ELECTRIC POWER INDUSTRY OF SERBIA 2006

ELECTRIC POWER INDUSTRY OF SERBIA 2006

A thousand of Natures secrets which I discovered by accident I would give away for this one (rotating magnetic field) which I tore away from her

Nikola Tesla

MISSION
The Mission of the Electric Power Industry of Serbia is secure electricity supply to all buyers, under the most favourable market conditions, with continuous upgrading of the services, improvement of environmental protection and welfare of the community

VISION
The vision of the Electric Power Industry of Serbia is to be a socially accountable, market-oriented and profitable company, competitive on the European market with a major impact in the region, recognized as a reliable partner among the local and international companies

The year 2006 will be remembered in the Electric Power Industry of Serbia by many events. First of all, after many years EPS made 18 billion RSD profit. It was certainly not the price of electricity to contribute to managing the said profit but the State in its capacity of the company owner managed to write off in addition to Paris and London Clubs debts the foreign debts of EPS, as well which had an impact on the operating result. In addition to the said measures EPS invested its efforts in order to achieve this important result. The year started with organizational changes. Instead of 18 public enterprises, eleven business companies were set up. The company designed a uniform job classification throughout EPS system. Starting April 1st, within PE EPS Head Office Energy Trade Department was set up. This was only first step towards organizational and financial improvement of PE EPS operations in line with market orientation of the companys targeting both local and regional markets. Turning the companys vision into reality, we have hired reputed international consultants in order to jointly tackle some important issues such as the new organizational structure of EPS in the coming years, the best road to restructuring, financial consolidation, initiation of development projects and finding strategic partners. By mid 2007, we expect to get answers related to the above issues. The restructuring process and organizational changes have by no means jeopardized the supply of electricity to consumers. To the contrary. The year 2006, will be remembered for the highest power consumption since 1990. EPS responded with the power generation nearly equalling that of 2005 marked by the highest electric power generation ever in the history of EPS. By mid-year the Serbian Parliament ratified the Contract on the establishment of the Energy Community. In the opinion of the European Commission, the founding of the Regional Electricity Market in the SE Europe was one of the major events contributing to the process of stabilisation and

association of the Western Balkans into the European Union. EPS has a long history of preparations for the task and it will be fully prepared for the opening of the market in the region. The reduction of losses in distribution companies has been seen as one of the major tasks in EPS. The procurement of more than 120.000 modern digital metering devices is a promissing step. The replacement of three million electricity meters in the coming years has been planned. The actual investments in the existing thermal units and coal mines contributing to ever increasing power generation over the years continued in 2006, as well. The year 2007 being targeted for important investments into hydroelectric power plants 2006 was marked by the preparations for these important tasks. The building of the high capacity state-of-the art telecommunication network continued together with the implementation of a number of projects in the IT area. We managed to enhance our cooperation efforts with a number of university departments (faculties), scientific institutes and reputable and prestigious local firms involved in research work of major importance to EPS system. All these activities proved once again that EPS is not only the mainstay of the Serbian economy but of the Serbian scientific efforts, as well. The merits for the EPS being successful goes to its employees. To that purpose, human resources management offices have been set up in all corporate enterprises established by PE EPS. Their primary tasks are to take care of the employees health, work safety, education, recreational holidays, to work closely with Trade Unions. This year is an affirmation of EPS taking the right direction. EPS is marking constantly improving operating results through the years and it will be facing its strategic partners fully prepared for business cooperation.

The year 2006 is marked by important changes in PE EPS. In addition, it is a year of achieved peak generation results. It all started with EPS restructuring. Instead of eighteen public enterprises, eleven business companies were established. In line with any economic and technical parameters, this measure proved to be justified. The company restructuring initiated three years ago continued. Non-core activities with some 17.000 employees were sourced out. An exceptional merit of the Managment lies in the fact that such important measures were carried out without provoking social tensions and economic breakdowns. Concurrently with the restructuring, the new job classification was introduced. The first mid-year period is marked with the generation exceeding 20 billion kWh. This is the highest EPS electric power generation for the first six-month period ever. This period was marked with high water levels and with the generation in storage-type hydro-electric power plants exceeding the plan by 10%. Moreover, important power surplus in run-of-theriver HPPs and exceptionally well operating thermal power plants contributed to the good results. Unfortunately, the second six-month period was marked by poor water inflows meaning that the thermal power plants had to increase their generation share. This resulted in hydro power plants peak generation in the first mid-year and generation peaks of the thermal power plants in the second six-month period. The rehabilitation of electricity generation facilities contributed greatly to the electric power stability on the national level. The construction of new facilities has been on the top of any PE EPS priority list for many years. The cooperation with the consultants and the preparations for the public invitation aimed at finding strategic partners clearly indicated EPSconsiderations of the future. The PE EPS Board of Directors gave support to such far-reaching development plans of the Management. To support the above, the Board of Directors adopted the EPS 2006-2010 Operating and Development Plan. I would like to underline that the said Document clearly states the

main objectives - to preserve the company intact, because the spin-offs and company splitting of certain activities and their privatization, especially when it comes to distribution companies, has not been seen either as an interest of EPS or as a national interest. The ratification of the Contract on the establishment of the Energy Community is seen as a major event for the future of the energy sector. This marked accession of the Serbian energy sector in the European Union. The electricity demand growth continued in 2006. This is seen both as one of the signs of revival of the Serbian business and economy but also as the red light warning of the necessity to accelerate building new generating facilities. However, PE EPS Board of Directors pointed out that the electricity consumption decrease must be looked upon as a must. Unadvised consumption of low-priced power is significantly boosting the national energy deficit making the Board emphasize the importance of launching of the measures supporting energy efficiency efforts. Nevertheless, I have to underline the fact that it is impossible to convince the customers to lower the consumption of cheap power. EPS had the lowest kWh price in the region in the current year, as well. Despite all these facts, after many years, EPS made 18 billion RSD profit. It must be said that the profit is not resulting from the market price of electricity sold by EPS but, in the first place, the result of outstanding, exceeding-the-plan electricity outputs managed by hydro power plants primarily, non-planned electricity exports, measures introduced in the EPS operations routine, Paris and Londin Clubs debt write-offs. The EPS employees stand behind the successful operation of EPS, discharging their duties responsibly and with due diligence. They all contributed to the EPS keeping its leading position in Serbia and becoming an entity worth of attracting the necessary attention of the State in the coming years. It is an undisputed fact that the Electric Power Industry of Serbia is the major and most important Serbian resource and the mainstay of not only the Serbian national electric power stability.

Vladimir Djordjevi, Phd General Manager Prof. Jeroslav M. ivani, PhD in El. Eng. Chairman of the Board of Directors

Identity card of PE EPS

Title Abbreviation Main Office Phone
8

Public Enterprise lectric Power Industry of Serbia PE EPS 11000 Belgrade, Carice Milice 2 (011) 2024 600 (011) 2627 160 eps@eps.co.yu www.eps.co.yu Decision BD 80380/2005 with the Serbian Business Registers Agency 20053658 103920327
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Organization chart of PE EPS

Fax E-mail Website Registration

MANAGING BOARD

COAL PRODUCTION AND POWER GENERATION HPPs DJERDAP PLC, Kladovo

Registration number PIN:

GENERAL MANAGER

HPPs DRINSKO-LIMSKE PLC, Bajina Bata TPPs NIKOLA TESLA PLC, Obrenovac

DEPARTMENTS Power generation department Electric power trade department Electric power distribution department Strategy and investments department Economic and financial affairs department Legal affairs and human resources department Electric power generation, transmission and distribution and coal production on the territory of Kosmet department

MB KOLUBARA PLC, Lazarevac TPPs AND OPEN-PIT MINES KOSTOLAC PLC, Kostolac TPP-HPs PANONSKE PLC, Novi Sad *PE KOSOVO, Obili

Foundation rganizational structure Business activities

The Public Enterprise Electric Power Industry of Serbia was founded by Decision of the Government of the Republic of Serbia which was put into force on 1 July 2005 Vertically organized enterprise consisting of 11 business companies. (As of June 1999, the Enterprise cannot manage its plants at Kosmet) Electric power generation; electric power distribution and distribution system management; electric power trade; production, processing and transportation of coal; production of steam and hot water through combined processes; utilization of water and services in river and lake traffic; wholesale in fuel and similar products; research and development; designing, construction and maintenance of power plants and mines; designing, construction and exploitation of telecommunication facilities; engineering. 100% property of the Republic of Serbia 448 827 065 000 dinars Board of directors, Supervisory board, General Manager all appointed by the Government of the Republic of Serbia. Managers of departments and divisions within the EPS Head Office, as well as Directors of business companies, form the Management of the Electric Power Industry of Serbia. Jeroslav M. ivani, PhD Vladimir Djordjevi, PhD

ELECTRIC POWER DISTRIBUTION ELEKTROVOJVODINA PLC, Novi Sad ELEKTRODISTRIBUCIJA BEOGRAD PLC, Beograd Business assets ELEKTROSRBIJA PLC, Kraljevo JUGOISTOK PLC, Ni CENTAR PLC, Kragujevac *PE ELEKTROKOSMET, Pritina Chairman of the Board of directors General manager Company management Ownership structure:

DIVISIONS Internal control and supervision division Public relations division

* As of 1 July 1999, EPS does not operate its facilities on the territory of Kosmet

EPS in figures

MAP OF THE ELECTRIC POWER SYSTEM OF EPS

INSTALLED CAPACITY OF POWER GENERATION FACILITIES CAPACITY SHARE

10

8 355 W

Coal-fired PPs Gas and liquid fuel fired TPP-HPs Run-of-the-river HPPs Storage HPPs Reversible HPP Total power generation of EPS plants Coal-fired TPPs Gas and liquid fuel fired TPP-HPs HPPs GROSS CONSUMPTION IN SERBIA *Total coal production *Delivered to thermal power plants *POWER DISTRIBUTION Total number of consumers at high and medium voltage at low voltage DELIVERED TO CONSUMERS IN SERBIA The greatest share in consumption was realized by households FINANCIAL INDICATORS Business assets Capital value Total revenue Total expenditure Total gross profit Total net profit Average electricity price realized in the consumer area of Serbia was Total number of employees (with employees at PE in Kosovo and Metohia) * without public enterprises at Kosmet

5 171 MW 353 MW 1 849 MW 368 MW 614 MW 38 452 GWh 27 422 GWh 180 GWh 10 850 GWh 37 126 GWh 36 073 846 t 33 553 609 t
N. TESLA B ZVORNIK S. MITROVICA NOVI SAD

11

1
ZRENJANIN

KOSTOLAC

2
N. TESLA A KOSTOLAC B

KOSTOLAC

DJERDAP I

5
KOLUBARA A KOLUBARA MEDJUVRJE OVAR BANJA KOKIN BROD MORAVA

DJERDAP II

KOLUBARA B B. BATA PS PP B. BATA

3 332 036 3 648 3 328 388 26 933 GWh 53 %

POTPE

BISTRICA UVAC

PIROT

VRLA IV KOSOVO B KOSOVO A

VRLA II

VRLA I VRLA III PSP LISINA

448 827 065 000 dinars 341 370 245 000 dinars 132 086 506 000 dinars 114 196 694 000 dinars 17 889 812 000 dinars 16 303 246 000 dinars 3.265 din/kWh 34 789
POWER PLANTS AND COAL MINES: TPP TPP UNDER CONSTRUCTION = 500 MW

KOSOVO

TPP-HP

HPP

COAL MINE

ELECTRIC POWER DISTRIBUTION: 1 ELEKTROVOJVODINA - NOVI SAD 4 JUGOISTOK - NI 2 ELEKTRODISTRIBUCA BEOGRAD 3 ELEKTROSRBA - KRALJEVO

5 CENTAR - KRAGUJEVAC

* ELEKTROKOSMET - PRITINA

E P S = ENERGY = L I FE

M A J OR E V ENT S I N 2 0 0 6

New EPS

EPS and consultants

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The Electric Power Industry of Serbia marked the beginning of 2006 by organizational changes 18 public enterprises were transformed into 11 subsidiary business companies which enabled greater business efficiency and better insight into the power production and distribution processes. By establishing the Central expert team for enactments on the organization and description of jobs in business companies one of the most important assignments was initiated. The teams task was to set up a uniform description of job titles taking into account the specific aspects of business companies. The new job description provided an efficient control of finances and expenditures, clearly defined the line of governance and management and created a basis for determining the coefficient of payroll accounts. As of 1st April, began the functioning of the new organization unit within the Head Office of PE EPS Energy Trade Department. That was the first step toward the organizational and financial improvement of business activities of PE EPS in accordance with the market orientation of the companys business activities both within the internal, as well as the regional electricity market. In accordance with the companys business objectives, the task of this Department is improvement of the trade activity which should provide growth of EPSs revenue and encourage internal efficiency.

