heat in 2003, ČEZ Group produced a total of 9.1 million tons of the following by-products: ash, semidry flue gas desulfurization product, and industrial gypsum from the wet limestone scrubbing flue-gas desulfurization technique. Of this total amount of power generation by-products, 8.6 million tons (94.8%) were utilized as certified products. Ash matter, modified into “additive granulate” is used to clean-up and reclaim mines. The ability to process wastewater from the desulfurization process and from chemical wastewater treatment plants into granulate form is very useful. Additive granulate remains an inert material, meaning that it is entirely harmless to the environment. Certain ash components are used in the production of cement, concrete mixes, and asphalt waterproofing materials. Specially modified ash serves as a structural and sealing material. When desulfurization facilities were under construction, a joint venture enterprise, KNAUF POČERADY, spol. s r.o., was built in the immediate vicinity of the Počerady Power Station. This enterprise, which makes gypsum drywall sheets out of the waste product generated by the desulfurization process – industrial gypsum – which is modified by calcination into plaster, has been in full operation since February 1995. Surplus industrial gypsum is converted into briquettes and supplied to cement plants, where it serves as a substitute for natural gypsum in regulating cement drying time. The 0.5 million tons of power generation by-products (5.2%) that remained unutilized were disposed of safely at ČEZ Group dump facilities in accordance with the Waste Act. 2003 2002 2001 preparations areunderwaytoupgradethefacilitybyreplacingfourexisting400kWunitswiththree660machines. 400kW)andhasbeenunderrepairsinceitsacquisitionin2003.Currently, totalinstalledcapacityof1,600kW(4x features a generated 235MWhofpowerin2003.Thesecondwindmillfarm,NovýHrádek,belongstoVýchodočeskáenergetika,a.s.,and totalcapacityof1,165kWand highdegreeoffluctuationinmeteorologicalconditions.Thefarmconsiststhreeunitswitha a pumped-storage hydropowerstationindemanding,mountainousterraintheHrubýJeseníkMountainscharacterizedby ČEZ Groupoperatestwowindmillfarms.TheMravenečníkfarm,ownedbyČEZ,a.s.,islocatedneartheDlouhéStráně boilers (biomassoriginatingfromwood,wheatbran,and“energyherbs”invariousconcentrations). technological modificationsoftheprocessesusedtoburnbiomass-coalmixturesinfluidized-bed,grate,andselectedpowder in newfuelcelltechnologiesandformsofenergystorageconversionweremonitored.Currentlywearepreparing conversion ofsolarenergy,andfurtherintensificationtheutilizationenergyfrombiomass.Atsametime,developmen Initiatives byČEZGroupmembersinthisareacontinuedtofocusontheutilizationofhydroandwindenergy,photovoltaic the internalelectricitymarket. European ParliamentandCouncil2001/77/EConthepromotionofelectricityproducedfromrenewableenergysourcesin joiningtheEuropeanUnionwillleadtoincreasedactivitiesinthisarea,centeredaroundDirectiveof The CzechRepublic’s Support forPowerGenerationfromRenewableSourcesofEnergy ČEZ GroupHandlingofPowerGenerationBy-Products,2001–2003(thousandstons) 469 0 utilized ascertifiedproducts disposed ofaswaste 1,215 3,865 2,000 4,000 8,604 7,800 6,000 5,428 8,000 9,073 9,015 9,293 total it ts

65 Relation to the Environment 66 Relation to the Environment eeal ore fEeg,Ttl7226100 98.9 782,216 773,342 Renewable SourcesofEnergy,Total Biomass Solar powerplant Wind powerplants Hydro plants,total(pumped-storageexcluded) ČEZ GroupElectricityGenerationfromRenewableSourcesofEnergy,2003 and theircustomerfocus. support forrenewablesourcesofenergy.TheirintegrationintotheGroupwillmakeitpossibletodeveloptheirspecialization ČEZ Groupincludescertaincompaniesthatareengaged,astheircorebusiness,intheeffectiveutilizationofenergyand facilities in2003. totalof9,400tonsbiomasswasburnedinthese tests arebeingpreparedattheDětmarovicePowerStationaswell.A Ledvice PowerStationsandsawdustwasburnedexperimentallyinpowderboilersattheChvaleticeStation.Similar power stationsandingrateboilerstheDvůrKrálovéHeatPlant.In2003,biomasstestingtookplaceTisová mixture ofcoalwithbiomassinthe form ofwoodchipsorwheatbraninfluidized-bedboilersattheHodonínandPoříčí burns a One majorrenewablesourceofenergyisbiomass,whichconsideredneutralintermsgreenhousegases.ČEZGroup plant categoryaccountedfor60MW.Preparationsareunderwaytheconstructionofmorethesefacilities. of electricity.OuttheČEZGroupaggregatehydropowerstationstotalinstalledcapacity1,931MW,small-scale totalof153GWh owned byČEZ,a.s.,HYDROČEZ,a.s.,VČE-elektrárnys.r.o.,andZápadočeskáenergetika,a.s.generateda 24small-scalehydropowerplants(definedasfacilitieswithupto10MWofinstalledcapacityperlocation) ČEZ Group’s generated 773GWh. of electricity.Ofthisamount,run-of-riverandaccumulationhydroplants(whichareclassifiedasrenewablesourcesenergy totalof1,185GWh extraordinarily dryyear.Alltold,ČEZGrouphydroplants,includingthepumped-storagevariety,generateda after extensiverepairs.Additionally,hydropowerplantoutputin2003wasnegativelyimpactedbythefactthatan 2003. ThehydroplantsoftheVltavaCascade(Orlík,Kamýk,Štěchovice)arenowbeinggraduallybroughtbackintooperation catastrophic floodof2002,however,certainhydropowerplantaggregatesownedbyČEZ,a.s.remainedoutorderevenin hydro plantsareconcentratedmainlyalongtheVltava,Elbe,DyjeandMoravarivers.Duetodamagesustainedduring ČEZ GroupisthelargestproducerofenvironmentallyfriendlyelectricityfromhydroenergyinCzechRepublic. knowledge ofhowthispromisingandpracticallyinexhaustiblesourceenergy–theSuncanbeutilized. 2003 ithadgenerated840kWhofelectricityandgivesvisitorstothepowerstationanopportunitygetfirst-hand moved totheDukovanyNuclearPowerPlantcompound,itwasputintopermanentoperationinOctober2003.Byendof solarpowerplantwith10kWofinstalledcapacity.Afterbeing Until October2002,theMravenečníkcomplexalsoincludeda fwih ntle aaiy1 Wo es125919.5 152,569 of which:installedcapacity10MWorless eeain(W) Weighting(%) Generation (MWh) ,3 1.1 8,638 .40 0.84 3 0 235 ) Human Resources

Number of Employees

The process of work force rationalization and optimizing continued in 2003. As of 31 December 2003, ČEZ Group (parent company plus 22 fully consolidated subsidiaries) had 18,100 employees. The substantial increase of ČEZ Group employees from 7,677 to 18,100 is due mainly to Group enlargement.

ČEZ Group Employee Head Count as of 31 December

0 5,000 10,000 15,000 total

1999 9,749 9,266 483

2000 9,278 8,795 483

2001 8,011 7,552 459

2002 7,677 7,250 427

2003 18,100 6,780 11,320

ČEZ, a. s. other Group members 67 Human Resources 68 ČEZ Group

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69 ČEZ Group 70 Human Resources incentive foremployees.Someofthemostpopularprogramsinclude: Other companiesofČEZGroupalsousesocialpolicyasparttheirsystememployeecompensationandamajor following uses: Part ofthesocialprogramismaintenanceafund,fromwhichCZK80.2millionwasdrawnin2003,mostlyfor when ababyisborn. bills, anemployeesupplementarypensioninsurancecontribution,preventivemedicalcare,andaspecialcontributionpaid The socialprogramincludesacontributionprovidedtoemployeesandformer(retirees)helppaytheirelectricity provided toemployeesintheformofinterest-freeloansareincluded,amountreachesnearlyCZK497million. provided toemployees.Thetotalamountexpendedonthesocialprogramin2003wasnearlyCZK322million.Whenamounts ČEZ’s socialpolicyisimplementedthroughtheprogram,whichencompassesawiderangeofactivitiesandbenefits Social Policy support foreducationandprofessionaldevelopment. severance payforemployeesleavingthecompany, company preventivemedicalcare, keeping intouchwithformeremployeesRetireesClubsandatregulargatherings, interest-free loans, contribution towardchildren’srecreation, subsidized employeemeals, contribution toemployees’supplementarypensioninsuranceandprivatelifeplans, personal accounts,whichemployeesthemselveschoosehowtheywishtouse, compensation ofcostsincurredbyemployeesfortemporaryaccommodation. healthcare (notcoveredbystatutoryhealthinsurance), contributions forblooddonors, retirees clubsandsimilaractivitiesforformeremployees, healthcare programs, physical exerciseandculturalprogramsforemployeesmembersoftheirfamilies, social aid, children’s recreation, recreational, spa,andsanatoriumsojourns, employee mealplan(mostlyinin-housecafeterias), Corporate Strategy

Strategic Plans of ČEZ Group

The current situation in the electricity market is characterized by steady growth in competition and parallel changes in the structure of the customer base. The company’s development is in line with these changes. In 2003, ČEZ, a. s. acquired a significant portion of Czech distributors in what was the most important structural change in the company since its inception. The acquisition, in April 2003, of majority stakes in five of the eight electricity distribution companies operating in the Czech Republic enlarged the ČEZ Group, which now includes not just generation of power, but also its distribution and sale to final customers. ČEZ Group’s core operations cover both liberalized, deregulated business opportunities (generation, trading) and regulated activities (distribution). Business risks are more balanced, making ČEZ Group a major player in the electricity market of Central Europe.

At the same time, the acquisitions unlocked the potential to leverage synergies through successful integration of the new Group members. The extensive integration and optimization project aims to: ensure ČEZ Group members have a unified approach to development, focus on the core businesses of generation, distribution and sale of electricity, improve the utilization of all resources, including coordinated procurement of goods and services, share services provided to ČEZ Group customers and optimize performance in individual activities with maximum standardization of processes and procedures, unify procedures in electricity marketing and sales, unify support processes and activities in the information technologies area.

The project is going forward with the assistance of a selected consulting company, and the project team includes experts from both ČEZ, a. s. and the electricity distribution companies in ČEZ Group. The introductory, conceptual phase of the project ran from July to September 2003. Subsequently, the project moved into its implementation phase, consisting of 50 subprojects. The first group of these is designed to implement Group-wide roll-out of the best, proven practices in individual functions.

The timeline calls for most of the subprojects to be completed by the end of 2004. 71 Corporate Strategy The second group of subprojects lays groundwork for the centralized performance of certain activities on behalf of all Group members. Organizational units of various kinds (from performance centers to joint ventures) will be assigned certain activities or functions. The objective is to achieve maximum synergies, maximize the economic benefit for ČEZ Group and its individual members, and to create conditions for future effective separation of regulated from non-regulated operations in the companies of ČEZ Group. 72 Corporate Strategy We arefocusingonthefollowingstrategicdevelopmentobjectives: ČEZ GroupStrategicDevelopmentObjectives have thehighestpriority. minimum safetyrisk,andenvironmentalimpact.Innuclearpowergenerationoperations,continuesto highdegreeofreliability owneconomicallyviablefacilities,witha Most oftheelectricitywesellisgeneratedinGroup’s salesrevenuesandcosts. and theprovisionofancillaryservices.Thiscorebusinessaccountsforbulkcompany’s corebusinessisthegeneration,purchase,distribution,andsaleofelectricitytoallfinalcustomersegments The ČEZGroup’s respectedpowergroupintheEuropeanmarket. intends towinandkeepcustomers’trust,soasbea its shareinthedomesticelectricitymarket,andtodevelopbusinessbeyondbordersofCzechRepublic.ČEZGroup generationand tradingcompany,furtherincrease primaryobjectivesweretocompleteitstransformationintoa The company’s corporate governancebodiesandseniormanagement. missionstatementandvision. Italsodefinesthebasicresponsibilitiesof individual areas,andincorporatesthecompany’s business,stipulatesobjectivesfor business.Thepolicygivesdirectiontothecompany’s frameworkforthecompany’s a In accordancewiththeArticlesofAssociation,GeneralMeetingapproveslong-termbusinesspolicythatservesas ČEZ GroupBusinessPolicy shutdowns, advantageous to continueintheprogramofforeigninvestmentsCentralandEasternEurope. capacities forthebenefitnotjustofitsshareholdersandemployeesbutsupplierscustomersaswell, reliablepartnerandseriouscompetitorthatmakeseffectiveuseofits to improvetheperceptionofcompanyasa projects inthisdirection, to systematicallyevaluatepossibilitiesforgeneratingelectricityfromrenewablesourcesofenergyandimplementeffective electricity supplies, minimum thecost ofguaranteed-quality in ČEZGroupareinvolvedin,soastoleveragesynergiesfully,reducinga to completetheČEZGroupintegrationprojectbyregroupingbasicactivitiesthatelectricitydistributioncompanies this end,securecorrespondinghumanresourcescapacity, to preparerenewfossilpowergenerationcapacityastechnologicalcomponentsreachtheendoftheirusefullifetimes; facilities orpartsthereof, optimize the transitionfromcommercialoperationtopermanentoperation, tocontinue to completeTemelínNuclearPowerStation’s to implementaneffectivemarketandsalesorientationontheelectricitybyreachingoutfinalcustomer, structure ofpowerstationcapacitybyupgradingDukovanyNuclearPowerStation,controlledaging, acquisitions orpartialownershipinterests,and,possibly,bysellingentirepowergeneration , Power Sector Development Forecast

Power Industry Legislative Framework

Of fundamental legislative importance for the business of ČEZ Group is the Commercial Code (Act No. 513/1991 Sb.), as amended. After undergoing extensive revisions in past years, 2003 saw this key law stabilized to a certain extent, which brought a greater degree of legal certainty to the area of business law. In the power sector, the legislative framework continues to consist mainly of the following: Act No. 278/2003 Sb. which amends Act No. 458/2000 Sb., on Conditions for Business and State Administration in the Energy Sectors (the Energy Act), Act No. 406/2000 Sb., on Energy Management, Act No. 18/1997 Sb. on the Peaceful Use of Nuclear Energy and Ionizing Radiation (the Nuclear Act), and related secondary legislation (decrees, ordinances, directives, etc.). Other laws have also been passed in prior years that have a direct impact on the company’s business, including in particular Act No. 100/2001 Sb., on Environmental Impact Assessment, Act No. 185/2001 Sb. on Waste, and Act No. 254/2001 Sb., on Water (the Clean Water Act), all as amended.

Also, further regulations supplemental to the Energy Act have been promulgated, gradually supplementing and updating the legislative framework of the power sector in the conditions of the market liberalization process: Decree No. 539/2002 Sb., amending Decree No. 252/2001 Sb. on the Manner of Purchasing Electricity Generated from Renewable Sources of Energy and from Combined Generation of Electricity and Heat (promulgated by the Ministry of Industry and Trade), Decree No. 12/2003 Sb., amending Decree No. 373/2001 Sb. Stipulating Rules for Organizing the Electricity Market and Principles for Determining Prices in Market Operator Activities (promulgated by the Energy Regulatory Authority), Decree No. 13/2003 Sb., amending Decree No. 438/2001 Sb. Stipulating the Content of Economic Data and Procedures for Price Regulation in the Power Sector (promulgated by the Energy Regulatory Authority), Decree No. 74/2003 Sb., amending Decree No. 439/2001 Sb. Stipulating Rules for Keeping Separate Records of Sales, Costs and Revenues for Regulation Purposes and Rules for Separating Costs, Sales and Returns on Capital Invested in the Power Sector (promulgated by the Energy Regulatory Authority),

Decree No. 300/2003 Sb., amending Decree No. 18/2002 Sb. on Conditions for Hook-up to and Conveyance of Electricity 73 Power Sector Development Forecast Within the Power System (promulgated by the Ministry of Industry and Trade), Decree No. 450/2003 Sb., amending Decree No. 218/2001 Sb. Stipulating Details on Electricity Metering and Handover of Technical Data (promulgated by the Energy Regulatory Authority), Decree No. 459/2003 Sb., amending Decree No. 373/2001 Sb. Stipulating Rules for Organizing the Electricity Market and Principles for Determining Prices in Market Operator Activities, as amended by Decree No. 12/2003 Sb. (promulgated by the Energy Regulatory Authority).

The year 2003 was also significant in terms of increased legislative activity in the environmental protection area. More supplemental regulations and decrees were issues, in particular to the following key laws: Act No. 185/2001 Sb., on Waste, Act No. 86/2002 Sb., on Air Protection, Act No. 254/2001 Sb., on Water.

In the past year, ČEZ Group played a significant role in comment proceedings concerning prepared amendments of selected laws and regulations directly related to the company’s business activities in the power sector. 74 Power Sector Development Forecast cross-border transmissioncapacity,andthatcouldleadtoanimprovement intheconditionsforinternationalpowertrading. profiles availablefortrading.Overtime,today’sshort-termmeasures willhavetobesupplementedbyinvestmentsincrease these measureshaveledtoanupwardtrendinemergencyback-up capacity,whichisrestrictingthecapacityoncross-border supply totakemeasuresimprovethesituation.Theseinclude plannedgriddevelopmentandbettercontrol.Currently, sufficiently coveredbygenerationfacilities,isforcingtheauthorities responsiblefortransmissiongridoperationandstabi Black-outs overlargeareasoftheUSAandvariouspartsWestern Europe,causedprimarilybydemandspikinginareasnot investment cycle,withperiodicityandpricesdeterminedbythe marginal generationfacility. electricity pricesarealreadybeginningtorise.Thistrendcould meanthebeginningofaclassic“boomandbust”market interconnecting electricpowerwithgas.Sincetheforecasts showelectricitydemandcatchinguptosupply,wholesale power companies,whichwillbeoptimizingtheirportfoliothroughbothverticalintegrationandhorizontal–i.e.,byfurther consolidation inEurope,withmarketplayersconsolidatingintoafewlargegroupscontrolledbytoday’smosthighlycapitalize In termsoforganizationandownershipstructures,overthelongtermwecanexpecttoseeacontinuationintrendtoward demand bothintheCzechRepublicandabroad. Nonetheless, ČEZGroupexpectstohaveatitsdisposalsufficientpotentialparticipateincoveringtheanticipatedrise to completetheinvestmentsinquestionwillbesignificantlyimpactedbypublichearingsatalllevelsofdocumentation. the companyisintensifyingpreparationsforrenewingitsgenerationcapacities.ČEZGroupanticipatesthattimerequired Because thetimeisdrawingnearerwhencertaintechnicalpowerplantcomponentswillreachendoftheirusefullifetimes, effectiveness oftheiruse,therebycreatingconditionsforsustainabledevelopment. field inthemarketanditspricesignals.Onother,itlimitsuseofnon-renewablefuelresourcesincreases challenge thatthecompanyisaddressing.Ononehand,thissupportconstitutesasignificantdeformationoflevelplaying Government supportforrenewablesourcesofenergyandcombinedgenerationpowerheatpresentsaninteresting In termsofenvironmentalprotection,thisincludesinparticular: possible tointerlinkthemmoreeffectively. transmission profiles,thatwillunifyconditionsontheindividualnationalmarketsofEuropeanUnionMemberStatesandmakei internal energymarkets,suchasthelegalseparationofdistribution,“exante”regulation,andrulesforutilizingcross-bord acceleration oftheelectricitymarketliberalizationprocessandotherrequirementsnewEuropeandirectivesconcerning demands thatalreadyare,orinashorttimewillbe,integratedintotheCzechlegalsystem.Themostimportantchangeis In thepowersectorbusinessinCzechRepublic,country’sentryintoEuropeanUnionwillbringcertainnew the relativesocialacceptabilityofvariouspowergenerationtechniques. an organizedfashion.Issuesthatneedtobeaddressedincludefuelavailability,degreeofdomesticresourceutilization,and order toimplementthePlan,itisnecessarydecideonhowindividualobjectiveswillbeachievedandgoaboutdoingsoin The updatedStateEnergyPlanstipulatesconditionsforthefurtherdevelopmentofpowersectorinCzechRepublic.In Brief ForecastofPowerIndustryDevelopmentfromthePerspectiveČEZGroup facilities. in theintegratedpermitprocess,requiringuseofbestavailabletechnologiesconstructionnewgeneration will beginin2008, trading systemwillbelaunchedin2005regardlessofthefateKyotoProtocol,andsystem’ssecondcontrolperiod measures thatpreventglobalclimatechangebylimitingemissionsofgreenhousegases;theEuropeancredit ceilings” tobringallgenerationfacilitiesintocompliancewithacceptableemissionslimitsbytheyear2016, the nationalemissionsreductionprogram,focusedonlocallyandregionallysignificantpollutants,whichwilluse“emissions existing facilitiesby2007, implementation ofIntegratedPollutionPreventionandControl(IPPC)procedures;obligationtoobtainintegratedpermitfor lity of er d t borrowings arereplacedwithnew,farcheaperformsoffinancing. During 2004,inaccordancewithtrendsinterestrates,theaverageweightedcostofdebtwillcontinuetofallasprevious ČEZ, a.s.willremainatalowlevelcomparedtoourEuropeancompetitors. (approximately CZK13billion).Evenintheeventallintendedacquisitionsarerealized,however,overallindebtedness bond market;inFebruary2004,theBoardofDirectorsapprovedanissueeurobondsuptoatotalEUR400million close correlationtothecourseofrealizationacquisitions.In2004,afterafive-yearpause,ČEZ,a.s.willenter price andthedateofitspayment.Thus,termstimelinewithwhichcompanywillturntocapitalmarketsbe Securing financingfortheplannedacquisitionswillbeademandingtaskinviewofuncertaintysurroundingfinalpurchase the biggestelectricityproducerinSlovakRepublic. distribution companiesthatarebeingofferedinBulgaria,anda66%(revisedupwardfrom49%)stakeSlovenskéelektrárne, energetika, a.s.andSeveročeskáa.s.Ontheotherhand,ČEZ,isbiddingtoacquireoneofthreegroups hand, weexpecttoexerciseanoptionunderagreementreachedbetweenČEZ,a.s.andE.ONforsharesofSeveromoravská In 2004,ČEZ,a.s.isexpectingtoseeyetanothermajorchangeinthesizeandstructureofitsownershipinterests.Onone financial performanceresultsin2004. the developmentofeconomyandpowermarketto-dateiscreatingconditionsfavorabletoachievementgood Here itcanbestatedthat,whileachievingarepeatperformanceofthehighelectricitysalesvolumes2003willnoteasy CZK 12.2billionininvestmentsproperty,plant,andequipment(includingintangibles). The ČEZGroupbudgetfor2004envisions11%highersalesrevenuesandanoperatingprofitofCZK14billion.Italsocalls expected tofallin2004byapproximately15%relative2003.Thehigherunitpriceshouldoffsetthisdeclineacertaine scheduling ofplannedshutdownsgenerationandtransmissionfacilitiesincertainmonthstheyear,exportvolumeis time afterthreeyearsofpricecuts.Duetohigherexpectedelectricitysalesvolumesinthedomesticmarketandunfavorable and internationalČEZ,a.s.productofferings.Pricesinthedomestic“Duhováenergie”offeringfor2004rose Prices ofelectricity,whichrosebymorethan25%inWesternEuropeduring2003,hadanimpactonthepricingbothdomestic become morestableandtheirprofitstreamspredictable. development. Thankstothemajorreductionindependenceonvolatilityofelectricityprices,verticallyintegratedutiliti In general,verticalintegrationbetweengenerationanddistributionisseenbytheprofessionalcommunityasaverypositive involved inthepool. These measureswillleadtomoreeffectivetreasurymanagementwithinČEZGroup,therebyreducingcostsforallcompanies introduction ofavirtualcashpoolinOctober2003,anditstransformationintorealduringthefirsthalf2004 benefits producedbythesynergiescurrentlybeingleveragedstreamliningandoptimizingprocesses.Oneexampleis 2004 willbethefirstfullfiscalyearforrecentlyexpandedČEZGroup–inwhichweshouldseespecifi ČEZ GroupAnticipatedEconomicandFinancialSituationin2004 European xtent. first of es in c , . .s.,

