2007 Annual

Annual Report 2007
HRK 10.82 bn
HRK 26 mn
HRK 3.08 bn
2.43 mn
15.3 TWh
Operating income
Net income
Investments
Number of customers (metering points)
Electricity sales
(electricity, heat and gas)
(domestic)
HEPGroup
003 HEP Group 2007
HEP Group 2007
005
Contents
company profle
chairmans report
corporate governance
presidents report
business operations in 2007
customer relations
human resources management
sustainable development
safety at work
social responsibility
development
auditors report...
reports by HEP group companies...
reports by other...
addresses
CHAIRMANS REPORT 006
PRESIDENTS REPORT 008
COMPANY PROFILE 011
Mission and visison 012
HEP Group companies 013
Legal framework 016
International cooperation 018
Short history 019
CORPORATE GOVERNANCE 021
Governing bodies of HEP d.d. 022
Members of governing bodies 024
Audit 032
Certificates 033
BUSINESS OPERATIONS IN 2007 035
Macroeconomic environment 036
Business result HEP Group 039
Results by activity 045
Financial position 050
Investments 051
CUSTOMER RELATIONS 055
HUMAN RESOURCES MANAGEMENT 061
Number of employees 062
Employment and trade union relations 064
Education and training 065
SUSTAINABLE DEVELOPMENT 067
Monitoring, policy and organization of environmental and nature protection function 068
Harmonization with the EU legislation 068
Basic indicators 069
Major achievements in 2007 074
SAFETY AT WORK 079
SOCIAL RESPONSIBILITY 083
DEVELOPMENT OF ELECTRICITY AND BUSINESS SYSTEM 091
AUDITORS REPORT AND HEP GROUP CONSOLIDATED FINANC. STATEMENTS 095
REPORTS BY HEP GROUP COMPANIES WITH FINANCIAL STATEMENTS 175
HEP d.d. 176
HEP-Proizvodnja d.o.o. 182
HEP - Operator prijenosnog sustava d.o.o. 194
HEP - Operator distribucijskog sustava d.o.o. 204
HEP-Toplinarstvo d.o.o. 214
HEP-Plin d.o.o. 222
REPORTS BY OTHER HEP GROUP COMPANIES 233
HEP-Opskrba d.o.o. 234
HEP-Trgovina d.o.o. 236
HEP ESCO d.o.o. 240
APO d.o.o.usluge zatite okolia 242
HEP-Obnovljivi izvori energije d.o.o. 244
Ustanova HEP-Nastavno-obrazovni centar 246
ADDRESS LIST 249
LIST OF ABBREVIATIONS 255
HEPGroup
HEPGroup
007
ity market will be fully harmonized with the EU
legislation in force.
In 2007, work began to harmonize and amend
the energy development strategy of the Repub-
lic of Croatia. The analyses showed that the in-
crease in electricity consumption had exceeded
all projections made in the current strategy. It is
expected that over the next years the increase
in electricity consumption will continue to be
about 3 percent. Accordingly, a priority of the
new strategy will be to set an optimum scenario
in which the growing dependence on electric-
ity import will be effciently reduced by building
new generating capacity. We hope that the new
strategy will help HEP achieve its mission of
providing secure and reliable electricity supply
to customers at minimum costs.
Croatia ratifed the Kyoto Protocol on April 27,
2007. In the next period environmental require-
ment will be additionally tightened up. The per-
formance of HEP Group is a proof that in a sec-
tor in which development unavoidably entails
increased emissions of pollutants there can ex-
ist a model of maximum natural resources pro-
tection and green energy production. We hope
that such an approach will be more strongly
valued and that HEP will know how to use these
comparative advantages to the beneft of the
whole society.
Towards the end of 2007, ten-year bonds were
issued in the value of 700 million kuna and list-
ed in the 1st quotation of the Zagreb Stock Ex-
change, allowing the continuation of signifcant
investments in electric facilities, district heat-
ing, gas distribution, information technology
and telecommunications infrastructure. The to-
tal value of the investments made in 2007 was
more than 3 billion kuna. It is especially impor-
tant that investments in transmission and distri-
bution networks make it possible to satisfy the
constant growth of electricity consumption in
Croatia.
For HEP Group future operations it is signifcant
that the development of the business system
has moved into other energy activities such as
sales and distribution of natural gas, electricity
production from renewable sources and man-
agement of energy effciency projects. Although
a young company, HEP ESCO in 2007 received
award as the best European energy service
company for energy effciency projects.
A major step forward in the gas sector is ex-
pected from the construction of new supply
routes and an LNG terminal and from the im-
plementation of high-effciency cogeneration
projects in Sisak, Slavonia and Dalmatia which
are in HEP Group plans for the next decade.
We support the decision of HEP Group to take
an even more active part in the gas market, but
also in the development of district heating sys-
tems.
The ambitious plans in which HEP will become
a respectable participant in the regional market
and create a Croatian energy cluster through a
number of interlinked businesses that comple-
ment and build on each other can be achieved
only with competent and adequately trained
employees. In this segment too HEP promotes
excellence, providing opportunities for life-long
professional improvement through its educa-
tion and training center. In the segment of em-
ployment and human resources management,
as well as in the customer relations policy, HEP
shows social sensitivity and responsibility, and
it is the degree of corporate social responsibil-
ity that is the measure and capital which will be
increasingly important in the future.
Chairman of Supervisory Board
Leo Begovi
Every day we are witnessing the growing impor-
tance of energy in the world, in the global econo-
my and politics, from selection of energy options
in light of climate change and the Kyoto Protocol
to security of supply routes and fuel prices, espe-
cially oil. The energy industry is a key economic
leverage, the basis of security and a guarantor of
development of a country. A strong, modern and
developed energy sector is a precondition for a
competitive economy. Therefore, every country,
so Croatia too, has a particular responsibility in
organizing its energy sector and conducting its
energy policy.
In such circumstances, HEP Group, today still
fully owned by the State, is a guarantor of se-
curity of supply to all customers as well as of
implementation of Croatias energy priorities,
both those within the country (providing ener-
gy for large infrastructure projects, commercial
zones, etc.), and in regional and/or international
projects.
In 2007, Croatia successfully continued mem-
bership negotiations with the European Union
and launched a number of activities to facilitate
acceptance of new opportunities and challenges
at this social and economic turning point. The re-
form of the energy sector continued in line with
the EU legislation, which will enable energy un-
dertakings to operate in the internal European
market on an equal footing. At the time of pre-
paring this Report, on July 1, 2008, all custom-
ers have been granted the right to choose their
electricity supplier, whereby the electricity mar-
ket has fully opened. The amendments to pri-
mary energy laws passed in July of 2007 made
the legal framework fully harmonized with the EU
legislation. The successfully transposed acquis
communautaire of the European Union allowed
the negotiations to begin on Chapter 15, Energy,
and Chapter 21, Trans-European Networks.
Croatia wishes to be an equal participant in the
creation of the EU internal market. The signing of
the Energy Community Treaty with the European
Union accelerated the process of strengthening
institutional capacities, especially the regulatory
body and energy undertakings that cannot do
their business without being part of international
interconnected systems. The signifcance of the
Treaty is all the more greater considering that
in 2007 the European Commission published
a third energy package of legislative propos-
als which will allow member states to create a
more competitive and a more interconnected
energy market. The main characteristics of the
package are greater powers and strengthen-
ing of independence of national regulators, and
cooperation among member states and their
transmission system operators aimed at improv-
ing security of supply. I stress that at the time
of Croatias entry into the European Union the
energy sector and the functioning of the electric-
C
hairmans report
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company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
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009
mestic currency bonds in the nominal value
of 700 million kuna, in public offering in the
Croatian capital market. At the end of Decem-
ber the bonds were listed in the 1st quotation
of the Zagreb Stock Exchange and have been
actively traded since in the secondary market.
The funds are intended for the fnancing of the
investment plan 2007.
The investment plan was realized in an amount
higher than three billion kuna. In the production
business we have continued with the construc-
tion of Lee HPP (42 MW), which is planned to
be put into operation in 2009. In the location of
TE-TO in Zagreb, construction work continued
on a new unit for production of electricity and
heat (100 MWe, 80 MWt), which is expected to
go into service in early 2009. We have signed
contracts for supply of equipment and for con-
struction of a combined-cycle cogeneration
replacement unit at Sisak TPP (230 MWe, 50
MWt) and currently underway are preparatory
activities to build Slavonija TPP and Dalmacija
TPP (400 MW each) and a replacement unit at
Plomin TPP (500 MW). These projects consti-
tute a ten-year construction program totaling
1,700 MW in new power plants, which is about
40 percent of the total capacity at our disposal
today. The planned pace of construction is a re-
sponse to the growth in electricity consumption
in Croatia of more than 3 percent a year and to
the need to decrease Croatias dependence on
electricity imports. In addition to construction
of conventional electricity sources, we have
been developing renewable energy projects. By
establishing a company for renewable energy
sources, HEP Obnovljivi izvori energije d.o.o.,
we have set out, as one of the leading par-
ticipants in Croatia, to build wind, small hydro,
geothermal and biomass power plants.
In the transmission business, the most signif-
cant events were the signing of a contract for
the construction of a 2x400 kV Ernestinovo-
Pecs (Hungary) line, a letter of intent for the con-
struction of an undersea cable between Croatia
and Italy and a contract for modernization of
the National Dispatch Center and construction
of regional remote control centers. In the dis-
tribution business, too, signifcant investments
were made in construction of transformer sta-
tions across Croatia, and in modernization of
the network and control systems. By improv-
ing the overall customer service, including the
introduction of a single customer database
management system, HEP Billing, and by ap-
propriate staffng of HEP Opskrba do.o., we
have prepared ourselves for a full opening of
the electricity market in Croatia, July 1, 2008.
Among the most signifcant events in 2007 is
the implementation of a comprehensive con-
struction and energy management project at
the University Hospital Rebro in Zagreb based
on a new business model. Currently underway
is an extensive reconstruction of the hot water
systems in Osijek and Zagreb. Gas business
has also received our very serious attention. By
connecting the frst customers in Beli Manastir
to the supply area of HEP Plin d.o.o. we have
expanded into Baranja. Also, HEP is prepar-
ing for participation in a strategic Croatian en-
ergy project construction of a LNG terminal
which is of an exceptional business impor-
tance for us. This project fts into our plans for
development of international activities trad-
ing, construction of renewable energy projects,
energy transit, joint venture projects in Croatia
and countries of South-East Europe within the
framework of Energy Community, but also in
other markets.
In conclusion of this review of the most impor-
tant achievements of HEP Group businesses or
companies, it is worth mentioning that in 2007
our company HEP ESCO received an award as
the best European energy service company for
energy effciency projects, within the framework
of the EUs Intelligent Energy program.
This is a confrmation of our good approach
to supporting and developing competencies
of young specialists in the feld of electric-
ity. Our company currently provides scholar-
ships to 250 university students with half of the
contracts being concluded in 2007. During the
year we expended more than 23 million kuna
for post-graduate studies, training and profes-
sional improvement of our employees and for
scholarships to secondary school and univer-
sity students. With the strong education and
life-long learning and training provided to our
employees we want to reinforce the intellectual
capital of our company which will, among other
things, enable us to gain a competitive advan-
tage in the electricity market in Croatia.
Ivan Mravak
President of the Management Board
At the end of February 2008 the term of offce of
the previous Management Board expired and a
new HEP d.d. Management Board took over as
from March. In the fact that I remained to head
the Management Board I see a confrmation of
the satisfaction of our Owner, or the Government
of the Republic of Croatia as the representative
of the Owner, with the business operations and
the role of HEP in the Croatian economy over
the past four years. In this Annual Report 2007
we will give an overview of the situation at the
beginning of the term of the new Management
Board and determine our objectives for the next
four years.
First of all I am pleased to report that in 2007, in
a year of great uncertainties and changes in the
international energy and fuel market, we fulflled
our mission: to provide secure and reliable elec-
tricity supply to all our customers at minimum
costs. By ensuring availability of all our plants
and facilities in the production, transmission
and distribution without any even a minor fail-
ure of the electricity system, we have reaffrmed
that reliability and security are the fundamental
values of our system and of our company.
In 2007 HEP Group achieved the highest operat-
ing income ever 10.8 billion kuna, which is a 5.5
percent increase compared to 2006. Thus HEP
remained one of the largest business groupings
in the Republic of Croatia. Net proft was 26 mil-
lion kuna, which is signifcantly lower compared
to 2006 (241.9 million kuna). The reason for such
a result is exceptionally unfavorable business
conditions in 2007. Due to the growth in energy
input prices and unfavorable hydrologic circum-
stances, operating expenses increased consid-
erably. Electricity production and procurement
costs increased as the price of fuel oil grew by
7.6 percent, gas by 15 percent, coal by 19 per-
cent, and the price of electricity bought on the
market by 36 percent. Due to the 28 percent low-
er hydroelectric production than in 2006, we had
to increase electricity production in more expen-
sive sources thermal power plants.
The increased expenses were not followed by
an appropriate growth in income, due to un-
changed electricity and heat prices as well as
gas prices (electricity prices were last increased
on September 1, 2005: 5 percent for residen-
tial and 6 percent for business customers). The
positive business result in such circumstances
is primarily a result of further implementation of
measures to cut HEPs operating costs. Thanks
to the investments into construction and recon-
struction of the transmission and distribution
networks and to continued activities to reduce
illegal consumption, transmission and distribu-
tion losses were reduced. By concentrating the
procurement we have achieved signifcant sav-
ings in materials and spare parts and generally
improved business operations in HEP Group.