The objective of EPS is to provide long-term sustainable functioning and development, as well as a competitive position in the Southeast European electricity market. For that reason, in addition to everything else, it is necessary to set up a strategy for providing optimal forms of ownership structure. Furthermore, EPS wishes, by means of an adequate and realistically possible timeschedule, to improve the efficiency of the existing plants and optimize the investments. Therefore, on the way toward that target, the process of organizational restructuring shall be implemented in three main steps: financial consolidation and restructuring operational restructuring and performance improvement investment optimization. EPS organized a transparent tender procedure for the selection of a support adviser (analysis, assessment and proposals) in the process of organizational restructuring, as well as strategy preparation and improved control of investments, with possibilities for attracting foreign capital. The implementation of the said consultants activities shall be realized through two basic, parallel processes: organizational and financial restructuring, and improvement of investment activities.

Organizational and financial restructuring The renowned consulting firm Arthur D. Little, which began to work on this project in December 2006, was selected as adviser (consultant) in this process. The survey is expected to be completed by the middle of 2007. The task of the consultant is to analyze, assess and define the recommendations for: possible reduction of costs and increase of revenue, development of strategy on the reform changes of EPS, the development strategy principles through 2015, promotion of the organization, access to the capital market and the options thereof, as well as the privatization strategy. Improvement of investment activities EPS has also hired consultants (financial advisors) for the purpose of providing services in order to improve the investment activities by analyzing possible optimization of investment costs, as well as by selecting and attracting strategic partners for the realization of investment projects. The first two projects scheduled for 2006 were: selection and attraction of the strategic partner for construction completion of TPP Kolubara B selection and attraction of a strategic partner for the thermal power plant-heating plant Novi Sad reconstruction projects

activities began in the second half of June 2006, and after publishing the invitation to tender by the middle of 2007, the tender procedure, including the signing of contract with the selected strategic partner, is scheduled for closure by the beginning of 2008. Based on the results of preliminary analyses and additional performed activities, where there is obviously considerable interest of the potential strategic partners in construction of a new modern thermal power plant with a capacity of approximately 700 MW at the TPP Nikola Tesla B site, parallel completion of TPP Kolubara B (capacity 700 MW) and new block with a capacity of 700 MW at TPP Nikola Tesla B has also been foreseen. The selection of partner shall be realized in two separate tender procedures. Whereas one generating plant of 700 MW shall meet the expected consumption growth, and the other one shall represent a spare plant to replace the old inefficient and environmentally unacceptable units. Taking into account the legal framework of the Republic of Serbia and the necessity for constructing new thermal power plants, both in order to meet the needs of Serbia, and the region, as well as to attract the strategic partner so as to provide financial resources and business experience, a decision was made to put in place a tender procedure for selecting the strategic partner for implementation of both projects. The projects will be realized independently.

Selection and attraction of the strategic partner for construction completion of TPP Kolubara B The consortium formed by EPIC (Austria) and the Faculty of Electrical Engineering in Belgrade was selected as financial adviser (consultant) to this project. The

EPS and the 150th anniversary of Nikola Teslas birth

EPS in Europe

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Selection and attraction of a strategic partner for the TPP-HP Novi Sad reconstruction projects The selected financial adviser (consultant) in this project is the consortium formed by CSP Consult & Strategy GmbH (FR Germany), ROLAND BERGER STRATEGY CONSULTANTS GmbH (Austria), LAHMEYER INTERNATIONAL AG (FR Germany) and CITADEL FINANCIAL ADVISORY Ltd (Serbia). The activities began in November 2006, and it is expected that after publishing the tender in the middle of 2007, the tender procedure, including the signing of contract with the selected strategic partner, will be closed by the end of 2007. With the reconstruction, the thermal power plant-heating plant Novi Sad shall be transformed into Combined Heat and Power Plant (CHP) with a gas and steam turbine or a new gas-steam block shall be constructed on the same site. This will provide plant competitiveness and profitability in terms of market business and normal parity of fuel prices and energy. The new plant shall also be flexible in terms of load change, where fast commissioning will be possible, which is important for the functioning of the electric power system. Along with that, the additional electric power capacity in Vojvodina will contribute to stable transmission network operation and provide the required reactive power. The implementation of this project assumes participation of a foreign strategic partner.

One of the reasons why the year 2006 shall be remembered is the celebration of the 150th anniversary of Nikola Teslas birth. With a desire to contribute to the realization of the Republic committees anniversary ceremony, EPS defined in their Annual business report for the year 2006 that the basic traditional projects under the title EPS AND CHILDREN shall be included in the celebration of this anniversary. In that spirit, around 30,000 children pupils from primary schools from all parts of Serbia, as well as over 3,500 children from institutions for children with special needs took part in the art and literary contest on the topic Tesla a fairy tale about electricity. Apart from that, the Electric Power Industry of Serbia made a monument of Nikola Tesla at Belgrade Airport which bears his name, and presented two bells as a gift to the Eparchial Managing Board of the Upper-Karlovac Eparchy for the Temple of the Holy Apostles Peter and Paul in the village of Smiljan, Nikola Teslas birthplace; the company was general sponsor of the jubilee edition of the journal called Serbia Nikola Tesla, sponsor of the organized exhibition And Tesla was born, and it has provided considerable financial resources for support to schools, associations, humanitarian organizations realizing the activities in connection with the celebration of Nikola Teslas birth anniversary.

An event of multidimensional importance for Serbia and Serbian energy, and therefore for EPS as well, that took place in 2006, was the enactment of the Contract on establishment of the Energy Community. From the political standpoint, the Contract represents the basic integration factor of the Southeast European region (and, in accordance with that, of the Republi of Serbia as well) and the European Union. This is the first contract signed by Serbia on an internationally and legally binding basis with the European Union and other countries and territories of the Southeast European region. The contract was signed on 25th October 2005 in Athens, and was put into force on 1 July 2006. The ratification law pertaining to the Contract on the establishment of the Energy community, was adopted on 14th July 2006, by the National Assembly of the Republic of Serbia, whereby it became internationally binding. The energy sector of Serbia has become a part of the European Union and de iure. The European commission officially assessed that setting up a regional energy market in Southeast Europe has been the most important activity for the stabilization and accession of the west Balkans to the European Union.
st

by 1st January 2015. The following period of several years will be very important for EPS and it will not be so easy later on to change the relations established in the regional market in that period. EPS has been carefully analyzing the environment, both from the standpoint of the implementation schedule of foreseen reforms in the region, as well as from the standpoint of competition expected in the common regional market, which EPS has been carefully observing for years in order to see where it stands. Competition and EPSs access to the regional market are a great challenge for EPS and, on the one hand, there is danger of losing a part of the Serbian market, but, on the other hand, this is a great chance for EPS, as it opens an opportunity for this company to become the leading electric power industry in the region, provided the reform and reorganization process is performed in an adequate manner.

The contractual obligations promote the idea set by the European Commission, to provide the same degree of electricity market liberalization in the countries of Southeast Europe as in the European Union, as soon as possible. It also thereby foresees the opening of the market for all consumers, except for residential consumers, by 1st January 2008, and for all consumers

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EPS

= ENERGY = L I FE

THER M A L AND HYDRO P O W ER P L ANT S

Recovered generating facilities of EPS

Production and consumption

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21

Energy has taken global dimensions and therefore, having recognized the importance thereof, the developed countries directed the reforms toward the introduction of markets, competition, price regulation, the phenomenon of independent producers, penetration of private capital Due to low electricity prices, investments made in generating facilities in Serbia were not sufficient up to 2000, and the technical and economic performances were therefore degraded. After the year 2000, which was the most difficult one in terms of energy, the situation in EPSs environment began to show better prospects. Changes and a better quality of the working conditions set new tasks before EPS. Rapid upgrading of the generating facilities equipment condition and greater operating efficiency and productivity provided a foundation for improvements in EPS. By accountably managing the generating plant revitalization in the period from 2001 to 2006, in accordance with the new regulations, the energy, technical and economic performances were improved, and taking into account the organization changes that are taking place and are now in the final phase, the company is closer to the modern processes of the energy sector after having made the required adjustments. During the last six years, PS has gone a long way experiencing an incredible transformation starting with reductions and considerable import, having suffered an energy and economy collapse, in order to arrive at a stage of stable operation of generating capacities with energy surpluses in certain periods of the year which are being placed under market conditions in the regional market. The generating facilities potential is used to a maximum extent, so that the electric power production in 2006 amounted to 38,452 GWh, which provided a secure functioning of the electric power system.

net output capacity of power plants

MW 10 000

8 000

6 000

The gross consumption in this year has been the largest since 1990 - 37 126 GWh and the production of EPSs plants is slightly lower than last years maximum (by 0.1%) and it amounted to 38,452 GWh (due to lower production of the run-of-the-river HPPs, which was 1,075 GWh lower). Because of the high production achieved by hydro power plants in 2005 and thermal power plants in 2006, achievements in 2005 and 2006 are marked by non-standard and extremely high production (over 3000 GWh higher than the maximum so far) and there is very little room for further improvements. Only the maximum daily production of run-of-the-river HPPs was outstanding in order to exceed the achievements from 2005, but in spite of that, the year 2006 was a year of periodic monthly and daily records in EPS. In January and March 2006, the two largest monthly productions were achieved and they were by 100 GWh higher than the previous maximum of December 1998.