75 Power Sector Development Forecast 76 Financial Section Contents

Financial Section Contents

Financial Section Report of Independent Auditors 77 ČEZ Group – Consolidated Financial Statements Prepared in Accordance with International Financial Reporting Standards ČEZ Group – Consolidated Balance Sheets 78 ČEZ Group – Consolidated Statements of Income 79 ČEZ Group – Consolidated Statements of Shareholders’ Equity 80 ČEZ Group – Consolidated Statements of Cash Flows 81 Notes to Consolidated Financial Statements as of December 31, 2003 82 ČEZ, a. s. – Financial Statements Prepared in Accordance with Czech Accounting Standards ČEZ, a. s. – Balance Sheets 105 ČEZ, a. s. – Profit and Loss Statement 107 ČEZ, a. s. – Cash Flow Statement 108 Prague, CzechRepublic April 23,2004 Ernst &YoungČR,s.r.o. than thatdrawnfromtheauditedaccountingrecordsofGroup. reviewofanyinformation other confined tocheckingtheannualreportwithaforementionedscopeanddidnotincludea report isconsistentwiththatcontainedintheauditedfinancialstatementsasofDecember31,2003.Ourworkauditorswas statements, theevolutionofitsbusinessandothermatters.Wehavecheckedthataccountinginformationinannual financial The accompanyingannualreportfor2003containsinformationaboutimportantmattersrelatedtotheGroup’s other auditorswhoexpressedanunqualifiedopinionintheirreportdatedMarch12,2002. The consolidatedfinancialstatementsoftheGroupasDecember31,2001andforyearthenendedwereauditedby conformity withInternationalFinancialReportingStandards. and theresultsofitsoperationscashflowsforeachtwoyearsinperiodendedDecember31,2003 present fairly,inallmaterialrespects,thefinancialpositionofČEZ,a.s.,andsubsidiariesasDecember31,200320 In ouropinion,basedonauditsandthereportofotherauditors,consolidatedfinancialstatementsreferredtoabove reasonablebasisforouropinion. evaluating theoverallfinancialstatementpresentation.Webelievethatourauditprovidesa An auditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswell testbasis,evidencesupportingtheamountsanddisclosuresinfinancialstatements. An auditincludesexamining,ona perform theaudittoobtainreasonableassuranceaboutwhetherfinancialstatementsarefreeofmaterialmisstatement. We conductedourauditinaccordancewithInternationalStandardsonAuditing.Thoserequirethatweplanand relates totheamountsincludedforcompaniesnotauditedbyus,isbasedsolelyonreportsofotherauditors. ended. Thosestatementswereauditedbyotherauditorswhosereportshavebeenfurnishedtous,andouropinion,insofarasit of totalconsolidatedassetsasDecember31,2003,and33%operatingrevenuesfortheyearthen energetika, a.s.,Severomoravskáa.s.,andcertainothercompaniesoftheČEZGroup,whichstatementsreflect7% statements basedonouraudit.WedidnotauditthefinancialofStředočeskáenergetickáa.s.,Severočeská management.Ourresponsibilityistoexpressanopiniononthesefinancial statements aretheresponsibilityofCompany’s the yearsthenended,whichwerepreparedinaccordancewithInternationalFinancialReportingStandards.Thesefinancial 2003 and2002,therelatedconsolidatedstatementsofincome,shareholders’equity,cashflowsnotesfor We haveauditedtheaccompanyingconsolidatedbalancesheetofČEZ,a.s.,andsubsidiaries(“theGroup”)asDecember31, To theShareholdersofČEZ,a.s.: Report ofIndependentAuditorsReport 02,

77 Report of Independent Auditors 78 ČEZ Group – Consolidated Balance Sheets Prepared in Accordance with IFRS ogtr et e fcretprin(oe1)3,6 57943,081 The accompanyingnotesareanintegral partoftheseconsolidatedfinancialstatements. 35,729 30,965 21,396 23,866 Total shareholders’equityandliabilities Total currentliabilities Accrued liabilities(Note18) 28,164 Income taxespayable Trade andotherpayables(Note17) Current portionoflong-termdebt(Note12) Short-term loans(Note15) Current liabilities: Deferred taxliability(Note21) Total long-termliabilities Other long-termliabilities Accumulated provisionfornucleardecommissioningandfuelstorage(Note14) Long-term debt,netofcurrentportion(Note12) Long-term liabilities: 5,315 Minority interest Total shareholders’equity(Note11) 5,723 Retained earningsandotherreserves Stated capital Shareholders’ equity: 92,614 8,642 Shareholders’ equityandliabilities Total assets 103,355 Total currentassets Other currentassets(Note10) 150,426 Fossil fuelstocks Materials andsupplies,net Income taxreceivable Receivables, net(Note9) Cash andcashequivalents(Note8) Current assets: Total non-currentassets Total othernon-currentassets Deferred taxassets(Note21) Intangible assets,net(Note5) Investments andotherfinancialassets,net(Note4) Investment inassociates Other non-currentassets: Total property,plantandequipment Construction workinprogress Nuclear fuel,atamortizedcost Net plantinservice(Note3) Less accumulatedprovisionfordepreciation Consolidated BalanceSheetsasofDecember31(inCZKmillions) Plant inservice Property, plantandequipment: Assets Prepared in Accordance with International Financial Reporting Standards Prepared inAccordance withInternationalFinancialReporting ČEZ Group –ConsolidatedBalanceSheets 7,4 3,6 229,027 231,465 274,143 136,726 143,675 149,687 229,027 231,465 274,143 217,511 216,204 254,443 205,534 87,638 203,427 138,983 232,517 212,739 6,6 4,3 180,252 242,338 363,165 2361,5 17,954 2,710 8,651 15,654 2,229 8,934 42,356 9,870 10,564 64,477 20,578 12,541 59,595 14,721 59,486 77,676 59,050 84,634 59,041 90,535 11,516 59,152 15,261 19,700 11,977 5,518 12,777 5,880 21,926 111,929 10,999 56,513 10,204 ,0 5 953 514 5,126 256 – 4,235 3,203 5,691 2,320 – – 7,893 2,253 2,499 3,827 1,917 2,280 2,467 4,040 4,299 4,225 3,242 1,144 7,063 4,014 1,174 5,967 1,997 7,931 9,574 0320 2001 2002 2003 5 – – 357 657 – 618 1,994 – 979 103 – 288 Sales ofelectricity(Note19) Revenues: The accompanyingnotesareanintegral partoftheseconsolidatedfinancialstatements. 1,463 796 1,532 582 14,678 Diluted 1,680 Basic Average numberofsharesoutstanding(000s)(Notes11and26) 1,714 11,254 Diluted Basic Net incomepershare(CZKshare)(Note26) 7,500 Net income Minority interest Income afterincometaxes Income taxes(Note21) Income beforeincometaxes Total otherexpenses(income) Income fromassociates(Note2.3) Other expenses(income),net(Note22) Foreign exchangeratelosses(gains),net Interest income Interest onnuclearprovisions(Note2.22and14) Interest ondebt,netofcapitalizedinterest(Note2.9) Other expenses(income): Income beforeotherexpenses(income)andincometaxes Total expenses Other operatingexpenses(Note20) Materials andsupplies Salaries andwages Depreciation andamortization Repairs andmaintenance Purchased powerandrelatedservices Fuel Operating expenses: Total revenues Heat salesandotherrevenues Consolidated StatementsofIncomefortheYearsEndedDecember31(inCZKmillions) Prepared in Accordance with International Financial Reporting Standards Prepared inAccordance withInternationalFinancialReporting ČEZ Group –ConsolidatedStatementsofIncome 9,1 9,5 592,088 591,926 592,150 590,363 592,211 590,772 103 47 (360) (2,110) (497) (3,340) (1,063) (1,915) 9585,3 53,300 52,938 79,548 7364,2 41,377 9,366 44,324 6,389 13,220 77,316 11,721 7,328 56,055 12,894 17,611 21,100 55,578 14,307 84,816 ,3 ,2 9,123 9,123 8,421 13,292 8,421 5,932 11,796 6,451 6,659 3,129 1,851 3,946 3,476 2,842 1,838 3,854 3,847 8,408 3,670 2,755 7,994 4,226 2,640 5,268 39 19 (177) (149) (319) 0320 2001 2002 2003 001. 15.4 15.4 14.2 14.3 10.0 10.0 1 – – 4,169 1,386 3,375 1,774 519 (542) 208 1,330 841 744

79 ČEZ Group – Consolidated Statements of Income Prepared in Accordance with IFRS 80 ČEZ Group – Consolidated Statements of Shareholders’ Equity Prepared in Accordance with IFRS hr pin 1–21 (16) – (16) The accompanyingnotesareanintegral partoftheseconsolidatedfinancialstatements. 4 149,687 (2,657) (1) 21 106 (25) 90,615 (2,657) 5,932 4 (81) 1 – (25) (5) – 5,932 – (101) 1 – – – – – 609 – (5,023) – – 7,162 59,152 (5,023) – 8,421 – (1,480) 609 – – – – 144,284 7,162 591,466 – (101) (1,480) 8,421 – – 85,243 – – 111 – – – – – 9,123 – – (1,184) – – 1,190 – – 9,123 – – – (1,184) 143,675 – 136,726 – – – 84,634 – – 77,676 – – – – – – 59,041 – (496) – – – 590,276 – 128,946 – December 31,2003 – (496) – Other movements – Share onequitymovementsofassociates 69,737 – 1 – Share options (181 – Returned dividendsontreasury – Dividends declared 59,041 59,050 Sale oftreasuryshares 123 – (1,950) – Effect ofacquisitionREASonequity(Note6) 590,276 Gain onsaleofsubsidiaryČEPS,nettax(Note25) 590,138 – – financial assetsrecognizedinequity (159 Change infairvalueofavailable-for-sale Net income – (1,950) 59,209 January 1,2003,asrestated in groupstructure(Note2.4) Change inaccountingpolicy–effectofchange 592,088 – December 31,2002aspreviouslyreported Dividends declared Acquisition oftreasuryshares Net income Additional paid-incapital December 31,2001 Dividends declared Acquisition oftreasuryshares Net income January 1,2001,asrestated Effect ofadoptingIAS39(Note2.4) Consolidated StatementsofShareholders’EquityfortheYearsEndedDecember31(inCZKmillions) aeo rauysae ,6 6 7177 17 – – 160 1,965 Sale oftreasuryshares eebr3,20,a rvosyrpre 9,8 929––7,3 129,442 70,233 – – 59,209 592,088 December 31,2000,aspreviouslyreported Prepared in Accordance with International Financial Reporting Standards Prepared inAccordance withInternationalFinancialReporting ČEZ Group –ConsolidatedStatementsofShareholders’Equity i huad Reserves (in thousand) fSae aia ifrneadOhr annsEquity Earnings andOther Difference Capital of Shares ubrSae rnlto Fi au Rtie Total Fair StatedTranslation Retained value Number 2–––12 )––– )––– (181) (159) rvso o ula eomsinn n ulsoae36661387 555 9,429 641 217 356 11,735 3,656 (53) 1,054 17,619 1,602 Trade andotherpayables Other currentassets Fossil fuelstocks Materials andsupplies Receivables Changes inassetsandliabilities: Income fromassociates Provisions fordoubtfulaccounts,environmentalclaimsandotheradjustments Provision fornucleardecommissioningandfuelstorage Interest expense,interestincomeanddividendincome,net Foreign exchangerateloss(gain),net (Gain) lossonfixedassetretirements,net Amortization ofnuclearfuel Depreciation, amortizationandassetwrite-offs Adjustments toreconcileincomebeforetaxesnetcashprovidedbyoperatingactivities: Income beforeincometaxes Operating activities: ahadcs qiaet tbgnigo eid srsae ,9 ,8 2,922 2,922 (642) 2,280 2,280 – 1,945 4,391 4,225 (377) – The accompanyingnotesareanintegral partoftheseconsolidatedfinancialstatements. 166 (788) – Total cashpaidforinterest (594) Supplementary cashflowinformation – Cash andcashequivalentsatendofperiod – Cash andcashequivalentsatbeginningofperiod,asrestated (407) Effect ofchangeingroupstructureonopeningbalancecashandequivalents – Cash andcashequivalentsatbeginningofperiod (28,374) Net increase(decrease)incashandequivalents Net effectofcurrencytranslationincash Total cashusedinfinancingactivities 12,208 Acquisition/sale oftreasuryshares Dividends paidtominorityinterests Dividends paidtogroupshareholders Payments ofotherlong-termliabilities Proceeds fromotherlong-termliabilities Payments ofborrowings Proceeds fromborrowings Financing activities: Total cashusedininvestingactivities Change indecommissioningandotherrestrictedfunds Proceeds fromsalesoffixedassets including capitalizedinterest(Note2.9) Additions toproperty,plantandequipmentothernon-currentassets, Proceeds fromdisposalofasubsidiary,netcashdisposed Acquisition ofsubsidiaries,netcashacquired Investing activities: Net cashprovidedbyoperatingactivities Dividends received Interest received Interest paid,netofcapitalizedinterest Income taxespaid Cash generatedfromoperations Accrued liabilities Consolidated StatementsofCashFlowsfortheYearsEndedDecember31(inCZKmillions) Prepared in Accordance with International Financial Reporting Standards Prepared inAccordance withInternationalFinancialReporting ČEZ Group –ConsolidatedStatementsofCashFlows 3,3)(384 (11,776) (13,864) (16,386) (33,736) (9,935) (15,706) (10,419) (30,930) (23,942) 103 47 (360) (497) (2,110) (1,063) (3,340) (1,915) 518 692 (6,372) (1,174) (6,902) (1,480) (5,148) (2,640) (744) (434) (1,601) 1248466,737 8,446 31,284 22,205 19,001 24,460 35,760 22,471 36,502 ,4 5 2,197 (396) 353 (979) 334 (282) 2,141 1,903 1,138 1,644 2,071 13,292 3,484 11,796 6,659 ,3 ,6 3,527 2,280 2,562 4,225 2,538 4,014 108 1,078 9,585 421 (363) 1,103 33 956 57 39 44 (343) 50 (152) (363) (384) 27 – – (227) 0320 2001 2002 2003 5)(1)(89) – (219) – (59) (66) (1,820) (3,395) (44) 0 4 (159) – (4) – 106 131 131 178 210 149 587 316

81 ČEZ Group – Consolidated Statements of Cash Flows Prepared in Accordance with IFRS 82 Notes to Consolidated Financial Statements as of December 31, 2003 Jihomoravská energetika,a.s.),whereČEZpreviouslyacquiredminorityshares. Protection Authority,ČEZhassoldinSeptember2003itssharestwoofthethreeREAS(Jihočeskáenergetika,a.s.,and has alsodecidedthatČEZshouldsellitsremainingequityshareinČEPS.FollowingthedecisionsofEconomicCompetition minorityshare.TheEconomicCompetitionProtectionAuthority majorityshareandinthreeofthe REASinwhichitacquireda a Economic CompetitionProtectionAuthorityhasruledthatČEZshouldsellitssharesinoneoftheREASwhichitacquired minorityshareinthreeREAS.However,the majorityshareinfiveREAS,anda Through thistransactionČEZhasacquireda transaction wascarriedoutonApril1,2003(seeNotes2.3,6,and25). 66%shareinitstransmissionsubsidiaryČEPS.The and CzechConsolidationAgency,toČEZpurchasefroma On March11,2002theGovernmentdecidedtosellitssharesineightREAS,whichareheldbyNationalPropertyFund will beabletopurchaseelectricityfromanydistributor,eligiblegenerator,ortrader. Third-party accessisbeingintroducedgraduallybetween2002and,atthelatest,2006whichtimeallelectricitycustomers State EnergyInspectionBoardistheinspectionbodysupervisingactivitiesinenergysector. exercise thesupplyobligationbeyondscopeoflicenseandpriceregulationbasedonspeciallegalregulations.The scope ofthelicense,impositionobligationtoletanotherlicenseholderuseenergyfacilitiesincasesemergency,t license,impositionofthesupplyobligationbeyond possible. TheEnergyRegulatoryAuthoritydecidesonthegrantingofa Czech Republic,tosupporteconomiccompetitionandprotectconsumers’interestsinsectorswhereisnot The EnergyRegulatoryAuthoritywasestablishedastheadministrativeofficetoexerciseregulationinenergysectorof international organizations. resulting frominternationalagreementsandtreatiesbindingontheCzechRepublicorobligationsmembershipin facilities inaccordancewithspecifiedconditions,developstheenergypolicyofstateandensuresfulfillmentobligati The Ministry,asthecentralpublicadministrationbodyforenergysector,issuesstateapprovaltoconstructnew the EnergyRegulatoryAuthorityandStateInspectionBoard. Responsibility forpublicadministrationintheenergysectorsisexercisedbyMinistryofIndustryandTrade(the“Ministr Authority. individuals orlegalentitiesuponthebasisofgovernmentauthorizationinformlicensesgrantedbyEnergyRegulato legal entitiesrelatedthereto.ThebusinessactivitiesintheenergysectorsCzechRepublicmayonlybepursuedby regulation intheenergysectors,includingelectricity,gasandheat,aswellrightsofobligationsindividuals January 1,1995.TheEnergyLawprovidestheconditionsforbusinessactivities,performanceofpublicadministrationand Energy IndustriesandonStatePowerInspection(the“EnergyLaw”),whichreplacedthepreviousLaweffectivefrom In November2000theCzechParliamentpassedTheActonConditionsofBusinessActivityandStateAdministrationin and distributionofelectricity(seeNotes2.37). parentcompanyoftheČEZ Group(“theGroup”),whichisprimarilyengagedinthebusinessofproduction The companyisa operates tenfossilfuelplants,thirteenhydroelectricplantsandtwonuclearplants. companies (“REAS”)intheCzechRepublicwhichdistributeelectricitytoendcustomers(seeNote19).TheCompany substantialportionofitselectricityproductiontoeightdistributi heating intheCzechRepublic2003.TheCompanysellsa portionofthedistrict ČEZ isanelectricitygenerationcompany,whichproducedapproximately73%oftheanda Company anditsconsolidatedsubsidiarieswas16,093,7,8068,532fortheyear2003,20022001,respectively. registeredofficeisDuhová2/1444,Praha4, 14053,CzechRepublic.Theaveragenumberofemployeesthe Company’s Czech RepublicNationalPropertyFund.TheremainingsharesoftheCompanyarepubliclyheld.address CzechRepublicjoint-stockcompany,owned67.6%atDecember31,2003bythe ČEZ, a.s.(“ČEZ”or“theCompany”)isa 1. TheCompany Notes toConsolidatedFinancialStatementsasofDecember31,2003 and ons y”), on ry o or madepaymentsonbehalfoftheassociates. exceeds itsinterestintheassociate,Groupdoesnottorecognize furtherlosses,unlesstheGrouphasincurredobligation shareoflossesinanassociateequalsor includes goodwill(netofaccumulatedamortization)onacquisition. WhentheGroup’s investment inassociates unless thetransactionprovidesevidenceofanimpairment theassettransferred.TheGroup’s interestintheassociates;unrealizedlossesarealsoeliminated and itsassociatesareeliminatedtotheextentofGroup’s which theGrouphassignificantinfluence,butitdoesnot control.UnrealizedgainsontransactionsbetweentheGroup the investment.AssociatesareentitiesoverwhichGroupgenerallyhasbetween20%and50%ofvotingrights,or movements inreservesisrecognizedreserves.Thecumulativepost-acquisitionareadjustedagainstthecostof the post-acquisitionprofitsorlossesofassociatesisrecognizedinincomestatementanditsshare shareof Investments inassociatesareaccountedforbytheequitymethodofaccounting.Underthiscompany’s c. Associates have beenchangedtoensureconsistencywiththepoliciesadoptedbyGroup. unrealized lossesarealsoeliminatedunlesscostcannotberecovered.Wherenecessary,accountingpoliciesofsubsidiaries Intercompany transactions,balancesandunrealizedgainsontransactionsbetweengroupcompaniesareeliminated; cost ofacquisitionandthesharebookvaluenetassetssubsidiaryacquiredisrecordeddirectlyinequity. initially includedintheconsolidatedfinancialstatementsattheirbookvaluesdateofacquisition.Thedifferencebet In caseofacquisitionssubsidiariesfromentitiesundercommoncontroltheassetsandliabilitiesacquiredsubsidiar subsidiary acquiredisrecordedasgoodwill. plus costsdirectlyattributabletotheacquisition.Theexcessofcostacquisitionoverfairvaluenetasset acquisition ismeasuredasthefairvalueofassetsgivenup,sharesissuedorliabilitiesundertakenatdateacquis The purchasemethodofaccountingisusedtoaccountfortheacquisitionsubsidiariesfromunrelatedparties.costan the datethatcontrolceases. Subsidiaries areconsolidatedfromthedateonwhichcontrolistransferredtoGroupandnolonger has powertogovernthefinancialandoperatingpoliciesareconsolidated. Subsidiaries, whicharethoseentitiesintheGrouphasaninterestofmorethanonehalfvotingrightsorotherwi b. Subsidiaries stated atcostnetofprovisionfordiminutioninvalue(seeNote4). be significant.Theseinvestmentsareincludedinthebalancesheetunderandothernon-currentassets Other investmentsareexcludedfromtheconsolidationbecauseimpactonconsolidatedfinancialstatementswouldnot The financialstatementsincludetheaccountsofČEZ,a.s.,itssubsidiariesandassociates,whichareshowninNote7. a. GroupStructure 2.3. GroupAccounting at fairvalue(seeNote2.19). prepared underthehistoricalcostconvention,exceptwhenIFRSrequiresthatcertainfinancialassetsandliabilitiesbestate Standards andStandingInterpretationsCommitteeinterpretationsapprovedbytheIASCthatremainineffect.Theyare Standards (IFRS),whichcomprisestandardsandinterpretationsapprovedbytheIASB,InternationalAccounting The accompanyingconsolidatedfinancialstatementsofČEZarepreparedinaccordancewithInternationalFinancialReporting 2.2. FinancialStatements Accounting StandardsBoard.TheadjustmentsaresummarizedinNote28. financial statementspreparedinaccordancewithInternationalFinancialReportingStandardsissuedbythe reclassifications notrecordedintheaccountingrecordsofCompanyordertoconformCzechstatutorybalances by theCzechLawonAccounting.Theaccompanyingconsolidatedfinancialstatementsreflectcertainadjustmentsand The Companyisrequiredtomaintainitsbooksandrecordsinaccordancewithaccountingprinciplespracticesmandated 2.1. BasisofAccounting 2. SummaryofSignificantAccountingPolicies ween the s ofthe ies are ition se d s