The fnancial stability is illustrated by the
confrmation of the credit rating issued by
Standard&Poors, according to which, with BBB
rating, HEP is an investment grade company. In
early December 2007 HEP issued ten-year do-
P
residents report
HEPGroup
011
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HEPGroup
HEP Group is a 100% state-owned energy
company which has been active in electricity
production, transmission and distribution for
more than one century and in district heating
and natural gas supply for the past few de-
cades.
Shortly after becoming independent in 1990,
the Republic of Croatia founded Hrvatska Elek-
troprivreda as a public enterprise which then
became a stock company in full state owner-
ship in 1994. In July 2002 it was restructured
into HEP Group which consists of the parent
company HEP d.d. and limited liability com-
panies (d.o.o.) active in electricity production,
transmission, distribution and supply, district
heating and gas distribution, and other busi-
nesses (environmental services, energy eff-
ciency).
HEP Group has consistently carried out the un-
bundling with respect to legal form, accounts,
organization and decision-making of the regu-
lated companies (natural monopoly) HEP
- Operator prijenosnog sustava d.o.o. (Trans-
mission System Operator) and HEP - Operator
distribucijskog sustava d.o.o. (Distribution sys-
tem Operator) from other activities of HEP
Group which are or will be exposed to competi-
tion and/or operate in a competitive market.
013
HEP - Proizvodnja d.o.o.
HEP - Operator prijenosnog sus-
tava d.o.o. (OPS)
HEP - Operator distribucijskog
sustava d.o.o. (OPS)
HEP - Opskrba d.o.o.
HEP - Trgovina d.o.o.
TE Plomin d.o.o. (50%)
CS Busko blato d.o.o.
NE Krko d.o.o. (50%)
A related company outside HEP Group
HEP d.d.
HEP - Toplinarstvo d.o.o.
HEP - Plin d.o.o.
HEP - ESCO d.o.o.
Plomin Holding d.o.o.
APO d.o.o. usluge zatite okolia
HEP - Odmor i rekreacija d.o.o.
HEP - Nastavno - obrazovni centar
HEP - Obnovljivi izvori energije d.o.o.
HEP Group companies
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HEPGroup
HEP-Plin d.o.o., headquartered in Osijek, supplies natural gas to customers in the
areas of Osijek-Baranja County, Poega-Slavonia County and Virovitica-Podravina County.
APO d.o.o. usluge zatite okolia (APO Environmental Services) is a consulting and
engineering company specializing in environmental protection, especially hazardous and
radioactive waste and radioactive material.
HEP Odmor i rekreacija d.o.o. (HEP Leisure and Recreation) provides tourist
and hospitality services and organizes sporting recreation.
Ustanova HEP - Nastavno-obrazovni centar, Velika, (HEP Training and Educa-
tion Center) is an educational institution which, in addition to providing training in live work,
conducts secondary school programs for adults and organizes professional gatherings, seminars
and courses.
HEP-ESCO d.o.o. a company providing energy services, develops, implements and
fnances market-based energy effciency projects.
HEP Obnovljivi izvori energije d.o.o. (HEP Renewable Energy Sources) deals
with preparation, construction and use of renewable energy sources (wind, small waterways,
geothermal water, etc.)
Plomin Holding d.o.o. develops local infrastructure and entrepreneurial projects in
the vicinity of the Plomin power plant.
NE Krko d.o.o. (Nuklearna elektrana Krko), Republic of Slovenia, is a
company outside HEP Group, co-owned by HEP d.d. and GEN Energija (50%:50%).
HEP-Toplinarstvo d.o.o. (HEP District Heating) is active in heat production, distribution
and supply in the the cities of Zagreb, Osijek and Sisak and in a part of the Zagreb County.
HEP d.d. (Hrvatska elektroprivreda d.d.) is the parent company of HEP
Group, the founder and the sole (100%) owner of the companies that have been founded; it
consolidates management of HEP Group subsidiary companies and is the owner of the
assets which are contractually transferred to subsidiary or daughter companies for
management.
HEP-Opskrba d.o.o. (HEP Supply) has the license for electricity supply to eligible
customers in Croatia.
TE Plomin d.o.o., co-owned by HEP d.d. and RWE Power (50%:50%), operates a 210 MW
power plant.
HEP - Operator prijenosnog sustava d.o.o. (HEP Transmission System Operator)
is responsible for the transmission of electricity produced in Croatian power plants or imported
from other countries for Croatian customers, at minimum costs and maximum possible standards
of electricity quality and system security. The company is also responsible for transmission of
Croatia-produced electricity for export purposes, and it manages electricity transit through the
Croatian system.
HEP-Proizvodnja d.o.o. (HEP Production) carries out the activity of electricity
production, and heat production for district heating systems in the cities of Zagreb, Osijek and
Sisak. C.S. Buko Blato d.o.o., a daughter-company of HEP Proizvodnja d.o.o., is located in
Bosnia-Herzegovina.
HEP-Trgovina d.o.o. (HEP Trade) carries out the activities of purchase and sale of elec-
tricity, optimization of power plants operation and trading intermediation in the domestic and
international market.
HEP Operator distribucijskog sustava d.o.o. (HEP Distribution System
Operator) is responsible for secure supply to tariff customers. The company distributes the elec-
tricity taken from the transmission network, and performs selling, metering, billing and payment
collection for the electricity supplied. It is also responsible for the maintenance and operation of
distribution network and plants.
015
In 2002 Croatia began to apply market-based energy laws. These are: Energy Act, Energy Activities Regu-
lation Act, Electricity Market Act, Gas Market Act and Oil Market and Oil Products Act. In December 2004,
the Croatian Parliament passed the Act on the Amendments to the Energy Act, a new Electricity Market
Act and a new Energy Activities Regulation Act, and in July 2007 the Parliament further amended these
acts to fully comply with the EU legislation.
Some of the main provisions of the current legal framework applicable to HEP:
- Croatian Energy Regulatory Agency (CERA) is a guarantor of non-discriminatory and
transparent competitive market in the feld of electricity and ensures effcient
functioning and development of the electricity market;

- permission to build new generating capacity can be obtained under either
authorization or tendering procedure;
- network access is based on Regulated Third Party Access, and producers and
customers are obligated to obtain consent from the transmission or distribution system
operator for a new connection to the network or for increase in connected power;
- electricity production and electricity supply are separate from the activities of
transmission and distribution;
- regulated energy businesses are carried out as public services, namely: electricity
production for tariff customers, electricity transmission, electricity distribution,
electricity supply for tariff customers and organization of the electricity market;
- HEP Group performs regulated activities as public services for electricity in the
Republic of Croatia.
Opening of the electricity market
Under the Electricity Market Act, eligible customers may freely choose their electricity supplier. As from
July 1, 2008 all customers in Croatia, including residential, became eligible customers, whereby the
Croatian electricity market fully opened.
Energy strategy
The fundamental document that determines the energy policy and defnes plans for the development of
the energy system at the national level is the Energy Development Strategy, passed by the Croatian Par-
liament at the proposal of the Government, for a period of ten years. Based on the Energy Development
Strategy, the Government produces the Program for Implementation of the Energy Development
Strategy.
HEP does not have a monopoly on energy businesses and all legal entities licensed by the Croatian
Energy Regulatory Agency can engage in these businesses. The responsibility for planning and
construction of Croatias electricity system lies on legal entities engaged in energy businesses, Croatian
Energy Regulatory Agency and other relevant authorities and institutions.
Legal framework
017
HEPGroup
Under the Hrvatska Elektroprivreda Privatization Act (Offcial Gazette NN 32/2002), at least 51% of
HEP shares will remain in government ownership up until the Republic of Croatia joins the European
Union. Croatian Homeland War veterans and their families will receive, without compensation, up to
seven percent of the shares, and up to seven percent will be sold to current and former HEP employees
under special privileges. At least 15 percent of the shares will be offered to Croatian nationals through a
public offering with pre-emptive rights and privileges yet to be determined, while the remaining shares
will be offered on the capital market. The pace of the implementation of the Act will follow the strategic
determinants and plans of the Republic of Croatia.
HEP d.d. and other members of HEP Group maintained contacts and cooperated with power companies
in neighboring countries but also with those in the rest of Europe and even from the USA. Intensive co-
operation continued with international organizations and national organizations of other countries under
agreements entered into by Croatias Government or by the Ministry of Economy, Labour and Entrepre-
neurship, in particular the Energy Community Treaty. HEP Group representatives have been participating
in the work of regional energy forums (so-called Athens Forum).
Due to the changed regulatory framework and new institutions in the EU electricity market, representa-
tives of HEP Group companies intensifed their participation in 2007 in executive and administrative bod-
ies of international organizations and their working groups.
HEP is a full member of Eurelectric. Activities are now underway to transfer Croatian membership in Eur-
electric to the association of electricity undertakings of the Croatian Chamber of Economy. HEP Trgovina
d.o.o. is an associate member of the European Federation of Energy Traders (EFET). HEP Operator
prijenosnog sustava d.d. (HEP OPS) is a full member of the Union for the Coordination of Transmission of
Electricity (UCTE) and an associate members of ETSO (European Transmission System Operators).
Of the other activities of HEP OPS at bilateral (and trilateral) level with other transmission system opera-
tors (especially neighboring operators), especially worth mentioning is the signing of the contract for the
construction of a 2x400 kV Ernestinovo-Pecs transmission line with the Hungarian transmission system
operator (MAVIR).
As part of the negotiations on Croatias accession to the European Union, HEP representatives have par-
ticipated in working groups for chapters of the acquis, 15 (Energy) and 21 (Transeuropean Networks).
HEPs specialists have been continuously presenting their papers and participating in national and inter-
national congresses and conferences of CIGRE, CIRED and other professional associations.
1895 First alternating current electricity system in Croatia, Krka HPP - ibenik
1912 Kraljevac HPP, among the largest hydro power plants at the time, is built
1925 Ante upuk i sin (Ante upuk & Son), ibenik, among UNIPEDE founders
1937 Vice Roys Electrica Company is founded
1941 State electrical company is founded
1943 110 kV line Rakitje (Zagreb) - Brestanica (Slovenia) is built
1945 Electrical company of Croatia is founded
1954 Union of electricity companies of Croatia is founded
Beginning of district heating: hot water pipeline for Konar factory from EL-TO
Zagreb plant
1957 110kV Zagreb Jajce (BiH) line goes into service; synchronous operation of western
and central system
1961 Business association of electricity distribution companies of Croatia is founded
1962 First line of 220 kV network Zakuac HPP (Split) - Brinje Mraclin (Zagreb)
1965 United electricity industry of Croatia is founded
1974 Union of electricity organizations of Croatia is founded
Gas distribution and supply begins within Elektroslavonija Osijek
1977 First 400 kV transformer station, Ernestinovo (Osijek), and frst 400 kV line,
Ernestinovo Mladost, are built
1981 Krko nuclear power plant goes into service
1990 Public enterprise Hrvatska elektroprivreda (HEP) is founded
1991 Heavy war destruction to power plants and facilities
1992 400 kV line TS Meline (Rijeka) TS Tumbri (Zagreb) is put into operation
1993 About 120 MW emergency diesel and gas power plants arwe installed in Dalmatia
1994 Island interconnection 110 kV TS Melina (Rijeka) Krk Rab - Pag Zadar is built
1995 Reconstruction and refurbishment of Perua dam is completed (blasted in 1993)
1997 Eastern Slavonia reintegrated into the Croatian electricity system
1998 Gas-fre power plant (2x26 MW) is put into operation at EL-TO Zagreb location
1999 Double circuit line 400 kV erjavinec/Tumbri (Zagreb) Heviz, Hungary is put into service
2000 Plomin 2 TPP (210 MW) begins commercial operation
2001 HEP becomes a member of UCTE
2002 Hrvatska Elektroprivreda d.d. is restructured into HEP Group
2003 Combined-cycle cogeneration unit K (200 MWe/150 MWt) at TE-TO Zagreb is put into oepration
2004 TS 400/220/110 kV erjavinec and the reconstructed TS 400/110 kV Ernestinovo
are put into operation
Reconnection of UCTE zones 1 and 2 is coordinated from HEPs headquarters
2005 Construction work on Lee HPP (42 MW) begins
2006 HEP issues corporate bonds worth 500 million kuna
Construction begins of a combined-cycle cogeneration unit L (100 MWe, 80 MWt) at TE-TO Zagreb
2007 Contracts are signed for construction of a combined-cycle unit (230 Mwe, 50 MWt) at Sisak TPP
Contracts are signed for the construction of a 2x400 kV Ernestinovo-Pecs (Hungary)
transmission line
HEP issues corporate bonds worth 700 million kuna
Privatization
Short history
019
HEPGroup
HEPGroup
021
orporate governance
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(from HEP d.d. Articles of Association)
The Management Board of the
Company
The Management Board of the Company
consists of 6 members, one of which is ap-
pointed president of the Management Board.
The president is appointed and removed by
the Supervisory Board. The term of offce of
the president and members of the Manage-
ment Board is 4 years.