Production and gross consumption in 1990-2006

GWh 40 000

35 000

4 000

30 000

2 000

25 000

1970

1980

1990

2000

2004

2005

2006

20 000

TPPs coal

TPP-HPs gas and liquid oil

HPPs

Electric power generation

GWh 40 000 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 1970 1980 1990 2000 2004 2005 2006

15 000

1990

1992

1994

1996

1998

2000

2002

2004

2006

EPS Production

EPS Gross Consumption

TPPs coal

TPP-HPs gas and liquid oil

HPPs

Structure of electric power generation

HPPs WITH RESERVOIR 3,1% RUN-OF-RIVER HPPs 26,3% PUMPED STORAGE PP 1,6%

Due to the increased economic activities, standard of living and number of consumers, the electricity consumption increased. There consumption has also increased in the electric power system of EPS during the last 16 years, at different rates and in different periods. When the effects of the new tariff system from 2001 had worn out, and as the price did not grow and did not get closer to the economic price, the demand increased so that during the warm winter of 2006, the maximum monthly and daily consumption and hourly capacity amounted to 138% of the achievements from 1990.

TPP-HPs USING GAS AND LIQUID FUEL 0,5%

TPPs USING COAL 71,3%

Overhauls of generating facilities

The effects of improvements

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In order to eliminate all the problems concerning the operation of its generating facilities, EPS began with its realization of capital overhauls, partial revitalization, modernization and reconstruction in 2001. The realized overhaul schedules are satisfactory in terms of scope, efficiency, application of procedures in connection with purchases and quality of performed works. Structure of investments in power plant overhauls
mil. euros 350 300 250 200 150 100 50 0 46.6 46.1 103.5 2001-2003 10,9 51.4 2004-2006 193.8 114.1

revitalized during the capital overhauls, as the recovery thereof required more time. Three blocks had increased scheduled emergency outages. Block A1 at TPP Nikola Tesla had to undergo capital overhaul with elements of modernization, due to recorded faults. There was a similar situation with two blocks at TPP Kolubara A. Block A3 will not be available even in 2007, and block A4 is working at reduced load. Due to complete replacement of the electric filtre out of the donor funds ZVVZ, block 2 at TPP Kostolac A had the status of prolonged overhaul. In 2006, the most important works in the hydro sector were performed at units 9 and 10 of HPP Djerdap II. At unit 10, the capital overhaul will be completed in the first half of 2007. The process of hydro plants reconstruction, dependent on the sources and amount of funding, as well as the state of equipment, started later. The complex and long period of preparation for reconstruction is over for most of the hydro power plants. In the period from 2007 to 2012, around 200 million Euros will be required for realizing the modernization project of HPPs Djerdap I, Bajina Basta, Ovcar Banja, Medjuvrsje and Zvornik. So far, two units of reversible HPP Bajina Basta have been modernized, owing to the donation of the Government of Japan.

After extensive revitalization operations, the rather old thermal power plants have been brought to a state of availability and reliability, thereby making it possible to achieve some exceptional production results in 2006, particularly at TPP Nikola Tesla and TPP Kostolac, where their blocks have achieved the highest peaks since1990. Those two business companies reached the highest annual production. In spite of longer scheduled outages that were necessary in order to do the overhauls, the hourly commitments of TPPs have been the highest since 1990. In 2006, the following was recorded: lowest annual coefficient of unscheduled outages (Ki); reduced number of outages and length of the remediation, with increased commitment; minimum balances between blocks that have realized the highest and lowest coefficients during this year; smaller spans between monthly achievements (on a monthly basis, the coefficient Ki for June has never been lower since 1990). Forced outages took 1,495 hours in 2000, but 446 hours in 2006, so that on a yearly basis, the performance of blocks increased by one and a half months. The reliability grew in proportion with the funds invested in maintenance, and time used for efficiently prepared and performed overhauls. The achieved degree of reliability attained in 1990 is greater and it is the result of systematically scheduled and performed maintenance. This technical efficiency parameter has resulted in the largest improvement of 16.4%, compared to the situation in 2000, and no significant improvement can be expected in the following years.

The implementation of generating facilities directly depends on hourly commitment and achieved load, and the maximum in 2006 is a consequence of both factors. The plant efficiency rate (Ks) for blocks TPP Nikola Tesla (TENT) and TPP Kostolac is the highest since 1990. During the six year period of improved state of equipment and generating capacities of the TPPs, achieved through emphasized overhaul activities, the efficiency rate has increased by 12,4% or 4,164 GWh. Compared to the year 2000, the electric power system of EPS has had throughout this year one more 475 MW block connected to the network (it operated 8,760 hours continuously with the installed capacity, without any outages). The efficiency and the production results of hydro power plants also greatly depend on the inflows, and here we do only mean low inflows, as best proved in the year 2006. The maximum weekly inflows into the Danube and the Drina occurred in March and April, whereas deviations from the average inflows into the Danube were of unusually long duration, and therefore the Danube Lake had to be emptied when it operated at lower heads and efficiency rate. In periods of high waters, at some points of time more than half of the inflows were overflowed, and during 12 days in April, the inflows were higher than 15,000 m3, whilst the highest one recorded so far was 15,800 m3/sec. On the other hand, autumn was a markedly dry period and the situation in October was such, that the inflows were about to be recorded as the lowest, as the minimum daily inflow into the Danube was 2,350 m3 /sec. Exceptional production results are the foundation and requirement for mobilizing the former as well as new business activities and making them successful. EPS is not only taking into consideration investments in our country, but also investments abroad, like other companies which have gone beyond the national borders. Only an energy efficient and financially stable company can respond to all the challenges brought by the regional market..

Donations

Other

Budget of the Republic of Serbia

EPS Funds

Out of the total funds invested in power plant overhauls during the last six years, investments were more intensive in the period 2001-2003, due to a larger share of donor funds, and in 2004 and 2005 most of the works were financed from EPSs revenues. In the second phase, during the last two years, along with the upgrading of the equipment of the blocks, capital overhauls also included automation of work, as well as elements of better environmental protection. By the end of 2006, capital overhauls were completed at 81.3% of the installed capacity in thermal power plants. In 2006, faults were detected and recorded in generating capacities of the blocks which had not been

EPS

= ENERGY = L I FE

O P EN P I T M I NE S

Production, processing and overhauls

REALIZED COAL PRODUCTION IN 2006 BUSINESS COMPANY KOLUBARA KOSTOLAC PLAN 26 976 000 7 010 000 33 986 000 7 710 000 41 696 000 REALIZATION 29 177 494 6 896 352 36 073 846 -

(t) realized/ plan (%) 108 98 106 87

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KOLUBARA + KOSTOLAC Coal has a dominant role in the energy potential of the Republic of Serbia. Lignite produced by open-pit mining in the coal basins of Kolubara, Kostolac and Kosovo, is used as firing fuel for thermal power plants of EPS. In 2006, out of the total production of electrical energy in EPS, 71% was produced in thermal power plants, or 61% not including coal from Kosovo and Metohija. Coal production and processing was organized in two business companies Business Company Mining Basin Kolubara and Business Company Thermal Power Plants and Open Pit Mines Kostolac. The annual production of these two basins amounts to more than 36 million tons. Thermal power plants burn over 33.6 million tons of lignite per year, while the other quantities of produced coal are used in industry and for residential consumption. In 2006, coal production for the needs of power plants managed by EPS was carried out at open-pit mines of mining basins Kolubara and Kostolac. Open-pit mines of the Kolubara Basin produced 81% of lignite in Serbia (without mines in the Kosovo Basin). Among them, four mines are active: Field B, Field D, Tamnava-Istok (Tamnava East) and Tamnava-Zapad (Tamnava West), which supply TPP Kolubara, TPP Nikola Tesla A and B and TPP Morava. In the Kostolac Basin, three open-pit mines are active: Drmno, irikovac and Klenovnik, which produced 19% of lignite in Serbia and supply TPP Kostolac A and B. Lignite from open-pit mines is a fuel of low calorific value with average realized heat output in 2006 exceeding 7,900 KJ/kg. KOSOVO TOTAL EPS
* Realized production without Kosovo

* 36 073 846

CALORIFIC VALUE OF PRODUCED COAL IN 2006 (GJ) BUSINESS COMPANY KOLUBARA KOSTOLAC KOLUBARA + KOSTOLAC KOSOVO TOTAL EPS
* Realized production without Kosovo

PLAN 210 413 000 49 070 000 259 483 000 52 681 000 312 164 000

REALIZATION 233 670 000 52 019 668 285 689 668 0

realized/ plan (%) 111 106 110 0 92

* 285 689 668

REALIZED PRODUCTION OF OVERBURDEN IN 2006 (m3sm) BUSINESS COMPANY KOLUBARA KOSTOLAC KOLUBARA + KOSTOLAC KOSOVO TOTAL EPS
* Realized production without Kosovo

PLAN 60 300 000 26 600 000 86 900 000 12 100 000 99 000 000

REALIZATION 69 300 804 27 847 239 97 148 043 -

realized/ plan (%)) 115 105 112 98

* 97 148 043

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Coal processing in the Kolubara Basin is performed in the Kolubara Prerada (Kolubara Processing) (crushing, separation, washing and drying), and at Kostolac only separation. Hauling to TPP Nikola Tesla, TPP Kolubara and TPP Morava is performed by train of tubs, and hauling of lump coal and and dry coal to consumers is performed by trucks and railway. Balance reserves in the Kolubara and Kostolac basins which are reliable in the long run, amount to over three billion tons, while the available lignite in the Kosovo and Metohija Basin amounts to over 13 billion tons. The age of active open-pit mines is in the range 12 to 54 years of age. Some of the existing open-pit mines (Tamnava-Istok, Klenovnik and irikovac) have almost exhausted their resources. Opening new capacities and increasing the existing ones is necessary in order to provide continuous coal supply to thermal power plants in the coming years. For lignite exploitation, the technology of BTO and BTU systems is applied. A total of 23 technological systems (16 on the overburden and 7 on the coal) have been installed. The total length of the rubber belt conveyor is over 110 km. In the past period, the ratio of waste to coal at open-pit mines was on the average in the range of 2.2 m3sm /t for Kolubara and 3.35 m3sm/t for Kostolac. In 2006, the drainage coefficient at the Kostolac mines was 3,10 and at the Kolubara mines 0.58 m3 water per ton of coal. Open-pit mines in the Kolubara Basin are marked by being densely populated on cultivable soil, and along with that, they are crossed by roads, railway tracks and waterways which need to be resettled. In the Kostolac

Basin, extremely fertile land is being degraded, and in the region of the Drmno mine lies the internationally renowned archeological find Viminatium. At Kolubara, 253 hectares of agricultural land and 117 households were expropriated in 2006. For the year 2007, an area of 467 hectares is required according to the plan, but they are the property of 119 households. At Kostolac, 128 hectares of agricultural land were expropriated. For the year 2007, an area of 145 hectares is required according to the plan. In 2006, all scheduled overhauls were performed as follows: 16 systems for excavation and waste disposal, 7 systems for excavation and coal hauling (transportation) and 3 coal-processing facilities . All scheduled replacements by new parts and blocks were performed, along with necessary regeneration after defectation,

in order to provide reliable system operation and plant operation for at least one year. A continuous process of complete and high-quality maintenance in the period 2000-2006, resulted in a record coal and waste production within the Business Company Mining Basin Kolubara in 2006. In the course of the year 2006, net assets were invested in equipment maintenance, as follows: for overhauls: 2,827 billion dinars for regular maintenance and service maintenance: 4,217 billion dinars For the purpose of further improvement of operating reliability within the Business Company Mining Basin Kolubara, revitalization of the rotor excavator
Field STEPOJEVAC
RADLJEVO

SRs-1200 was foreseen for open-pit mine Field D, but the commencement thereof was delayed until the completed revitalization of faulty excavator SchRs 1760 or until the completed assembling of the second-hand excavator SRs -1301. The assembling and commissioning of excavator SRs -1301 is scheduled to take place by the end of 2007, whilst the deadline for completion and commissioning of the modernized excavator SchRs 1760 is July 2008. The contracting and purchasing procedures for the equipment which shall provide increased production of waste and coal, namely equipment for 2 BTO systems of capacity per 6600 m3rm/h were completed in 2006 for the mine Tamnava-Zapad within the Business Company Mining Basin Kolubara and Mine Drmno with the Business Company Thermal Power Plants and Open-pit Mines Kostolac.