83 Notes to Consolidated Financial Statements as of December 31, 2003 84 Notes to Consolidated Financial Statements as of December 31, 2003 the acquisitioncostofrespectiveitemsproperty,plantand equipment. from theoriginalcostofthatasset.Governmentgrantsreceived forconstructionofcertainenvironmentalinstallationsdecrea and 2001theconstructedassetproducesproductsorservices, whicharesold,therevenuesfromsuchsalesdeducted under IAS37,Provisions,ContingentLiabilitiesand Assets. Incasethatduringtheconstructionofanassetin200 provision estimated costofdismantlingandremovingtheassetrestoring thesite,toextentthatitisrecognizedasa materials, labor,payroll-relatedcostsandthecostofdebtfinancing usedduringconstruction.Thecostalsoincludesthe Property, plantandequipmentarerecordedatcostnetof accumulated depreciation.Costofplantinserviceincludes 2.10. Property,PlantandEquipment 2003, 2002and2001,respectively. CZK 2,128millionand2,783million,whichwasequivalent toaninterestcapitalizationrateof7.4%,7.5%andin avoided ifexpendituresfortheassetshadnotbeenmade.SuchcapitalizedinterestcostsamountedtoCZK937million, The Groupcapitalizesallinterestcostsincurredinconnectionwithitsconstructionprogramthattheoreticallycouldhavebee 2.9. Interest in 2003,2002and2001,respectively. the currentaccountingperiod(seeNote14).SuchchargesamountedtoCZK113million,82millionand107 the accumulatedprovisionforinterimstorageofspentnuclearfueltoextenttheyrelateconsumedduri December 31,2003,2002and2001,respectively.Theamortizationofnuclearfuelincludeschargesinrespectadditionsto nuclear fuelchargedtoexpensewasCZK3,484million,2,071millionand1,644fortheyearsended Fuel costsareexpensedasfuelisconsumed.expenseincludestheamortizationofcostnuclearfuel.Amortizationo 2.8. FuelCosts between contractedamountsandactualsuppliesareestimatedfrommeterreadingssettledthroughthemarketoperator. The Grouprecognizesrevenuefromsuppliesofelectricityandrelatedservicesbasedoncontractterms.Anydifferences 2.7. Revenues period. Actualresultscoulddifferfromthoseestimates. and liabilitiesatthedateoffinancialstatementsreportedamountsrevenuesexpensesduringreporting make estimatesandassumptionsthataffectthereportedamountsofassetsliabilitiesdisclosurecontingent The preparationoffinancialstatementsinconformitywithInternationalFinancialReportingStandardsrequiresmanagementto 2.6. Estimates currency oftheCompanyhasbeendeterminedtobeCzechcrown(CZK). Based ontheeconomicsubstanceofunderlyingeventsandcircumstancesrelevanttocompany,measurement 2.5. MeasurementCurrency Certain prioryearfinancialstatementitemshavebeenreclassifiedtoconformthecurrentpresentation. c. Comparatives balance ofretainedearnings(seeNote7).Comparativeinformationhasnotbeenrestated,becauseitwasimpracticabletodoso the previouslyunconsolidatedsubsidiariesandassociateswasrecordedin2003directlyequitybyadjustingopening companies havebeenincludedinotherfinancialassetsasavailableforsaleinvestments.Theimpactofconsolidation because theimpactonconsolidatedfinancialstatementswasnotsignificant.Inpreviousperiodsinvestmentsinthese In 2003theCompanyincludedinconsolidatedgroupcertaincompanies,whichpreviouslyhavenotbeenconsolidated, b. Changeingroupstructure are recognizedasassetsorliabilities.TheopeningbalanceofretainedearningsatJanuary1,2001wasadjusted. Following theintroductionofIAS39,available-for-saleinvestmentsarecarriedatfairvalueandallderivativefinancialins In 2001theCompanyadoptedInternationalAccountingStandardIAS39,FinancialInstruments:RecognitionandMeasurement. a. AdoptionofIAS39 2.4. ChangeinAccountingPrinciple truments ng of se . n 2 f Vehicles Machinery andequipment Buildings andstructures Electricity distributiongrid Nuclear powerplant Fossil fuelplants Hydro plants All purchasesandsalesofinvestmentsarerecognizedonthesettlement date. management intendstorealizethemwithin12monthsofthebalance sheetdate. Investments heldfortradingareincludedincurrentassets.Available-for-sale investmentsareclassifiedascurrentassetsif Held-to-maturity investmentsareincludedinnon-currentassets unlesstheymaturewithin12monthsofthebalancesheetdate. investments, otherthanloansandreceivablesoriginatedbythe company,areclassifiedasavailable-for-sale. profitfromshort-termfluctuationsinpriceareclassifiedastrading.Allother principally forthepurposeofgeneratinga loans andreceivablesoriginatedbytheCompanyareclassified asheld-to-maturityinvestments.Investmentsacquired or determinablepaymentsandfixedmaturitythattheCompany hasthepositiveintentandabilitytoholdmaturityotherthan Investments areclassifiedintothefollowingcategories:held-to-maturity, tradingandavailable-for-sale.Investmentswithfi 2.13. Investments using thestraight-linemethod.Theestimatedusefullifeofintangibleassetsrangesfrom4to15years. Intangible assetsarevaluedattheiracquisitioncostandrelatedexpenses.amortizedoveruseful 2.12. IntangibleAssets,Net CZK 360millionatDecember31,2003. Nuclear fuelincludescapitalizedcostsofprovisions(seeNote2.22).Suchatnetbookvalueamountedto amount ofpowergenerated. Nuclear fuelisstatedatoriginalcost,netofaccumulatedamortization.Amortizationinthereactorbasedon 2.11. NuclearFuel respectively. compositedepreciationrateof5.7%,5.6%and5.3%, December 31,2003,2002and2001,whichwasequivalenttoa Depreciation ofplantinservicewasCZK17,066million,11,375millionand9,127fortheyearsended Transformer stations Average depreciablelivesbasedonthefunctionaluseofpropertyareasfollows: Furniture andfixtures economic lives.Thedepreciablelivesusedforproperty,plantandequipmentareasfollows: The Groupdepreciatestheoriginalcostofproperty,plantandequipmentbyusingstraight-linemethodoverestimated Depreciation amounts continuetoexceedtheassets’carryingvalues. The Groupperiodicallyreviewstherecoverableamountsofitsproperty,plantandequipmenttodeterminewhethersuch determination ofnetincome. related accumulateddepreciationareeliminatedfromtheaccounts.Anyresultinggainsorlossesincludedin incurred. Renewalsandimprovementsarecapitalized.Uponsaleorretirementofproperty,plantequipment,thecost The costofmaintenance,repairs,andreplacementminoritemspropertyischargedtomaintenanceexpensewhen Machinery andequipment Buildings andstructures Machinery andequipment Buildings andstructures Machinery andequipment Buildings andstructures Average Life 25 –50 4 –20 4 –25 8 –15 Lives xed life 17 32 14 32 16 44 30 12

85 Notes to Consolidated Financial Statements as of December 31, 2003 86 Notes to Consolidated Financial Statements as of December 31, 2003 – the hybrid(combined)instrumentisnotmeasuredatfairvaluewithchangesinreportednetprofitorloss. derivative;and separate instrumentwiththesametermsasembeddedderivativewouldmeetdefinitionofa – a – the economiccharacteristicsandrisksof the embeddedderivativearenotcloselyrelatedtoeconomiccharacteristics are met: derivativeifallofthefollowingconditions An embeddedderivativeisseparatedfromthehostcontractandaccountedforasa expense (income). carried atfairvalueunderothercurrentassetsandtradepayables,withchangesinincluded Derivative financialinstrumentsthatarenotdesignatedaseffectivehedgingclassifiedheld-for-tradingan 2.19. DerivativeFinancialInstruments Fossil fuelstocksarestatedatweightedaveragecost,whichapproximatesactualcost. 2.18. FossilFuelStocks provisionforobsoleteinventoryassuchitemsareidentified. records a recorded ininventorywhenpurchasedandthenexpensedorcapitalizedtoplant,asappropriate,used.TheGroup tangible assets.Costisdeterminedbyusingweightedaveragecost,whichapproximatesactualcost.Thesematerialsare Materials andsuppliesareprincipallycomposedofmaintenancematerialssparepartsforrepairs 2.17. MaterialsandSupplies Payables arerecordedatinvoicedvaluesandaccrualsreportedexpectedsettlementvalues. CZK 728millionand715million,respectively. At December31,2003,2002and2001theallowanceforuncollectablereceivablesamountedtoCZK2,317million, Receivables arerecognizedandcarriedatoriginalinvoiceamountlessanallowanceforanyuncollectableamounts. 2.16. Receivables,PayablesandAccruals partners. Thenon-currentclassificationisbasedontheexpectedtimingofreleasefundstoCompany. for ashstoragereclamation,fundingofnucleardecommissioningliabilitiesandcashguaranteesgiventoswaptransaction Restricted balancesofcashshownunderothernon-currentfinancialassetsasrestrictedfunds(seeNote4)relatetodeposits 2.15. CashRestrictedinItsUse rates, respectively. three monthsorless(seeNote8).ForeigncurrencydepositsaretranslatedatDecember31,2003,2002and2001exchange maturityof Cash andcashequivalentsincludeonhand,currentaccountswithbanksshort-termbanknotesa 2.14. CashandEquivalents Held-to-maturity investmentsarecarriedatamortizedcostusingtheeffectiveinterestratemethod. Changes inthefairvaluesoftradinginvestmentsareincludedotherexpense(income). time thecumulativegainorlosspreviouslyrecognizedinequityisincludednetprofitforperiod. in shareholders’equity,untiltheinvestmentissoldorotherwisedisposedof,itdeterminedtobeimpaired,atwh Gains orlossesonmeasurementtofairvalueofavailable-for-saleinvestmentsarerecognizeddirectlyinthereserv investments arereviewedateachbalancesheetdateforimpairment. quotedmarketprice inanactivemarketaremeasuredatcost.Thecarryingamountsofsuch investments thatdonothavea reference totheirquotedmarketpriceatthebalancesheetdate.Equitysecuritiesclassifiedasavailable-for-saleandtradin Available-for-sale andtradinginvestmentsaresubsequentlycarriedatfairvaluewithoutanydeductionfortransactioncostsb Investments areinitiallymeasuredatcost,whichisthefairvalueofconsiderationgivenforthem,includingtransaction and risksofthehostcontract; costs. ich d g e y liability wererecognizedasincomeorexpensefortheperiod. decommissioning or priorperiods,itisreportedasincomeexpenseforthe current period.Until2001thechangesina effect ofthechangeshouldberecognizedinincomefor currentperiod.Totheextentchangerelatesto negativeasset,the treatment wouldresultina extent thechangerelatestofutureperiods.However, thatsucha changeinthediscountrate areaddedto(ordeductedfrom)theamountrecognizedasrelatedasset obligation ora change inthecurrentbestestimateofcashflowsrequiredtosettleth decommissioningliabilitythatresultfroma changes ina proposedinterpretationoftheInternationalFinancialReportingInterpretationCommittee(“IFRIC”), Since 2002,pursuanttoa currentestimates. decrease significantlyfromtheGroup’s scale tocompletedecommissioningandfuelstorageactivities,theultimateprovisionrequirementscouldeitherincreaseor provisions, becauseofpotentialchangesintechnologyaswellsafetyandenvironmentalrequirements,plustheactualtime storage facilitiesareplannedtobecomeavailable.WhiletheGrouphasmadeitsbestestimateinestablishingnuclear temporarybasisuntilapproximately2060whenpermanent of theplants.Furthermore,spentnuclearfuelwillbestoredona sixty-yearperiodsubsequenttothefinaloperation The decommissioningprocessisexpectedtocontinueforapproximatelya of interestonlong-termCzechgovernmentbondsapproximately7%andtheestimated2.5%realrateinterest. componentofinterestexpense.Theestimatefortheeffectinflationisapproximately4.5%,whichbasedoncurrentr a to reflecttheaccretionofdiscountandaccrueanestimateforeffectsinflation,withchargesbeingrecognized property, plantandequipmentaredepreciatedoverthelivesofnuclearplants.Eachyear,provisionsincreased of 2.5%perannumtotakeintoaccountthetimingpayments.Theinitialdiscountedcostamountsarecapitalizedaspart long-termrealrateofintere balance sheetdate.Suchcostestimates,expressedatcurrentpricelevels,arediscountedusinga The provisionsrecognizedrepresentthebestestimateofexpendituresrequiredtosettlepresentobligationatcurr subsequent permanentstorageofspentfuelandirradiatedpartsreactors. to storetherelatedspentnuclearfuelinitiallyonaninterimbasisandprovisionforitsobligationprovidefinancing Group hasrecognizedprovisionsforitsobligationstodecommissionnuclearpowerplantsattheendoftheiroperatinglive 2.22. NuclearProvisions and securitiesexchanges. Transaction costsincludefeesandcommissionspaidtoagents,advisers,brokersdealers,leviesbyregulatoryagencies being recognizedinthenetincomeoverlifeofborrowingsasinterestexpense. carried atamortizedcostusingtheeffectiveinterestratemethod,differencebetweennetproceedsandredemptionvalue Borrowings areinitiallyrecognizedattheamountofproceedsreceived,nettransactioncosts.Theysubsequently 2.21. Long-termDebt different period,directlytoequity. the sameora Current taxanddeferredarechargedorcrediteddirectlytoequityiftherelatesitemsthatcharge liabilities ofgroupcompaniesarenotoffsetinthebalancesheet. temporary differences,exceptgoodwillforwhichamortizationisnotdeductibletaxpurposes.Deferredassetsand deferredtaxliabilityisrecognizedforalltaxable will beavailableagainstwhichthedeferredtaxassetscanutilized.A assets andliabilitiesarenotdiscounted.Deferredtaxrecognizedwhenitisprobablethatsufficienttaxableprofi Deferred taxassetsandliabilitiesarerecognizedregardlessofwhenthetemporarydifferenceislikelytoreverse.t 28% (seeNote21). liabilities andtheirtaxbases.Incomeratesarepublishedtheyearprecedingeffectivenessfor2004ratewi tax rateusingtheliabilitymethod.Temporarydifferencesarebetweenreportedamountsofassetsand income taxesareprovidedontemporarydifferencesbetweenfinancialstatementandtaxableatthesubsequentyear’s Certain itemsofincomeandexpensearerecognizedindifferentperiodsfortaxfinancialaccountingpurposes.Deferred 2003, 2002and2001,afteradjustmentsforcertainitemswhicharenotdeductible,ortaxable,taxationpurposes. rateof31%foreachtheyearsendedDecember31, permit consolidatedtaxreturns.Currentincometaxesareprovidedata taxable income.IntheCzechRepublic,incometaxesarecalculatedonanindividualcompanybasisastaxlawsdonot reported underCzechaccountingregulations,adjustedforappropriatepermanentandtemporarydifferencesfrom The provisionforcorporatetaxiscalculatedinaccordancewithCzechregulationsandbasedontheincomeorloss 2.20. IncomeTaxes d, in ll be ate ent as ax st ts s, e

87 Notes to Consolidated Financial Statements as of December 31, 2003 88 Notes to Consolidated Financial Statements as of December 31, 2003 acquiring companyandarerecordedattheexchangerate dateofthetransaction. foreignentityaretreatedasassetsandliabilitiesofthe Goodwill andfairvalueadjustmentsarisingontheacquisition ofa componentofthegainorlossondisposal. differences arerecognizedintheincomestatementasa foreignentity,accumulated exchange differences arisingontheretranslationaretakendirectlytoequity.Ondisposalofa income statementsofforeignsubsidiariesaretranslatedatweightedaverageexchangeratesfortheyear.The The assetsandliabilitiesofforeignsubsidiariesaretranslatedattherateexchangerulingbalancesheetdate. of thefairvaluegainorloss.Translationdifferencesonavailable-for-saleequitiesareincludedinrevaluationreserve exchange gainsandlosses.Translationdifferencesonnon-monetaryitemssuchasequitiesheldfortradingarereportedpart Translation differencesondebtsecuritiesandothermonetaryfinancialassetsmeasuredatfairvalueareincludedinforeign deferred inequityasqualifyingcashflowhedges. of monetaryassetsandliabilitiesdenominatedinforeigncurrenciesarerecognizedtheincomestatement,exceptwhen the transactions.Foreignexchangegainsandlossesresultingfromsettlementofsuchtransactionstranslation Foreign currencytransactionsaretranslatedintothemeasurementusingexchangeratesprevailingatdatesof 2.26. TranslationofForeignCurrencies to theextentquotedmarketpriceofsharesexceedsexerciseshareoptions. options topurchasecommonsharesoftheCompany.Employeecompensationexpenseismeasuredondategrant Board ofdirectors,certainmembersmanagementtheCompanyandSupervisoryhavebeengranted 2.25. ShareOptions or cancellationoftreasuryshares.Considerationreceivedispresentedinthefinancialstatementsasanadditiontoequity. reductiontoequity.Nogainorlossisrecognizedintheincomestatementonsale,issuance in thestatementofequityasa deductionfromequity.Theacquisitionoftreasurysharesispresented Treasury sharesarepresentedinthebalancesheetasa 2.24. TreasuryShares straight-linebasisovertheleaseterm. income (netofanyincentivesgiventolessees)isrecognizedona basisconsistentwithsimilarownedproperty,plantandequipment.Rental depreciated overtheirexpectedusefullivesona Assets leasedoutunderoperatingleasesareincludedinproperty,plantandequipmentthebalancesheet.They periodic rateofreturn. constant income. Leaseincomeisrecognizedoverthetermofleaseusingnetinvestmentmethod,whichreflectsa difference betweenthegrossreceivableandpresentvalueofisrecognizedoverleasetermasfinance receivable.The financelease,thepresentvalueofleasepaymentsisrecognizedasa When assetsareleasedoutundera Groupcompanyisthelessor b. A should befullydepreciatedovertheshorterofleasetermoritsusefullife. lease term.Ifthereisnoreasonablecertaintythatthelesseewillobtainownershipbyendofterm,asset straight-linebasisoverthe leases. Operatingleasepaymentsarerecognizedasanexpenseintheincomestatementona Leases wherethelessorretainssubstantiallyallrisksandbenefitsofownershipassetareclassifiedasoperating Capitalized leasedassetsaredepreciatedovertheshorterofestimatedusefullifeassetorleaseterm. constantrateofinterestontheremainingbalanceliability.Financechargesarechargeddirectlyagainstinco achieve a lease payments.Leasepaymentsareapportionedbetweenthefinancechargesandreductionofliabilitysoasto capitalized attheinceptionofleasefairvalueleasedpropertyor,iflower,presentmi Finance leases,whichtransfertotheGroupsubstantiallyallrisksandbenefitsincidentalownershipofleaseditem lessee Groupcompanyisa a. A 2.23. Leases in equity. nimum me. , are , Cost etitdfnsfrncerdcmisoig ,4 4 – 944 1,245 Other restrictedfunds Restricted fundsfornucleardecommissioning Financial assetsavailableforsale,net Investments inREAS,net(seeNote6) CZK 421millionatDecember31, 2003only. CZK 190millionand221million, respectively.ImpairmentprovisionforinvestmentinREAS (Pražskáenergetika,a.s.)was At December31,2003,2002and2001impairmentprovisionsfor financialassetsavailableforsaleamountedtoCZK909million, minority shareholdingsinoperationallyrelatedcompanies(seeNote 2.3). Competition ProtectionAuthorityhastobesoldinthefuture.Financial assetsavailableforsaleincludealsoothermajority 34%shareinPražskáenergetika,a.s.,whichbasedonthedecisionofEconomic the investmentsinREASrepresentsa Investments inREASrepresentsharesandsharerightsofcertain oftheCzechelectricdistributioncompaniesREAS.In2003 Total Long-term receivables,net (3) – 1,092 (92,614) (65) – Investments atDecember31,2003,2002and2001consistofthefollowing(inCZKmillions): 1,257 – 87,638 (103,355) 4. InvestmentsandOtherFinancialAssets,Net (95) (168) 4,036 138,983 (150,426) – plantinserviceispledgedassecurityforliabilities. None oftheGroup’s (84,408) 8,087 earned duringtheconstructionofassets(seeNote2.10). – (72) In 2003,2002and2001theGroupcapitalizedCZK0million,1,373million922ofrevenues,whichwere (68) 212,739 (558) 5 2001 theGrouphadnofinanceleasecontracts(seeNote16). (92,614) The carryingvalueofplantandequipmentheldunderfinanceleaseatDecember31,2003isCZK173million.In2002 – (40,821) 180,252 CZK 254millionrelatedtonuclearfuel. 1,493 – (99,677) construction workinprogressandamountedtoCZK873million,ofwhich619millionrelatedplantequipment (103,355) (1,309) 10 At December31,2002capitalizedcostsofprovisionsrelatedtosecondunitTemelínnuclearpowerplantwereincludedin (6) 242,338 2,739 (9,127) – 4,600 (50,677) 131,517 Total netbookvalue – Accumulated depreciation 363,165 (37) (14,617) 1,292 (18,746) (11,375) 79,729 3,487 (74,354) 1,565 (67) (in CZKmillions): (663) (22,069) (16,969) At December31,2003,2002and2001,plantequipmentincludedthecapitalizedcostsofnuclearprovisionsasfollows (29,001) Net plantinservice–closingbalance 231,194 (3) (7,269) (646) – closingbalance Accumulated deprec.andallowances 130,406 Change inallowances (7,281) Disposal ofsubsidiaries (13,263) Acquisition ofsubsidiaries Retirements Net bookvalueofassetsdisposed Depreciation (3,703) – openingbalance Accumulated deprec.andallowances Cost –closingbalance Disposal ofsubsidiaries Net plantinserviceatDecember31,2003,2002and2001isasfollows(inCZKmillions): 3. NetPlantinService custo fsbiire 0633,6 9 393–– (1,092) 3,983 (1,257) – 63,343 177,361 (4,081) 55,562 180,252 83,963 (50) 119 242,338 794 (2,739) 769 41,728 32,566 (1,292) 13,715 166,908 50,603 74,661 Acquisition ofsubsidiaries Retirements Plant additions Cost –openingbalance ulig Plant Buildings and Land and Total qimn te 0320 2001 2002 2003 Other Equipment 378 286 (2,672) (2,896) (3,778) 14410,4617,894 11,464 ,6 3 1,085 2,115 1,946 735 1,969 1,937 1,069 2,262 3,401 ,4 ,2 5,315 5,723 8,642 7,5655,222 7,686 0320 2001 2002 2003 0320 2001 2002 2003 6 3 169 138 665 and