For the realization of its managerial tasks and
powers the Management Board performs the
following work:
1. manages the business affairs of the Com-
pany,
2. establishes and implements the business
policy, medium-term and long-term plans,
3. carries out the decisions made by the
Supervisory Board and the Shareholders
Assembly, and takes measures and issues
instructions for their implementation,
4. passes internal rules and regulations of the
Company and organizational rules,
5. represents and acts for the Company, and
signs contracts within the framework of the
law and these Articles of Association,
6. proposes decisions on matters falling in
the scope of work of the Supervisory Board
and Shareholders Assembly of the Company,
7. appoints members to shareholders assem-
blies and to supervisory boards of the com-
panies in which HEP has controlling interests
or signifcant infuence,
8. appoints and revokes the Companys of-
fcers,
9. decides whether new employees are
needed,
10. proposes and takes necessary measures
and issues direct orders to ensure operations
of the Company, especially the safety and
functioning of the power system,
The Management Board of the Company
may, subject to approval by the Supervisory
Board, decide on:
1. Formation of companies in this country
and abroad ,
2. Sale and purchase of shares and stakes
held by the Company in other companies,
and sale of real property,
3. Sale and purchase of and charges on real
property exceeding HRK 20,000,000.00
4. Borrowing and issuance of securities ex-
ceeding HRK 100,000,000.00
5. Giving of power of attorney and waiving
of rights without compensation above HRK
5,000,000.00
The Supervisory Board
The Supervisory Board consists of 7 mem-
bers. Six members are appointed and
revoked by the Shareholders Assembly of
the Company and one member is elected
and revoked by workers pursuant to provi-
sions of the Labor Act. The term of offce of
the members of the Supervisory Board is four
years and after the expiry of their term the
members of the Supervisory Board may be
reelected. The members of the Supervisory
Board elect the chairperson and an alternate
chairperson from among themselves. The Su-
pervisory Board supervises the management
of the Companys business affairs.
The Supervisory Board:
1. appoints and revokes the Management
Board of the Company;
2. examines and reviews business records,
documentation, cash records, securities and
other documents related to the operations of
the Company;
3. gives prior approval on the decisions of the
Management Board where required by these
Articles of Association;
4. submits reports to the Shareholders As-
sembly of the Company on the supervision
carried out, especially with respect to fnan-
cial operations and their consistency with
business records,
The Shareholders Assembly
The Shareholders Assembly is composed
of shareholders and/or their proxies. The
Shareholders Assembly decides on matters
determined by the law and these Articles of
Association, in particular:
1. passes the Articles of Association and
their amendments;
2. appoints and revokes the members of the
Supervisory Board;
3. makes decisions on annual fnancial state-
ments and use of proft;
4. appoints the auditor of the Company;
5. decides on increase or decrease in the
capital stock of the Company;
6. decides on status changes and dissolution
of the Company;
7. carries out other work in accordance with
the law and these Articles of Association.
The meeting of the Shareholders Assembly
of the Company is convened by the Manage-
ment Board of the Company. The Manage-
ment Board of the Company is obligated to
convene the Shareholders Assembly when
requested by the Supervisory Board or share-
holders who hold at least 20% of the capital
stock of the Company. The Management
Board and the chairperson of the Supervisory
Board participate in the work of the Share-
holders Assembly.
HEPGroup
023
orporate governance
ompany governing bodies
SHAREHOLDERS ASSEMBLY OF HRVATSKA ELEKTROPRIVREDA d.d. (HEP d.d.)
SUPERVISORY BOARD OF HRVATSKA ELEKTROPRIVREDA d.d. (HEP d.d.)
MANAGEMENT BOARD OF HRVATSKA ELEKTROPRIVREDA d.d. (HEP d.d.)
Vladimir Vrankovi
eljko Tomi
Kreimir osi
Dasenko Baldasari.
Luciano Delbianco
Franc Ferenak
Zdenko Jurii
Ivan Mravak
Ante Despot
Ivica Toljan
Kaimir Vranki
Ivo ovi
Velimir Lovri
Chairman
Chairman
Deputy Chairman
Member
Member
Member
Member
President
Member, responsible for electricity and heat production and
environmental services
Member, responsible for electricity transmission and market operation
Member, responsible for electricity production from the nuclear power
plant; electricity distribution and electricity supply
Member, responsible for heat production and distribution, gas
distribution and energy effciency
Member, responsible for economic-fnancial affairs
At the end of the reporting period (December 31, 2007)
Current state HRVATSKA ELEKTROPRIVREDA d.d. (HEP d.d.)
Shareholders Assembly
Supervisory Board
Miljenko Pavlakovi
Chairman
State Secretary at the Ministry of Economy,
Labour and Entrepreneurship
Kreimir osi
Deputy Chairman
Member of Croatian Parliament
Luciano Delbianco
Member
Slavko Konfc
Member
Leo Begovi
Chairman
State Secretary responsible for the economy at the
Ministry of Economy, Labour and Entrerpreneurship
Dasenko Baldasari
Member
Zdenko Jurii
Member
Jadranko Berlengi
Member
Workers representative
HEPGroup
025
Members of governing bodies
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
HEPGroup
027
Born in 1970. Graduate mechanical engineer. From 1998 to 2008
worked in the company T-Mobile Hrvatska d.d., Zagreb, with responsi-
bilities in planning and investment of radio GSM and UMTS networks,
implementation of SAP system, legalization and planning and invest-
ment in infrastructure. Work positions: technical leader of Production
Group (1998-2000), specialist for construction of mobile networks
(2000-2002), head of Investment and Infrastructure (2002-2005) and
manager for construction and quality assurance.
Born in 1959. Graduate safety engineer. Has worked in HEP since 1981,
frst at Elektra Karlovac until 2004 except during the Homeland War
(1991-1995) when he was a commander and offcer in the Croatian Armed
Forces. From 2004 to 2008, worked in HEP d.d. as a coordinator of cor-
porate security and safety for HEP Group. He is captain frst class of the
Croatian Armed Forces, recipient of a high decoration of the President of
the Republic for participation in the Homeland War. He was president of
Association of Homeland War Veterans of HEP and president of Federation
of Homeland War Veterans of Croatian Public Enterprises
Born in 1957. Graduate electrical engineer, MSc (1990) and DSc degree
(2001). First employment at the factory TEP Zagreb, frst as development
and construction engineer in Section for Research and Development of
Electrical Distribution Equipment (1981-1987), then as head of the Sec-
tion.(1987-1991). In 1991 joined the Faculty of Electrical Engineering and
Computing in Zagreb, High Voltage Department. In 2002 he was energy-
economic planner in the Nuclear Energy Department of the IAEA in Vienna.
From 2004 to 2008 Assistant Minister for Energy and Mining in the Minis-
try of Economy, Labour and Entrepreneurship. From 2006 to March 2008,
he was chairman of HEP d.d. Supervisory Board. He is the leader of the
working group for negotiations with the EU for chapter 15 Energy, a mem-
ber of the Croatian Academy of Engineering and a member of IEEE and
European Nuclear Society
Born in 1954. Graduate electrical engineer, MSc degree in 1994. First
employment as maintenance engineer at the sugar factory in Ba, 1980.
From 1982 worked in the company Borovo, frst as a senior electrical
design engineer in Engineering, then as a technical director in Energy. In
1988 joined HEP as head of technical affairs in Vukovar operative area.
During the Homeland War (1991), organized an autonomous electricity
supply system for Vukovar. In HEP Distribution Division, he was coor-
dinator for construction and a team member for Project 35 kV Adriatic
Islands (1992-1995), coordinator of reconstruction of electric facilities
damaged in the war (1995-1997) and leader of reintegration of Eastern
Slavonia electricity system into HEP system (1997). From 1997 to 2004,
director of Technical Department in HEP Distribucija d.o.o., and since
2004 president of HEP d.d. Management Board.
Born in 1955. Graduate electrical engineer. First employment as a
teacher at the secondary school Sinj (1980-1982). From 1982 to 1984
worked in the company Konar Elektroureaji, Split, then in Engineer-
ing of the Shipbuilding Industry Split (1984-1988), in Safety Institute,
Split (1988-1993) and in the Communal Fund of the city of Solin (1993-
1996). Joined HEP in 1996, frst as head of Safety and Fire Protection in
Elektrodalmacija and then as a director of Hydo Production Area South,
Split, HEP Proizvodnja d.o.o. (2004-2008).
Born in 1973. MSc degree in 1998 and DSc in 2006. First employment
(1998) at the company AIPK as a marketing manager. Joined Siemens
d.d. Zagreb in late 1998, frst as head of GSM Sales, then as Key Ac-
count Manager (2000-2001) and head of Business Strategy and Devel-
opment Department (2001-2004). At the same time he was a member
of Telecommunications Council (independent regulator). From 2004 to
2008 Assistant Minister of Sea, Tourism, Transport and Development in
Telecommunications and Postal Service Directorate. He is a member of
the National Council for Information Society, a member of Council for
Establishment of Computer Communication Network in Government
Bodies and a member of Working Group for negotiations with the EU for
Chapter 10 Information society and media.
anagement Board
Ivan Mravak
President of Management Board
Darko Dvornik
Member of Management Board
eljko Kljakovi Gapi
Nikola Rukavina
eljko Tomi
Stjepan Tvrdini
HEPGroup
029
anagement Board
HEPGroup
031
Shareholders Assembly 2007
The annual meeting of the Shareholders Assembly was held on May 28, 2007. The
Assembly considered annual business and fnancial reports and adopted the Deci-
sion on the use of the operating proft achieved in 2006. The Assembly gave a state-
ment of release to the president and members of the Management Board and to the
chairman and members of the Supervisory Board of HEP d.d. for the business year
2006.
Management
HEP GROUP COMPANIES
(at the end of the reporting period, December 31, 2007)
Marija Modri
Ante Matijevi
Frane Barbari
Goran Slipac
Branimir Deli
Stanko Toki
HEPProizvodnja d.o.o.
HEP Operator prijenosnog sustava d.o.o.
HEP Operator distribucijskog sustava d.o.o.
HEP-Opskrba d.o.o.
HEP-Trgovina d.o.o.
HEP-Toplinarstvo d.o.o.
HEP-Plin d.o.o.
HEP ESCO d.o.o.
APO Usluge zatite okolia d.o.o
HEP Obnovljivi izvori energije d.o.o.
HEP Nastavno-obrazovni centar
* Since March 17, 2008 director is Petar ubeli
eljko Dori, Director*
Dubravko Saboli, Director
Mio Jurkovi, Director
Ivan Mrljak, Director
arko Mudrovi, Director
Robert Krklec, Director
Nikola Liovi, Director
Gordana Lui, Director
Damir Subai, Director
Zoran Stani, Director
Edo Virgini, Director
Marino Roce, Director
Zdenko Mileti, Head of the Institution
Head of the Offce of the Management Board
Director of Economic Affairs Division*
Director of Human Resources Management, Legal and General Affairs Division
Director of Corporate Development and Strategy Division*
Director of Information Technology and Telecommunications Department
Director of Internal Audit and Control Department
* As of July 1, 2008 the position of director of the Division does not exist
Audit
Independent auditor
At the extraordinary meeting of the Sharehold-
ers Assembly held on October 2, 2007, the
Assembly appointed the auditing frm Deloitte
d.o.o. Zagreb as the auditor of HEP d.d. for
the year ended December 31, 2007.
Internal audit
Internal Audit Department is a business func-
tion of HEP d.d. and a pivotal function of HEP
d.d. Management Board, and a part of the
internal supervision. Internal audit contributes
to the improvement and development of busi-
ness operations and management processes
in HEP Group and to the increase of security
and reliability of the business system. The in-
ternal supervision consists of internal controls
and internal control system, internal audit,
controlling, treasury, risk management and
other forms of control.
The task of the internal audit is to conduct
audit of business operations and to report
on the effects of internal control and internal
control system, business operations of the
audited area, compliance with laws and HEP
internal rules, plans and programs and busi-
ness policy, security and reliability of business
and information systems of HEP Group, and
about methods of managing business risks. A
signifcant area of work of the internal audit is
the examination and confrmation of internal
controls over fnancial reporting and their ef-
fects.
The internal audit helps the Management
Board and the Supervisory Board of HEP
d.d. in overseeing the business operations of
HEP Group. Internal controls and the internal
control system are fundamental supervising
functions and they are the responsibility of the
management. The management is responsible
for their establishment, organization, function-
ing and supervision, and the internal audit is
responsible for verifying how they work.
The carrying out of internal audits ensures
an independent and objective assessment
of business operations of the audited area.
Internal Audit Department prepared Work
Plan and Program for 2007 and a separate
Audit Implementation Program. The Plan and
Program encompassed all activities of the
Department, especially those in implement-
ing the audits. Based on the assessment of
business risks and considering the number
of staff, the Department carried out 51 audits
covering: procurement, legal, personnel and
property law functions, information system,
safety at work and fre protection, inventories
of materials, illegal consumption, power plant
overhauls and ad hoc controls. Based on the
audits carried out in 2007, the Departments
assessment is that the internal control system
in HEP is reliable, that the main business risks
are recognized and that they are well man-
aged.
All audits have been performed as required by
HEP.d.d. rules and the Departments docu-
ments: Internal Audit Manual, Guidelines
for Internal Auditors, Work Methodology for
Internal Audit and working documentation
of the internal control. To implement certain
audits, teams were set up which involved
specialists at the level of HEP d.d., subsidiary
companies and other organizational parts of
HEP Group.
The Department submits to HEP d.d. Man-
agement Board annual and semi-annual
reports on its work. The reports are based
on the audits and other tasks and activities
carried out by the Department. The reports on
the audits carried out systematically report
on the audits and give relevant fndings and
conclusions as well as corrective measures
and activities. The Report on the Work of the
Department in 2007 addressed all tasks and
obligations that the Department has under
internal rules and regulations of HEP d.d., the
Departments documents, and Plan and Pro-
gram of Work of the Department for 2007.