TAMNAVA TAMNAVA WEST EAST FIELD FIELD

Viminatium TPP Kostolac B

TPP Kosovo B TPP Kosovo A Sibovac Kruevac D. Selo Belaevac

V. CRLJENI Field VOLUJAK Field G Field Field D

Field TURA

Klenovnik TPP Kostolac Kostolac Drmno

Field F
PRITINA

Kostolac - Po

Field OPI

irikovac

Field B

\arevac

Lazarevac Legend: Mining boundary of coal seam expansion Open cast mines in operation Open cast mines in operation and construction
Lipljan

Legend: Mining boundary of coal seam expansion Open cast mines in operation Planned open cast mines

Legend: Mining boundary of coal seam expansion Open cast mines in operation

Planned open cast mines

EPS

= ENERGY = L I FE

D I S TR I BUT I ON NET W ORK

Reduction of losses

New measuring equipment

Newly constructed distribution facilities

32

33

Continuing the earlier initiated activities concerning reduction of electricity losses, implementation of the second phase of the Single Operative Programme (SOP) for reduction of technical losses. The second phase of the Single Operative Programme has been set up in order to continue and improve the initiated activities defined in the first phase of the Single Operative Programme, and new measures have also been defined for the purpose of reducing losses to a reasonable degree. The Single Operative Programme aims at realizing the non-technical loss reduction project by implementing short-term and long-term measures. Short-term measures daily control of buyers and disclosure of unauthorized consumption and unregistered buyers. Long-term measures providing conditions in order to have continuous insight into information on every buyers. The expectations are that, by means of daily control of buyers, by legalization of buyers facilities autocratically connected to the distribution network, by systematic takeover, by replacing and putting into order measuring devices of the existing buyers, and building-in integrated multifunctional measuring devices with resettled measuring point, the degree of losses shall be reduced to an acceptable level.

In view of the established concept according to which almost three million metres in the distribution network are to be replaced within the following ten years, the first public purchase procedure was implemented in 2006 at PE EPS, which is being realized based on an international tender for the EBRD loan. A contract was signed for supply of a total of 119,000 three-phase and 7,500 mono-phase metres, as well as 4,200 measuring groups. The measuring system modernization programme foresees building-in multifunctional electronic measuring devices, according to the specifications of the most advanced IEC standards and requirements of deregulated market concerning electricity supply. The system shall provide remote reading and consumption control, as well as other functions.

In the course of 2006, faster investment construction of facilities in the power distribution sector was continued in order to provide secure electricity supply to buyers and reduce losses. The transformer station 110 kV Zlatibor was put into operation and it is of extreme importance for further development of the tourist prospects of this region. In Belgrade, the 110 kV transformer station Obilic was put into operation and

after being loaded with full capacity, it will be of primary importance for secure supply of buyers in the city centre. Investments are continuously directed toward the medium-voltage and low-voltage network, which will be of great importance for reduction of so-called technical losses in the power distribution network.

*POWER DISTRIBUTING NETWORK

TRANSFORMING STATIONS

POWER LINES

MVA 15 000

km 120 000

12 000

100 000

80 000 9 000 60 000 6 000 40 000 3 000

20 000

0 110/10 110/20 110/35 110/X/Y 35/10 10/0.4 20/0.4 kV

110 kV

35 kV

20 kV

10 kV

0.4 kV

* The data for Elektrokosmet is given for 1998

Relations with electricity buyers

34

35

Relations with buyers in Business Companies for electric power distribution which have almost three million buyers, are one of the most important areas of operation and action. This has been also recognized in new EPSs organization, where the Public Relations Division, Customer Centres and Units for relations with customers are separate organization entities. The objective of numerous articles and supplements published in the media and a large number of press conferences was to inform a large number of customers and users of services on the work of distribution companies as subsidiaries of the Electric Power Industry of Serbia. A large number of employees, in addition to their regular jobs, pay special attention to responding to enquiries, requests and complaints of the customers. For that purpose, all technological possibilities are used, and an activity has been initiated regarding the innovation and reconstruction of all Internet presentations of Business Companies dealing with electric power distribution. These presentations also contain information from the field of business management, which particularly contributes to transparency of the system operation. As

a special technical activity in the scope of assistance to customers in 2006, great dedication of the technical staff in the field of protection of human lives and remediation of the consequences of floods in the spring season should be emphasized. From thousands of flooded houses, there was danger of a current shock coming caused by flooded electric connectors and installations. By timely action of power distribution teams, the inhabitants were protected, and after the water had withdrawn, and hearty help had been provided, it was possible to safely reconnect all the facilities to the distribution network. And finally, in 2006 began intensive activities on taking over electrical metres. The buyers are thereby relieved of their obligation to maintain and possibly replace these devices by new ones. Power distribution companies shall fulfill their legal obligation and take responsibility for the measuring point.

STRUCTURE OF ELECTRICITY CONSUMPTION (MWh)

BY buyer CATEGORIES Business company for electric power distribution Elektrovojvodina PLC, Novi Sad Elektrodistribucija Beograd, PLC. Elektrosrbija PLC, Kraljevo Jugoistok PLC, Nis Centar PLC, Kragujevac Republic of Serbia 110 kV high voltage 397 695 0 650 433 12 446 82 973 1 143 547 35 kV medium voltage 62 587 110 234 123 291 57 892 9 143 363 147 10(20) kV medium voltage 1 813 830 943 788 806 636 595 075 153 756 4 313 085 Low voltage 658 117 1 028 787 713 268 333 202 180 725 2 914 099 Residential consumption 4 473 531 4 144 924 3 694 827 2 501 164 1 323 861 16 138 307 Public lighting 125 864 98 665 96 842 63 086 34 304 418 761

STRUCTURE OF ELECTRICITY CONSUMPTION (%)

BY buyer CATEGORIES Business company for electric power distribution Elektrovojvodina PLC, Novi Sad Elektrodistribucija Beograd, PLC Elektrosrbija PLC, Kraljevo Jugoistok PLC, Nis Centar PLC, Kragujevac Republic of Serbia 110 kV high voltage 5,3 0 10,7 0,3 4,6 4,5 35 kV medium voltage 0,8 1,7 2,0 1,6 0,5 1,4 10(20) kV medium voltage 24,1 14,9 13,3 16,7 8,6 17,1 Low voltage 8,7 16,3 11,7 9,4 10,1 11,5 Residential consumption 59,4 65,5 60,7 70,2 74,2 63,8 Public lighting 1,7 1,6 1,6 1,8 1,9 1,7

EPS

= ENERGY = L I FE

E c o n o mi c f i n a n c i a l a c t ivi t i e s

BUSINESS AMBIENCE AND ECONOMIC & FINANCIAL STATUS

38

39

Macroeconomic trends in 2006 were marked by established macroeconomic stability and sustainable and stable economic growth. Summing up the achieved economic results, positive trends were marked in the basic macroeconomic indicators, primarily in the following: macroeconomic stability and real growth of the gross domestic product; reduced inflation and stable exchange rate of the dinar with a continuous growth of the foreign exchange reserves; reduced foreign borrowings, restructuring of foreign and local loans; partial settlement of price disparity; tax reform which has included a large number of tax payers; comprehensive liberalization of domestic and foreign trade; privatization and restructuring of the economy; restructuring of banks and enterprises; reforms of the labour markets and social sector.

In spite of the significant changes in 2006, there were some limitations as follows: low level of economic activities and the speed of economic recovery; insufficient market development and low competitiveness; obsolete equipment and technology, which has a direct impact on the efficiency and insufficient economic competitiveness on the foreign market; low degree of investment activities; excessive borrowings and insolvency of the economy; unavailable and costly sources of financing; insufficient foreign exchange inflow from exports and high level of foreign trade deficit; discordance of legal regulations and lack of by-laws; low purchasing power of inhabitants, which restricts the payment power and therefore demand for goods and services.

The financial status of enterprises from the standpoint of solvency and profitability has improved, but is still insufficient in terms of large borrowings from the previous years. The state of accounts payable to banks, suppliers and public revenues amounted to 107.3 billion dinars on 31st December 2006, and accounts receivable over 59.2 billion dinars (estimated 60% unrecoverable claims). EPS expressed in the 2006 consolidated balance sheet thereof a gross income of 17.9 billion dinars, which is generally the result of writedowns of the second Paris Club loan installment (7.5 billion dinars), liability towards Electrim (4.2 billion dinars), and in view of the fact that

EPS is an enterprise with large foreign exchange debts, the effect of positive currency differentials (4.9 billion dinars) is shown. In addition to that, the unreal value of resources registered in the books led to such business results, and therefore the expressed costs are unreal (depreciation, insurance and tax on assets). In terms of the value of resources registered in the ledgers, EPS is the largest public enterprise in Serbia. The real value of the resources,however, is much larger, as the estimate of resources was performed in 2003 and a large amount was invested in capital overhauls in the meantime. A new estimate of the value of fixed assets shall be done in 2007.

REALIZED ELECTRICITY PRICES FOR EPSs CONSUMERS

In 2006, the realized average selling electricity price for EPSs consumers was 3.265 din/kWh or 3.88 c/kWh taking the average exchange rate of 84.06 dinars to 1 in 2006. Average electricity prices for EPSs consumers Para/kWh Category of Consumption 2000 28.39 43.58 38.02 51.29 53.29 64.63 51.77 50.88 53.10 49.05 2001 59.70 83.52 77.43 115.22 117.76 180.01 108.67 86.07 116.96 106.29 2002 106.49 142.34 133.01 199.06 205.90 340.33 187.40 154.91 204.21 184.54 Realization 2003 2004 138.80 168.41 186.72 211.10 173.80 198.42 247.51 283.24 242.63 272.61 369.58 383.97 224.58 257.72 207.57 237.96 242.41 273.12 224.33 252.69 2005 197.38 233.49 222.46 327.44 301.89 403.52 288.75 260.21 304.49 282.37 2006 258.87 278.63 272.44 398.37 339.05 439.12 326.00 307.55 347.25 326.53

Basic indicators of the timing of economic activities in the Republic of Serbia I-XII 2006 I-XII 2005 104.7 113.3 112.7 111.7 124.4 XII 2006 XII 2005 105.4 107.3 106.6 106.0 index

Physical scope of industrial production Prices of manufacturers of industrial products Retail prices Costs of living Average net salary

High voltage (110 kV) Medium voltage total Total high and medium voltage Low voltage (0.4 kV I degree) Residential consumption total - 0.4 kV II degree - households Public lighting Total low voltage GRAND TOTAL

Electricity prices have increased by 15.0% on the average since 1st April 2006, the average annual price being 3.36din/kWh. The realized average electricity price in 2006 being by 1% higher than planned, due to acquired better sale structure.