89 Notes to Consolidated Financial Statements as of December 31, 2003 90 Notes to Consolidated Financial Statements as of December 31, 2003 eieet 6)()(0 1 (8) 525 – (1) 282 1,225 – (70) 834 1,742 2,086 (7) 2,023 208 22 (63) 46 626 2,064 1,977 Acquisition ofsubsidiaries Retirements Plant additions Cost –openingbalance ahadcs qiaet nsbiire curd(6 25 (33) – 2,807 (265) (1,310) 4,485 (363) (76) (327) 3,303 1,730 1,660 *) Cash outflowonacquisitionfromentities undercommoncontrol Cash andcashequivalentsinsubsidiaries acquired Consideration paidforsharesinprevious periods Outstanding payablesfromacquisition Less: Total purchaseconsideration Effect ofacquisitionREASrecognizeddirectlyinequity Share ofnetassetsacquired 8 Minority interests – Total netassets Current liabilities Deferred incometaxes 1 Long-term liabilities Minority interests – 874 – (4) Other currentassets Cash andcashequivalents 70 Other non-currentassets Deferred incometaxes 810 – – (239) Property, plantandequipment,net 82 (868) – 1,742 Total shares 7 Shares acquiredinpreviousyears 1,398 (346) (1,213) – (1,563) 2,023 13 (1) (633) control are(inCZKmillions): 214 63 (642) (3,266) The bookvaluesoftheidentifiableassetsandliabilitiesREAScompaniesacquiredfromundercommon (17) 4,664 69 (209) (868) government), ČEZhasaccountedforthistransactionasanacquisitionofsubsidiariesundercommoncontrol(seeNote2.3). – ultimateparent(Czech were acquiredfromthedirectparentofČEZandanagencyundercommoncontrolČEZ’s (30) (9) 1,184 other companies,whichwereowneddirectlybytherespectiveREAScompanies.Ascompaniesandtheirsubsidiaries (1,546) 244 Property FundandCzechConsolidationAgency.ThroughtheacquisitionofREASČEZhasalsogainedcontroloverseveral (25) (1,212) On April1,2003,ČEZacquiredmajorityofthevotingsharesin5CzechelectricitydistributioncompaniesfromNational (1) (3,236) 6. AcquisitionofREAS (633) 4,420 (24) (184) progress intheamountofCZK599million,364millionand270respectively. At December31,2003,2002and2001,intangibleassetspresentedonthebalancesheetincludedin (1,188) Net intangibleassets–closingbalance Accumulated amortisation–closingbalance Disposal ofsubsidiaries Acquisition ofsubsidiaries Disposals Net bookvalueofassetsdisposed Amortization chargefortheyear Accumulated amortisation–openingbalance Cost –closingbalance Disposal ofsubsidiaries Intangible assetsatDecember31,2003,2002and2001wereasfollows(inCZKmillions): 5. IntangibleAssets,Net hrsaqie n20 rmette ne omncnrl4.5 86%58.3% 48.65% 48.05% Shares acquiredin2003fromentitiesundercommoncontrol Shares acquiredinpreviousperiodshave beenaccountedforasavailablesalefinancialassetsin2002and2001,respective *) otaeRightsTotal Software n te 0320 2001 2002 2003 and Other ru Č ru M GroupSTE GroupSME Group SČE 10%5.8 58.3% 59.08% 51.00% 101 140 (866) (1,450) (2,911) (1,031) (6,738) (4,004) (6,065) (2,956) (5,839) .5 04%– 10.43% 2.95% ,3 ,1 3,706 4,069 7,510 6,980 5,780 4,737 9,784 3,077 4,346 6,033 7,222 9,741 3,843 10,523 7,306 6)(,1)(256) (2,215) (65) 8 – 697 – 1,069 524 189 1 (8) – (1) 62533 265 76 105 (835) (1,015) – ly. noebfr te xes icm)adicm ae 9 6 1,742 166 138 193 520 725 11,231 28,374 4,854 Net income 11,231 Income beforeotherexpense(income)andincometaxes Revenues 3,799 Net income Income beforeotherexpense(income)andincometaxes 2,578 17,143 Revenues (1,678) (655) incomestatementfortheyear2003(inCZKmillions): Group’s From thedateofacquisition,REAScompaniesandtheir subsidiarieshavecontributedthefollowingbalancesto – 17,143 Total cashoutflowsonacquisitionsin2003 (130) Cash outflowsonacquisitionsfromthirdparties Cash outflowsonacquisitionfromentitiesundercommoncontrol 3,739 5,023 The followingtablesummarizesthecashoutflowsonacquisitionsofsubsidiariesduring2003(inCZKmillions): (41) (151) Total purchaseconsiderationpaidtothirdparties 2,809 1,640 Goodwill (negativegoodwill) 356 2003 (inCZKmillions): transactions. ThefollowingtablesummarizesthecriticaltermsofsubsequentacquisitionsminoritysharesinREASdurin acquired andbasedonthevaluationofassetsliabilitiesnogoodwillornegativewasrecognizedinthese have beenrecordedusingthepurchasemethodofaccounting.ČEZhasitssharefairvaluenetassets During 2003ČEZpurchasedfurtherminoritysharesin3oftheREASfromvariousthirdparties.Thesesubsequentacquisitions *) Cash outflowonacquisitionfromentitiesundercommoncontrol Cash andcashequivalentsinsubsidiariesacquired Consideration paidforsharesinpreviousperiods Outstanding payablesfromacquisition Less: Total purchaseconsideration 50.26% Effect ofacquisitionREASrecognizeddirectlyinequity Share ofnetassetsacquired Minority interests 49.62% Total netassets Current liabilities Deferred incometaxes Long-term liabilities Minority interests Other currentassets Cash andcashequivalents Other non-currentassets Deferred incometax Property, plantandequipment,net Total shares Shares acquiredinpreviousyears Shares acquiredin2003fromentitiesundercommoncontrol hr ffi au fntast curd25837948411,231 4,854 48.87% 3,799 48.76% 2,578 39.4% Share offairvaluenetassetsacquired Shares acquiredin2003fromthirdparties Shares acquiredinpreviousperiodshavebeenaccountedforasavailablesalefinancialassets2002and2001,respective *) ru T ru Č ru Č REAStotal GroupZČE GroupVČE Group STE –––– ru Č ru Č TotalREAS GroupZČE Group VČE TotalREAS GroupZČE Group VČE ru Č ru M GroupSTE GroupSME Group SČE 00%50.26% 50.07% 358 336 (16,725) (28,261) (3,316) (4,069) (3,538) (5,550) .5 – 0.45% ,2 ,8 40,094 5,388 7,829 7,922 10,900 8,055 24,847 19,824 4,990 36,549 3,350 3,904 6,666 3,548 24,448 7,086 4,302 41,299 5,176 4,735 8,553 93 111 (5,371) (1,121) (903) (3,304) (2,907) (502) (262) (952) (109) 8 4997 34 256 183 286 238 655 4,441 130 1,892 151 259 1 1 (11) (1) (1) 189 – – ly. g

91 Notes to Consolidated Financial Statements as of December 31, 2003 92 Notes to Consolidated Financial Statements as of December 31, 2003 TE,as zc eulc5. 0. – – – – – – – – – – – – – – – 100.0 62.0 100.0 100.0 – 100.0 – – – 59.1 – 53.0 59.1 59.1 59.1 100.0 100.0 100.0 CzechRepublic 100.0 CzechRepublic CzechRepublic CzechRepublic 76.2 CzechRepublic 59.1 98.8 99.1 98.8 74.4 CzechRepublic CzechRepublic CzechRepublic CzechRepublic CzechRepublic První energetickáa.s. Union Leasing,a.s. STMEM, a.s. MSEM, a.s. ePRIM, a.s. Energetika Vítkovice,a.s. r.o. STE -obchodníslužbyspol.s VČE -montáže,a.s. VČE -elektrárny,s.r.o. EN-DATA a.s. 4.8%, respectively. 1.7%, 2.6%and4.2%,respectively. Fortheyears2003,2002and2001weightedaverageinterest ratewas1.9%,3.0%and The weightedaverageinterestrateonshort-termbanknotesand termdepositsatDecember31,2003,2002and2001was CZK 1,045millionand237million,respectively. At December31,2003,2002and2001,cashequivalents includedforeigncurrencydepositsofCZK866million, Total Term deposits The compositionofcashandequivalentsatDecember31, 2003,2002and2001isasfollows(inCZKmillions): 8. CashandEquivalents **) *) Coal Energy,a.s. – – – – – – – – %equityinterest – – 51.0 97.7 %voting 59.1 Ústav jadernéhovýzkumuŘeža.s. 98.8 99.1 51.0 %equity 97.7 59.1 98.8 Country 99.1 CzechRepublic CzechRepublic CzechRepublic CzechRepublic CzechRepublic CEZ FINANCEB.V. Severočeská energetika,a.s. Severomoravská energetika,a.s. Středočeská energetickáa.s. Východočeská energetika,a.s. Západočeská energetika,a.s. Subsidiaries in thefollowingtable: The consolidatedfinancialstatementsincludetheofČEZ,a.s.,andsubsidiariesassociatesliste 7. InvestmentsinSubsidiariesandAssociates ČEZnet, a.s. aho adadcretacut ihbns12436750 356 1,264 Short-term banknotes Cash onhandandcurrentaccountswithbanks lae ..CehRpbi 113. – – 37.2 – 30.0 37.2 – 21.1 37.2 %equityinterest 50.0 CzechRepublic 37.2 %voting 49.6 %equity CzechRepublic CzechRepublic Country Aliatel a.s. ŠKODA PRAHAa.s. Severočeské dolya.s. r.o. KNAUF POČERADY,spol.s Plzeňská energetikaa.s. r.o. LOMY MOŘINAspol.s r.o. KOTOUČ ŠTRAMBERK,spol.s AB Michles.r.o. ČEPS, a.s. Associates rpg EnergiehandelGmbH Energos.r.o. & C I HYDROČEZ,a.s. Energetické opravny,a.s. ESwsi 02ad20 subsidiaryofČEZ. ČEPS wasin2002and2001a an adjustmentoftheopeningbalanceretainedearnings. These subsidiariesandassociateshavenotbeenconsolidatedin20022001.Theeffectofthefirst-timeconsolidation20 **) *) *) *) *) *) *) *) *) *) *) *) *) *) zc eulc5. 255. 52.5 52.5 52.5 52.5 100.0 100.0 100.0 100.0 100.0 Czech Republic 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Czech Republic Czech Republic Czech Republic Czech Republic zc eulc2. 002. 20.0 29.8 40.0 20.0 51.0 29.8 64.8 99.9 40.0 20.0 100.0 51.0 29.8 64.8 99.9 50.0 20.0 100.0 50.0 29.8 50.0 50.0 40.0 Czech Republic 34.0 51.0 Czech Republic 64.9 99.9 Czech Republic 34.0 Czech Republic Czech Republic Czech Republic Czech Republic h ehrad 0. 0. 0. 100.0 100.0 100.0 100.0 the Netherlands ficroainitrs interest interest of incorporation ficroainitrs interest interest of incorporation emn 0. 0. 0. 100.0 100.0 100.0 100.0 Germany 0320 022001 2002 2003 2003 0320 022001 2002 2003 2003 ,1 ,2 2,280 4,225 4,014 ,0 ,2 1,502 3,520 2,501 0320 2001 2002 2003 4 4 28 349 249 03 wasincludedinequityas d Prepayments Advances granted Debt securitiesheldtomaturity Securities heldfortrading Other taxesandfees Other receivables Trade receivables n Z ,2 ilo,rsetvl,adi eotda componentofretainedearnings. and CZK8,528million,respectively,isreportedasa can onlybeusedtooffsetlosses.AsofDecember31,2003,2002 and2001,thebalancewasCZK9,185million,8,872million first yearinwhichprofitsaremadeand5%ofprofiteachthereafter, untilthefundreachesatleast20%ofcapital.The minimum of20%after-taxprofitinthe contingencies againstpossiblefuturelossesandotherevents.Contributions mustbea In accordancewithCzechregulations,jointstockcompanies arerequiredtoestablishanundistributablereservefundfor shares wasincludedinretainedearnings. deductionfromstatedcapital.Theprofitonsaleoftreasury treasury sharesarereflectedinthebalancesheetatcostas a time sold15,000treasuryshares.During2003theCompany sold further1,190,000treasuryshares.Theremaining745,000 these treasurysharesweresold.InDecember2002theCompany acquiredanother1,950,000treasurysharesandatthesame In NovemberandDecember2001theCompanyacquired1,950,000 ofitsownshares(“treasuryshares”).InOctober2002 Total Treasury shares Registered shares 2001 Total Treasury shares Registered shares 2002 Total Treasury shares Registered shares 2003 statedcapitalasofDecember31,2003,2002and2001isfollows: The Company’s 11. Shareholders’Equity Total Derivatives The compositionofothercurrentassetsatDecember31,2003,2002and2001isasfollows(inCZKmillions): 10. OtherCurrentAssets subsidiaries inthenetamountofCZK1,113million,341millionand477respectively. At December31,2003,2002and2001,thetotalreceivablesincludedfromassociatesunconsolidated Total Less allowancefordoubtfulreceivables The compositionofreceivables,net,atDecember31,2003,2002and2001isasfollows(inCZKmillions): 9. Receivables,Net ubro hrs a au Total ParValue Number ofShares 9,3,6 59,050 59,209 59,041 100 59,221 590,138,461 59,152 592,088,461 100 59,221 590,275,843 592,210,843 100 591,465,843 592,210,843 usadn e hr CK (CZKmillions) perShare(CZK) Outstanding 19000 0 (159) 100 (180) (1,950,000) 100 (1,935,000) 7500 0 (69) 100 (745,000) 237 78 (715) (728) (2,317) ,7 – – – 1,476 1,756 – 4,114 4,297 9,112 ,9 ,1 2,253 1,917 4,299 7,063 4,0403,827 0320 2001 2002 2003 2001 2002 2003 7 6 153 134 261 160 477 360 – – 205 3 ,9 1,966 1,496 230 341428 471 63 fund

93 Notes to Consolidated Financial Statements as of December 31, 2003 94 Notes to Consolidated Financial Statements as of December 31, 2003 MPRIBOR+1,3%,due2005 6M 3.35% Debentures,due2008 11.0625% Debentures,due2008 9.22% Debentures,due2014 U 5 ,6 9 ,2 5 11,330 20,017 355 553 9,325 15,111 296 502 8,360 11,637 258 454 EUR USD Z 669–1,2 16,860 48,207 – 15,528 39,964 – 16,659 36,656 – hedge accountingforthesetransactions. Note 13).Althoughtheseswaps representeffectiveeconomichedgesofthecurrencyrisk, Companyelectednottoapply numberofcurrencyswapcontractstohedge its long-termdebtagainstcurrencyrisk(see The Companyhasenteredinto a Group willcontinuetoexplorecost-effective possibilitiestoreduceitscurrentexchangeratemovement andothermarketrisks interest ratesonmarketsensitive instrumentsandconsiderstheexpectedcostsbenefitsof various hedgingtechniques.The Group assessestheriskoflossinfairvaluesfromimpact hypotheticalchangesinforeigncurrencyexchangeratesand financialinstruments. Toperformsensitivityanalyses,th that marketriskexposuresmayhaveonthefairvaluesofGroup’s As currencyratemovementsexposetheGrouptosignificantrisk, theGroupusessensitivityanalysestodetermineimpacts adverse effectsoftheseandotherpotentialexposures. The Groupregularlyassessestheserisksandhasestablished policiesandbusinesspracticestopartiallyprotectagainstthe 3,769 8,024 risk associatedwithinterestratemovementsandcurrency ratemovementsonnon-Czechcrowndenominatedliabilities. 7,012 varietyofrisks,includingma In thenormalcourseofbusiness,financialpositionGroup isroutinelysubjectedtoa 8,464 36,656 3,696 Total long-termdebt 5,691 CZK The followingtableanalysesthelong-termdebtatDecember31,2003,2002and2001bycurrency(inmillions): Total long-termdebt Thereafter 2008 2007 2006 2005 2004 The futurematuritiesoflong-termdebtareasfollows(inCZKmillions): hedging instrumentsseeNote13. actual interestpaymentsareaffectedbyrateriskhedgingcarriedouttheGroup.Forfairvaluesof The interestratesindicatedabovearehistoricalforfixedratedebtandcurrentmarketfloatingdebt.Th 2) 1) Long-term debt,netofcurrentportion Less: Currentportion Total long-termdebt 8.00% andmore 7.00% to7.99% 6.00% to6.99% 5.00% to5.99% 4.00% to4.99% 3.00% to3.99% 2.00% to2.99% less than2.00% Long-term bankloans: PRIBOR+0,4%,due2005 6M Long-term debtatDecember31,2003,2002and2001isasfollows(inCZKmillions): 12. Long-termDebt 9.22% ZeroCouponDebentures,due2009 8.75% Debentures,due2004 7.25% Eurobonds,due2006 7.125% Notes,due2007 Nominal valueofthesezerocoupondebenturesisCZK4,500million. From 2006theinterestratechangestoconsumerpriceindexplus4.2%. 2) 1) urnycrec currency currency currency oeg Z oeg Z ForeignCZK Foreign CZK Foreign CZK 0320 2001 2002 2003 561 425 (5,126) (4,235) (5,691) 0953,2 43,081 48,207 35,729 39,964 30,965 36,656 ,8 – – 2,987 ,9 ,9 2,492 2,623 2,493 2,832 2,494 3,057 ,4 ,1 5,532 7,038 1,712 80 3,825 1,010 – 1,241 9,127 55 2,365 – 2,787 4,852 1,000 ,0 ,9 2,990 6,368 6,419 2,995 6,299 5,336 3,000 6,467 4,545 0320 2001 2002 2003 0 – – 500 9 019 553 10 2,589 693 2,5061,844 382 286 ,8 2,984 2,987 – 35,440 13 – . rket e e hr-emlas(,2)(,2)––(1)(514) 1,966 1,966 (514) (4,660) 3,827 5,518 (49,074) 1,496 – (4,660) 2,280 3,827 (48,207) 5,518 (5,333) 1,496 2,280 – 4,040 (42,726) 5,880 (5,333) 230 4,225 (39,964) 4,040 (2,320) (17,548) 5,880 (39,626) 230 4,225 7,063 (17,548) (2,320) 10,999 (36,656) 4,014 7,063 10,999 4,014 Receivables fromderivates Derivatives: Accounts payable Short-term loans Long-term debt Liabilities: Cash andcashequivalents Receivables Investments Assets: ihitrs aefxdfo otst er1804577,276 4,517 1,840 with interestratefixedfrom3monthsto1year with interestratefixedfrom1to3months with interestratefixedfor1month Floating ratelong-termdebt aalsfo eiae 300 300 361 361 391 (3,991) (3,991) (3,601) (3,601) (3,030) (3,030) Payables fromderivates (in CZKmillions): Carrying amountsandtheestimatedfairvaluesoffinancialinstrumentsatDecember31,2003,20022001wereasfollows The fairvalueofderivativesisbaseduponmarktomarketvaluations. Derivatives interest ratesapproximatestheirfairvalues. available fordebtwiththesamematurityprofile.Thecarryingamountoflong-termandotherpayablesvariable The fairvalueoflong-termdebtisbasedonthequotedmarketpriceforsameorsimilarissuescurrentrates Long-term debt The carryingamountapproximatesfairvaluebecauseoftheshortperiodtomaturitythoseinstruments. Short-term loans instruments. The carryingamountofreceivablesandpayablesapproximatesfairvalueduetotheshort-termmaturitythesefinancial Receivables andPayables fair valueofsuchinvestments. management believesthatforinstrumentswhichtherearenoquotedmarketpricesthecarryingamountapproximates The fairvaluesofinstruments,whicharepubliclytradedonactivemarkets,estimatedbasedquotedmarketprices. Investments of thesefinancialinstruments. The carryingamountofcashandothercurrentfinancialassetsapproximatesfairvalueduetotherelativelyshort-termmaturit Cash andcashequivalents,currentinvestments The followingmethodsandassumptionsareusedtoestimatethefairvalueofeachclassfinancialinstruments: market prices,discountedcashflowmodelsandoptionpricingmodels,asappropriate. forcedorliquidationsale.Fairvaluesareobtainedfromquoted lengthtransaction,otherthanina willing partiesinanarm’s currenttransactionbetweenknowledgeable Fair valueisdefinedastheamountatwhichinstrumentcouldbeexchangedina 13. FairValueofFinancialInstruments Total long-termdebt Fixed ratelong-termdebt Total floatingratelong-termdebt with interestratefixedformorethan1year debt withfloatingratesofinterestbycontractualreprisingdatesatDecember31,2003,2002and2001(inCZKmillions): Long-term debtwithfloatinginterestratesexposestheGrouptoraterisk.Thefollowingtablesummarizeslong-term arig arCryn Fi arig Fair FairCarrying FairCarrying Carrying mutvleaon au mutvalue amount value amount value amount 0320 2001 2002 2003 6663,6 48,207 26,149 22,058 39,964 23,659 16,305 36,656 24,803 11,853 ,0 ,4 5,736 6,554 6,941 2,354 5,701 1,818 ,9 ,9 2,492 2,493 2,494 0320 2001 2002 2003 y