Certifcates
ISO 14001 Certifcate for
environmental manage-
ment within HEP Proizvod-
nja d.o.o. issued to TE-TO
Zagreb (by BVQI), EL-TO
Zagreb, CCPP Jertovec
and hydro production
areas North and West (by
Det Norske Veritas) with
all hydro power plants in-
cluded, within HEP ODS to
Elektra Zagreb, and within
HEP OPS to Zagreb Trans-
mission Area (by Bureau
Veritas)
ISO 9001 Certifcate
for quality management
issed to TE-TO Zagreb
(by Bureau Veritas), EL-TO
Zagreb and CCPP
Jertovec and hydro
production areas North
and West (by Det Norske
Veritas) with all hydro
power plants included
All HEPs hydro power
plants have since 2003
certifcates of a hundred
percent production from
renewable sources, or
green energy (issued by
TV)
HEPGroup
033
HEPGroup
035
Business operations in 2007
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
In 2007 the real growth rate of gross domestic product (GDP) was 5.6 percent (4.8 percent in
2006). Croatias GDP was 37.497 billion euros or 8,452 euros per capita. Industrial production
grew 5.6 percent compared to 2007. Average unemployment rate fell to 9.6 percent (using ILO
definition). External debt was 32.929 billion euros (87.8 percent of GDP), an increase of 3.655
billion euros over 2006. External debt growth in 2007 was 12.5 percent (13.7 percent in 2006).
The state deficit in 2007 was 6.3 billion kuna or 2.3 percent of GDP-a (u 2006 3 percent of
GDP).
Macroeconomic environment
2007
HEPGroup
037
Source: Croatian National Bank, Croatian Chamber of Economy
2005 2006
Croatia basic macroeconomic indicators
Credit rating
Standard&Poors raised credit rating of HEP d.d. on July 19, 2005 for foreign currency debt to BBB
from BBB-. This raising refects the December 2004 increase in Croatias sovereign credit rating.
HEPs rating BBB for local currency debt was confrmed at the same time and this rating has not
changed since 1998.
On May 25, 2007 Standard&Poors changed the outlook for HEP d.d. from negative to stable. In its
report of June 27, 2008 the rating agency Standard&Poors confrmed the credit rating BBB of
Hrvatska Elektroprivreda d.d. for long-term debt, with stable outlook
HEP credit rating: BBB/Stable/- -
Credit rating history
Local currency Foreign currency
November 13, 1998 BBB BBB-
July 19, 2005 BBB BBB
2007
31,263
7,038
4.3%
3.3%
25,748
12.7%
4.44
7.4000
5.9500
GDP
GDP per capita
GDP annual growth rate
Average annual inflation rate
Foreign debt
Unemployment rate
Population (estimate)
Average exchange rate
Average exchange rate
34,220
7,707
4.8%
3.2%
29,274
11.2%
4.44
7.3228
5.8392
37,497
8,452
5.6%
2.9%
32,929
9.6%
4.44
7.3360
5.3660
in EUR mn, current prices
in EUR
constant prices
in EUR mn, at year end
using ILO definition
in mn
HRK : 1 EUR
HRK : 1 USD
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
Business operations in 2007
HEPs bond issue
In early December 2007 HEP issued ten-year domestic currency bonds in the nominal value of HRK 700
million, through public offering in the Croatian capital market. The entire funds are intended for the fnancing
of the investment plan 2007. Towards the end of December bonds were listed in the frst quotation of the
Zagreb Stock Exchange and since then they have been actively traded in the secondary market.
HEPGroup
039
HEP Group consolidated fnancial statements (IFRS)
According to fnancial indicators, HEP Group is one of the biggest business groupings in Croatia. The
year 2007 was marked by exceptionally unfavorable business conditions. Due to the price growth of
energy inputs and unfavorable hydrologic conditions, operating costs increased signifcantly. Since the
prices of electricity and heat and gas were not increased, this was refected on operating proft which
decreased to 204.8 million kuna (in 2006 it was 400.6 million kuna). Group net proft is 26 million kuna,
of which 3.8 million kuna is attributable to equity holders of the parent.
Operating income
Operating expenses
Operating proft
Group net proft
Net proft (attributable to equity holders of the parent)
Total assets
Capital andreserves(attributabletoequityholdersof theparent)
Gross debt
Investment in property, plant and equipment
Cash from operating activities
Free cash fow
EBITDA
EBIT
Net proft rate (attributable to equity holders of the parent)
ROE
Debt/equity rate
HRK mn
HRK mn
HRK mn
HRK mn
HRK mn
HRK mn
HRK mn
HRK mn
HRK mn
HRK mn
HRK mn
%
%
%
%
%
unit
9,653.3
9,108.9
544.4
469.2
441.3
28,076.0
17,808.7
4,374.3
2,443.0
2,892.3
445.2
26.4%
6.1%
5.0%
2.5%
24.6%
10,247.3
9,846.6
400.6
241.9
216.9
29,335.6
18,013.4
4,663.5
2,761.9
2,817.6
48.0
23.9%
4.2%
2.3%
1.2%
25.9%
10,815.5
10,610.7
204.8
26.0
3.8
31,070.2
18,013.1
5,643.3
3,077.0
2,045.8
-943.5
19.9%
2.2%
0.04%
0.02%
31.3%
5.5%
7.8%
-48.9%
-89.2%
-98.2%
5.9%
-0.002%
21.0%
11.4%
-27.4%
Busi ness resul t HEP Group
2005 2006 2007 07/06
Operating income
Operating expenses
EBIT
Group net proft
Net proft attributable to equity holders of the parent
9,653.3
9,108.9
544.4
469.2
441.3
Consolidated proft and loss account (abridged) HRK mn
10,247.3
9,846.6
400.6
241.9
216.9
6.2%
8.1%
-26.4%
-48.4%
-50.8%
10,815.5
10,610.7
204.8
26.0
3.8
5.5%
7.8%
-48.9%
-89.2%
-98.2%
Operating income
In 2007 the Group achieved the highest operating income ever 10,815.5 million kuna, an increase of 568.2
million kuna (5.5 percent) compared to 2006. The growth in operating income is due to the increase in other
operating income while income from the sales of electricity, heat and gas decreased.
Income from electricity sales, which accounts for 80.8 percent of total operating income, is slightly lower
than in 2006 (0.1 percent or 7.8 million kuna) and amounts to 8,739.2 million kuna. Income from domestic
sales increased 4.6 percent (366.2 million kuna) as a result of a higher domestic consumption. Income from
export decreased by 374 million kuna (43.7 percent) due to decreased sales of electricity outside Croatia. As
a result, the share of export in electricity sales income decreased from 9.8 percent in 2006 to 5.5 percent in
2007.
Income from heat sales is 450.9 million kuna, lower by 6.9 million kuna (1.5 percent) compared to 2006.
Income from gas sales is 235.5 million kuna, lower by 6.8 million kuna (2.8 percent) than in 2006. Income
decreased due to the fall in consumption resulting from weather conditions in the frst quarter of 2007.
Other operating income was realized in the amount of 1,389.8 million kuna, an increase of 73.7 percent
(589.7 million kuna). The increase is mostly due to cancellation and decrease of long-term provisions (for
value adjustment of the share in Krko NPP, severances and jubilee rewards, legal costs, payments under
the collective agreement, and decommissioning of thermal power plants) and to the increase in income from
lease of electricity transmission capacity and in income from services rendered.
other operating income
electricity sales
heat sales
gas sales
other operating income
8,739.2
450.9
235.5
1,389.8
80.8%
4.2%
2.2%
12.8%
10,815.5
+5.5%
gas sales
electricity sales
heat sales
Operating income (HRK mn)
HEPGroup
041
Operating expenses
Operating expenses increased by 764.1 million kuna (7.8 percent) and amount to 10,610.7 million
kuna, realizing a growth which is by 195.8 million kuna higher than the growth in operating income.
Electricity production and procurement costs increased, although less electricity and heat were
produced and procured, by 615 GWh and 78 GWH respectively, compared to 2006
These costs increased due to the following factors:
- rise of 7.6 percent in oil price, 15 percent in gas price, 19 percent in coal price and of
36 percent in electricity purchased on the market;
- lower hydroelectric production by 28 percent (1.7 TWh);
- higher production by thermal power plants by 26 percent (1.4 TWh).
Electricity procurement costs, which include electricity from Krko NPP, imports and procurement from
renewable energy sources are 2,504.4 million kuna, an increase of 475.1 million kuna (23.4 percent).
Although electricity procurement amounting to 7.8 TWh decreased by 4 percent compared to 2006 as
a result of lower sales outside Croatia (by 41 percent), the effect of this decrease was offset by higher
electricity procurement costs.
Due to the lower hydroelectric production as a result of signifcantly lower fow than the perennial aver-
age (by 28 percent, from 6.07 TWh to 4.4 TWh), thermal electric production increased (by 26 percent
- from 5.4 TWh to 6.8 TWh).
Fuel costs were 2,504.6 million kuna, an increase of 729.1 million kuna or 41.1 percent compared to the
year before. The cause of the increase is a greater use of all energy sources fuel (due to higher thermal
electric production) and their price increase.
Operating expenses (HRK mn)
Staff costs in 2007 amounted to 1,645.2 million kuna, higher than in 2006 by 70 million kuna or 4.4 per-
cent. Staff costs are determined in the Collective Agreement which came into force at the beginning of
2006 and which increases the basic salary by 5.7 percent compared to 2006. The rise in net salary was
also due to a growth in the number of higher qualifcation employees and reduction in lower qualifcation
employees.
Depreciation costs decreased by 188.7 million kuna (10.6 percent) compared to 2006 and amount to
1,592.4 million kuna since, based on an assessment, useful life of some long-term assets for produc-
tion, transmission and distribution of electricity, was extended.
Other operating expenses amounted to 2,364.1 million kuna, a decrease of 12 percent (321.4 million
kuna), primarily as a result of a temporary reduction or deferral of maintenance costs
(reduction of 30 percent) in order to compensate for the effect of high rise in energy costs.
electricity procurement
electricity procurement
fuel
staff costs
depreciation
other operating expenses
2,504.4
2,504.6
1,645.2
1,592.4
2,364.1
23.6%
23.6%
15.5%
15.0%
22.3%
10,610.7
+7.8%
staff costs
depreciation
other operating expenses
fuel
HEPGroup
043
Proft
Change in operating proft effect of income and expenses (HRK mn)
As a result of the above described factors, operating proft decreased by 48.9 percent: from 400.6 mil-
lion kuna to 204.8 million kuna.
Net proft attributable to equity holders of the parent was 3.8 million kuna, a decrease of 98.2 percent
compared to 2006. This is due to the fall in operating income, a more unfavorable fnancial result and
higher tax expenses than in 2006. Proft rates in 2007 decreased compared to previous years.
Income from sales
Proft before interest, tax and depreciation
Operating proft
Net proft attributable to equity holders of the parent
EBITDA
EBIT
Net proft rate (attributable to equity holders of the
parent)
8,895.9
2,346.9
544.4
441.3
26.4%
6.1%
5.0%
9,447.2
2,259.3
400.6
216.9
23.9%
4.2%
2.3%
6.2%
-3.7%
-26.4%
-50.8%
9,425.7
1,873.3
204.8
3.8
19.9%
2.2%
0.04%
-0.2%
-17.1%
-48.9%
-98.2%
HRK mn Proft structure
Change in operating proft by activity (HRK mn)
Most of the operating income (93 percent) as well as the total operating proft were achieved in the
electricity business. The share in Group operating income slightly increased (from 92.6 to 93 percent)
compared to 2006.
District heating business made an operating loss of 113.6 million kuna, 60.9 percent more than in
2006. The share in Group income decreased from 5 percent to 4.6 percent..
Gas distribution business has the smallest share in operating income (2.4 percent). Operating loss
decreased to 1.5 million kuna.
Operating income
Operating proft
9,484.4
482.1
500
400
300
200
100
2006
400.6
-162.2
-43.0
+9.3 204.8
2007
-195.8
electricity heat
+ positive effect due to loss decrease or proft increase
- negative effect due to loss increase or proft decrease
gas
10,057.1
319.9
6.0%
-33.6%
509.4
-70.6
253.4
-10.8
502.1
-113.6
256.3
-1.5
-1.4%
60.9%
1.1%
-86.1%
HRK mn
electrcity heat energy Gas distribution
Business result
HEPGroup
045
Results by activity
Electricity
The businesses of electricity production, transmission, distribution and supply achieved in 2007 an op-
erating proft of 319.9 million kuna, a decrease of 162.2 million kuna (33.6 percent) compared to 2006.
Income from electricity sales is 8,739.2 million kuna, a slight decrease (of 7.8 million kuna or 0.1 per-
cent) compared to 2006. Income from domestic sales is higher by 4.6 percent (366.2 million kuna) due
to a 2.7 percent higher domestic consumption.
Export income is lower by 374 million kuna (43.7 percent) due to signifcantly lower export (41 percent).
operating income
operating expenses
operating proft
8,860.6
8,246.0
614.6
9,484.4
9,002.3
482.1
7.0%
9.2%
-21.6%
10,057.1
9,737.2
319.9
6.0%
8.2%
-33.6%
HRK million Operating result
Income from electricity sales (HRK mn)
tariff customers
eligible customers
export
tariff customers
eligible customers
export
In its own power plants HEP produced 11,202 GWh of electricity, which is 59 percent of total available
electricity, 14 percent (2,714 GWh) was delivered by Krko NPP and 27 percent (5,133 GWh) was pro-
cured from outside Croatia.
HEP-produced electricity slightly (3 percent) declined compared to 2006, with hydro power plants pro-
ducing 28 percent (318 GWh) less and thermal power plants 26 percent more. Hydrologic conditions in
2007 were far more unfavorable than the average. Electricity import decreased by 7 percent.