Consolidated BALANCE SHEET of PE EPS and subsidiary business companies as of 30th December 2006
BALANCE SHEET
000 din. ITEM 2 ASSETS FIXED ASSETS (002+003+004+007) UNPAID REGISTERED CAPITAL GOODWILL INTANGIBLE INVESTMENTS REAL ESTATE, FACILITIES, EQUIPMENT AND BIOLOGICAL RESOURCES (005+006) Real estate, facilities and equipment Investment property Biological resources LONG-TERM FINANCIAL PLACEMENTS (008+009) Investments in capital Other long-term financial placements CURRENT ASSETS (011+012+017) SUPPLIES FIXED ASSETS INTENDED FOR SALE AND ASSETS OF BUSINESS BEING II SUSPENDED III SHORT-TERM CLAIMS, PLACEMENTS AND CASH (013+014+015+016) 1. Claims 2. Claims for overpaid income tax 3. Short-term financial placements 4. Cash equivalents and cash 5. Value added tax and balance brought forward IV DEFERRED TAX ASSETS C BUSINESS ASSETS (001+010) D LOSS EXCEEDING CAPITAL E TOTAL ASSETS (018+019) F OFF-BALANCE ASSETS LIABILITIES CAPITAL 102+103+104+105+106+-107-108) I CAPITAL ASSETS AND OTHER ASSETS II UNPAID REGISTERED CAPITAL III RESERVES IV REVALUATION RESERVES V UNDISTRIBUTED PROFIT VI LOSSES VII TREASURY STOCKS B LONG-TERM PROVISIONS AND LIABILITIES (110+111+114+119) I LONG-TERM PROVISIONS II LONG-TERM LIABILITIES (112+113) 1. Long-term credits 2. Other long-term liabilities III SHORT-TERM LIABILITIES (115+116+117+118) 1. Short-term financial commitments 2. Liabilities on assets intended for sale and assets of business being suspended 3. Business liabilities 4. Other short-term liabilities and accrued costs 5. Liabilities for value added tax and other public revenues 6. Liabilities for tax on profit IV DEFERRED TAX LIABILITIES C TOTAL LIABILITIES (101+109) D OFF-BALANCE LIABILITIES 1 I II III IV 1. 2. 3. V 1. 2. B I P 3 001 002 003 004 005 006 007 008 009 010 011 012 013 014 015 016 017 018 019 020 021 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 As of 31.12.2006 4 387 324 617 0 0 2 242 241 377 221 370 377 180 208 41 162 0 7 861 006 3 145 221 4 715 785 61 502 448 16 985 684 0 44 516 764 27 234 483 287 379 6 862 150 8 546 367 1 586 385 0 448 827 065 0 448 827 065 40 722 441 341 370 245 359 947 938 0 0 24 395 0 18 602 088 0 107 456 820 1 681 504 41 052 970 35 054 702 5 998 268 53 003 019 10 280 942 0 17 416 695 20 907 975 3 096 126 1 301 281 11 719 327 448 827 065 40 722 441 01.01.2006 5 388 121 385 0 0 2 031 465 378 246 314 378 203 123 43 191 0 7 843 606 2 060 347 5 783 259 52 787 931 15 038 369 0 37 749 562 21 293 040 18 263 5 497 031 9 271 259 1 669 969 0 440 909 316 0 440 909 316 19 643 054 325 055 449 359 947 013 0 0 24 395 0 34 915 959 0 115 853 867 756 201 53 254 970 45 996 023 7 258 947 50 397 331 14 239 132 0 11 097 143 22 213 275 2 220 575 627 206 11 445 365 440 909 316 19 643 054 Index 4/5 7 100 110 100 100 100 153 82 117 113 118 128 125 92 95 102 102 207 105 100 100 53 93 222 77 76 83 105 72 157 94 139 102 102 207

INCOME STATEMENT
1 I BUSINESS REVENUE BUSINESS EXPENDITURES Purchase of electricity Material and fuel costs Maintenance Depreciation Employees costs Insurance Liabilities to the state Other business expenditures Effects of Business relations FINANCIAL REVENUES FINANCIAL EXPENDITURES Effects of financial relations OTHER REVENUES OTHER EXPENDITURES Effects of other relations PROFIT FROM SUSPENDED BUSINESS LOSS FROM SUSPENDED BUSINESS Net profit and loss from suspended business ELEMENTS 2 REALIZATION 2006 3 103 633 908 93 113 559 7 407 272 7 410 540 15 921 044 17 312 687 27 722 505 1 738 291 5 105 618 10 495 602 10 520 349 11 384 815 5 802 060 5 582 755 15 614 699 14 905 114 709 585 1 453 084 375 961 1 077 123 PLAN 2006 4 99 484 288 87 542 907 8 856 581 8 283 171 14 819 760 16 730 400 23 006 892 2 404 269 4 064 006 9 377 828 11 941 381 7 462 951 14 542 685 -7 079 734 10 260 410 17 675 565 -7 415 155 0 0 0 REALIZATION 2005 5 91 597 030 79 164 536 4 900 134 8 335 298 13 088 282 16 212 527 23 792 775 1 598 562 3 421 064 7 815 894 12 432 494 7 756 226 16 703 767 -8 947 541 18 574 180 20 914 884 -2 340 704 715 511 521 484 194 027 6 104 106 84 89 107 103 120 72 126 112 88 153 40 0 152 84 0 0 0 0 ( 3/4 ) 000 INDEX ( 3/5 ) 7 113 118 151 89 122 107 117 109 149 134 85 147 35 0 84 71 0 203 72 555 41

40

II
II.1.

II.2. II.3. II.4. II.5. II.6. II.7. II.9.

I-II III

IV
III-IV

VI
V-VI

VII

VIII
VII-VIII

TOTAL REVENUE (I+III+V+VII) TOTAL EXPENDITURES (II+IV+VI+VIII) Total financial effect PROFIT TAX

132 086 506 114 196 694 17 889 812 -1 586 566 16 303 246

117 207 649 119 761 157 -2 553 508 0 -2 553 508

118 642 947 117 304 671 1 338 276 -2 501 736 -1 163 460

113 95 0 0 0

111 97 1 337 0 0

B
A-B

NET TOTAL FINANCIAL EFFECT

The expressed high profit compared to the plan and previous year is, to a smaller extent, the result of production, and mostly a consequence of revenues incurred from writedowns of foreign credits (Paris Club and liabilities towards Electrim) and positive currency differentials.

EPS

= ENERGY = L I FE

S TRATEGY AND I N V E S T M ENT S

INVESTMENTS

Thermal power plants

Hydro Power Plants

Mines

44

45

An amount of 14.5 billion dinars was invested in investment projects in 2006. Out of that, EPSs net assets amounted 12.2 billion dinars, the ecological tax amounted 54 million dinars, credits 673 million dinars, donations 823 million dinars and consumer assets 752 million dinars.

One of the most important projects was recovery of block A1 in Business Company TPP Nikola Tesla, as well as reconstruction and modernization of the electric filter which as a result reduced ash emission into the atmosphere to the European standard of 50 mg/Nm3. Preparation activities for the beginning of revitalization with elements of modernized block A4 in Company TPP Nikola Tesla are reflected in purchase of equipment and long delivery. In Business Company TPPs and Open-pit Mines Kostolac recovery and adaptation of block A1 of 100 MW has continued and it shall be completed by the beginning of 2007, and reconstruction and modernization of the electric filtre has been completed at block A2 of 210MW, which resulted in reduced ash emission into the atmosphere to 50 mg/Nm3. This was funded by the European Commission donation through the European Agency for Reconstruction in an amount of 5 million Euros. Under way are activities in cooperation with the consultant for attraction of the strategic partner in order to continue the construction of the 700 W block burning the Kolubara lignite.

The investment activities in 2006 were directed toward activities concerning the beginning of revitalization of units in HPP Djerdap I, HPP Bajina Bata and HPPs Vlasinske. The beginning of revitalization of HPP DjerdapI and HPP Bajina Bata is scheduled for 2007, while revitalization is under way for HPP Ovcar Banja and HPP Medjuvrsje, financed from the net assets. Within the framework of preliminary activities for revitalization of hydro power plants, it is important to emphasize the survey conducted for assessment of investment capital in HPP Zvornik.

The fulfillment of requirements for increasing the capacities of Open-pit mine Kostolac by another 2.5 million tons of coal annually started by providing additional capacity for excavation of overburden (over 10,000,000 m3 per annum). The basic requirement for achieving this plan was purchase of a new BTO system. In addition to that, investments were also required for revitalization and modernization of equipment at Open-pit mine Cirikovac, for drainage etc. In 2006, three out of four packages were contracted as follows: Package 1: Completion of excavator SRs 2000 32/6 with a capacity of 6,600 m3/. The contract was signed with the German firm RAF for an amount of 12,200,000 Euros. Package 2: Conveyor line with belts 2000 mm wide for waste transport. The contract was signed with GOA-FOM from Smederevska Palanka for an amount of 30,600,000 Euros. Package 3: Crane for disposal of waste excavated by a rotor excavator. The contract was signed with the German firm TISEN-CRUP for an amount of 12,638,000 Euros. The most important activities were at the pit Tamnava Zapadno Polje (Tamnava West Field) for which purchase of a new waste disposal system (II BTO) was contracted, which was realized with the support of the KfW and EBRD credit in the amount of around 80,000,000 Euros. Apart from these investments, greater assets were employed in the revitalization of excavator SchRs 1760 (scoop-wheel excavator 9), as well as transportation and assembly of excavator SRs 1300 purchased in Germany. In 2007, the initiated assembling of the mentioned equipment should continue and this shall take two years. Another important activity refers to providing undisturbed operation of the existing pits, primarily FieldD and in connection with that realization of the Vreoci village resettlement project. It is also necessary to start the activities on opening pits (V. Crljeni, Radljevo) for the needs of new thermal power plants.