95 Notes to Consolidated Financial Statements as of December 31, 2003 96 Notes to Consolidated Financial Statements as of December 31, 2003 aac tDcme 1 038103111,6 28,164 113 16,863 146 – 3,131 – 23,866 8,170 873 113 3,373 82 385 13,549 4 – – 2,527 1,134 – 2,966 (56) 142 21,396 254 – (82) 7,351 82 required tocompletealldecommissioning, disposalandstorageactivities. 873 13,347 regulatory requirements,changesintechnology,increasedcosts oflabor,materials,andequipmentand/ortheactualtime 902 The actualdecommissioningandspentfuelstoragecostscould varysubstantiallyfromtheaboveestimatesbecauseofnew 619 – nuclear accountandtheexpendituresforinterimstoragerepresent mainlythepurchaseofinterimfuelstoragecontainers. (749) The currentcashexpendituresforthelong-termstorageofspent nuclearfuelrepresentpaymentstothestatecontrolled 2,651 – (59) Balance atDecember31,2003 Current cashexpenditures (82) 5,398 Effect ofchangeinestimateaddedto(deductedfrom)fixedassets(Note2.22) – Effect ofchangeinestimatecreditedtoincomestatement(Note2.22) Provision chargedtoincomestatement Effect ofinflation – Discount accretion Movements during2003 932 Effect ofchangeingroupstructure Balance atDecember31,2002 Current cashexpenditures Capitalized costofTemelínprovisions Effect ofchangeinestimateaddedto(deductedfrom)fixedassets(Note2.22) Effect ofchangeinestimatecreditedtoincomestatement(Note2.22) Provision chargedtoincomestatement Effect ofinflation Discount accretion Movements during2002 Balance atDecember31,2001 Current cashexpenditures CZK millions): summaryoftheprovisionsforyearsendedDecember31,2003,2002and2001(in spent fuelstorage.Thefollowingisa Group hasestablishedprovisionsasdescribedinNote2.22,torecognizeitsestimatedliabilitiesfordecommissioningand for interimandlong-termspentfuelstorage. with interimstorageofradioactivewasteandspentfuel.Actualcostsincurredarechargedagainsttheaccumulatedprovision quantity ofelectricitygeneratedinnuclearpowerplants.Theoriginatorradioactivewastedirectlycoversallcostsassoci its averagenuclearMWhgeneratedduringthelast5years.From2003ČEZismakingthesepaymentsbasedonactual produced atnuclearpowerplants.SinceOctober1,1997,ČEZhasmaderegularpaymentstotheaccountbasedon governmentresolutionin1997,at50CZKperMWh the Company).Contributiontonuclearaccountwasstatedbya “nuclearaccount”fundedbytheoriginatorsofradioactivewaste(suchas The activitiesoftheRAWRAarefinancedthrougha organizes, supervisesandisresponsibleforalldisposalfacilitiesofradioactivewastespentfuelthere the centralorganizerandoperatoroffacilitiesforfinaldisposalradioactivewastespentfuel.TheRAWRAcentrall Pursuant totheAct,MinistryofIndustryandTradeestablishedRadioactiveWasteRepositoryAuthority(“RAWRA”)as decommissioning willcostCZK15.6billionand10.4billion,respectively. 1999Temelíndecommissioning coststudyestimatethatnuclear Temelín. Anupdated2003Dukovanyestimateanda operatinglife,currently2027forDukovanyandapproximately2043 decommissioned followingtheendofplant’s radioactive wasteandspentfuel(“disposal”).TheActrequiresthatallnuclearpartsofplantequipmentbe nuclearpowerplantsandthefinaldisposalof decontamination anddismantling(“decommissioning”)oftheCompany’s NuclearAct(“Act”),whichdefinescertainobligationsforthe operation inApril2003.CzechRepublichasenacteda secondnuclear powerplant,Temelín,wherethesecondoftwo1000MWunitsstartedcommercial construction ofa nuclearplant,Dukovany,consistsoffour440MWunitswhichwereplacedintoservicefrom1985to1987.ČEZfinalized ČEZ’s 14. AccumulatedProvisionforNuclearDecommissioningandFuelStorage rvso hre oicm ttmn 0 107 – 20,902 107 13,355 (231) – 2,502 (288) 5,045 57 – Effect ofchangeinestimatecharged(credited)toincomestatement(Note2.22) Provision chargedtoincomestatement Effect ofinflation Discount accretion Movements during2001 Balance atDecember31,2000 eomsinn nei Long-term Interim Decommissioning ula Setfe trg Total Spentfuelstorage Nuclear 5 2 0 984 548 337 133610 1,080 187 74 339 600 600 334 126 70 258 144 2 1 0 940 523 601 334 112 63 227 126 13 126 (1,399) (1,296) (808) – (103) (673) (135) (845) – (655) (190) – Accumulated provisions ated in. y After oneyearbutnotmorethanfiveyears Within oneyear Short-term bankloans Bank overdrafts Deferred income Unbilled goodsandservices Social andbonusfunds Other provisions Estimated environmentalclaims(Note27) Provision forashstoragereclamation Accrued interest Advances receivedfromretailers Total Other taxesandfees Accrued liabilitiesatDecember31,2003,2002and2001consist ofthefollowing(inCZKmillions): 18. AccruedLiabilities in theamountofCZK1,192million,709millionand649respectively. At December31,2003,2002and2001,thetotalpayablesincludedfromassociatesunconsolidatedsubsidiaries Total Derivatives Other payables Trade payables Payables frompurchaseofREAS Advances receivedfromretailers,net Unbilled revenues Trade andotherpayablesatDecember31,2003,20022001areasfollows(inCZKmillions): 17. TradeandOtherPayables Present valueoffinanceleaseliabilities Future financechargesonleases Total minimumleasepayments More thanfiveyears follows (inCZKmillions): Future minimumleasepaymentsunderfinanceleasestogetherwiththepresentvalueofnetareas 16. FinanceLeases respectively. December 31,2001.Fortheyears2003,2002and2001weightedaverageinterestratewas2.2%,3.0%4.1%, Interest onshort-termloansisvariable.Theweightedaverageinterestratewas2.1%atDecember31,2003and3.0% Total Other short-termnotespayable Short-term loansatDecember31,2003,2002and2001areasfollows(inCZKmillions): 15. Short-termLoans 1,6)–– – (12,962) 585–– – 15,855 0542292,710 2,229 10,564 8,651 8,934 20,578 ,9 514 – 2,295 ,8 2203 – 12 – 5,284 2,160 ,3 ,0 3,991 – 4,156 – 3,601 – 4,999 – 3,031 6,251 7,470 2,893 514 – 2,320 0320 2001 2002 2003 2001 2002 2003 0320 2001 2002 2003 2001 2002 2003 4 8 232 201 254 395 186 1,042 167 220 432 546 951 254 200 451 805 6 6 383 261 864 504 334 933 6 – – (6) 5–– – – – 25 31 – – 17 0–– – 50 56 8–– –––

97 Notes to Consolidated Financial Statements as of December 31, 2003 98 Notes to Consolidated Financial Statements as of December 31, 2003 Total Deferred incometaxes The componentsoftheincometaxprovisionareasfollows(inCZKmillions): Income TaxProvision relevant authoritiescouldtakedifferingpositionswithregardtointerpretiveissuesandtheeffectbesignificant. that ithasadequatelyprovidedfortaxliabilitiesintheaccompanyingfinancialstatements;however,riskremainsthose numberofauthorities,whoareenabled bylawtoimposeseverefines,penaltiesandinterestcharges.Managementbelieves a other legalcomplianceareas(asexamples,customsandcurrencycontrolmatters)aresubjecttoreviewinvestigationby taxes includevalue-addedtax,corporateandpayroll(social)taxes,togetherwithothers.Taxdeclarations, numberoflawsrelatedtovarioustaxesimposedbygovernmentalauthorities.Applicable The CzechRepubliccurrentlyhasa corporate incometaxratefor2004willbe28%. Corporate incometaxiscalculatedinaccordancewithCzechregulationsattherateof31%2003,2002and2001.The Income TaxLegislation 21. IncomeTaxes Total Other, net CZK millions): Other operatingexpenses(income),net,fortheyearendedDecember31,2003,2002and2001consistoffollowing(in 20. OtherOperatingExpenses Total Sales ofancillaryservices The compositionofsaleselectricityatDecember31,2003,2002and2001isasfollows(inCZKmillions): 19. SalesofElectricity dutet nrseto urn noetxo rvospros1 5 87 254 11 320 Adjustments inrespectofcurrentincometaxpreviousperiods Current incometaxcharge (19) 52 (430) (437) 2,003 20 328 (1,889) (326) 365 – 285 – 7,528 Nuclear provisions Change inprovisionsandvaluationallowances Fines andpenaltiesrevenue 36,590 Capitalization ofexpensestothecostfixedassets 10,143 Loss (gain)onsaleofmaterial Loss (gain)onsaleofproperty,plantandequipment Costs ofashstorage,airandwaterpollutionenvironmentalclaims 13,296 Services Other domesticsalesofelectricity Revenues capitalizedduringconstruction Sales totraders Exports ofelectricityincludingtradeoutsidetheCzechRepublic Sales toendcustomerthroughdistributiongrid Sales todistributioncompanies 9585,3 53,300 52,938 79,548 9833,3 46,087 39,230 19,843 ,0 ,4 3,129 2,842 8,408 – – 4,334 ,0 5 2,047 450 1,007 (231) (82) 2,872 3,373 3,199 4,411 607 – 2,928 2,010 3,893 1,592 80 ,7 2,035 2,671 (810) 0320 2001 2002 2003 2001 2002 2003 0320 2001 2002 2003 5)(6)(871) (260) (57) 0 ,7 4,169 3,375 208 708 (80) 535 316381 136 73 133 (922) (1,373) – cuuae rvso o ula eomsinn n pn ulsoae6616195,656 6,129 6,641 Revaluation offinancialassets Tax losscarryforwards Other provisions Derivatives CASTOR containerswriteoff Foreign exchange Accumulated provisionfornucleardecommissioningandspentfuelstorage Income beforeincometaxes Loss (gain)onsaleoffinancialinvestments Derivative losses(gains),net diinlfrinecag aedfeecsudrIS3 259 – 7,399 – Total Other, net 8,226 12,102 Other expenses,net,fortheyearendedDecember31,2003,2002 and2001consistofthefollowing(inCZKmillions): 22. OtherExpenses(Income),Net – Total deferredtaxliabilities,net Total deferredtaxliabilities Investment insubsidiary Investment inassociate – Other IAS39differences 613 Additional foreignexchangeratedifferencesunderIAS39 Penalty receivables Repairs andmaintenanceaccrual Capitalized costofprovisions – Capitalized interest – Tax depreciationinexcessoffinancialstatement Total deferredtaxassets Other deductibledifferences 410 Deferred incometaxesatDecember31,2003,2002and2001consistofthefollowing(inCZKmillions): Deferred IncomeTaxes,Net Effective taxrate Income taxes Deferred taxonundistributedprofitsofsubsidiary Difference betweencarryingandtaxvalueoffinancialasset Withholding taxondividend Additional taxassessments Tax credits Other nondeductible(nontaxable)items,net Investment taxrelief Non deductibleprovisions,net Czech/IFRS accountingdifferences Change intaxrates Add (deduct)taxeffectof: “Expected” incometaxexpense Statutory incometaxrate follows (inCZKmillions): The differencesbetweenincometaxexpensecomputedatstatutoryrateandprovidedonearningsareas 100 111 (43) – (1,181) – (1,010) (1,438) 4431,4 9,870 17,347 12,541 19,532 14,433 22,510 ,5 17613,292 11,796 6,659 ,5 ,4 1,720 1,643 1,157 ,9 2 516 627 2,223 5,808 1,490 7,477 2,683 6,227 6,991 2,253 5,590 8,077 4,121 3,657 2,064 42 251 72 (422) (79) (103) (212) 0320 2001 2002 2003 2001 2002 2003 0320 2001 2002 2003 1 1 31% 31% 31% 8 0 292 347 300 367 885 338 4 ,3 1,774 1,330 744 891 967 202 987 187 171 4,169 3,375 62 4 208 (117) (30) 140 123 %2%31% 29% 3% 7–– – – – 17 25 72 64 187 25 164 17 71 – 87 – 254 17 42 11 282 78 35 3 (385) 9 628 352 8 – – – 1 – 613 –

99 Notes to Consolidated Financial Statements as of December 31, 2003 100 Notes to Consolidated Financial Statements as of December 31, 2003 Options exercised Options granted Share optionsatDecember31,2000 was recognizeddirectlyinequity. Company hassettledoptionsexercisedduring2003and2002usingtreasuryshares.Thegainonthesaleofshares expense ofCZK2millionrelatedtothegrantedoptions(seeNote2.25).Nowasrecognizedin2002and2001.The exchange inthesix-monthperiodprecedingdateofgrant.In2003Companyhasrecognizedcompensation of suchperiod.TheexercisepriceforthegrantedoptionswasbasedonaveragequotedmarketPraguestock period andcanbeexercisedduringthetermsofofficerespectiveBoardmembersinfurther3monthsafterend number ofshareoptionsgrantedtoSupervisoryBoardmemberswas2,750,000.Thedonothaveanyvesting At December31,2003,theaggregatenumberofshareoptionsgrantedtomembersBoardDirectorswas500,000and Share optionsatDecember31,2003 Options forfeited Options exercised Options granted Share optionsatDecember31,2002 Options forfeited Options exercised Options granted Share optionsatDecember31,2001 Options forfeited 2001 inthenumberofgrantedshareoptionsandweightedaverageexercisepricetheseoptions: management oftheCompanyandSupervisoryBoardmembers.Thefollowingtableshowschangesduring2003,2002 During 2003,2002and2001theCompanygrantedshareoptionstoBoardofDirectors,certainmembers 2001, respectively.ThepurchasesfromŠKODAPRAHAa.s.aremainlyforconstructionofTemelínnuclearpowerplant. PRAHA a.s.includingvalueaddedtax,amountedtoCZK1,612million,3,4614,862millionin2003,2002and purchasesfromŠKODA amount. AsofDecember31,2003,theincreasesharecapitalwasnotregistered.TheCompany’s with totalnominalvalueofCZK700million.SubscribedsharesweresettledbyoffsetreceivablesČEZ,a.s.,inthesa 29.8%interestinthecompany.During2003ČEZsubscribed700,000shareofŠKODAPRAHAa.s. PRAHA a.s.whichrepresentsa 55% ownedbytheNationalPropertyFund.InFebruaryandJuly1999,Companypurchased166,122sharesofŠKODA generalsupplieroftechnologyandequipmentfortheTemelínnuclearpowerplantis ŠKODA PRAHAa.s.istheCompany’s 2003, 2002and2001,respectively.ThepricesoffossilfuelsuppliesfromSDdonotdiffersignificantlymarketprices. 2001, respectively.PayablestoSDamountedCZK508million,560millionand515asofDecember31, Receivables fromSDamountedtoCZK10million,11millionandasofDecember31,2003,2002 2001, coalpurchasesfromSDamountedtoCZK5,177million,4,921millionand5,416respectively. 37.2%share.In2003,2002and companyinwhichČEZholdsa coal consumptionissuppliedbySeveročeskédolya.s.(SD),a The Companypurchasesproductsfromrelatedpartiesintheordinarycourseofbusiness.Approximately60%brown 23. RelatedParties ubro hr pin Weightedaverageexercise Number ofshareoptions 11000 89.65 (1,190,000) ,7,0 92.58 3,375,000 ,5,0 100.95 105.23 92.15 3,250,000 92.58 1,650,000 3,075,000 3,375,000 2500 87.83 96.39 (285,000) (300,000) 3,0)79.38 (30,000) 00073.30 30,000 –– –– –– price (CZKpershare) me noefo soit 6 6 360 5,518 (501) – – 9,366 – 82,431 360 205,534 (3,689) (1,100) 5,518 – (501) (11,233) – 10,466 86,120 – 216,767 8 1,882 (8,299) 4,431 497 360 19,323 56,055 8,299 8,584 5,518 81,689 5,880 (509) 197,444 (694) – – 1,106 – 1,11214,678 52413,566 11,721 – 75,249 13,042 7,193 11,254 497 56,055 203,427 (1,013) – (2,917) 5,880 1,023 (694) 11,320 (10,219) – Prices incertainintersegmenttransactions areregulatedbytheEnergyRegulatoryAuthority(see Note1). 12,734 78,166 segment. Thetransmissionsegment sellsancillaryservicesandtransmissionmainlyto theeightREAS. – 10,231 213,646 44,735 (6,676) segment chargesthecostofpower lossesinthetransmissiongridandsuppliesofancillary servicestothetransmission 2 1,865 3,704 The powergenerationsegmentsellsthemajorpartofitselectricity generatedtotheeightREAS.Thepowergeneration 497 17,899 661 6,676 55,578 5,880 Change inprovisionsandallowances 10,869 74,462 (696) Depreciation andamortization 195,747 – 441 Income fromassociate 9,570 Investment inassociate Identifiable liabilities 10,999 Identifiable assets 1,063 4,823 6,235 17,611 55,578 Operating 7,500 – 232,517 101,841 – (915) (256) 11,927 Total revenues income (67) Intersegment sales (1,972) 256 Sales otherthanintersegmentsales – 10,999 5,738 43,651 17,867 84,816 103,813 1,063 232,584 Year 2001: 7,244 1,284 (936) 256 (18,513) 2,772 (18,513) Change inprovisionsandallowances (98) 2,714 Depreciation andamortization 111 103,329 – Income fromassociate 84,816 18,513 903 15,965 2,962 Investment inassociate 44,362 – Identifiable liabilities 4,989 – 2,590 1,678 Identifiable assets – Consolidated 476 4 – 2,924 Elimination Operating income 39,031 819 757 630 Combined Total revenues 84,816 6,791 14,173 85,076 Intersegment sales 3,721 Other 5,767 185,508 Sales otherthanintersegmentsales 152 4,698 531 2,399 55,588 Distribution Year 2002: Transmission 38,212 14,952 Power Change inprovisionsandallowances Depreciation andamortization Income (shareofloss)fromassociate 3,569 Investment inassociate Identifiable liabilities Identifiable assets 40,636 Operating income Total revenues Intersegment sales Sales otherthanintersegmentsales Year 2003: CZK millions): The followingtablesummarizessegmentinformationfortheyearsendedDecember31,2003,2002and2001,respectively(in based onoperatingincome. regulation appliesatregulatedprices.TheGroupevaluatestheperformanceofitssegmentsandallocatesresourcestothem revenues andtransfersasiftheorweretothirdparties,thatis,atcurrentmarketpriceswhere The accountingpoliciesofthesegmentsaresameasthosedescribedinNote2.Groupaccountsforintersegment formed bythe5majorityownedREAScompanies. Following thistransactionČEZhasmodifieditsreportingofbusinesssegmentsbyincludingnewdistributionsegment,whichis (ČEPS) andatthesamemomentČEZhasacquiredmajoritysharesin5electricitydistributioncompaniesREAS(seeNote1). accounted asseparatebusinesses.OnApril1,2003ČEZhassoldmajorityshareinitstransmissionsubsidiaryČEPS,a.s. Until April1,2003ČEZhasreportedtwodistinguishablesegments–generationandtransmission,whoseoperationswere 24. SegmentInformation Production Production Production 1981,2 434(,9)56,055 51,928 12,42664,354 (8,299) 55,578 (6,676) 62,254 12,368 49,886 oe rnmsinCmie lmnto Consolidated Elimination Combined Power Transmission Consolidated Elimination Combined Power Transmission