Domestic sales were 15,331 GWh of electricity 14,411 GWh (94 percent) was sold to tariff customers
and 920 GWh (6 percent) to eligible customers. Electricity import fell (41 percent), decreasing its share
in total energy sold from 13.7 percent in 2006 to 8.3 percent in 2007.
hydro power plants
thermal power plants
Krko nuclear power plant
electrcity procurement
6,388
5,150
2,807
5,919
6,070
5,436
2,645
5,513
4,357
6,845
2,714
5,133
-28%
26%
3%
-7%
GWh Electrcity production and procurement
7,950.3
307.1
481.8
91.0%
3.5%
5.5%
8,739.2
-0.1%
HEPGroup
047
Electrcity sales (GWh)
2007
2006
2005
0 5,000
13,568 701 3,400
13,976 947 2,371
14,411 920 1,395
10,000 15,000 20,000
tariff customers
eligible customers
export
Electricity sales to domestic customers were calculated using the tariff system, and the most recent
increase in tariff rates was in 2005. Under the Electricity Market Act, as from July 1, 2007 all except
residential customers have the right to choose their supplier. However, only 17 customers have con-
tracts with HEP Opskrba d.o.o., while all the rest still buy electricity on conditions for tariff customers.
The business activity of heat production, distribution and supply is performed by HEP Toplinarstvo
d.o.o. and covers the areas of Zagreb, Osijek and Sisak.
District heating
operating income
operating expenses
operating proft
527.3
596.5
-69.2
509.4
580.0
-70.6
-3.4%
-2.8%
2.0%
502.1
615.7
-113.6
-1.4%
6.2%
60.9%
HRK mn Operating result
HEPGroup
049
From this business HEP Group made 4.6 percent of operating income in 2007, decreasing its share
from 5 percent in 2006.
An operating loss of 113.6 million kuna was realized. Compared to 2006, the loss increased by 43 mil-
lion kuna due to the strong growth in fuel prices while at the same time selling price did not change.
Fuel costs and heat procurement costs in 2007 constituted as much as 94.8 percent of income from
heat sales, leaving only 5.2 percent for coverage of fxed costs.
Production of heat and process steam was 2.49 TWh, a decrease of 3.1 percent compared to 2006.
Heat consumption was 2.09 TWh, a decrease of 5.6 percent compared to 2006. The higher outdoor
temperatures in the heating season resulted in lower consumption. Due to the fall of consumption,
sales income is 450.9 million kuna, a decrease of 6.9 million kuna (1.5 percent) compared to 2006.
Although heat selling prices do not cover operating costs and fuel prices continued to rise in 2007
increasing thereby unit cost price, selling prices did not change. Since the heating business is included
in the process of liberalization and regulation of the energy sector, it is expected that selling prices will
be changed in 2008, which should enable this business to make proft and develop.
In gas distribution, which is performed by the company HEP-Plin d.o.o., gas consumption decresed
by 2.6 percent due to weather conditions in the frst quarter, reducing consumption of gas for heat-
ing. Income from gas sales decreased by 6.7 million kuna (2.8 percent) to 235.5 million kuna. From this
business HEP Group made 2.4 percent of operating income.
In 2007, an operating loss of 1.5 million kuna was made which is a decrease of 9.3 million kuna com-
pared to 2006.
Gas
Operating income
Operating expenses
Operating proft
265.4
266.4
-0.96
253.4
264.2
-10.8
-4.5%
-0.8%
256.3
257.8
-1.5
1.1%
-2.4%
HRK mn Operating result
Financial position
Non-current assets
Current assets
Total assets
Capital and reserves attributable to equity holders of the parent
Minority interest
Total liabilities
Long-term liabilities
Short-term liabilities
Total liabilities. capital and minority interest
26,575.4
2,760.2
29,335.6

18,013.4
137.7
11,184.5
7,837.3
3,347.2
29,335.6
Dec 31, 2006
HRK mn HRK mn share share
Dec 31, 2007
91%
9%
100%

61%
1,0%
38%
27%
11%
100%
28,040.2
3,030.0
31,070.2

18,013.1
122.1
12,935.0
8,495.3
4,439.7
31,070.2
90%
10%
100%

58%
0.4%
42%
27%
14%
100%
Consolidated balance sheet (abridged)
Total assets of HEP Group increased by 1,734.6 million kuna to 31,070.2 million kuna in 2007. The in-
crease was realized as a result of an increase in current assets of 269.8 million kuna and in non-current
assets of 1,464.8 million kuna.
The majority of non-current assets consists of property, plant and equipment (including capital work in
progress), the value of which increased by 1,486.3 million kuna (to 25,694 million kuna). The increase
was realized as a result of investment in construction as well as in replacement and reconstruction of
energy facilities in the amount of 3,077 million kuna, the highest investment made to date in a single year
and also 1.5 billion kuna above the amount of annual depreciation. Prepayments for tangible assets also
increased, by 60.8 million kuna.
The value of current assets is 3.030.3 million kuna. It increased by 269.8 million kuna due to the effect of
the increase of 234.5 million kuna in other current receivables and of the increase of 124.4 million ku-
nai in inventories. Most current assets consist of trade receivables, which decreased by 96 million kuna
compared to 2006 and amount to 1,227.3 million kuna.
Assets
Investments
Capital and reserves in 2007 amounted to 18,013.1 million kuna. Total liabilities increased by 1,750.5
million kuna of which long-term liabilities accounted for 658 million kuna and short-term liabilities for
1,092.5 million kuna.
Long-term liabilities for loans, amounting to 2,928.7 million kuna, decreased by 200.2 million kuna due to
repayments being higher than infow of new loans and due to the effect of valuation of loan principal for
changes in exchange rates. In December 2007 ten-year bonds were issued denominated in HRK and
with a fxed interest rate, which increased long-term liabilities for securities by 698.9 million kuna.
In long-term liabilities there is a signifcant increase (618.9 million kuna) in deferred income contributed
by others, which is related to connection of new customers and increase in connected power for existing
customers.
In short-term liabilities which amount to 2,579.8 million kuna there is a signifcant increase in trade pay-
ables (of 868.8 million kuna) as a result of a high rise in payables for procurement of fuel and electricity
and high investments. In 2007, short-term loans increased by 519.1 million kuna to 905.4 million kuna, as
a result of extending the existing credit lines and taking new ones.
Due to increase in interest-bearing debt being higher than increase in capital and reserves, debt to equity
ratio increased from 24.6 percent to 25.9 percent.
The investments in 2007 were in the amount of 3,077 million kuna of which 2,655.2 million kuna in new
construction, replacement and reconstruction of power plants and facilities. The remaining investments
of 421.8 million kuna were made in information and telecommunication infrastructure, remote control
systems, measuring devices and instruments, offce spaces and transport vehicles.
Capital and liabilities
HEPGroup
051
Investments in property, plant and equipment 2,443.0 2,761.9 3,077.0 11.4%
HRK mn Investments
320.4 752.4 1,435.0 2,507.8 135.9 11.5
HRK mn
gas
distribution
district
heating total electricity distribution transmission production
Investments in power plants and facilities
Construction of transmission and distribution networks allows continuous growth in electricity consump-
tion in Croatia, and replacement and reconstruction to remove ineffciencies of existing plants and facili-
ties are aimed at improving the security and quality of electricity supply and reducing network losses.
Construction of new high-effciency generating plants will reduce the gap between generating capability
of existing plants and growing needs for electricity. It will also allow closure of old, ineffcient and there-
fore expensive, plants.
Continuation of construction of Lee HPP (42 MW; potential annual production 98
GWh); continuation of construction of Unit L at TE-TO Zagreb (100 MWe, 80 MWt;
planned annual production 750 GWh of electrical and 250 GWh of thermal energy), and
start of construction of Unit C at Sisak TPP
Continuation of multi-year works on the hydro power plants Perua, Zakuac, and Senj
and necessary replacement and reconstruction of plants and facilities
Transmission plants whose construction or reconstruction was completed in 2007:
transmission facilities in Istria, Program Banovina (TS 110/10(20) kV Siscia), Program
Ernestinovo (110 kV akovo-upanja line), and investment into other 110 kV facilities (TS
Karlobag, TS Drni, RP Podsused, TS Varadin, TS vara, TS Buje, TS Krapina, EVP
Andrijevci, TS Novalja, TS Komolac)
Major investments
HEPGroup
053
Transmission plants whose construction or reconstruction started in 2007 and will
continue in 2008: Program Banovina (110 kV Prano-Kostajnica line), Program Karlovac,
Program Ernestinovo (TS 110/20 kV Osijek 4), Program Dubrovnik, 2x400 kV
Ernestinovo-Pecz line, 2x220 (110 kV) Plomin-Vodnjan line, 110 kV line (Plomin-Dubrova
and Dubrova-Raa), TS 110/35 kV (Pazin and Zabok), TS 110/10(20) kV Buzet, Electricity
System Operation Function project.
In the distribution business, the following investments were made in 110 kV facilities (TS
Mlinovac, TS Kraica, TS Dugo Selo, TS Dubec, TS Sr), 35 kV (TS Vinkovci 5, TS
Mekuje, TS Grobnik, TS Varadinske Toplice, TS Istok, TS Ludbreg, TS Bilje, TS
Orlovnjak, DV Cecela-Rui) 10 kV (DV DubrovaVuetinec, DV NovigradDrnje) and
refurbishment of telecontrol centers Zagreb, Rijeka i Split.
Repair and reconstruction of war damage continued, restoration of voltage conditions in
distribution network, emergency meter replacements.
In the district heating business, a multi-year investment project is underway for refurbishment
and reconstruction of the heating networks of Zagreb and Osijek in order to improve
effciency and cut operating costs of the heating business
In the gas distribution business, the most signifcant investment is the continuation of
construction of gas network in Baranja and start of construction of a gas pipeline in the
municipalities of Ernestinovo and Podgora.
In information and telecommunication technology, investments in consolidation and
development of the infrastructure continued.
HEPGroup
055
Customer relations
At the 1st
Consumer Protection
Convention (2004)
HEP received
award for
simplifying the
calculation of
electricity
consumption and
for protection of
electricity customers.
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
Customer relations
HEP Group supplies its customers with electricity at 2,241,203 metering points. In 2007, the number of
metering points increased by 47,852 of which residential customers account for 38,905 metering points
and commercial customers account for 8,947 metering points. Of the total number of metering points at
which HEP supplied electricity to its customers, 2,239,148 metering points belong to low voltage dis-
tribution network, of which 2,028,935 belong to the residential category. There are 2,055 metering points
belonging to customers at high and medium voltage network.
With the gradual opening of the market, on July 1, 2007 the status of eligible customer was granted to all
commercial customers which account for about 55 percent of the total electricity consumption in Croa-
tia. Eligible customers can choose their supplier in the electricity market, negotiate all supply conditions,
prices, payment terms, payment security, etc.
In the heat supply business, the number of customers in 2007 increased by 5 percent. At the end of the
year there were 120,583 customers, of which 114,824 residential and 5,759 corporate customers. To the
gas supply system, 2,635 new customers were connected, an increase of 4 percent to a total of 63,826
customers.
In line with HEP Group customer relations strategy, HEP Operator distribucijskog sustava d.o.o.
(HEP ODS) places electricity customers in the center of its business interests. Through cus-
tomer management HEP ODS besides supplying quality electricity and providing quality service
wants to recognize and fulfll other needs and requirements of its customers.
In addition to usual payment methods (cash, credit cards, standing orders), customers can
pay their bills without extra charge at all FINA and Croatian Postal Service offces. Thereby, by
investing HEPs funds, customers are provided with a better service and a wide range of pay-
ment options at lower costs.
In order to make the practice in the entire Company uniform, the implementation of Billing ap-
plication was completed which besides making the form of electricity bills look the same partly
fulflled conditions for establishing a single contact center for the whole of Croatia. For now,
customers have at their disposal a call center 9820 in ten local organizational units, which pro-
vides services free of charge, for submission of meter readings or complaints or for information
of interest to customers.
On the new HEP ODS website (www.hep.hr/ods) customers can communicate using web mail
and get timely information about how HEP ODS distribution area does its business, submit
meter reading, learn about all laws and regulations and news pertaining to electricity distribu-
tion and supply or print the necessary applications, contract forms, etc.
Each distribution area has organized receiving and processing of customer queries, information
and complaints, and customers of in the distribution areas of Zagreb and Pula can additionally
Number of customers
Relations with electricity customers HEP ODS
Relations with electricity customers- HEP Opskrba
Complaint commissions
HEPGroup
057
use the services of Info Center. Info Center provides all information of interest for current
or future customers: information regarding electricity supply, technical information about
savings and effcient use of electricity, and about electricity production, conditions for con-
nection to HEPs network, implementation of environmental measures, etc. Blind persons
can get the Tariff System in Braille printed in collaboration with the Blind and Visually Im-
paired Persons Association.
Supply Sections at each Elektra systematically take care, monitor and keep records of
services and information requested as well as complaints submitted through any form of
communication and make sure these are resolved as soon as possible. The Department
for Tariff Customers Supply coordinates the work of all Supply Sections and continuously
monitors and oversees relevant indicators in order to ensure that customers receive appro-
priate quality of service, in accordance with European standards.
In September 2007, a business decision was taken to enable HEP Opskrba d.o.o. to provide supply
to about 2,200 medium and large eligible customers in Croatia. The Company was therefore mak-
ing intensive preparations to get ready to operate in a competitive market. The basis for operating
across Croatia was set up by reorganizing and expanding the Sales Unit. One of the main objec-
tives was fulflled getting closer to customers.