INFORMATION TECHNOLOGIES

46

47

After including EPS in the liberalized energy market, one of the most important steps for getting closer to Europe, or the international and European standards is certainly the introduction of an Integrated computerized accounting system, under a working title ICAS. The project was initiated by the Swedish donation of 2001, and the selected application solution was SAP, which will be installed in the HP integrity servers. Introduction of the ICAS system will enable the management to have a clear image of the enterprize state and on the basis of that to manage the electric power industry more efficiently. The ICAS system makes improvements to the company alone, in the sense that it may increase the market value thereof and rationalize the business activities. The project is very important for unification, standardization, automation and integration of business processes. By maintaining consistent accounting records, adjusted to the international standards and auditing needs, a reliable base is formed for legal and internal reporting. In March 2006, the implementation of pilot project in four business companies of EPS started as follows: EPS Head Office, Elektrovojvodina, TPP Nikola Tesla and Mining Basin Kolubara, as well as Public Enterprise Elektromrea Srbije, which manages the transmission system in Serbia and which was a subsidiary of PE EPS at the time of concluding the arrangement on this work. After successful implementation in these enterprises, this process shall continue and it will take place in the other business companies of EPS, according to the same system design. The Human Resources Management System was developed in the IT Sector at the initiative of the Human Resources Sector. A unified database was set up on the employees of PE EPS, which provides efficient management of the human resources. It enables monitoring and analyzing changes in the organization structure, description of job titles and changes of jobs of the employees in the organization. A prerequisite for

this is unification of the coding system, standardization and integration of business processes. And finally, the legal and statistical reporting has been facilitated. Of great importance are also jobs concerning the development and application of the Internet and Intranet service at the level of the Head Office, as well as construction of the company infrastructure. Through the project of Implementation of AD infrastructure and migration of the Internet service in the framework of the computer network of PE EPS in 2006, the following was realized: Implementation of the latest Microsoft technology within the computer network of EPS Migration of the Internet Service with Linux on the Microsoft platform, thereby providing WEB and mail services by means of the latest Microsoft technology. The mail solution is in the installation of the Exchange 2003 Server product, which enables the application of W, , RPC over https and Active Sync Service for synchronization of mobile phones with computers and servers on the level of documents and e-mail. Domain organization of work which assumes a network of around 450 computers at the Head Office, logically organized according to authorization of the referent job title and group belonging. Transition from an organization by working groups to a domain organization of work required an installation of the latest generation of Microsoft products, such as: Win 2003 Server operating system, Exchange 2003 Server for providing e-mail, ISA 2004 Server which would, apart from the software firewall function, also perform the functions of Proxy, VPN Server, cash server (memory function and faster access to popular WEB sites, etc.), SQL 2005 Server as a basis for function of other products, SPP Server Shared Point Portal, the implementation of which has been planned, and the pilot project has passed the testing phase, SMS server System

Management Server for administration and network management from one place. In 2006 began the realization of the project Implemetation of Public Keys Infrastructure (PKI), which will significantly improve the security of EPSs resources access to those resources. PKI infrastructure enables logging on the network by using smart cards, document and message encryption, as well as digital signing. Also, after the realization of this project, EPSs users will have protected remote access to all resources within the network, by using the latest technologies and solutions from the field of mobile telephony. In addition to the said, in preparation is the realization of the of introduction of the DMS system (Document Management System), as well as the realization of the project which will provide centralised supervision and control of all computer services within the network of PE EPS. Construction of the company information structure and application of the Intranet service at the company level, assumes the following: Connection of the parts of EPS with the Head Office via the telecommunication network (SDH) international standard for synchronous data transmission via the optical cable. Business companies TPP Nikola Tesla, Elektrovojvodina, HPPs Drinsko-Limske and HPP Djerdap have thus already become part of the EPS-WAN network. The other business companies are in the preparation phase of their network equipment and shall be connected with the WAN network in parallel with realizing the construction project of telecommunication network of PE EPS; Implementation of the latest Microsoft technology and service, in a similar way as in the Head Office; Implementation and improvement of safety services within the EPS-WAN network;

In the framework of current maintenance of the computer infrastructure in 2006, in accordance with the plans, annual purchase of the computer equipment was realized along with the extension of the computer network within the Head Office of PE EPS, and a backup link was provided for the needs of using the Internet service, thereby completing the system which provides stable operation of the computer network of EPS. The Project of Technical System Management of EPSs generating capacities started as a joint project of management of EPSs generating and transmission capacities, at the level of the electric power industry of former Yugoslavia, and continued through financing from the net assets and donation of the Swiss government (SECO). The part referring to planning and management of generating capacities was taken over from the year 2005. The project is being realized in cooperation with the Mihailo Pupin Institute and AREVA company. The objective is to achieve optimization and greater economy of work in the production sector, more rationalized management and greater reliability of electricity supply to consumers, planning improvement and provision of backing for successful trade in electricity. The implementation of this project is going according to plan, and that practically means that the preparation of all generating capacities required for introducing the system has been completed, except for TPP Kostolac A, TPP Kolubara and TPP-HP Zrenjanin. The Dispatch Centre of EPS is supplied with an adequate SCADA system. Taking into consideration that construction of the telecommunication network of EPS is under way, the public network is also used for data communication. Under way is preparation of the outstanding three generating plants, completion of software packages for monitoring and planning of the generating capacities operation and completion of works on development of the data communication network.

TELECOMMUNICATIONS

Telecommunication network

48

HUNGARY

49

Efficient functioning of the electric power system and the entire electric power industry required a modern telecommunication system. Correlation and close cooperation with the electric power systems in the environment, especially from the moment of reconnection with the UCTE, require from EPS the construction of a reliable and modern telecommunication system with a capacity that will meet all the present and future needs. The development project of EPSs telecommunication network primarily based on the application of optical cables along power lines was supported, through favourable credits, by the European Investment Bank (EIB): 22 million Euros and the European Bank for Reconstruction and Development (EBRD): 9.63 million Euros. Through the EIB credit realized in phases in the course of 2005 and 2006, around 1,700 km of 400 and 220 kV power lines were equipped with a 48 optical fibre OPGW cable. For the third phase which will take place in 2007, equipping approximately 730 km of power lines with a capacity of 220 kV and 110 kV has also been scheduled.

By means of their net assets, EPS has installed an Optical Ground Wire cable in the interconnection lines toward Hungary (Belgrade Obrenovac Novi Sad Subotica) and Croatia (Belgrade Obrenovac Sremska Mitrovica) with a total length of around 500 km. In 2006, the required technical and tender documents were prepared for the supply of synchronous digital hierarchy terminals of high throughput rate from the EBRD credit funds, in order to equip over 60 electric power plants by the end of 2007.

TS SUBOTICA 3 TS KIKINDA1

TS SOMBOR 3

TS SRBOBRAN TS NOVI SAD 3 TS ZRENJANIN 2

CROATIA

TPP-HP ZRENJANIN TPP-HP NOVI SAD ACC NOVI SAD TC SREMSKA MITROVICA 2

BH

TS PANEVO 2 TS DC BGD5 EDB ACC SP MLADOST TENT A DC BGD SP DRMNO TENT B EPS TS BGD 20 TS ABAC 3 TPP KOSTOLAC TS OBRENOVAC TS BGD 3TS BGD 8 TS SMEDEREVO 3 HPP ZVORNIK TPP KOLUBARA TS VALJEVO 3 ACC VALJEVO HPP B. BATA TS B. BATA PS PP B. BATA RAV TS JAGODINA 4 TS KRAGUJEVAC 2 TS AAK 3 TS KRALJEVO 3 TS POEGA TS KRUEVAC 1 ACC KRUEVAC TS RAKA TS NI 2 TS BOR 2

ROMANIA HPP DJERDAP I

HPP DJERDAP II

TS ZAJEAR 2

HPP POTPE

HPP KOKIN BROD TS NOVA VARO HPP UVAC HPP BISTRICA TS SJENICA

HPP PIROT S PIROT 2

MONTENEGRO

TS NOVI PAZAR

TS LESKOVAC 2 BULGARIA HPP VRLA 3 TS VRANJE

OPGW - REALIZED OPGW - PLAN MACEDONIA

EPS

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e n vi r o n m e n t a l p r o t e c t i o n

AIR PROTECTION

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53

In 2006, much more attention was dedicated to environmental protection than earlier, as it is binding for EPS, pursuant to the environmental protection package of laws put into force in late December 2004, to adjust the operation of the plants thereof to the provisions of the said laws by 2015. The total planned funds amounted to 5.8 billion dinars, out of which 72% are the funds from donations and credits (for funding of changes in technology and transportation and ash disposal at the TPP Nikola Tesla B and TPP Kostolac B sites and for revitalization of the electric filter at TPP Kostolac A). The degree of realized work in the field of environmental protection amounted to 78.26% for PE EPS, whereas it amounted to 89.68% for business companies. The most extensive scheduled work within the business companies of PE EPS refer to further modernization of the existing environmental protection measures at thermal power sites and activities concerning the introduction of new protection measures, for the purpose of fulfilling the requirements of the local and EU legislation in the area of environmental protection.

Adjustment of electric filtres operation with the requirements of EU regulations At blocks A1 of TPP Nikola Tesla and A2 of TPP Kostolac, where the emission of particles into the air have greatly exceeded the permitted values, new electric filters have been built-in with and outlet particle concentration of 50 mg/m3 , which meet the standards of both the local, as well as the European Union regulations. By increasing the total number of electric filtre sections after reconstruction, compared to the previous state, the reliability of these electric filtres during plant operation has increased. In EPSs Strategy and Investments Department, the Feasibility Study with the conceptual design of recovery and alterations of block A4 with a capacity of 308.5MW at TPP Nikola Tesla A was completed in May and reconstruction of electric filtres was scheduled. The Project will be realized in 2007.

Adjustment of sulphur oxides emission to the requirements of local and EU regulations Strategy and Investments Department of the Electric Power Industry of Serbia realized the following: completion of the study Trends of optimal reduction of sulphur oxides emission from TPP EPS in the framework of which technical solutions for reduction of sulphur oxides emission were perceived and the proposed order of introducing desulphurization by plants was set along with the time schedule and required financial resources; completion of the feasibility study for construction of plants for desulphurization of flue gases at TPP Kostolac B, the completion of which was financed by the Japanese Government, and which will be realized by the consortium MITSUI Co. LTD and TOKYO ELECTRIC POWER SERVICE Co.; signing of contract between EPS and the consortium consisting of the Faculty of Mechanical Engineering Belgrade, Faculty of Mining and Geology Belgrade and the firm WorleyParsons. In September began the preparation of the investment and technical documentation on desulphurization of flue gases at TPP Kostolac B where, apart from the technical and technological solution, the possibilities for placement of gypsum on the market will also be considered. Preparation of the investment and technical documentation is scheduled for the end of 2007.

Introduction of the integral system for continuous monitoring of the impact of TPP Nikola Tesla on the air quality in Obrenovac and the surrounding settlements In 2006, the preparation of the Project I Phase, concerning the monitoring of air pollution by solid particles, as well as the purchase of measuring equipment for continual measurement of solid particles emission in block A1 and A2 was completed. The integral system will enable systematic measuring of the impact of TPP Nikola Tesla A and B on the air quality (pollution by particles), impartial and timely informing of the public on the air quality in Obrenovac and the surrounding settlements.

emission of particles before and after the reconstruction review of the assets used for reconstruction as well as the sources of financing PP PP Nikola Tesla A PP Kostolac A Block 1 2 1 Resources ( x 103 Euro) 5 000 5 400 2 500 PP Source of financing Net assets and the Environmental Protection Fund of RS Donation of EAR Net assets PP Nikola Tesla Kostolac 1 2 Block Unit mg/m3 kg/MWh mg/m3 kg/MWh Before adjustment 1 650 9.46 1 150 5.425 After adjustment 50 0.360 35 0.234

WATER PROTECTION

SOIL PROTECTION

WASTE MANAGEMENT

COOPERATION WITH THE STATE AUTHORITIES

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55

Replacement of the existing for the new technology in transportation and ash disposal to the waste landfill In 2006, further activities were continued on the introduction of new technologies which will make it possible to solve the problem of eolian ash erosion and ground water pollution and thereby completely eliminate the problem of surface water pollution. This practically means that the required investment and technical documentation for realization of the TPP Kostolac B and TPP Nikola Tesla B Project has been completed and that the contractors and suppliers for the reconstruction of the existing system have been selected through tender procedure. A contract was also signed between EPS and the German consortium DOBEREK - MLLER for realization of the TPP KostolacB Project worth 21 million Euros. The Project is financed out of the EBRD credit and the scheduled deadline for realization is 18 months (March 2008). In connection with the financing of change of existing technology of transportation and ash disposal to the waste landfill of TPP Kostolac A, talks were held with the KfW bank, and preparation activities were carried out for selecting the consultant for invitation of tender. A 28 million Euros worth contract was signed with the European Agency for Reconstruction (EAR) and the Consortium Energoinvest-Sarajevo and EWB of Hungary on the realization of the TPP Nikola Tesla B Project. For the purpose of protection of water in catchments and effluent ground water of hydro power plants and water of thermal power plants surveys were conducted in order to begin with the solution of all observed problems.