101 Notes to Consolidated Financial Statements as of December 31, 2003 102 Notes to Consolidated Financial Statements as of December 31, 2003 Adjusted weightedaverageshares Diluted: Dilutive effectoftreasuryshares Weighted averagesharesoutstanding Basic: Denominator (thousandsshares) Net income 26. NetIncomeperShare The incometaxexpenseshownabovedoesnotincludedeferredfromconsolidationofundistributedretainedearningsČEPS. Cash flowfromfinancingactivities The followingitemsofincome,expensesandcashflowscanbeattributedtothediscontinuingoperation(inCZKmillions): expense onthetransaction. ČEPS. ThisdeferredtaxliabilityhasdecreasedasresultofthepartialdisposalČEPSandaffectedincome The amountsshownabovedonotincludethedeferredtaxliabilityfromconsolidationofundistributedretainedearnings *) Total netassetstobedisposedoff Total liabilities and 2001areasfollows(inCZKmillions): The carryingamountsoftotalassetsandliabilitiesattributabletothediscontinuingoperationatDecember31,2003,20 The operationsofČEPSwerereportedinthetransmissionsegment(seeNote24). Effect ofsalerecognizedinequity Deferred taxrelatedtothesale Current incometaxrelatedtothesale Book valueofsharessold Total sellingprice recorded inequity2003isasfollows(inCZKmillions): ultimateparent,ČEZhasrecordedthenetgainonsaledirectlyinequity.Thecomposition oftheamount control ofČEZ’s Ministry ofLaborandSocialAffairs.Basedonthefactthattransactionwascarriedoutbetweenpartiesundercommon companycontrolledbytheNationalPropertyFund,and The purchaseofČEPSshareswasmadebyOSINEK,a.s.,a also sellitsremainingequityshareinČEPSthefuture. transaction wascarriedoutonApril1,2003.BasedthedecisionofEconomicCompetitionProtectionAuthorityČEZhasto shareholdersheldonJune11,2002,hasconfirmedtheabovementioneddecisionofGovernment.This meeting ofČEZ’s 66%shareinitstransmissionsubsidiaryČEPS.General On March11,2002theGovernmentdecidedtopurchasefromČEZa 25. DiscontinuingOperation Numerator –basicanddiluted(CZKmillions) Cash flowfrominvestingactivities Cash flowfromoperatingactivities Income taxexpense Income beforeincometaxes Income fromassociate Operating profit Total revenues Total asset The amountrepresentsinvestmentinassociateonly. 9,1 9,5 592,088 591,926 592,150 590,363 592,211 590,772 (4,152) (4,453) 15,224 ,3 ,8 162 1,787 9,123 1,439 8,421 5,932 3,305 4,006 2,924 7,162 ,0 ,3 1,424 1,4601,707 1,531 1,055 1,6841,636 5,6924,127 1,609 1,013 2,023 2,924 13 47 (762) (477) (113) 0320 2001 2002 2003 0320 2001 2002 2003 2001 2002 2003 543 0 7 436 – 470 – 302 630 –– – (1,420) (1,536) – *) ,4 4,725 5,542 02 statements preparedinaccordancewithIFRSissetforththe following tables. statutorybalancestoconsolidatedfinancial descriptionofthesignificantadjustmentsrequiredtoconformCompany’s A in theCzechRepublic(CAS)donotconformtoIFRSusedpreparingaccompanyingconsolidatedfinancialstatements. and InterpretationsissuedbytheInternationalAccountingStandardsBoard.Certainaccountingprinciplesgenerallyaccepted The accompanyingconsolidatedfinancialstatementsarepresentedonthebasisofInternationalFinancialReportingStandards 28. PresentationofFinancialStatements car insuranceandaccidentinsurance. covering otherproperty,generalthirdpartyliabilityinsuranceinconnectionwithelectricityproduction,distributionandtr fossil,hydroandnuclearpowerplants,insurancepolicies disaster andoperationalrisksassociatedwiththeoperationofČEZ’s propertypolicycoveringnatural Group companieshavevariousinsurancepoliciescoveringDirectorsandOfficersLiability,a insurance companies. groupof limits asrequiredbythelaw.ČEZconcludedaboutmentionedinsurancepolicieswithCzechnuclearpool,a minimumofCZK200millionforotheractivities(suchastransportation).ČEZhasobtainedallinsurancepolicieswithminimal a minimumofCZK1.5billionandupto nuclearpowerplantuptoa insure itsliabilityconnectedwiththeoperationofa caused byotheractivities(suchastransportation)toCZK1.5billion.TheNuclearActalsorequiresanoperator/licensee reimbursement ofsuchliabilityuptoCZK6billionisguaranteedbythestate.TheNuclearActlimitsfordamage Nuclear ActprovidesthatoperatorsofnuclearfacilitiesareliableforuptoCZK6billionperincidentandthe The NuclearAct(seeNote14)setslimitsforliabilitiesnucleardamagesbytheoperatorofinstallations/licenses Insurance Matters operations. financialposition orresultsof materialadverseeffectontheCompany’s that theultimateoutcomeofthesematterswillhavea exist duetointerpretationsofapplicablelaws,managementdoesnotbelieve,basedupontheinformationavailableatthistime and 2001theCompanyfurtherreversedCZK54million,72million84respectively.Althoughuncertainties CZK 40millionin2003,472002and572001,respectively,forpollutiondamages.In CZK 7million,respectively.Basedoncurrentestimatesofitsprobablefutureobligations,theCompanyprovided made tostatefarms,individualcooperatives,otheragriculturalfirmsandforeststotaledCZK6million,9million The CompanyisalsoliableundertheActsforpastenvironmentaldamage(seeNote18).In2003,2002and2001,payments plants operatedbytheCompanyhadbeenupgradedtomeetenvironmentalrequirementsofActs. the reductionofatmosphericemissionsinperiodfrom1992throughDecember31,1998.As1998,all timetablefor seriesofenvironmentalactsandlawsregulations(“theActs”)includinga The CzechRepublichasadopteda Environmental Matters stableoutlook. InvestorsService:Baa1andStandard&Poor’s:BBB+,bothwitha following creditratingsfromMoody’s potential cashrequirementsofitsforeignacquisitions.Totheextentfinancingisrequired,Companyhasobtained operating activities.ČEZcurrentlypreparesnewissueofEurobondsinthetotalamountEUR200–400milliontocover The Companycurrentlyprojectsthatitsplannedconstructionexpenditureswillbefundedmainlywithcashprovidedby significant purchasecommitmentswereoutstandinginconnectionwiththeconstructionprogram. programs aresubjecttoperiodicreviewsandactualconstructionmayvaryfromtheaboveestimates.AtDecember31,2003 subsidiaries andassociates,whichareestimatedatCZK43.6billionsintheperiod2004through2008Theconstruction 2006, CZK10.6billionsin2007and9.92008.Thesefiguresdonotincludetheexpectedacquisitionsof CZK 51,3billionoverthenextfiveyears,asfollows:9.5billionsin2004,10.72005,10.6i continuousconstructionprogram,currentlyestimatedasofDecember31,2003tototal The ČEZ,a.s.isengagedina Investment Program 27. CommitmentandContingencies ading, . The and n ,

103 Notes to Consolidated Financial Statements as of December 31, 2003 104 Notes to Consolidated Financial Statements as of December 31, 2003 Balance perCAS(standalone) elsiiaino tm rmrtie anns e 20 9)(56) (90) (220) (290) 844 (471) 252 (577) (82) (835) 170 – Net incomeperIFRS Reclassification ofitemsfromretainedearnings,net 91 (Profit) lossonsaleoftreasuryshares 179 Deferred taxonlosscarryforward Sale ofsubsidiaryČEPS,nettax Revaluation onacquisition 452 Rights, netofdeferredtax (10) (202) Share options Finance leases–lessor,netofdeferredtax Finance leases–lessee,netofdeferredtax 413 Electrometers, netofdeferredtax (168) Other IAS39differences,netofdeferredtax Additional foreignexchangeratedifferencesunderIAS39,netofdeferredtax Gain (loss)onderivatives,netofdeferredtax Grants received,netofdeferredtax (2,540) Depreciation ofinterestcapitalized,netdeferredtax (223) Interest capitalized,netofdeferredtax Impact ofCAS/IFRSaccountingdifferencesontheassociate,netdeferredtax Reversal ofrepairsandmaintenanceaccrual,netdeferredtax and CASTORcontainerswrite-off,net 577 Deferred taxonnuclearprovisions,capitalizedcostsofprovisions (1,149) CASTOR containerswrite-off Capitalized costsofnuclearprovisions Accumulated provisionfornucleardecommissioningandspentfuelstorage(Note14) (1,620) – 1,982 Net incomeperCAS Impact ofconsolidation (2,455) (262) 2,152 – The effectonnetincomeofdifferencesinIFRSandCASisasfollows(inCZKmillions): (171) 2,545 Revaluation onacquisition Reclassification ofitemsfromretainedearnings,net Revaluation onacquisition Rights, netofdeferredtax (247) Share options Finance leases–lessor,netofdeferredtax (10,128) Finance leases–lessee,netofdeferredtax Electrometers, netofdeferredtax Other IAS39differences (9,715) Additional foreignexchangeratedifferencesunderIAS39,netofdeferredtax Gain (loss)onderivatives,netofdeferredtax Grants received,netofdeferredtax (14,415) Depreciation ofinterestcapitalized,netdeferredtax Interest capitalized,netofdeferredtax Impact ofCAS/IFRSaccountingdifferencesontheassociate,netdeferredtax Reversal ofrepairsandmaintenanceaccrual,netdeferredtax and CASTORcontainerswrite-off,net Deferred taxonnuclearprovisions,capitalizedcostsofprovisions CASTOR containerswrite-off Capitalized costsofnuclearprovisions Accumulated provisionfornucleardecommissioningandspentfuelstorage(Note14) Balance perCAS Impact ofconsolidation The effectonretainedearningsandotherreservesofdifferencesinIFRSCASisasfollows(inCZKmillions): Net incomeperCAS(standalone) 712 – – (7,162) (1,119) (1,183) (1,209) 9836,5 64,847 69,154 79,863 5597317,801 7,321 15,579 77,676 84,634 90,535 14,076 15,482 16,829 67,172 72,087 79,228 3916736,434 6,713 13,931 ,3 ,2 9,123 8,421 5,932 1,650 1,405 1,348 1,367 608 1,648 1,264 7,170 1,236 6,910 2,113 8,046 23 8 (1,154) 580 (263) (191) (261) (994) – – (450) (116) (416) (670) 2,325 2,933 (635) 0320 2001 2002 2003 0320 2001 2002 2003 1)–– – – 127 – (17) (85) (26) (12) (125) (63) (26) – – (26) 7 2)(42) (28) 876 – – – – 109 970 5 – – – – (5) (2) – – (5) 1–– 32 – 34 21 32 – 142 – 57 18 43 1)– (18) 5 4–– (95) – – (1,397) (17) – December 31, .I .Mtras1,3,6 7 439471,0,1 15,027,712 15,037,254 15,000,816 15,004,374 14,339,497 24,304,923 14,355,994 270 28,913,059 270 21,857,267 14,339,767 411,297 14,356,264 22,268,564 – – Materials Inventory 1. Currentassets I. C. I. C. – C. – 1,030,775 – 1,018,929 174,452,554 – 1,117,827 169,714,320 195,719,837 1,474,437 – 103,673,303 – 2,592,264 299,393,140 – – Expensesoffoundationandorganization Intangibleassets 1. Fixedassets I. B. Stocksubscribtionsreceivable I. B. B. A. Assets asof31.12.(inCZKthousands) .I.1 ah310–3103183,287 2,180,422 3,128 246,495 3,615,838 342,616 3,150 246,815 2,273,228 – – 343,366 3,828,786 – 2,888,807 342,616 3,150 – 343,366 3,533,216 2,888,807 4,312,840 76,586 3,163,442 7,859,169 3,791,290 15,947 2,681,601 4,530,623 336,390 2,220,730 20,403 411,027 4,127,680 Prepaidexpenses 81,843 Temporary accountsofassets 1. 4,941,650 I. D. – I. D. – Cash Financial accounts 1. IV. 20,403 C. IV. C. 81,843 – Tradereceivables Short-termreceivables 1. III. C. III. C. 663,093 – 12,054,668 699,955 11,896,573 – 46,969,574 Tradereceivables 691,666 Long-termreceivables 1. II. C. 2,204,567 II. C. – 49,174,141 – 161,367,111 691,666 156,798,818 – 147,632,436 99,994,299 247,626,735 Majorityshareholdingsandparticipatinginterests Financialinvestment 1. III. B. III. B. Land Tangibleassets 1. II. B. II. B. ČEZ, a.s.–BalanceSheetsPreparedinAccordance AccountingStandards withCzech .Lvsok––––– – – – – 1 – – 1 – – – – – – – – – – – – 264,578 Goods – 5. Livestock 4. Finishedproducts 3. 343,636 758,384 – Workinprogressandsemi-finishedproduction 2. – 6,812 373,132 – 665,276 – 9,917 – 539,082 – – 1,457,459 205,613 – 373,132 1,996,541 16,978 – 222,591 Intangiblesinprogress 7. Otherintangibles 6. Goodwill 5. Patents,rightsandroyalties 4. Software 3. Researchanddevelopment 2. .Itrru on – – – – 916,351 – 289,339 1,078,664 – 6,826 1,693,844 59,150 152,731 178,139 – – 12,900 615,475 – 72,050 – 768,206 178,139 – – Financialinvestmentinprogress 6. Otherfinancialinvestments 5. Intergrouploans 4. Othersecuritiesanddeposits 3. Substantialshareholdingsandparticipatinginterests 2. .Ecag aelse 1,434,179 1,237 – x 320 – x – 750 – x – – 1,445,532 74,712 824,409 – 2,341,093 – 129,165 93,138 1,484,565 505,723 – x – – 2,139,202 750 – 3,439 746,455 145,780 – 22,451 – 1,586,064 – – 479,170 183,524 – – 484,568 1,993,614 – – – – – 464,546 – 48,790 39,737 – 2,139,202 – 73,207 746,455 – – – – – 67,051 – 22,451 557,775 – – – 183,524 – 2,565,278 61,440 – – 9,541 – – 48,790 2,137,732 1,430 – – – – Exchange rate losses – 4. Unbilledrevenues 3,557 3. – Complexprepaidexpenses 1,430 – – – 2. – – 61,440 – 16,497 Short-termfinancialassets inprogress – 4. Short-termfinancialassets 3. Bankaccounts – 2. – – – – Otherreceivables – 9. Contingencies 8. Otheradvances – – 7. 16,497 Receivablesfromtaxes – 151 6. Receivablesfromsocialsecurity – 5. Receivablesfrompartnersandassociations 4. Receivablesfromassociates 3. Receivablesfromsubsidiaries – – 2. – 13,854 – Deferredtaxassets 7. Otherreceivables 7,101,424 6. Contingencies – 13,679 – 1,001 84,291,167 5. – Receivablesfrompartnersandassociations 6,600,196 4. Receivablesfromassociates – 38,344,336 3. Receivablesfromsubsidiaries 13,952 2. 1,815,408 100 4,431,343 – – – Advancesforinventory – – 6. – – – – 1,815,408 13,952 4,431,343 – 27,125,687 Advancesforfinancialinvestment 7. 37,752,458 44,430,807 – 42,171,735 26,708,779 73,388,194 71,139,586 96,249,260 73,285,520 Adjustmenttoacquiredproperty 9. Advancesfortangibles 8. 169,534,780 Tangiblesinprogress 7. Othertangibleassets 6. Livestock 5. Permanentgrowth 4. Separatemovableitemsandgroupsof 3. Buildings,hallsandconstructions 2. Advancesforintangibles 8. saeodnso 0 0)1,0,1 6,5 ,4,6 ,9,9 4,268,536 4,196,795 9,647,961 661,651 10,309,612 (shareholdings of20%–50%) saeodns>5% 7861494513,3,9 ,0,6 5,791,117 5,709,769 36,931,593 914,541 37,846,134 (shareholdings >50%) OA SES320500140460279040188414202,373,315 198,874,194 217,920,470 104,084,600 322,005,070 TOTAL ASSETS rs dutet e e Net Net Net Adjustments Gross –– – –– –– 0320 2001 2002 2003

105 ČEZ, a. s. – Balance Sheets Prepared in Accordance with Czech Accounting Standards 106 ČEZ, a. s. – Balance Sheets Prepared in Accordance with Czech Accounting Standards .I.Bn on n hr-emnts1,9,7 7020024,488,258 17,022,080 13,596,977 Long-termbankloans Bank loans andshort-termnotes 1. IV. B. IV. B. Tradepayables Short-term liabilities 1. III. B. III. B. .I .Rsre nacrac ihseillw ,8,6 ,4,5 6,419,671 6,434,442 7,646,252 6,713,405 7,985,464 13,931,028 Reserves inaccordancewithspeciallaws Reserves 1. Liabilities I. B. I. B. Profit/lossofcurrentaccountingperiod B. V. A. Statedcapital Statedcapital 1. Shareholders’equity I. A. I. A. A. thousands) Shareholders’ EquityandLiabilitiesasof31.12.(inCZK .I eprr conso iblte 8,6 0,6 1,543,656 805,668 680,561 Accruals Temporaryaccountsofliabilities 1. I. C. I. C. 48,021,040 52,542,282 56,236,206 8,729,798 9,038,840 9,265,086 Tradepayables Long-termliabilities 1. II. B. II. B. Retainedearningsofpreviousyears Retainedearnings 1. IV. A. IV. A. Legalreservefund Reservefundsandotherfromnetprofit 1. III. A. III. A. Sharepremium Capitalfunds 1. II. A. II. A. 0 Contingencies 10. 1 Otherpayables 11. Deferredtaxliabilities 10. .Pybe oprnr n soitos2,0 02510,255 10,255 22,705 Bondspayable 9. Short-term deposits received 8. Taxespayable andsubsidies 7. Socialsecurity payables 6. Payablesto employees 5. Payablesto partnersandassociations 4. Payablesto associates 3. Payablesto subsidiaries 2. .Rsre o esosadsmlrlaiiis––– – – Otherreserves 4. Reservefor incometax 3. Reservesfor pensionsandsimilarliabilities 2. Ownshares 2. .Deferredincome 2. .Exchangerategains 3. Short-termnotes 3. – Otherpayables 9. Contingencies 8. Long-termnotes payable (799,949) 7. Bondspayable 6. Long-termdeposits received 5. Payablestopartners andassociations (1,228,076) 4. Payablestoassociates 3. Payablestosubsidiaries 2. Reserveforexchange ratelosses 5. Retainedlossesofpreviousyears 2. Statutoryandotherfunds 2. Revaluationfromtransformations 4. Revaluationofassetsandliabilities 3. Othercapitalfunds 2. Changesinstatedcapital 3. .Short-termbankloans 2. OA HRHLES QIYADLAIIIS279040188414202,373,315 198,874,194 217,920,470 TOTAL SHAREHOLDERS’EQUITYANDLIABILITIES 3,1,6 2,9,7 123,897,070 128,194,872 139,014,969 13866396653,477,978 6,136,105 3,936,675 8,889,995 11,378,616 21,427,973 01777858898,370,079 8,528,819 15,926,330 10,197,737 76,932,589 16,175,071 69,873,654 18,183,201 78,224,940 59,208,846 59,050,449 59,221,084 59,040,794 59,221,084 59,151,668 107421,8,9 13,450,117 30,381,896 11,685,098 27,786,508 11,047,412 25,016,789 48,021,040 52,542,282 56,236,206 ,0,0 – – 1,124,010 256,715 3,000,000 3,287,029 ,6,1 1394913,000,000 11,339,419 8,563,117 1,661,341 1,659,500 1,659,057 ,8,8 ,3,0 5,356,284 19,131,974 4,235,100 12,786,980 3,987,383 9,609,594 ,0,3 ,3,3 234,289 3,536,534 3,107,233 3,749,559 4,761,991 5,406,260 ,9,9 ,7,9 8,528,479 8,872,094 9,096,890 6,1)(8,9)(158,397) (180,290) (69,416) 3,1 3,3 486,793 331,831 233,217 2,6 6,8 559,786 96,316 146,678 564,488 98,612 154,885 125,464 107,491 166,218 6,6 0,3 815,889 802,536 660,567 1,661,341 859,551 430,981 6,9 6,4 201,319 166,746 168,196 994312202,669 3,132 19,994 0320 2001 2002 2003 ––– ––– ––– 525,098 x x ––– 182,220 – ––– ––– 1,136,580 ––– – x ––– ––– ––– x ––– ––– ––– ––– I.Rvne rmfnnilivsmns79492004131,160 112,753 210,054 183,053 739,409 739,409 134,956 195,902 437,089 488,561 617,133 Revenuesfromsubsidiariesandassociates 660,621 Revenuesfromfinancialinvestments 1. VII. VII. Revenuesfromintangiblesandtangiblessold Revenuesfromintangibles,tangiblesandmaterialsold 1. III. III. e eut rmetariayatvt 8973,0 (64,500) 6,434,442 38,602 6,713,405 98,957 13,931,028 (2,079,737) 57,647 9,884,476 1,282 – – – Netprofit (loss)fortheaccountingperiod Netresultsfromextraordinary activity *** – * – 5,952 Extraordinaryrevenues XIII. 717,911 Netresultsfromfinancialactivities 20,531,409 Transfer offinancialrevenues * Otherfinancialrevenues XII. Interest revenues XI. X. Revenuesfromrevaluationofsecuritiesandderivatives IX. Revenuesfromshort-termfinancialassets VIII. Revenuesfromsaleofsecuritiesanddeposits Netoperatingresults VI. Transfer ofoperationalrevenues * Otheroperationalrevenues V. 51,851,799 IV. 49,492,738 54,445,309 Valueadded + Revenuesfromfinishedproducts andservices Production 1. Salesmargin II. II. Revenuesfromgoodssold + I. Profit andLossStatementasof31.12.(inCZKthousands) *Ntrslsatrtxsfo omlatvt 38201664836,498,942 6,674,803 13,832,071 Netresultsaftertaxesfromnormalactivity ** Prepared inAccordance AccountingStandards withCzech ČEZ, a.s.–Profit andLossStatement .1 e okvleo nagbe n agbe od22474121190,010 643,676 461,231 661,149 272,487 377,622 Netbookvalueofintangiblesandtangiblessold Netbookvalueofintangibles,tangiblesandmaterialsold 1. F. F. .Icm a netariayatvt 74732(15,406) 302 27,407 – – (809,860) (1,167,586) – – 2,108,099 –Due Incometaxonextraordinaryactivity 1. S. Extraordinaryexpenses S. R. (420,500) (170,088) Transferoffinancialexpenses 1,612,127 P. Otherfinancial expenses O. Interestexpenses 1,394,581 N. Changesinfinancialreservesandadjustments Costsofrevaluationsecuritiesandderivatives 1,582,323 M. L. Costsoffinancialassets K. 8,079,961 10,080,930 Soldsecuritiesanddeposits 12,285,601 J. Transferofoperationalexpenses I. Otheroperationalexpenses H. Changesinoperational reservesandadjustments G. Amortizationofintangiblesanddepreciationtangibles Taxesandfees E. D. Costsofgoodssold A. .Icm ae nnra ciiy46808137932,958,234 1,317,973 4,668,038 –Due Incometaxesonnormalactivity 1. Q. Q. Wagesandsalaries Personnelexpenses 1. C. C. .Cnupinfo rdcin2,4,4 6096526,256,579 19,250,312 26,029,665 19,178,491 26,940,445 19,918,462 Consumptionofmaterialandenergy Consumptionfromproduction 1. B. B. .Rvne rmohrscrte n eois–2,0 18,407 27,001 – Revenuesfromothersecuritiesanddeposits 2. .Cagsi netr fonpouto 1 – – (1) Socialinsurance 3. Bonusestoboardmembers 2. Changesininventoryofownproduction 2. .Rvne rmohrfnnilivsmns––– – –Deferred 2. – –Deferred 2. Revenuesfromotherfinancialinvestments 3. Bookvalueofmaterialsold 2. Revenuesfrommaterialsold 2. Othersocialexpenses 4. Services 2. Capitalization(ofownwork) 3. rft(os eoeicm ae 86643801609,377,270 8,031,680 18,626,473 Profit (loss)beforeincometaxes 768872,9,8 26,021,501 23,891,784 27,608,837 52,276,354 49,919,670 54,549,282 ,1,2 ,6,3 539,313 3,309,596 2,860,939 2,601,235 1,416,426 2,491,239 8,619 315,154 8,029,499 1,085,934 1,126,929 1,680,194 ,2,6 0,4 1,910,407 305,541 444,158 4,023,769 3,436,932 2,431,773 11,536,913 7,935,129 8,615,633 2,446,154 3,727,581 2,496,682 3,622,573 2,536,975 3,713,089 ,2,8 ,5,7 7,006,267 6,851,174 7,021,983 0,7 3,9 105,944 433,891 301,776 409,567 386,013 615,191 2,4 7,9 26,038 472,795 428,140 385,379 302,492 227,148 878,356 406,459 430,107 2,2 9,1 879,482 891,912 922,021 4,6 ,1,3 1,047,827 1,012,432 644,269 453,666 199,918 105,135 392,374 223,427 244,431 424,555 426,932 103,974 3485,7 60,946 51,472 43,488 74732(15,406) 302 27,407 ,6 0529,571 10,552 9,662 0320 2001 2002 2003 ,7 1,726 1,779 – ––– ––– 5,626 6,970 – ––– ––– 7,352 8,749 – –––