Customer relations have signifcantly improved as a result of setting up sales units in regional cen-
ters. Through frequent contacts, including those through the Companys Call Center that has also
been set up, all relevant information was provided about organization and functioning of the market,
customer rights and duties, contracting, etc.
As required by the Consumer Protection Act, which also applies to HEP as a public service pro-
vider, commissions have been set up for customer complaints in 21 distribution areas of HEP
Operator distribucijskog sustava d.o.o., in HEP-Toplinarstvo d.o.o. and HEP-Plin d.o.o. The commis-
sions are composed of representatives of individual HEP companies or areas and representatives of
consumer associations. Consumer protection associations have recognized the quality of regionally
organized commissions as allowing speedier complaint fling and processing procedure, and point
to HEP as an example to be followed by similar companies in Croatia.
HEPGroup
059
Number of complaints considered by commissions of HEP Operator distribucijskog sustava
d.o.o. - 2007
Number of complaints considered by commissions of HEP Toplinarstvo d.o.o. 2007
Billing
Quality of
supply services
(regarding meter
reading, billing,
collection)
Quality of heat
energy
(temperature in
customer
premises,
temperature of
hot water, steam
parameters)
Change in
connected power
Change at
metering point
(separation,
linking, relocation
of installations,
etc.)
Redistribution of
quantity of heat
supplied
Other reasons TOTAL
Inaccurate
meter
Connections/
Disconnection
Voltage
conditions
Others
M
e
e
t
in
g
s

h
e
ld
T
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d
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a
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c
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e
d
Reason for complaint
Reason for complaint
t
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116
4
9
3
2
2
2
5
17
8 2 24
41
3
2
0
2
1
1
5
7
5 0 14
48 146 53 93
75
1
7
3
0
1
1
0
10
3 2 10
HEPGroup
061
Human resources management
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
Number of employees
On December 31, 2007 of the total of 14,290 employees, 14,130 were employed on a
permanent basis and 156 on a temporary basis (of which 141 trainees who are employed
on a temporary basis), and four employees were on unpaid leave.
HEP - Operator distribucijskog sustava d.o.o.
HEP-Proizvodnja d.o.o.
HEP - Operator prijenosnog sustava d.o.o.
HEP d.d.
HEP-Plin d.o.o.
CS Buko blato d.o.o.
HEP-Opskrba d.o.o.
APO d.o.o., usluge zatite okolia
HEP-ESCO d.o.o.
HEP-Trgovina d.o.o.
Ustanova HEP - Nastavno-obrazovni centar
Hrvatski operator trita energije d.o.o.*
Toplinarstvo Sisak d.o.o.**
HEP Group total
9,721
2,391
1,202
426
378
135
41
5
20
12
0
0
10
1
12
3
14,357
9,622
2,344
1,243
411
386
136
43
23
21
18
14
12
11
6
0
0
14,290
-99
-47
41
-15
8
1
2
18
1
6
14
12
1
5
-12
-3
-67
HEP Group company
Number of employees at December 31 Difference
Number of employees by HEP Group company
* On January 1, 2007 separated from HEP Group
** On January 1, 2007. became part of HEP Toplinarstvo d.o.o.
HEPGroup
063
DSc and MSc.
BSc
Assoc. degree
Second. school
Element. school, unskilled and semi-skilled
Higly-skilled
Skilled
TOTAL
Years of age
under 20
20-25
25-30
30-35
35-40
40-45
45-50
50-55
55-60
60-65
TOTAL
No of employees
16
1,266
764
1,616
1,643
2,028
2,591
2,739
2,129
498
14,290
107
1,890
1,054
6,074
930
2,266
1,969
14,290
105
1,848
1,022
5,988
992
2,329
2,073
14,357
0.7
12.9
7.1
41.7
6.9
16.2
14.5
100
0.7
13.2
7.4
42.5
6.5
15.9
13.8
100
.% .%
Qualifcation structure
Age structure
Human resources management
Employment, trade union relations and workers councils
Development of human resources
Four trade unions are registered and active in HEP Group companies. Employment and rights of HEP
Group employees are regulated in work rules of the companies and Collective Agreement for HEP
Group.
A new Collective Agreement for HEP Group was concluded on December 30, 2005 to be applied from
January 1, 2006 to June 30, 2008. As required by Article 144 of the Agreement the parties set up a joint
commission for interpretation. The commission met periodically in accordance with the Agreement and
depending on the requests they received.
At HEP Group level, an increasing attention is paid to the development and implementation of modern
HR management practices in order to prepare the company and its employees for doing business in an
open and competitive market. Accordingly, to allow the company to hire those people whose compe-
tencies and personality traits best ft the work environment and corporate culture, a standard selection
procedure was adopted for employment of new workers and for scholarship recipients (high school and
university students).
In order to raise the quality and quantity of work performance of employees, preparations began to intro-
duce a work performance monitoring system which will include defnition of individual professional and
personal objectives of each employee for a given period and an evaluation of success.
A work performance monitoring system is interlinked with the motivation and reward system which will
offer appropriate forms of rewards to employees depending on their work performance. Certain forms of
fnancial and non-fnancial rewards have been in place for some time as part of HR management, but a
review process has been initiated to evaluate their effciency, which may result in a redefnition of exist-
ing and introduction of new incentives for employees.
The company has began to perform an examination of the organizational climate and employee satisfac-
tion in order to determine the degree of satisfaction with individual aspects of the work environment and
make improvements accordingly over a reasonable period.
HEPGroup
065
Education and training
In the area of employee education, the company has been continuously allocating signifcant funds
referring its employees to postgraduate studies (37 at HEP Group level in 2007), training and pro-
fessional improvement and for scholarships of secondary school and university students. In 2007
alone HEP invested more than 23 million kuna for the purpose of education.
In addition to investing in employee professional competencies, special attention is paid to im-
provement of their computer literacy and foreign language skills. In 2007 a one-year implementa-
tion of ECDL education for 779 employees from across HEP Group was completed. Employees
attended other specialized computer courses, at home and abroad, as well as regular English and
German conversation courses.
HEP d.d. in collaboration with HEP NOC (HEP Education and Training Center) and various edu-
cational institutions, organized internal seminars for HEP Group employees on the topics of rec-
onciliation, protection of employee dignity and work performance management, and rewarding. A
large project was begun to educate window clerks in effcient communication with clients which
would, over a one-year period, involve 250 employees of HEP ODS d. o.o. Based on a research
conducted to determine educational needs of HEP Group managers, special educational programs
were defned focused on the development of problem solving skills, time management, leadership
and team building skills. HEP Group managers attended a program entitled Corporate Governance
for Members of Management and Supervisory Boards, organized by the faculties of economics in
Zagreb and Split.
During 2007, a large number of employees of technical, economic, legal and other background at-
tended professional conferences, topical seminars and courses, of which especially worth men-
tioning was HRO CIGRE conference, MIPRO session and Energy Day Forum in Croatia.
Currently underway is the development of a Register of Education application to allow a computer-
ized monitoring of educational activities and/or of referral of employees to different forms of educa-
tion.
S
ustainable development
HEP
is the winner
of the national
award for general
contribution to
environmental
protection by a
socially
responsible
company,
2003.
HEPGroup
067
company profle
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auditors report...
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Policy and organization of nature and environmental protection function
Harmonization with the EU legislation
HEP continuously monitors and analyzes the impact of its business processes on the environment. The
company reports on all environmental components timely and objectively to relevant institutions, units of
local self-government and the interested public. Employees working in nature and environmental protec-
tion function attend seminars and workshops to get informed about duties and activities arising from
environmental and nature protection legislation. Technical support to these employees that are active in
individual HEP Group companies is provided by the members of HEPs Team for Environmental Protec-
tion Coordination and Standardization. There is a single accounting method for environmental expenses.
Analyses of the impact of the harmonization of the Croatian legislation with the EU nature and environ-
mental legislation on the operation and development of the Croatian electricity system have shown that
the greatest impact will come from provisions relating to air protection and climate change and to licenc-
ing of thermal power facilities, but also from those relating to management of PCB (polychloride biphe-
nyls) containing equipment and the provisions of Water Framework Directive.
Large Combustion Plants Directive defnes limit values of air emissions from plants above 50 MW of ther-
mal capacity; its application will impact decisions on the duration of life of HEPs existing thermal power
plants and on the planning of new ones.
The provisions of the Integrated Pollution Prevention and Control Directive, which apply to all industrial
plants and consequently to HEPs existing and future large combustion facilities, have been transposed
into the umbrella Environmental Protection Act. The Act requires all those to which it applies to prepare
plans by 2010 for obtaining integrated environmental protection requirements based on which a plant
or a part thereof will be allowed to operate. Due to the old age of HEP Group thermal power plants and
technical constraints, if signifcant improvements will be needed to meet the integrated environmental
protection requirements, signifcant funds will be necessary.
Transposing the EU climate change legislation into the Croatian legislation is planned to be completed by
the end of 2008. By the passage of the ordinance on greenhouse gas emission quotas, which will apply
from 2010, Croatia will establish an emission trading scheme for greenhouse gases. A plan for allocation
of emission quotas, National Allocation Plan (NAP), will defne emission reduction for each plant, so the
HEPGroup
069
issue of emission quotas for each thermal power plant will be the subject of a compromise between the
interest of the state to reduce CO2 to the level set out in Kyoto Protocol and HEP Group development
plans.
By ratifying the Stockholm Convention, Croatia has committed itself to disposing of PCB-containing
equipment by 2025, but all EU member states have obligated themselves to withdraw such equipment
by the end of 2010 in compliance with Directive 96/59. In 2007, HEP prepared a new inventory in order to
determine the number and costs of PCB containing equipment that must be disposed of and replaced.
The analysis has shown that 3,003 PCB containing condensors are in use within HEP and that disposal
and replacement costs would amount to about 40 million kuna. Due to the signifcant costs and because
the Waste Act provides that Rules on PCB (polychloride biphenyls) and PCT (polychloride terphenyls)
Management will not come into force until 2008, the deadline that has been proposed for withdrawal of
such equipment is the year 2015.
Basic indicators
According to water quality analyses carried out during 2007 by authorized laboratories as required by
water laws and regulations, all HEPs plants operated in accordance with permits and legal requirements.
In 2007 using Process Waste Inventory HEP continued to monitor air emissions of pollutants -sulfur
dioxide (SO2), nitrogen oxide (NOx), carbon dioxide (CO2) and particulates as required by air quality leg-
islation, as well as the quantities of hazardous and non-hazardous waste generated by HEP.
In 2007 production of electricity from HEPs thermal power plants increased so that emissions of almost
all air pollutants, except particulates, also rose compared to 2006.
Air emissions
S
ustainable development
year
1990
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
change 07/06(%)
year
1990
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
change 2007/ 2006 (%)
SO2 (t)
69,402
47,119
47,092
17,827
21,669
17,248
21,350
13,081
16,890
17,258
24,376
+29.20
SO2
8.98
4.72
4.17
1.88
1.92
1.53
1.84
1.06
1.46
1.49
1.89
+21.16
NO
x
(t)
9,248
10,719
11,506
7,975
9,222
10,544
9,391
7,051
6,003
7,092
9,532
+25.60
NO
x
1.20
1.07
1.02
0.84
0.82
0.94
0.81
0.57
0.52
0.61
0.74
+17.57
CO
2
(kt)
3,750
4,120
4,195
3,654
4,347
5,259
5,679
4,503
4,694
4,544
5,460
+16.78
CO
2
485.00
406.15
360.78
370.81
372.81
434.74
472.11
349.99
376.15
328.09
422.76
+22.39
particulates(t)
2,031
2,905
2,610
885
1,382
1,135
1,507
767
664
954
756
-26.29
particulates (t)
0.26
0.29
0.23
0.09
0.12
0.10
0.13
0.06
0.06
0.08
0.06
-25.00
electricity produced from HEPs
thermal power plants (GWh)
4,030
4,561
4,768
3,958
4,713
5,899
6,703
5,899
5,387
5,436
6,845
+20.58
Emission of pollutants into air from HEPs thermal power plants (1990) 1998-2007
Specifc emission of pollutants g/kWh of electricity produced within
HEP (1990) 1998-2007
HEPGroup
071
SO2 (t) electricity produced by HEPs thermal power plants
CO2 (kt) electricity produced by HEPs thermal power plants
NOx (t) electricity produced by HEPs thermal power plants
estice (t) electricity produced by HEPs thermal power plants
1
9
9
0
1
9
9
0
1
9
9
0
1
9
9
0
70,000
14,000
3,500
80,000
7,000
7,000
7,000
7,000
8,000
8,000
8,000
8,000
60,000
6,000
12,000
3,000
6,000
6,000
6,000
6,000
50,000
5,000
10,000
2,500
5,000
5,000
5,000
5,000
40,000
4,000
8,000
2,000
4,000
4,000
4,000
4,000
30,000
3,000
6,000
1,500
3,000
3,000
3,000
3,000
20,000
2,000
4,000
1,000
2,000
2,000
2,000
2,000
10,000
1,000
2,000
500
1,000
1,000
1,000
1,000
0
0
0
0
0
0
0
0
1
9
9
8
1
9
9
8
1
9
9
8
1
9
9
8
1
9
9
9
1
9
9
9
1
9
9
9
1
9
9
9
2
0
0
0
2
0
0
0
2
0
0
0
2
0
0
0
2
0
0
1
2
0
0
1
2
0
0
1
2
0
0
1
2
0
0
2
2
0
0
2
2
0
0
2
2
0
0
2
2
0
0
3
2
0
0
3
2
0
0
3
2
0
0
3
2
0
0
4
2
0
0
4
2
0
0
4
2
0
0
4
2
0
0
5
2
0
0
5
2
0
0
5
2
0
0
5
2
0
0
6
2
0
0
6
2
0
0
6
2
0
0
6
2
0
0
7
2
0
0
7
2
0
0
7
2
0
0
7
G
W
h
G
W
h
G
W
h
G
W
h
t
t
t
t
Trend of pollutant emissions from HEPs thermal power plants (1990) 1998-2007
SO2 emission
CO2 emission
NOx emission
particulates emission
Waste
Over the last three years HEPs waste management system has signifcantly improved. Most plants
have either completed or begun construction of temporary disposal facilities for waste and second-
ary raw material and equipped them with tanks for separate waste collection. According to Process
Waste Inventory, which HEP has been keeping since 1997 and which includes the data on the quan-
tities of generated hazardous and non-hazardous waste and on the method of waste management,
in 2007 HEPs plants generated 1,269 tons of hazardous and 105,569 tons of non-hazardous waste.