The Feasibilty study on selective excavation of overburden -II Phase Information logistics on recultivation, revitalization and space planning of EPSs operating coal mine fields for the purpose of more successful management of the processes of recultivation, revitalization and space planning, with adequate information support which in real time includes identification, selection, acquisition, processing, interpreting, storing and distributing relevant data and information. The EBRD credit, in the amount of 85 million Euros (part of the 150 million Euros credit) co-financed by KfW and other borrowers, should enable modernization and stabilization of fuel supply through restructuring of EPSs organisation for lignite exploitation and provision of equipment in order to increase the production by expanding the lignite open-pit mine Tamnava Zapad. For that purpose, EPSs experts went through a Training programme in hydro modelling and rehabilitation/ recultivation of open-pit mine Tamnava Zapad. The technical recultivation project of Open-pit mine Tamnava-Zapadno polje was prepared as the final document of this Training programme.

Preparation began on the survey entitled Waste management Waste inventory II Phase, Information system III Phase, which are two out of four main documents on waste management in PE EPS, in addition to the final layout of the existing situation and monitoring which still remains to be done. It should be emphasized that all the existing pyralene oil condensers in Business Company Elektrodistribucija Beograd, have been replaced , and that the problem of dangerous waste containing pyralene oils (PCB) in Business Company Elektrosrbija Kraljevo has been resolved. In the distribution business companies, preparation of the investment and technical documentation for construction of a plateau and interim disposal of dangerous and other waste has begun.

In the course of 2006, EPS cooperated with all the state authorities competent for solving the environmental protection issues. Depending on the problem, cooperation was established with the Ministry of Science and Environmental Protection (analyses and remarks and opinion on drafts and passed laws, by-laws and regulations, joint projects and studies), Ministry of Mining and Energy (preparation of data on 2 emission from plants of PE EPS, cooperation with HEP (Croation Electric Power Industry) for the purpose of analyzing the greenhouse gas inventory of the Energy sector of the Republic of Croatia, joint projects and studies), Ministry of Agriculture, Forestry and Water Management Water Division (data management in the field of water monitoring), Ministry of capital investment (The Utilization of electric filtre ash and slag in road construction), Ministry for foreign economic relations (preparation of the terms of reference Solution of the problem of ionic resin, mineral wool, rubber waste and asbestos at PE EPS, The substitution and disposal of PCB in PE EPS), through the Environmental control Agency (participation of representatives of PE EPS in the work of the Air quality Work group founded within the Agency) and Recycling Agency (permanent activities on jobs of categorization of waste matter produced with the business companies of PE EPS.

MANAGEMENT OF GAS EMISSION WITH GREENHOUSE EFFECTS

The terms of reference were adopted at PE EPS for preparation of the Study Strategy of application of the Kyoto Protocol clean air mechanism in EPS (CDM projects) and activities were initiated on registration of certain projects such as the CDM projects (reconstruction and modernization of HPP Zvornik, construction of 5 units at HPP Bajina Bata, TPP KolubaraB, block 3 of TPP Nikola Tesla B, block 5 of TPP Nikola Tesla A). Development of the Environmental Management System (EMS) at PE EPS is one of the major tasks in this field. Preparation of all documents and training for work on the project entitled Development of the Environmental Management System (EMS) at PE Electric Power Industry of Serbia are financed from the EAR funds. The project will be completed in 2007.

QUALITY CONTROL AND ENVIRONMENTAL PROTECTION

The Report on Introduction of IMS in PE EPS and Business companies for 2006 PE EPS
Head Departments and Intependent Sectors of EPS System introduced Project phase**

Project in progress* IMS*

Note Selection of consultant

56

Energy and coal production

57

In accordance with the Decision of the Steering Committee of PE EPS, the basis was established for introduction of the Intregrated Management System (IMS) and project harmonization assignment on introducing IMS in PE EPS with terms of reference at the level of business companies, as well as harmonization with the introduction of management system by means of environmental protection (MS). The activities of the QMS EMS sector in business companies were implemented through support and initiated activities directed toward providing IMS infrastructure introducing IMS, as well as organizing eight creative workshops held in EPSs business companies.

Great attempts have been made in order that there should be a single IMS function for the whole company at the highest organization level, directly subordinated to the director. At the beginning of November 2006, the general manager of PE EPS signed new, altered and amended Organization guidelines on the Quality Brand of EPS. By 2006 over 900 applications were submitted for the assignment of Quality Brand, out of which there were 140 permanent grants, 432 temporary grants and 11 rejected applications. The Work team from the QMS EMS sector developed the award concept of the Quality Brand, through which PE EPS and business companies shall establish longterm partnership with the suppliers and help partners with quality products to get tender assignments under the most favourable conditions. PE EPS has been making great efforts working on the IMS implementation, scheduled for the beginning of 2008, which also assumes achieving business excellence of our company.

BC TPP Kolubara HPP Drinsko Limske TPP OPM Kostolac TPPs Panonske HPP Djerdap TPP Nikola Tesla

BC part

System introduced date (cert. body)

Project in progress QMS EMS IMS IMS QMS EMS QMS EMS EMS*

Project phase OR

Consultant Energo Wat Selection of consultant

Drinske Limske OPM TPPs

QMS (2006/SGS) QS (2002/SZS) QMS (2006/SGS) QMS (2005/SGS) QMS* (2005/SGS)

90%

Q EXPERT Q EXPERT Q EXPERT Energo Wat Q EXPERT

90%

ELECTRIC POWER DISTRIBUTION BC Elektrodistribucija Beograd Centar Elektrosrbija Elektroumadija Elektromorava Elektrosrbija ED Uice ED Ni ED Vranje ED Leskovac Elektrotimok BC part System introduced QS (2001/SZS) QS (2002/SZS) QMS (2005/TUV) QMS (2006/TUV) QMS (2005/TUV) QMS (2005/TUV) QMS (2005/TUV) QS (1998/SGS) QMS (2004/SZS,TUV) Project in progress IMS QMS EMS Project phase Study 50% DO KL KL DO DO DO DO KO Note FON CIM College

Jugoistok

IMS IMS IMS IMS EMS

Elektrovojvodina

FON FON FON FON Selection of consultant

* IMS - integrated management system (QES = QMS + EMS + OHSAS) QMS -quality management system (JUS ISO 9001:2004) QS - quality system (JUS ISO 9001:1996) EMS - environmental management system (ISO 14001:2004) OHSAS - Health and safety management system (OHSAS 18001:1999) ** Project phases of management system introduction: CL - climate creation OR - establishment of organisational entity SC- selection of consultant ID - aspect identification DO - system documentation IP - internal system checks SE - system certification ***EMS in EPS: Project Development of Environmental Management System in EPS, financed by EAR.

EPS

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R e s e a r c h

a n d

d e v e l o pm e n t

RESEARCH WORK

DEVELOPMENT

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The scope of research work increased in the Electric Power Industry of Serbia in 2006. This meant continuing the process of removing long-term financial deficits that had made it impossible to develop relevant data, namely documentation for introducing investment activities in line with a more efficient solution of operating issues and issues referring to the economic and organization aspects of development and functioning. EPS has emphasized its activities pertaining to research work, preparation of the investment and technical documentation. The orientation of the basic research work trends was: Optimization of work and system control together with the parts thereof, Planning of Electric power system development, reorganization of the system reforms in the electric power sector, Technological progress of processes in the system, Improvement of system operation characteristics and their components, Greater security and reliability, Modernization and introduction of new technologies, Introduction of new procedures of measuring, detection of phenomena and diagnostic procedures, Construction and mastering of prototypes of devices to be built into the system elements, Prescribing standards and recommendations. Priority has been given to research of system significance, research covering the topic of importance for a certain number of plants and research referring to an individual plant, the solution of which has an essential impact on the system operation. Projects

which were realized were those supported by the Ministry of Science and Environmental Protection, which EPS either took part in or was the user thereof, as well as research work and studies funded through donations of foreign countries or international institutions. Activities referring to research work, development and preparation of investment and technical documentation, are generally realized in institutions outside EPS. Most of them are local institutes, faculties and other qualified firms from the referent areas, such as the Institute of Electrical Engineering Nikola Tesla, Nuclear Sciences Institute Vina, Institute Mihailo Pupin, Institute of Water Management Jaroslav erni, Institute Kirilo Savi, Mining Institute, Faculty of Electrical Engineering in Belgrade, Faculty of Electronics in Ni, Faculty of Technical Sciences in Novi Sad, Faculty of Mechanical Engineering in Belgrade, Faculty of Mining and Geology in Belgrade, Faculty of Technology in Belgrade, Faculty of Agriculture in Belgrade, Faculty of Chemistry, Energoprojekt and many others.

In the field of development and strategic planning, the past year was marked, apart from regular and planned activities, by active participation in the preparation of the Work and development schedule of PE Electric Power Industry of Serbia in the period 2006-2010, as well as the Implementation Programme of the Energy Development Strategy of the Republic of Serbia through 2015 in the period from 2007 to 2012. Some of the most important realized projects, surveys and activities in the area of strategic planning are: The feasibility study with the conceptual design of recovery and alteration of block 4, of 308.5 MW capacity at TPP Nikola Tesla A; The feasibility study with the conceptual design of reconstruction or withdrawal of blocks 1 and 2, of 2 210 MW capacity at TPP Nikola Tesla A; Testing of the state of metal and estimate of the remaining life of equipment at TPP Kostolac 2; Thermotechnical testing of block 3 at TPP Nikola Tesla A, with a purpose of determining the specific heat consumption of the block; Studies of prospective long-term development of 110 kV and 35 kV power grid and 10 kV suburban grid in the region of Elektromorava Poarevac and region of Elektrodistribucija Uice; Selection of optimal means of reactive load reduction from the standpoint of transmission network along the TS 110/ kV network of EPS and EMS, in the total amount of additional 200 MVAr (100 MVAr at low voltage and 100 MVAr at medium voltage); Quality of electrical energy in power distribution networks ;

Research on the process and change in quality of water in storage Zavoj for the purpose of protection and management of water quality; Hydrological processing of weekly flows for HPP profiles; Establishment of continuous measurement, monitoring and management of coal quality at EPSs open-pit mines; Feasibility analysis of the remaining coal reserve exploitation at the irikovac site; Selection of limitation and opening of the open-pit mine Field E (Polje E) for a capacity of 12 million tons of coal per annum; Hydroinformation system Drina simulation model II phase; Feasibility of resettlement of capital infrastructural plants and river courses in the function of development of strip mining of coal in the Kolubara Basin; The environmental protection issue in power distribution enterprises; Protection of hydro power storages from river sediments and penetration of surface sediments; Trends in optimal reduction of sulphur oxide emission from TPPs of EPS; Petrographic, geochemical and physical and chemical characteristics of coal from the Kolubara coal basin; Terrain stability in influence dam areas, storage plants storage reservoirs of EPS, second phase of Business company HPP Djerdap Iron Gate; Analysis of possible management of electricity consumption.