107 ČEZ, a. s. – Profit and Loss Statement Prepared in Accordance with Czech Accounting Standards 108 ČEZ, a. s. – Cash Flow Statement Prepared in Accordance with Czech Accounting Standards .Ntices/eraei ah(3,7)15558(799,351) – (158,397) 1,555,558 2,273,228 (7,541,714) (4,339) (939,979) 3,828,786 (123,866) (11,017,760) (1,183,545) – 2,888,807 (6,733,520) (109,572) 106,361 (1,490,432) (1,465,808) (540,745) (124,801) (2,652,291) (1,604,343) (1,947,239) (5,530,866) – (4,295) (2,670,731) (4) (637,686) (6,344,994) (1,121,184) (9,321,937) (3,177,386) (42,141) 5,952 (6,075,906) 3 (247,717) 98,767 (4,996,131) 134,960 (9,413,417) 60,847 (639,536) (19,574,361) 540,562 1,038,498 (4,062,789) 437,086 (493,930) (381,919) – 33,902 (7,485) Cashandcashequivalentsatendofperiod 20,425,047 21,034,695 Netincrease/decreaseincash (7,907,714) (91,639) (304,236) 617,133 R. Netcashfromfinancingactivities (43,601,085) (5,674,804) F. Purchase/saleoftreasuryshares C.*** (453,809) 7,288,253 Paid-outdividendsandprofitshares C.2.4. 16,064,300 (3,842,415) Directpaymentsdebitedtofunds 2,395 C.2.3. Monetarydonationsandsubsidiestoequity (77,645) C.2.2. Impactofchangesinequitybycash 17,569,449 C.2.1. (3,135,622) Changeinotherlong-termliabilities C.2. Changeinlong-termbondspayable 2,148 25,367,902 C.1.4. 44,210 Changeinshort-termbankloansandnotes (2,477,872) C.1.3. Changeinlong-termbankloans C.1.2. Changeinlong-termliabilities andshort-termloans C.1.1. (2,460,192) x 234,777 C.1. Totalcashusedininvesting activities Changeinreceivablesfromsales offixedassets B.*** Proceedsfromsalesoffinancial investment 2,924,217 B.2.4. Proceedsfromsalesofintangible fixedassets B.2.3. Proceedsfromsalesoftangible fixedassets B.2.2. Proceedsfromsalesoffixedassets 2,298,743 B.2.1. 20,559,020 Changeinpayablesfrominvesting activity(emergingfromexchangeratedifferencies) B.2. Changeinpayablesfrominvesting activity B.1.5. 2,264,091 Changeinfinancialinvestment 22,722,727 B.1.4. Additionstointangiblefixedassets B.1.3. 57,721 Additionstotangiblefixedassets B.1.2. Fixedassetsacquisition 26,440,595 1,992,648 B.1.1. 9,457,176 B.1. Netcashprovidedbyoperating activities (378,615) 13,114,330 Revenuesandexpensesrelatedtoextraordinaryitems 8,139,744 486,731 A.*** Incometaxespaid 8,130,663 7,992,776 A.6. Interestreceived 13,782,762 (12,846,557) A.5. Interestpaid,excl.capitalizedinterest 10,096,458 3,609,624 10,090,151 18,500,109 A.4. Netcashprovidedbyoperatingactivitiesbeforetaxesandextraordinaryitems 5,672,621 3,072,579 A.3. 12,304,351 Changeininventory A.** 12,289,475 A.2.3. 2,273,228 Netcashprovidedbyoperatingactivitiesbeforetaxes, 3,828,786 Othernon-cashtransactions A.* A.1.5. Interestrevenues Interestexpenses A.1.4.2. Interestexpensesandrevenues A.1.4.1 Gain/Lossonfixedassetsretirementsandownshares A.1.4. A.1.3. Changeinaccruals A.1.2.3. Changeinreserves A.1.2.2. Changeinadjustments Changeinadjustments,reservesandaccruals A.1.2.1. A.1.2. Receivableswriting-off A.1.1.2. Depreciationandamortizationoffixedassets Depreciation,amortizationandwriting-off A.1.1.1. Adjustmentsbynon-cashtransactions Pre-taxprofitfromnormalactivity A.1.1. A.1. Cashandcashequivalentsatbeginningofperiod Z. P. Cash FlowStatement(inCZKthousands) ...Cag nrcialsfo prtoa ciiis181836742(45,733) (221,024) 667,402 234,485 1,861,853 (242,362) Changeinshort-termpayablesfromoperational activities Changeinreceivablesfromoperationalactivities A.2.2. Changeinworkingcapital A.2.1. A.2. Prepared inAccordance AccountingStandards withCzech ČEZ, a.s.–CashFlow Statement Financing activities Investing activities Operating activities hne nwrigcptladetariayies2,7,3 1755822,571,506 21,775,538 24,172,730 changes inworkingcapitalandextraordinaryitems 4,0,5)(,3,2)(9,420,704) (6,034,629) (40,609,056) ,9,3 ,0,3 3,309,596 2,601,235 484,651 317,599 2,491,239 248,741 (21,897) 2,008,130 1,681,598 ,6,6 4,8 (2,012,486) 947,189 2,267,865 2718 3242 (385,379) (302,492) (227,148) 8,0)29871,190,398 259,887 (80,104) 2,5 0,7 535,104 (1,816,557) (3,021,191) 301,575 (1,745,729) 924,170 45,302 228,552 – 648,374 1,279,445 341,112 4866379,081 6,307 14,876 0320 2001 2002 2003 ––– 109

ČEZ Group Organization Chart as of 31 December 2003 110 ČEZ, a. s. Organization Chart as of 3 June 2004 112 ČEZ, a. s. Directory of Organization Units and Information Centers 114 Glossary of Terms and Abbreviations 117 Information for Shareholders and Investors 123 Information on Persons Responsible for the Annual Report 124 110 ČEZ Group Organization Chart as of 31 December 2003 Legend: ČEZ Group *) Affiliate (consolidatedbyequitymethod) Subsidiary (companysubjecttofullconsolidation) ČEZ, a.s.(ParentCompany) Consolidated companiesonly. KD PRAHAa.s. ŠKODA Severočeské dolya.s. LOMY MOŘINAspol.sr.o. KOTOUČ ŠTRAMBERK,spol.sr.o. KNAUF POČERADY,spol.sr.o. ČEPS, a.s. Coal Energy,a.s. Michles.r.o. AB Ústav jadernéhovýzkumuŘeža.s. rpg EnergiehandelGmbH I &CEnergos.r.o. HYDROČEZ,a.s. Energetické opravny,a.s. ČEZnet, a.s. FinanceB.V. CEZ ČEZ, a.s. *) Organization Chart asof31December2003 Organization Chart 00 03 9.3% 10.3% 100% 10.3% 29.8% 50.0% 17.0% 37.2% 100% 51.0% 59.1% 64.9% 17.0% 100% 40.0% 100% 34.0% 20.0% 17.0% 99.1% 99.9% 52.5% 76.2% 100% 98.8% 100% 100% 51.0% 100% 100% 97.7% 100% Severomoravská energetika,a.s. Západočeská energetika,a.s. Východočeská energetika,a.s. Severočeská energetika,a.s. Středočeská energetickáa.s. 100% 100% 100% 100% Union Leasing,a.s. STMEM, a.s. MSEM, a.s. ePRIM, a.s. Energetika Vítkovice,a.s. Aliatel a.s. Plzeňská energetikaa.s. EN-DATA a.s. VČE -montáže,a.s. VČE -elektrárny,s.r.o. První energetickáa.s. STE -obchodníslužbyspol.sr.o. 11.0% rpg EnergiehandelGmbH I &CEnergos.r.o. HYDROČEZ,a.s. Energetické opravny,a.s. ČEZnet, a.s. CEZ FinanceB.V. ČEZ, a.s. segment –other fax: (+420)261214067 tel.: (+420)271133410 140 00Praha4,Michle U plynárnyčp.1388 Director Jan Hala AB Michles.r.o. segment –other fax: (+420)220940840 tel.: (+420)266172000 250 68Husinec-Řež,čp.130 CEO andChairmanoftheBoard František Pazdera Řež a.s. Ústav jadernéhovýzkumu segment –other tel.: +49(99)18943830 Germany Munich Karl-Theodor-Str. 69 Managing Director Hanns H.Hannich segment –other fax: (+420)568893999 tel.: (+420)568893111 674 01Třebíč Pražská 684/49 Chief ExecutiveOfficer Miroslav Horák joint stockcompany) (since 1May2004 segment –other fax: (+420)224234797 tel.: (+420)224211111 110 00Praha1 Dlážděná 4 Acting CompanyDirector Zdeněk Noll segment –other fax: (+420)474305088 tel.: (+420)474305067 432 01Kadaň Prunéřov č.375 Chief ExecutiveOfficer Štěpán Kostelník segment –other fax: (+420)271136310 tel.: (+420)271136612 120 00Praha2 Fügnerovo nám.1866/5 Chief ExecutiveOfficer Antonín Kalda segment –other Netherlands Amsterdam segment –generation fax: (+420)271132001 tel.: (+420)271131111 140 53Praha4 Duhová 2/1444, Chief ExecutiveOfficer Martin Roman Středočeská energetickáa.s. ŠKODA PRAHAa.s. Severočeské dolya.s. LOMY MOŘINAspol.sr.o. KOTOUČ ŠTRAMBERK, KNAUF POČERADY,spol.sr.o. ČEPS, a.s. Coal Energy,a.s. segment –distribution fax: (+420)224213101 tel.: (+420)222032201 120 21Praha2 Vinohradská 325/8 Chief ExecutiveOfficer Jan Kanta segment –other fax: (+420)224396447 tel.: (+420)224396444-5 160 41Praha6 Milady Horákové109 effective 1June2004 Chief ExecutiveOfficer Jiří Smola segment –generation fax: (+420)474652264 tel.: (+420)474652265 430 01Chomutov Boženy Němcové5359 CEO andChairmanoftheBoard Vratislav Vajnar segment –other fax: (+420)311702314 tel.: (+420)311702111 okres Beroun 267 17Mořina Managing Directors Jaroslav Šilhánek Pavel Vyskočil segment –other fax: (+420)556852711 tel.: (+420)556852701 742 67poštaŽenklava Štramberk 500 Director Bohumír Volný spol. sr.o. segment –other fax: (+420)415735010 tel.: (+420)415735011 okres Louny Počerady čp.17 Head ofUnit Jiří Frolík segment –transmission fax: (+420)267104568 tel.: (+420)267104111 101 52Praha10 Elektrárenská 774/2 of theBoard CEO andChairwoman Ludmila Petráňová segment –other fax: (+420)224223672 tel.: (+420)224473056 110 00Praha1 Václavské náměstí846/1 Chief ExecutiveOfficer Petr Paukner EN-DATA a.s. Západočeská energetika,a.s. VČE -montáže,a.s. VČE -elektrárny,s.r.o. Východočeská energetika,a.s. První energetickáa.s. Severočeská energetika,a.s. segment –other fax: (+420)378002992 tel.: (+420)378002931 303 28Plzeň Guldenerova 19 Chief ExecutiveOfficer Jiří Linda segment –distribution fax: (+420)378002008 tel.: (+420)378001111 303 28Plzeň Guldenerova 19 Chief ExecutiveOfficer Jaroslav Hába segment –other fax: (+420)466872708 tel.: (+420)466871111 531 17Pardubice Arnošta zPardubic2082 Chief ExecutiveOfficer Jiří Abel segment –other fax: (+420)495842708 tel.: (+420)495842218 500 03HradecKrálové Křižíkova 788 Director Vladimír Tomek segment –distribution fax: (+420)495523581 tel.: (+420)495842255 501 03HradecKrálové Sladkovského 215 Chief ExecutiveOfficer František Šůcha segment –other fax: (+420)221004767 tel.: (+420)221004296 110 00Praha1 Opletalova 1525/39 Acting CompanyDirector Šárka Vinklerová segment –distribution fax: (+420)412442977 tel.: (+420)412441111 405 49DěčínIV Teplická 874/8 Chief ExecutiveOfficer Josef Holub segment –other fax: (+420)224230720 tel.: (+420)222032511 120 00Praha2 Vinohradská 8 Director Michal Stibůrek spol. sr.o. STE -obchodníslužby Union Leasing,a.s. STMEM, a.s. MSEM, a.s. ePRIM, a.s. Energetika Vítkovice,a.s. energetika,a.s. Severomoravská Aliatel a.s. Plzeňská energetikaa.s. segment –other fax: (+420)596674772 tel.: (+420)596674771 702 00Ostrava Mlýnská 1 Director Ivo Ostrožný segment –other fax: (+420)581225478 tel.: (+420)581292103 750 02Přerov Tržní 8 Chairman oftheBoard Executive DirectorandVice Jiří Linhart segment –other fax: (+420)558437172 tel.: (+420)558414100 738 02Frýdek-Místek Collo louky126 Chairman oftheBoard Executive DirectorandVice Pavel Kubín segment –other fax: (+420)596611527 tel.: (+420)596673359 709 02Ostrava-MoravskáOstrava 28. října568/147 Director Aleš Dámek,MBA segment –generation fax: (+420)597015309 tel.: (+420)597015300 706 02Ostrava–Vítkovice Výstavní 1144/103 Director Vlastislav Sznapka segment –distribution fax: (+420)596612388 tel.: (+420)596671111 709 02Ostrava 28. října152 Chief ExecutiveOfficer Jaroslav Veselský segment –other fax: (+420)225253208 tel.: (+420)225251111 186 00Praha8 Sokolovská 131/86 Chief ExecutiveOfficer Bernhard Fanger segment –generation fax: (+420)378133007 tel.: (+420)378132073 316 00Plzeň Tylova 57 Chief ExecutiveOfficer Jiří Bis

111 ČEZ Group Organization Chart as of 31 December 2003 ČEZ, a. s. Organization Chart as of 3 June 2004

Corporate Governance Structure

General Meeting

Supervisory Board Stanislav Kázecký Chairman, Zdeněk Hrubý Vice Chairman, Václav Krejčí Vice Chairman Jan Demjanovič, František Haman, Jan Juchelka, Jaroslav Košut, Martin Pecina, Václav Srba, Pavel Suchý, Jan Ševr, Zdeněk Židlický

Board of Directors Martin Roman Chairman, Alan Svoboda Vice Chairman, David Svojitka, Jiří Vágner, Petr Vobořil

Head Office

1000 Chief Executive Officer Martin Roman 3000 4000 5000 6000 Finance and Strategic Development Sales Distribution Administration Petr Vobořil Alan Svoboda Henning Probst David Svojitka

1100 3002 4100 5010 6100 Office of the CEO Taxes Strategy and Sales Support and Asset Management and the Board of Directors Controlling Development

1400 3003 4200 5300 Human Resources Planning Information Technologies Balance and Telecommunications 112 ČEZ, a. s. Organization Chart as of 3 June 2004

1600 3100 4300 Mergers and Acquisitions Financing Ownership Participations

3200 Accounting

0101 3500 Organizational Unit Internal Audit Property Management, Sales, and Services ČEZTrade (CTR) Conventional Power Division (CPD) Nuclear Power Division (NPD)

2000 7000 Conventional Power Nuclear Power Pavel Klika Zdeněk Linhart

2010 2100 7100 Quality, Safety, Production Management System and Services and External Affairs

2020 2200 7200 Human Resources Technical Economics and Sales

2030 2300 7300 Economics Sales Human Resources 113 ČEZ, a. s. Organization Chart as of 3 June 2004

2500 7400 Property Management Property Management

Organizational Units 7500 Safety Mělník Power Station Tisová Power Station

7600 Poříčí Power Stations Dětmarovice Power Station Technical

Chvaletice Power Station Ledvice Power Station 7700 Dukovany Nuclear Power Station Generation Tušimice Power Stations Počerady Power Station 7800 Temelín Nuclear Power Station Hodonín Power Station Prunéřov Power Stations Generation

Hydro Power Stations ČEZ, a. s. Directory of Organization Units and Information Centers

Head Office Martin Roman, CEO ČEZ, a. s. Duhová 2/1444 140 53 Praha 4 tel.: (+420) 271 131 111 fax: (+420) 271 132 001

ČEZTrade Vladimír Tošovský, Director ČEZ, a. s. Duhová 2/1444 140 53 Praha 4 tel.: (+420) 271 131 111 fax: (+420) 271 132 001

Nuclear Power Division Zdenek Linhart, Executive Director ČEZ, a. s. Dukovany Nuclear Power Station 675 50 Dukovany tel.: (+420) 568 811 111 fax: (+420) 568 866 360

Dukovany Nuclear Power Station Temelín Nuclear Power Station

114 ČEZ, a. s. Directory of Organization Units and Information Centers Miloš Štěpanovský, Production Section Director Miroslav Vilím, Production Section Director Dukovany Nuclear Power Station Temelín Nuclear Power Station ČEZ, a. s. ČEZ, a. s. Dukovany Nuclear Power Station Temelín Nuclear Power Station 675 50 Dukovany 373 05 Temelín tel.: (+420) 568 811 111 tel.: (+420) 385 781 111 fax: (+420) 568 866 360 fax: (+420) 385 782 298

Information Center Veronika Vespalcová Milan Malík ČEZ, a. s. ČEZ, a. s. Dukovany Nuclear Power Station Temelín Nuclear Power Station Information Center Information Center 675 50 Dukovany 373 05 Temelín tel.: (+420) 568 815 519 tel.: (+420) 385 782 639 fax: (+420) 568 866 370 fax: (+420) 385 784 900 e-mail: [email protected] e-mail: [email protected] Internet: http://www.cez.cz/edu-exkurze Internet: http://www.cez.cz/ete-exkurze Opening Hours: 9:00 – 16:00 seven days a week, Opening Hours: 9:00 – 16:00 seven days a week; Closed first Monday of each month. July and August: 9:00 – 17:30. On state holidays by telephone appointment, larger groups and visits inside the power station compound by telephone appointment only. Conventional Power Division Pavel Klika, Executive Director ČEZ, a. s. Elektrárny Tušimice č. p. 9 432 01 Kadaň tel.: (+420) 474 321 111 fax: (+420) 474 324 006

Hydro Power Stations Aleš Tomec, Director ČEZ, a. s. Hydro Power Stations Prof. Vl. Lista 329 252 07 Štěchovice tel.: (+420) 257 740 088 fax: (+420) 257 740 308

Information Center Jan Kyncl, Head of Quality Control and Safety Dept.