Specifc emission of all pollutants, except particulates, increased in 2007 relative to the total electricity
produced, which is a result of lower hydroelectric production.
Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Change 2007/ 2006 (%)
Hazardous waste/ t
819
637
479
490
518
577
1,148
940
1,209
1,112
1,269
+12
Non-hazardous waste/ t
18,861
27,303
5,670
37,531
76,717
98,492
111,292
92,067
124,820
134,336
105,569
- 21
Total quantity of hazardous and non-hazardous waste generated within
HEP Group 1997-2007
1
9
9
7
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
t
o
n
a
Total quantity of hazardous and non-hazardous waste generated within HEP Group 1997-2007
hazardous waste
non- hazardous waste
HEPGroup
073
Since the beginning of the implementation of Accounting for Nature and Environmental Protection
Expenses project (RETZOK) in 2004 until early 2008, HEP Group invested 54,056,000 kuna in total in
the protection of nature and the environment while ordinary operations for the same purpose totaled
457,211,000 kuna. Total expenses for nature and environmental protection in 2007 were 114,418,000
kuna. The most signifcant investments in 2007 were made to improve the waste management system
in HEPs plants, soil and groundwater protection and protection of nature and landscape.
Expenses for nature and environmental protection
Expenses for nature and environmental protection in 2007 according to RETZOK reports
Environmental area
air and climate
waste water
waste
soil and groundwater protection
noise and vibrations
nature and landscape protection
radiation protection
research and development
other (mostly fees)
TOTAL
Costs of regular operations
( HRK 000)
2,311
4,795
27,690
9,262
48
17,606
127
690
49,290
111,819
Investments
(HRK 000)
0
105
763
831
0
892
0
8
0
2,599
Total expenses for nature and environmental protection within HEP Group 2004 - 2007
2004 2005 2006 2007
120,000
140,000
160,000
180,000
100,000
80,000
60,000
40,000
20,000
0
t
is
.k
u
n
a
total costs of regular operations
total investments
Major achievements 2007
During 2007, activities continued to introduce the environmental management system in conformity with
ISO 14001:2004 and quality management system in conformity with ISO 9001:2004 into HEPs plants:
- In addition to TE-TO Zagreb, Management Board and Production Area North and
Production Area South, environmental and quality management systems were
introduced in EL-TO Zagreb and CCPP Jertovec. These systems are planned to be
introduced into other plants of HEP Proizvodnja d.o.o. as well.

- Environmental management system in conformity with ISO 14001:2004 was introduced
in Elektra Zagreb as the largest distribution area and the frst within HEP ODS d.o.o.

- In Transmission area Zagreb (HEP OPS d.o.o.) preparations have been carried out for
introduction and certifcation of environmental management system.
- In Rijeka TPP, the making of the model of dispersion and distribution of air pollutants
was completed, currently underway is the replacement of the system for continuous
measurement of air pollutant concentractions with the system for continuopus
measurement of mass fow in accordance with air protection legislation.
- In Sisak TPP, a new software was put in place for continuous measurement of air
pollutants from boiler furnaces and a camera shooting smoke of the chimney of Units 1
and 2. A project to clean up the lagoon from waste mud was launched, the warehouse
of laboratory chemicals was reconstructed and the warehouse of chemicals was roofed.
- In TE-O Zagreb, a building permit was obtained for connection of internal sewage to the
public system, a new system for measuring and monitoring of air pollutants was
installed, and a temporary waste disposal facility was built and fenced in accordance
with waste management legislation.
- In EL-TO Zagreb, as part of the reconstruction of a 30 MW unit, currently underway is the
replacement of burners in accordance with air protection legislation. In 2007, remediation
was completed of the sewage system, a new water treatment plant was built and a
temporary waste disposal facility was built and landscaped.
Certifcates
Achievements in thermal power plants
Achievements in hydro power plants
- In Dubrava HPP (Production Area North), improvements were made on the
system protecting oil to leak into the waterway by increasing the number
of oil separators and installing oil detectors at points where seepage water
accumulates such as the drainage well and seepage water canals at the
lowest level of the powerhouse. Currently underway is the preparation of
design documentation for the construction of protective foating dams at
the end of the tailrace channel at Dubrovnik HPP.
- In akovec HPP (Production Area North) the cleaner production project
was implemented in order to protect water. Hydraulic mineral oil on the
small power plant, biological minimum generating set and quick-closing
valve of the generating set were replaced with biologically degradable oil.
- Years-long cooperation of Hydro Production Area North with the Faculty of
Mathematics and Natural Sciences of the University of Zagreb continued
on the project Physical, Chemical, Biological and Ichthyiological
Characteristics of Water with the aim of monitoring the state of nature
and the environment in the areas of Dubrava, akovec and Vradin hydro
power plants.
- A research was completed into the numbers of invasive mollusk species
Dreissena polymorpha (Pall.) in the hydro power plants on the Drava,
which have been covering vital plant parts and thereby affecting
production effciency and causing material damage.
- Hydro power plants, in collaboration with local sport-fshing clubs,
continued their years-long practice of stocking river and reservoirs with
fsh in order to renew fsh stock and preserve biological diversity.
HEPGroup
075
Other achievements in HEP Group companies
- In order to improve energy effciency and reduce air pollutant emissions,
two boiler plants within HEP Toplinarstvo Osijek were connected to the
district heating system.
- As part of regular maintenance of the gas network within HEP Plin d.do.o.
measures have been implemented to prevent leakage of natural gas, which
directly reduces physical losses as well as emissions of the greenhouse
gas methane into the air.
- Within Elektra Zagreb (HEP ODS d.o.o.), cleanup of polluted soil was
carried out in compliance with laws and regulations because of
transformer damage and leakage of transformer oil into the soil after the
substations had been broken into by unidentifed perpetrators.
- In HEP ODS d.o.o., the implementation of protection from electromagnetic
feld continued. Currently underway is the development of two studies
which will determine and assess the impact of dlistibution overhead and
underground lines on the environment.
- A study that examines the level of occupational exposure of HEP
employees to low-frequency electric and magnetic felds during work in
power plants and facilities has been completed.
- Based on the Cooperation Agreement concerning the protected species
of the white stork Ciconia ciconia (L.) made between HEP and the
Ministry of Culture in 2004, the implementation of measures for protection
of the white stork continued as well as ringing and monitoring of storks in
the area of Sisak-Moslavina County in accordance with the Cooperation
Agreement concerning monitoring and ringing of the stork population of 2005.
HEPGroup
077
S
afety at work
At the 4
th

Safety and Fire
Protection
Congress,
in 2007 in Zagreb,
HEP received
Annual Award
for exceptional
contribution in
promoting
protection of
human
environment.
HEPGroup
079
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
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addresses
Safety at work and fre protection functions in HEP Group are organizationally placed where they belong,
alongside the authorized persons. Such an organizational structure allows safety specialists to continu-
ously cooperate with the authorized person and to do their jobs faster and more effciently.
Safety specialists participate in the work of Safety Commission, cooperate with workers safety represen-
tatives, perform internal supervision, take care of medical examination of employees who work in special
working conditions, oversee and keep records of regular testing of potentially dangerous machines and
equipment and other tests, training, in accordance with legal requirements and internal rules.
In implementing the measures for safety at work or fre protection, safety specialists apply more than 300
different laws, by-laws, technical regulations and rules.
In 2007, there were 285 injuries at work in HEP Group, 28 less than in the year before, with one fatality.
These data show a further reduction trend in the number of injuries at work relative to the previous years.
Injuries at work
Number of injuries by HEP Group company 2007
Company*
HEP d.d.
HEP - Plin d.o.o.
TOTAL
Number of employees
9,471
2,255
1,200
387
377
133
13,938
Number of injuries
238
21
15
6
5
0
285
*Only companies with more than 100 employees are shown
The most injuries happened in the work environment, followed by injuries whose source was
transport vehicles, plants, machines, devices and equipment. The smallest share have sources that
depend on work process.
HEPGroup
081
Number of injuries 2003 2007*
Company*/year
HEP Plin d.o.o.
HEP d.d.
TOTAL HEP Group
2003
34
21
326
6
2
4
393
2004
20
25
291
4
3
6
349
2005
26
28
274
6
3
9
343
2006
23
24
245
11
4
6
313
*Only companies in which there were injuries
Sources of injuries
The number of injuries has been continuously decreasing. The credit for this goes to safety special-
ists, to the right approach by the employers authorized persons and to the support of the Man-
agement Board of all activities on improving safety at work.
Injuries that occurred in the work environment, both inside and outside business premises and spaces
and in transport account for almost 60 percent of the total injuries. Such fgures could be expected con-
sidering the mobile nature of work performed by HEP Group employees.
Other sources 14.49%
Sources dependent on work process 3.53%
Equipments 9.54%
Work environment 32.86%
Plants, machines and devices 12.72%
Transport vehicles 26.15%
2007
21
15
238
5
0
6
285
S
afety at work
HEPGroup
083
company profle
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ocial responsibility
HEP conducts its operations in accordance with the law and ethical standards, on the principles of sus-
tainable development and social responsibility. Most of the indicators impacting the companys stake-
holders have been presented in previous chapters as integral parts of HEPs operations. Of the other
signifcant indicators, activities and achievements, the following should be mentioned:
In 2002 HEP adopted Code of Ethics.
Documents and memberships
HEP Code of Ethics (abbreviated text)
1
2
3
4
5
Code of Ethics is a set of ethical standards which apply to all HEPs employees and forms the ba-
sis for the establishment of the corporate culture oriented to the implementation of HEPs vision,
mission and key values.
Code of Ethics should improve the image, market position and business relations of HEP with all
interested parties: customers, creditors, banks, owner, employees, unions, government authori-
ties, media and the public.
The lawfulness of work and operations, professionalism, competence, non-discrimination, fair-
ness and accountability are the ethical values from which basic principles of business conduct
are derived.
Employees shall not act so as to negatively affect the reputation of HEP or consciously participate
in any activities that are contrary to the laws or HEPs internal rules and Code of Ethics.
In their work employees shall observe and apply laws and HEPs internal rules, apply and imple-
ment the highest professional, business and ethical standards and norms so as to ensure the
lawfulness of work and operations in line with HEPs reputation and market position
In carrying out their duties and responsibilities, HEPs management and employees shall work and
act in a fair, objective and independent manner, and in reporting the results of their work they shall
be professional in terms of pointing to the situation or any work problems or defciency.
HEPGroup
085
HEP d.d. and the companies of HEP Group are signatories to the statement
accepting Code of Ethics adopted by the Croatian Chamber of Economy in 2005,
which sets basic guidelines of ethical conduct of business entities in the Croatian
economy;
6
7
8
9
10
11
The reputation and trust on the part of customers and business partners is based on confdential-
ity and protection of confdential information. Management and employees of HEP shall not in an
unfair or fraudulent manner obtain confdential information about competitors or business part-
ners.
Management and employees are not allowed to participate in any activities that compromise their
loyalty to HEP or may lead to confict of interest or negatively affect HEPs reputation.
Employees are obligated to abide by the work safety rules and in doing so take care of their per-
sonal safety and health as well as the safety and health of other employees, but also of the safety
of plant and equipment.
It is a duty of employees to protect the value and goods they are entrusted with, protect HEPs
assets avoiding procedures or actions that may jeopardize the integrity and safety of assets. Em-
ployees are not allowed to use goods, resources and assets to their personal beneft or any other
inappropriate purpose.
Managers must have high professional and ethical qualities and be the best example for other em-
ployees to follow.
Behavior of employees in work environment is based on mutual trust, loyalty, correctness and re-
spect of dignity of every person and any discrimination related to advancement at work based on
sex, age, race, religious or political persuasion, ethnicity is strictly prohibited as well as any form
of nepotism or favoritism.
In giving or receiving gifts of any kind, employees must act in accordance with Code of Ethics
and/or their behavior must not negatively affect HEPs reputation, and they must be familiar with
the customs and business principles of the environment in which they stay.
ocial responsibility
HEP d.d. is a member of Global Compact, a network of organizations for socially
responsible business operations;.
HEP Group companies - HEP-Toplinarstvo d.o.o., HEP ESCO d.o.o. and APO d.o.o.
are members of the Community for Corporate Social Responsibility of the Croatian
Chamber of Economy;
APO d.o.o. is one of the founders of the non-proft organization Croatian Business
Council for Sustainable Development (HR PSOR).
All HEP Group companies have Rules on the procedure and measures for protection of
employee dignity.
As well as covering the costs of additional health insurance, HEP organizes periodic
general medical checkups for its employees.