EPS

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P e o pl e

i n

E P S

Reduced number of employees

Power lies in knowledge

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People in EPS are not only figures. That has been proved through a series of scheduled and realized activities in 2006, which were first of all intended for health protection of the employees and education, in order that each employee should give full contribution, not only in terms of achieving personal objectives, but also the development targets of the company.

In 2006, as in the previous years, the number of employees was cut down in all parts of EPS. The number of employees in EPS was 34 789 in December 2006, which was by 22,132 persons fewer than in December 2001. In coal production (not including the Public enterprise for underground coal mining) the number of employees was cut down by 37%, in distribution companies by 21%, in thermal power plants by 31%, and in hydro power plants by 26%. The proportionally largest reduction was marked at the Head Office of PE EPS up to 48 %. The number of employees in 2006 reduced not only due to retirements, but also on the basis of agreed termination of employment with severance compensation. On that basis, 3,612 persons left EPS in 2006. Resolving the issue of staff redundancies shall be one of the top priority tasks in the forthcoming period. In cooperation with the Serbian Chamber of Commerce, a project was initiated in order to have an overview of the possibilities and to propose measures for future involvement in other business activities, or to provide adequate private enterprise and private business support to all employees whose jobs will become redundant in EPS. In parallel with the organization changes, a single database on the organization structure, job position and all employees with EPS has been set up and programmed by the experts of EPS. It shall be, for a long-term period, the source of information essential for systematic and planned development of know-how and skills of the employees, job changes of the employees in accordance with the real needs and assessment of

the abilities of each individual. It shall also provide the basic elements for planning of the optimal number and structure of employees, as well as for their development and adequate engagement in work. Although data entry should be completed by 2007, the already entered data may be used for some activities involved in the restructuring process. First of all in the part concerning the optimal number and structure of people.

Through organizational changes toward an efficient company

In 2006, organizational changes in the public enterprise and the subsidiaries thereof provided conditions for higher quality and more modern performance all assignments. New acts on the organization and description of job titles were set up according to a uniform methodology, with a previously agreed structure of the most appropriate organization by activities, uniform criteria for job titles, job structure and qualifications, in accordance with the assessed needs in the forthcoming period. The required structure of personnel for the present and future needs of EPS was thus established, and the potential staff redundancies were recorded.

Our practice confirms the experience of developed countries, as well as those that have gone through the period of transition that each job requires special harmonization of qualifications and specific skills. There is growing interest in new know-how and skills, due to technological progress, new growing needs for computers, the necessity of speaking foreign languages and providing a completely different mode of work and behaviour at work. Most of the employees have undergone training in system quality (QS) and security and health and environmental protection. In some of the EPSs subsidiary business companies, all employees have gone through training courses. For a large number of attendees, training was held, in equally important areas: management of finances, management of human resources, keeping the books, and management of information technologies. A large number of employees have done foreign language courses. The number of training courses has increased in 2006, also due to prescribed requirements for possessing licences for certain jobs. Participation in professional meetings and sharing of information with the most competent experts in certain areas has continued. Many of our experts are distinguished and frequently invited participants and moderators at such gatherings. Workshops have been held in the area of legislation, finances, management of human resources, telecommunications, mining, mechanical engineering, geology A number of employees have taken part in international symposiums in Germany, Italy, USA, Portugal, Mexico, Slovenia and Montenegro.

Living and working without any risks

TRADE UNION as a partner

Cooperation with the local community

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Education of employees has continued in parallel with work and acquirement of new qualifications, which is visible in the improved qualification structure of employees in all business companies. As in the previous years, practical teaching of students in some vocational schools has been conducted this year, too.

Better safety and personal protection equipment and measures have reduced the amount of injuries, compared to the previous year. In accordance with the Safety and Protection Act, a series of measures and activities have been implemented. All employees in charge of safety at work must be professionally qualified in order to do their job well, as prescribed by law. In parallel with that, risk assessment will be made for all jobs in EPS, and specific safety measures will be proposed for safer work. As in the case of safety at work, considerable resources are set aside for special health protection of the employees. Regular medical examination (general and specialists) is organized in all parts of EPS. Regular check-ups have prevented some very serious illnesses and diseases. Recreation holidays for the employees on the coast, in spas and in the mountain resorts have given good effects. Around 3,000 employees of PE EPS went for recovery at the companys cost.

Trade Unions are respectable partners of the employers at all organization levels of the enterprise. This was particularly marked at the time of text preparation and during the negotiations on new collective contracts with the employers. Activities on concluding collective contracts in business companies began in late 2006. The collective contracts are expected to be signed in 2007, as there is an agreement between the negotiators, both in terms of the remuneration principle, as well as the issue of redundancies. In addition to good cooperation between some trade union organizations in EPS, contacts have been established with other trade unions in the Republic of Serbia and beyond the borders thereof. As in the previous years, trade unions have encouraged and maintained nice traditional sporting events among the employees. During the 33rd sporting games of the employees of EPS, around 500 employees took part. These were once again a grand finale of the previously ended numerous sporting contests in the business companies and sectors.

The Electric Power Industry of Serbia is a socially accountable company. EPS is one of the largest donors to the Serbian health service, culture, education, religious communities and sports. EPS is one of the largest donors in various humanitarian campaigns. We are proud of the cooperation with the local communities, as we have many times helped the development of infrastructure, either in cash or in material. Cooperation with the local communities has been extremely good in the area of environmental protection in Serbia. EPS has provided donations to the health service and bought equipment for clinics and hospitals which did not have sufficient funding to do that alone, and EPS regards this as an investment in the health of all those who are living in Serbia. By taking care of sporting associations in places where EPSs business companies are located, EPS has been practically taking care of the children, which obtained in those sporting clubs everything that was required for the development of the spirit and the body. EPS has also been helping the pre-school institutions, sharing the costs of longer visits of sick children to spas and seaside resorts. Construction, renovation and development of churches and monasteries throughout Serbia could not have been done with the help of the Electric Power Industry of Serbia. Education is being supported at all levels. It is difficult to number all the schools constructed, repaired or furnished by EPS. Special attention has been given by EPS to the universities, by buying equipment for their laboratories, supporting the publishing of textbooks and manuals, organizing professional excursions in Serbia and abroad EPS is supporting distinguished scientists from Serbia in order to attend professional meetings and conferences abroad, having recognized how important it is for our scientists and our science to acquire an international reputation.

EPS

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C o mm u n i c a t i o n

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PUBLIC RELATIONS

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The Electric Power Industry of Serbia on its road towards attaining its mission and its vision has become the centre of attention of both external and internal public. Under the new organizational structure, within the PE EPS Head Office, the Public Relations have been set up as an Independent Department operating within the competence of the General Manager and Deputy General Manager, respectively. Being aware of the importance of timely and due informing of both external and internal public, the PE EPS Management has promoted the public relations function within the eleven newly established corporate enterprises. Presently, PR is functioning within the corporate enterprise General Managers Office. In that way, preconditions for the devolution of the PR promotion implementation strategy, devised on the PE EPS level, have been met. The independent PR Department submits the Department provisional annual operation plan which after the endorsement at the Management Meeting forms the component part of the PE EPS Annual Operation Programme to be adopted by the PE EPS Board of Directors. The cooperation with the media is directly subject to the enhancing of the companys image as are all other operations of the Department - promotion of

the publicly responsible dealings of the company, publishing of promotional publications and media kit, internal dissemination of important information (companys monthly newsletter and daily electronic bulletins), web site, electricity customers education schemes targeting children, primarily. Company restructuring, downsizing, electricity prices, privatization are only some of the key issues of interest to the media. EPS annual media coverage includes about 6000 contributions and some 2000 TV features. Every piece of disclosed information is discussed and closely examined with the purpose to constantly improve our good relations with the media. Therefore, one of the most important tasks of the Independent PR Department is providing information to the external public. The qualitative analysis shows that only 1% out of 8% of monthly contributions (articles) bear negative connotation. Communication with the medial on a daily basis and education of the newspaper contributors aimed at ensuring objective informing of the general public on the issues concerning PE EPS were our primary tasks in 2006. The companys magazine kWh, with13.000-copy printing in 2006 played an important role in our communicating with the media. Each number disclosed official standing of the Management in relation to important issues the aim being for the media to be

encouraged either to relay them to the general public or to cover such topics that may be of importance for PE EPS. One of the aspects of internal informing is E-info newsletter which is sent on a daily basis to over 700 addresses within EPS and externally. At the beginning of this year, EPS Internet presentation was redesigned. Currently, it is updated daily and it ontains important data and latest information on EPS. As the year 2006 was dedicated to the marking of the Nikola Teslas150-year birth anniversary, PE EPS Public Relations actively participated in the realization of the Serbian Government Programme for the marking of this important event. All companys promotional contributions have been designed, edited and printed by the Independent PR Department. Primarily, these include publications targeting the adult population dedicated to the life and work of our greatest scientist. Our campaign EPS AND CHILDREN TESLA 150 targeted some 30.000 children in elementary schools from all over Serbia and more than 3.500 children from facilities sheltering children with special needs. About 7000 children from some 700 Serbian elementary schools took part in a fine arts contest entitled Tesla an Electricity Fairy Tale while 2200 children from 560 schools sent their literary papers to a competition

bearing the same name. About 8500 children from 24 towns attended Tesla Fairy Tale About Electricity performance while 1100 children from 20 Serbian towns visited Nikola Tesla Museum in Belgrade. All these visits in Belgrade were organized by EPS. Also, some 1100 children from 20 towns visited Nikola Tesla Thermal Power Plant in Obrenovac and became familiarized with the electricity production there. Additionally, in cooperation with the Belgrade British Council the ALSET cards project has been realized targeting 5000 children from 186 Serbian elementary schools. Two thousand children received the Electricity Dangers colouring sketchbook. While the children were getting familiarized with the personality and work of Nikola Tesla, the EPS AND CHILDREN 2007 project concept was created and designed. In the field of public relations, the education of children in understanding the need of reasonable energy consumption in terms of environmental protection became one of the most important tasks of EPS.

CONTENTS

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E D I T O R I A L . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 O R G A N I Z AT I O N C H A R T O F P E E P S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 I D E N T I T Y C A R D O F P E E P S .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 E P S I N F I G U R E S .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 M A P O F T H E E L E C T R I C P O W E R S Y S T E M O F E P S .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 M A J O R E V E N T S I N 2 0 0 6 . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 T H E R M A L A N D H Y D R O P O W E R P L A N T S .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 0 O P E N P I T M I N E S .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 DISTRIBUTION NETWORK..................................................................................... 32 E C O N O M I C - F I N A N C I A L A C T I V I T I E S .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 S T R AT E G Y A N D I N V E S T M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 E N V I R O N M E N TA L P R O T E C T I O N .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2 R E S E A R C H A N D D E V E LO PM E N T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 0 P E O P L E I N E P S .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4 C O M M U N I C AT I O N W I T H T H E P U B L I C .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 9

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ELECTRIC POWER INDUSTRY OF SERBIA Public Relations Division 11000 Beograd, Carice Milice 2 e-mail: eps@eps.co.yu www.eps.co.yu BluePrint, Beograd Publikum, Beograd