Štěchovice run-of-river and pumped storage Dlouhé Stráně pumped storage hydro power station hydro power station Tours arranged by: ČEZ, a. s. Energotis, s. r. o. Hydro Power Stations Žižkova 5 Information Center 787 01 Šumperk

Prof. Vl. Lista 329 tel.: (+420) 583 235 091 – Dr. Trnečková, Ms. Maňková 115 ČEZ, a. s. Directory of Organization Units and Information Centers 252 07 Štěchovice fax: (+420) 583 235 094 appointments: Opening Hours: Year-round 8:00 – 15:00, tel.: (+420) 602 107 453 – Renáta Pátová by advance telephone appointment only 7:00 – 15:00 (+420) 603 769 197 – Jan Frouz Entrance fee CZK 50; children up to 10 years free, (+420) 608 308 759 – Václav Petrák schools, handicapped with ZTP card CZK 30 fax: (+420) 257 740 308 Private property – protected area. Opening Hours: Year-round by advance telephone appointment only.

Dalešice pumped storage hydro power station Lipno hydro power station Tours arranged by: ČEZ, a. s. ČEZ, a. s. Hydro Power Stations Dukovany Nuclear Power Station Lipno Unit Information Center Information Center 675 50 Dukovany 382 78 Lipno nad Vltavou tel.: (+420) 568 815 519 Appointments: Vladimír Valík, Pavel Míšek, Jan Irsigler fax: (+420) 568 866 370 tel.: (+420) 380 746 621 e-mail: [email protected] (+420) 606 445 798 Internet: http://www.cez.cz/edu-exkurze fax: (+420) 380 746 622 Opening Hours: July 1 – August 31: Opening Hours: June 15 – September 15: Monday through Sunday, 9:00 – 16:00, 10:00 – 16:00 seven days a week. September 1 – June 30: Off-season by advance telephone appointment only. Monday through Friday, 9:00 – 16:00, Admission: adults CZK 20, children and senior citizens CZK 10. by advance appointment only. Mělník Power Station Tisová Power Station František Strach, Director Jaroslav Souček, Director ČEZ, a. s. ČEZ, a. s. Elektrárna Mělník č. p. 255 Elektrárna Tisová, 277 03 Horní Počaply poštovní přihrádka 98 tel.: (+420) 315 611 111 356 69 Sokolov 1 fax: (+420) 315 626 840 tel.: (+420) 352 651 111 fax: (+420) 352 624 035

Poříčí Power Stations Dětmarovice Power Station Jan Žižka, Director Lumír Jendryščík, Director ČEZ, a. s. ČEZ, a. s. Elektrárny Poříčí Elektrárna Dětmarovice č. p. 1202 Kladská 466 735 71 Dětmarovice 541 37 Trutnov tel.: (+420) 596 582 111 tel.: (+420) 499 806 111 fax: (+420) 596 550 326 fax: (+420) 499 806 199

Chvaletice Power Station Ledvice Power Station Jaroslav Kužel, Director Josef Kašparů, Director ČEZ, a. s. ČEZ, a. s. Elektrárna Chvaletice č. p. 227 Elektrárna Ledvice č. p. 141 533 12 Chvaletice 418 48 Bílina tel.: (+420) 466 831 111 tel.: (+420) 417 801 111 fax: (+420) 466 833 600 fax: (+420) 417 801 501 116 ČEZ, a. s. Directory of Organization Units and Information Centers Tušimice Power Stations Počerady Power Station Otakar Tuček, Director Jan Mikulka, Director ČEZ, a. s. ČEZ, a. s. Elektrárny Tušimice č. p. 9 Elektrárna Počerady 432 01 Kadaň 439 44 Počerady tel.: (+420) 474 321 111 tel.: (+420) 415 751 111 fax: (+420) 474 323 880 fax: (+420) 415 782 040

Hodonín Power Station Prunéřov Power Stations Ludvík Trávník, Director Jiří Šinágl, Director ČEZ, a. s. ČEZ, a. s. Elektrárna Hodonín Elektrárny Prunéřov č. p. 375 U elektrárny 1/3030 432 01 Kadaň 695 23 Hodonín tel.: (+420) 474 301 111 tel.: (+420) 518 300 111 fax: (+420) 474 332 697 fax: (+420) 518 353 814

“Duhová energie” Foundation Marie Sodomková Seifertova 55 130 00 Praha 3 tel./fax: (+420) 271 136 720 Glossary of Terms and Abbreviations

Term Commentary Achievable capacity Power station nameplate capacity less outages caused by changes that are permanent in character. Ancillary services Activities carried on by private individuals and/or legal entities to provide for system services. Available capacity Maximum active capacity for generation of electrical energy and supply of heat that can be achieved by a given generation facility when considering internal technical and operational conditions but disregarding external ones. Equals achievable capacity less selected basic shut-downs (for overhauls, extended overhauls, upgrades, guarantee repairs, routine repairs) and technical failure rate. Used to calculate working availability. BI 12 Index of power industry stocks on the Prague Stock Exchange. Cash pool A service ensuring that the balances of all participating accounts of the client are summed daily and this sum is then used to calculate interest for that day (at a higher applicable rate), which is then credited to the main account. CO Carbon monoxide.

CO2 Carbon dioxide. Czech Nuclear Pool A consortium of insurers for insuring nuclear risks. ČEPS, a.s. Entity that owns and operates the transmission grid; inception: October 1998. 100% subsidiary of ČEZ, a. s. until 31 March 2003; affiliate of ČEZ, a. s. (34% ownership interest) effective 1 April 2003. Desulfurization/desulfurization equipment Technologies and/or equipment for reducing the content of sulfur oxides in powder-coal boiler flue gases. Distribution grid A mutually interconnected set of 110 kV power lines and equipment – with the exception of 110 kV power line and equipment that are part of the transmission

grid, and power lines and equipment with voltages 0.4/0.23 kV, 3 kV, 6 kV, 10 kV, 117 Glossary of Terms and Abbreviations 22 kV and 35 kV that serves purposes of distributing electricity in a defined area of the Czech Republic, including metering, protective, control, security, information and telecommunications systems and technologies. Electricity demand Total electricity generated by domestic sources less electricity consumed by power stations less grid losses less electricity used for pumping at pumped-storage hydro power stations plus balance of foreign electricity trade. Electricity distribution companies Eight electric utility companies in the Czech Republic that distribute electricity to final consumers and may also trade in electricity. With certain exceptions, they cover the entire territory of the Czech Republic. Electricity importer Private individual or legal entity that holds an electricity trading license and purchases electricity abroad for re-sale in the home market. Electricity Market Operator (OTE) A State-established joint-stock company whose purpose is to organize the Czech Republic electricity market, draw up the reconciliation of agreed and actual amounts of electricity supplied and purchased by market players, see to the settlement of deviations of actual supply amounts from contracted-for amounts, and organize the electricity spot market. Term Commentary Electricity producer Private individual or legal entity that produces electricity and holds a license to produce electricity. Electricity production Overall electricity generated, as measured from generator terminals over the period in question. Electricity supply Total electricity generation less in-house consumption and losses inherent in generation technologies. Electricity trader Private individual or legal entity who holds a license to trade in electricity and who purchases electricity for the purpose of resale. Eligible Customer A final customer who has the right to choose its electricity supplier from among market players licensed to produce and/or trade in electricity. May also procure electricity directly on the market organized by the OTE. Emissions ceilings Highest permissible aggregate emissions of pollutants or set groups of pollutants arising as a result of human activity, expressed in terms of mass over a one-year period from all sources of air pollution, from defined groups of said sources, or from individual sources of air pollution within a defined geographical area. Emissions limits Highest permissible concentrations of pollutants released into the air. Energy Regulatory Authority (ERA) Administrative office responsible for regulating the energy sectors; has its own separate category in the Czech Republic national budget. The Energy Regulatory Authority, headquartered in Jihlava, supports competition and protects consumer interests in those areas of the energy industries where competition is not possible, with the aim of satisfying all reasonable demand for energy. Final Customer A customer that uses electricity supplied only for the customer’s own consumption, not for resale. Fluidized-bed boiler Boiler in which coal combustion takes place in a rising column of air. Flue gas

118 Glossary of Terms and Abbreviations desulfurization takes place by adding ground limestone to the fuel. This renders unnecessary the desulfurization equipment used with more common powder-coal boilers. IFRS International Financial Reporting Standards, formerly known as IAS (International Accounting Standards). Installed capacity Sum of generator name-plate capacities, including generators for in-house consumption. The only capacities that are not counted are those of generators that have been permanently decommissioned and generators whose drive motor has been permanently removed and therefore are serving as compensators. IAEA International Atomic Energy Agency, based in Vienna, Austria. International System International system for determining radiation dosages sustained by employees of on Occupational Exposures (ISOE) nuclear power plants. Liberalization of the electricity market The process of creating a competitive market environment. For natural reasons, a monopoly currently remains in the power sector, especially in the use of the transmission and distribution grids, including the provision of system services. What is being liberalized is the generation of electricity and trading in electricity and ancillary services. For the time being, the Czech Republic’s organized electricity spot market is also a State monopoly. Nameplate capacity Capacity figure shown on the generator nameplate. NEA Nuclear Energy Agency. Specialized agency within the OECD for international cooperation in the development of the scientific, technological and legal framework for safe use of nuclear energy for placeful purposes. Based in Paris, France.

NOx Nitrogen oxides. Term Commentary Peak requirement Highest load on the grid measured during a given period. Power System The Czech Republic Power System is a mutually interconnected set of equipment for the generation, transmission, transformation, and distribution of electricity, including electricity hook-ups, direct power lines, as well as metering, protective, control, security, information and telecommunications systems and technologies. Privatization Transfer of State ownership to a non-State entity. Protected Customer A private individual or legal entity that has the right to be hooked-up to the distribution grid and be supplied with electricity in the prescribed quality and for a regulated price. Does not have the right to change its electricity supplier. PX 50 The official stock index of the Prague Stock Exchange. The index is set using the method recommended by the IFC (International Finance Corporation) for calculation of indexes in emerging markets. From analyses it was decided to create a base consisting of 50 stocks. Currently the number of base stocks is variable, but it may not exceed 50. Equity securities of investment funds and holding companies founded by transformation of investment funds are not included in the index base. The date 5 April 1994 was chosen as the index start date, and the initial value of the PX 50 on that date was set at 1,000 points. As of the closing date of this Annual Report, the number of stocks included in the PX 50 calculation was sixteen, and three of them were ČEZ Group companies (ČEZ, a. s., Severočeské doly a.s., Severomoravská energetika, a. s.) with a total weighting of 22.49%. Regulated Third Party Grid Access Under this principle, anyone who satisfies the stipulated technical conditions has the right to access grids (at regulated prices) in order to engage in electricity trades. Unlike negotiated access, prices for regulated third-party access are set by a regulator (the Energy Regulatory Authority) and are made public.

Renewable sources of energy Energy resources that renew themselves naturally. Includes, e.g., hydro, solar, 119 Glossary of Terms and Abbreviations wind, and biomass. Retail electricity customer An electricity consumption category, members of which are hooked up to the low-voltage grid (1 kV and under). The category is further subdivided into households and businesses.

SO2 Sulfur dioxide. System services Activities carried on by the transmission grid operator (ČEPS, a.s.) and distribution grid operators to ensure reliable operation of the Czech Republic Power System with consideration for the operation of interconnected power systems. “Take or Pay” A type of contract based on payment for an agreed amount of electricity regardless of whether or not the entire amount was actually used. Transmission grid A mutually interconnected system of 400 kV, 220 kV power lines and equipment and selected power lines and equipment of the 110 kV grid, which serves the purpose of electricity transmission throughout the entire Czech Republic and that of interconnection with power systems of neighboring countries, including metering, protective, control, safety, information and telecommunications equipment; the transmission grid is built and operated in the public interest. Unbundling The separation of distribution operations from trading operations. Wholesale electricity customer A customer who purchases electricity from the high- and medium-voltage grids. Working availability The degree to which electricity generating equipment is available to produce electricity and heat. Available capacity expressed as a percentage of achievable capacity. 120 Glossary of Terms and Abbreviations Dhv nri”A “Duhová energie” Description of“Duhováenergie”Products(2004Offering) Year Band Other Month Band Quarter Band rw Supplyofelectricityataconstantone-hourwattageonallbusinessdaysthe Supplyofelectricityataconstantone-hourwattageonallbusinessdaysthe Supplyofelectricityataconstantone-hourwattageonallbusinessdaysthe Supplyofelectricityataconstantone-hourwattageinall hours ofallbusiness Supplyofelectricityataconstantone-hourwattageinall hours ofalldaysthe Brown Violet R day block Orange Green Yellow akgenSupplyofelectricityat aconstantone-hourwattageonallbusinessdaysofthe Supplyofelectricityataconstantone-hourwattageonallbusinessdaysthe White Supplyofelectricityat aconstantone-hourwattageonallbusinessdaysofthe Supplyofelectricityataconstantone-hourwattageinallhours ofallbusiness Supplyofelectricityataconstantone-hourwattageinallhours duringthegiven Dark-green Grey M day block Supplyofelectricity at aconstantone-hourwattageinallhoursofbusiness Supplyofelectricityataconstantone-hourwattageinallhours duringthegiven Light-blue Blue Red Q light-blue Q red electricity supply,allcolor-coded.The2004offeringcontainsatotalof15products. year from00:00to08:00and20:0024:00. non-business daysoftheyear. Supply ofelectricityataconstantone-hourwattageinallhours year from6:00to22:00. year from8:00to20:00. days oftheyear. year. a per-weekbasis(bydividingupthetotalagreednumberofMWh fortheyear). Supply ofelectricityatavariableone-hour given monthfrom00:00to08:00and20:0024:00. non-business daysofthegivenmonth. Supply ofelectricityataconstantone-hourwattageinallhours given month,from6:00to22:00. given month,from8:00to20:00. days ofthegivenmonth. month. days ofthegivenquarterfrom8:00to20:00. quarter. marketing strategythroughwhichČEZ,a.s.offerscustomersseveraltypesof wattage negotiated andchargedon **) *) Cash generationratio Calculation Netincome/Shareholders’equity Netincome/Totalassets equity (Shareholders’ / income Net Incomebeforeincometaxes/Shareholders’equity Return oncapitalemployed(ROCE)net Return ontotalassets(ROA)net Return onequity(ROE)net Return onequity(ROE)gross Indicator Method UsedtoCalculateKeyIndicators urn ai Currentassets/Short-term liabilities OperatingRevenues/Totalassets Netcashprovidedbyoperatingactivities/Liabilities Total assetsturnover Operational cashflowtoliabilitiesratio Current ratio rc annsrtoPriceofshareinPragueStockExchange Netincome/Statedcapital Dividendspaidfromtheprofitofcurrentyear/Netincome 1-(Netplantinservice/Plantservice) (Long-termliabilities+Shareholders’equity)/FixedAssets Price /earningsratio Dividend shareofprofit Earnings pershare Extent ofdepreciation Coverage offixedassets (Long-termdebtnetofamountduewithinoneyear+Long-termrevolvingloans) Debt/Shareholders’equity Debt serviceratio Long-term indebtedness (Long-termliabilities+CurrentDeferredincometaxes-Accumulated Total indebtedness with provisions excluded Debt toequityratio ae agnIncomebeforeincometaxes/Operatingrevenues Working ratio Sales margin Average ofvaluesatendlastyearandgivenyear. According toCzechAccountingStandards. **) **) **) one year service requirements (Operating revenues+Otherincome-OperatingexpensesIncometaxdue)/Debt / Totalassets assets provision fornucleardecommissioningandfuelstorage-Accruedliabilities)/Total Cash generatedfromownsources/Averageyearlyinvestmentexpeditures Operating expenses/revenues *) + Long-termrevolvingloans *) *) *) *) + Long-termdebtnetofamountduewithin *) ) * Number ofshares/Netincome *)

121 Glossary of Terms and Abbreviations 122 Glossary of Terms and Abbreviations Wmegawatt;1MW=10 MW metricton;1t=10 t eaeSenateoftheParliamentCzechRepublic ParliamentoftheCzechRepublic MinistryofFinancetheCzechRepublic GovernmentoftheCzech Republic(i.e.,theCabinet) Ministry ofEnvironmenttheCzechRepublic MinistryofEducationtheCzechRepublic MinistryofCulturetheCzechRepublic MinistryofLaborandSocialAffairstheCzech Republic Senate ConstitutionalCourtoftheCzechRepublic OfficefortheProtectionofCompetition Parliament ChamberofDeputiestheParliamentCzechRepublic Ministry ofLaborandSocialAffairs Fullname Ministry ofFinance Ministry ofEnvironment %perannum,year Ministry ofEducation Ministry ofCulture Government Constitutional Court Chamber ofDeputies Antitrust Office Name usedintext Governmental Bodies % p.a. The companiesmentionedinthe2003AnnualReportarepresentedastheyappearCommercialRegisterofMinistryJu Remark: terawatt-hour;1TWh=10 Explanation TWh Unit Explanation ofUnitsUsedinThisDocument Jterajoule;1TJ=10 TJ V kilovolt;1kV=10 pieces(units) kV pcs J =Wsaunitofwork(energy) 3 3 V, V=aunitofelectricalpotential(voltage) 3 kg =10 GJ =10 6 W =10 3 GWh =10 6 6 g, g=aunitofmass MJ =10 3 kW, W=aunitofelectricalcapacity 6 MWh =10 9 kJ =10 12 9 kWh =10 J, stice oftheCzechRepublic. 12 Wh, Wh=3,600Ws ulsigo 03Ana eot(nls eso) 17.6.2004 Unaudited unconsolidatedfinancialperformancefiguresfor1 12 Publishing of2003AnnualReport(Englishversion) Unaudited unconsolidatedfinancialperformancefiguresfor1 “Duhová energie”Foundation Website Investor Relations Sales Department–ČEZTrade – DukovanyNuclearPowerStation ČEZ, a.s.PressSpokesperson – TemelínNuclearPowerStation ČEZ, a.s.PressSpokesperson ČEZ, a.s.PressSpokesperson Contacts Unaudited unconsolidatedfinancialperformancefiguresfor1 according toCzechAccountingStandards Audited unconsolidatedfinancialperformancefiguresfor2003 Events Calendar Information for Shareholders andInvestors ulsigo 03Ana eot(zc eso) 30.4.2004 31.8.2004 ČEZ GroupFinancialPerformanceSummaryaccordingtoIFRSfor1 ČEZ, a.s.Half-yearReportaccordingtoCzechAccountingStandards(unconsolidated,unaudited) 30.4.2004 according toCzechAccountingStandards ČEZ GroupFinancialPerformanceSummaryaccordingtoIFRSfor1 ČEZ GroupFinancialPerformanceSummaryaccordingtoIFRSfor2003(Englishversion) Publishing of2003AnnualReport(Czechversion) according toCzechAccountingStandards for 1 ČEZ GroupFinancialPerformanceSummaryaccordingtoIFRS according toCzechAccountingStandards th iaca efrac umr Cehvrin 27.2.2004 Financial PerformanceSummary(Czechversion) Press conference iaca efrac umr Cehvrin lateJuly2004 30.4.2004 Financial PerformanceSummary(Czechversion) Press conference Financial PerformanceSummary(Czechversion) Press conference iaca efrac umr Cehvrin lateOctober2004 Financial PerformanceSummary(Czechversion) Press conference Annual GeneralMeetingofČEZ,a.s. st – 3 rd ures20 Egihvrin lateNovember2004 quarters 2004(Englishversion) uě onhrx1hpmi.e.z(+420)271132381 (+420)271136720 (+420)568815400 (+420)271132572 [email protected] [email protected] [email protected] (+420)271132754 [email protected] (+420)385782415 [email protected] (+420)271132383 Marie Sodomková Michaela Sabolovičová [email protected] Petra Šleprová [email protected] Luděk Horn Petr Spilka Milan Nebesář Ladislav Kříž st st st half 2004 quarter 2004 – 3 rd st st quarters 2004 ure 04(nls eso)lateMay2004 quarter 2004(Englishversion) af20 Egihvrin lateAugust2004 half 2004(Englishversion) 17. 6.2004

123 Information for Shareholders and Investors 124 Information on Persons Responsible for the Annual Report Chief FinanceandAdministrationOfficer David Svojitka Financial Section Director StrategyandControllingSection Jiří Kobosil Editorial Section Prague, 3June2004 omitted thatcouldinfluencetheaccurateandcorrectevaluationofČEZGroup. The informationpresentedintheAnnualReportforYear2003arefactualandnomaterialcircumstanceshavebeen Sworn Statement: Responsibility fortheAnnualReport Information onPersons Responsiblefor theAnnual Report ČEZ, a. s. Duhová Street 2/1444 140 53 Praha 4 Czech Republic Europe

Year established: 1992 Legal form: joint-stock company Corporate ID: 45274649 Tax ID: CZ45274649 Bankers: Komerční banka Praha 1, Account no.: 71504 – 011, bank code 0100 Telephone: (+420) 271 131 111 Fax: (+420) 271 132 001 Internet: http://www.cez-group.com http://www.cez.cz/eng http://www.duhovaenergie.cz/eng E-mail: [email protected]

Closing date for Annual Report 2003: 3 June 2004