Based on contest, employees and their families have the right to spend summer vacation
in HEPs vacation homes and winter vacation abroad on privileged terms. HEP organizes
active summer vacation program and summer vacation for the children of HEPs dead
and missing employees in the Homeland War.
HEP Group companies organize sporting recreation, sports meetings and contests for
their employees.
HEP supports programs for excursions and sporting activities of associations related to
HEP such as the Association of Homeland War Veterans and Retirees Association.
HEP employees, on privileged terms, can go to theater and concert performances and
use public libraries.
Since 1998, HEP has been participating the Eco School Project which has been
implemented by the Foundation for Environmental Education of the Council of Europe.
HEP is the sponsor of the following ECO Schools: Electromechanical Vocational School
Varadin, and Kalnik, Konjina, Jure Turia Gospi, Stanovi Zadar, Ivo Lola Ribar Labin,
Vladimir Nazor Pazin, Kostrena elementary schools and Antun Matijaevi Karamaneo Vis
secondary school.
Since 1995, HEP has been giving prizes to students who achieve the best results in
national mathematics and physics contests and since 2005, to the best students of
vocational electrical schools.
In 2007, the cooperation with the Technical Museum Zagreb continued concerning
organization of educational visits of secondary school students to Krko nuclear power
plant.
Employees
Schools, youth
HEPGroup
087
Local community
Customers
The programs to improve communal infrastructure and economic/entrepreneurial
environment in the local communities in the vicinity of HEPs plants continued.
On the eve of the World Consumer Rights Day and in Consumer Education Year in Croatia
(2007), a public presentation was held at HEP main offces of HEPs redesigned website.
Consumer information on the new website has been signifcantly expanded so that,
among other things, for the frst time information is available in a single place about each
distribution area (elektra), including supply disruptions and other notices and updates.
HEPs employees participate on a regular basis in professional forums held to inform
representatives of environmental organizations, the public, the media and government
representatives of the activities carried out in HEPs plants to protect and create a friendly
environment.
In 2007 a number of organizational parts of HEP Group companies received certifcates of recogni-
tion and acknowledgments for their actions in local communities:
- Elektra Zagreb (HEP ODS) received the City of Zagreb Award as a sign of public
recognition of exceptional success and achievements in its operations, on the
occasion of the 100th anniversary of public electrifcation of Zagreb.
- Elektra Virovitica (HEP ODS) received Note of Gratitude from Virovitica-
Podravina County for exceptional contribution to the development of the electricity
system of upanja.
- Elektra Varadin (HEP ODS) received a Medal from the town of Varadinske Toplice
for the successful implementation of construction of new stations, and construction
and reconstruction of low-volatge electric network and public lighting
- Elektrodalmacija Split (HEP ODS) received Annual Award of Otok Municipality for
contribution to energy development and a note of gratitude from Zmijavci
municipality.
Recognition by local communities
Media
Culture, heritage
On the occasion of Earth Day, April 22, Degenia Velebitica, an annual award for the best
piece of environmental journalism, was presented. The founders of the award (1999) are
Environmental Journalists Section of the Croatian Journalists Society and APO d.o.o., a
member of HEP Group.
The opening of the reconstructed demonstration cabinet of Nikola Tesla at the Technical
Museum in Zagreb in 2007, which HEP had signifcantly helped to fnance, ended HEPs
program for the marking of Nikola Tesla Year (2006)
Support continued of programs of Croatian national theaters, international art festivals in
Croatia and regional traditional music and culture events.
HEP is one of the donors of the Foundation for the reconstruction of the birthplace house
of Lavoslav Ruia in Vukovar, Nobel laureate in chemistry.
HEPGroup
089
A century of light in Zagreb
Elektra Zagreb (HEP ODS) and Elektrana-toplana Zagreb (HEP-Proizvodnja) marked in 2007 the 100
th

anniversary of public lighting of the city of Zagreb, under the high patronage of the Government of the
Republic of Croatia. The events to mark the anniversary included the putting up of a replica of the 1907
street electric light, holding of a professional gathering on the history and development of the electric-
ity system of the City of Zagreb, giving of notes of recognition and gratitude to partner companies and
institutions, giving of presents to loyal residential customers under the title 100 presents for 100 years
and handing of donations to the Croatian Blind Persons Associations and to a fund for a new lighting of
the Zagreb Cathedral.
D
evelopment of the electricity
and business systems
HEPGroup
091
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
D
evelopment of the electricity
and business systems
The years-long continuous growth in electricity consumption creates new obligations in the electricity
production for tariff customers but also for eligible customers. These obligations can only be fulflled by
constructing new generating plants. Accordingly, it is planned to build about 1,7000 MW of new installed
capacity in the next ten-year period. Before the end of 2008 it is planned to build and put into operation a
combined-cycle cogeneration unit fred by natural gas(100 MWe, 80 MWt) in the existing location of TE-TO
Zagreb CHP and before the end of 2011 a combined-cycle unit (230 MWe, 50 MWt) in the existing location
at Sisak TPP. Documentation is being prepared for two other combined-cycle units of 400 MW to be built in
the locations in Slavonia and Dalmatia (planned start-up is the end of 2012 and 2013 respectively). Further,
preliminary studies are being developed for the construction of a 500 MW coal-fred condensing unit of
Plomin TPP which is planned to start production towards the end of 2014. Of the hydroelectric facilities,
Lee HPP (42 MW) will be built and put into operation by 2009. Currently underway is the preparation of
documentation for the complex hydropower system Kosinj and for Senj 2 hydro power plant. In addition,
HEP will continue to promote construction of small renewable electricity sources and their integration into
the electricity system.
To reinforce connections of the Croatian electricity system with neighboring countries and improve elec-
tricity export/import capability, a double-circuit line toward Hungary 2x400 kV Ernestinovo - Pecs will be
built and put into operation by 2010. In the distribution business, it is planned to increase investments in
order to improve technological condition of the distribution network and enable it to develop in response
to the growing needs for electricity and new customer connections. The reconstruction of plants and
networks destroyed in the war will continue and voltage conditions at critical points will be restored. The
introduction of newly standardized voltages continues as well as adjustment to the European voltage qual-
ity standard EN 50 160. Together with the transmission business, efforts are made to resolve the issue of
electricity supply for major cities, tourist and industrial zones. Special attention will be paid to reduction in
transmission losses. Efforts to reduce technical losses in the transmission network will include imposing
payments for unwanted electricity transits while in the distribution network actions to reduce non-technical
losses will intensify and those to reduce technical losses will continue.
Electricity production
Electricity transmission and distribution
HEPGroup
093
The development of the district heating business will follow urban development plans of Zagreb, Osijek
and Sisak. The expected growth in heat consumption is 2 to 3 percent a year. It is planned to expand the
heating business in Sisak by building a new unit (230 MWe, 50 MWt) in the location of Sisak thermal power
plant in order to increase plant effciency and fuel conversion effciency, and improve the overall environ-
mental picture of the town and the region.
Although natural gas distribution and supply account for only three percent of HEPs total income, the
development of this business over the next period will receive an increased attention. The long-term busi-
ness policy of HEP is to participate in the gas business at several levels. HEP will actively participate in the
development and construction of a LNG terminal on the Croatian coast of the Adriatic, the most signifcant
energy project in the region. Also, it is planned to increase the use of natural gas for energy transforma-
tions. The current share of gas in energy transformations in Croatia of about 60 percent which HEP intends
not only to maintain but also to greatly increase. It is planned to develop natural gas distribution and sup-
ply for customers in Croatia and in neighboring countries.
The reform of the Croatian electricity sector has gradually been creating the conditions for the opening
of the market in electricity production and supply. Similar processes have been going on in the region,
opening the opportunities for HEP to make strategic alliance with business partners in Croatia and abroad,
especially to expand its business in South-East Europe. To this end, HEP plans to initiate a number of elec-
tricity production and transmission projects with its partners from the EU countries but also from South-
East Europe countries. This approach will eventually create the conditions for forming a strong portfolio of
different business activities and thereby a strong corporation.
District heating
Gas business
Regional projects
HEPGroup
C
onsolidated fnancial statements
Hrvatska elektroprivreda Group
December 31, 2007
095
company profle
chairmans report
presidents report
customer relations
safety at work
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auditors report...
reports by other...
addresses
Responsibility for the fnancial statements
Independent Auditors Report
Consolidated income statement - HEP Group
Consolidated balance sheet - HEP Group
Consolidated statements of changes in equity - HEP Group
Consolidated cash fow statement - HEP Group
Notes to the consolidated fnancial statements - HEP Group
Contents
Hrvatska elektroprivreda Group
For the year ended 31 December 2007
Together with Independent Auditors Report
Pursuant to the Croatian Accounting Law, the Management Board is responsible for ensuring that
fnancial statements are prepared for each fnancial year in accordance with International Financial
Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB)
which give a true and fair view of the state of affairs and results of the Group for that period.
After making enquiries, the Management Board has a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable future. For this reason, the
Management Board continues to adopt the going concern basis in preparing the fnancial statements.
In preparing those fnancial statements, the responsibilities of the Management Board include ensuring
that:

suitable accounting policies are selected and then applied consistently;
judgments and estimates are reasonable and prudent;
applicable accounting standards are followed, subject to any material departures disclosed
and explained in the fnancial statements; and
the fnancial statements are prepared on the going concern basis unless it is inappropriate
to presume that the Group will continue in business.
The Management Board is responsible for keeping proper accounting records, which disclose with rea-
sonable accuracy at any time the fnancial position of the Group and must also ensure that the fnancial
statements comply with the Croatian Accounting Law. The Management Board is also responsible for
safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Signed on behalf of the Management Board:
Ivan Mravak
President of the Board
097
HEP d.d.
Ulica grada Vukovara 37
10000 Zagreb
Republic of Croatia
11 April 2008
Responsibility for the fnancial statements
C
onsolidated fnancial statements
HEPGroup
To the Owner of HEP d.d.:
We have audited the accompanying consolidated fnancial statements of the HEP Group (the Group),
which comprise the consolidated balance sheet as at 31 December 2007 and the related consolidated
statement of income, consolidated statements of changes in equity and of cash fows for the year then
ended, and a summary of signifcant accounting policies and other explanatory notes.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these fnancial statements in
accordance with International Financial Reporting Standards. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of fnan-
cial statements that are free from material misstatement, whether due to fraud or error; selecting and
applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.
Auditors Responsibility
Our responsibility is to express an opinion on these fnancial statements based on our audit. We con-
ducted our audit in accordance with International Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the fnancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the fnancial statements. The procedures selected depend on the auditors judgment, including the as-
sessment of the risks of material misstatement of the fnancial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entitys prepara-
tion and fair presentation of the fnancial statements in order to design audit procedures that are ap-
propriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entities internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the fnancial statements.

I ndependent Auditors Report
099
We believe that the audit evidence we have obtained is suffcient and appropriate to provide a basis for
our audit opinion.

Opinion
In our opinion the fnancial statements present fairly, in all material respects, the fnancial position of
the Company as at 31 December 2007, and their fnancial performance and their cash fows for the year
then ended in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 2 to the fnancial statements, discussing the
accounting policies for revenue recognition The current regulatory framework did not provide details of
allocation of the rewards pertaining to the electricity generation activity. In accordance with the Law on
the Amendments to the Energy Law from December 2004, a model for determining the tariff systems
for different customers was developed in December 2006, the application of which was postponed to
2007. The Group has applied the model in the preparation of the fnancial statements for the year ended
31 December 2007.
Deloitte d.o.o.
Branislav Vrtanik, Certifed Auditor
Zagreb, 11 April 2008
HEPGroup
Consolidated Income Statement - HEP Group For the year ended 31 December 2007 Consolidated Balance Sheet - HEP Group As at 31 December 2007
Revenue from electricity sales
Revenue from thermal power sales
Revenue from gas sales
Other operating income
Total operating income
Electricity purchase cost
Fuel costs
Staff cost
Depreciation and amortization expense
Other operating expenses
Total operating expenses
Proft from operations
Finance revenue
Finance costs
Net fnancial loss
Proft before tax
Income tax expense
Attributable to:
Equity holder
Minority interest
Notes
5
6
7
8
8
9
The accompanying notes form an integral part of these consolidated fnancial statements. The accompanying notes form an integral part of these consolidated fnancial statements.
2007 2006
8,739,188
450,941
235,534
1,389,835
10,815,498
(2,504,385)
(2,504,597)
(1,645,229)
(1,592,366)
(2,364,116)
(10,610,693)
204,805
97,930
(195,744)
(97,814)
106,991
(80,985)
26,006
3,814
22,192
26,006
8,747,024
457,850
242,312
800,071
10,247,257
(2,029,292)
(1,775,474)
(1,575,249)
(1,781,069)
(2,685,525)
(9,846,609)
400,648
104,394
(186,922)
(82,528)
318,120
(76,242)
241,878
216,870
25,008
241,878
Signed on behalf of the Company on 11 April 2008 by:
Ivan Mravak
Ivan Mravak
Darko Dvornik
Member of the Board
Darko Dvornik
Member of the Board
ASSETS
Non-current assets
Property, plant and equipment
Capital work in progress
Intangible assets
Investment property
Prepayments for tangible assets
Investment in NPP Krko
Long-term loan receivables and deposits
Other non-current assets
Deferred tax assets
Current assets
Inventories
Trade receivables
Other short-term receivables
Cash and cash equivalents
TOTAL ASSETS
Notes
10
10
11
12
13
14
16
17
9
18
19
20
21
31. December
22,587,104
3,021,148
85,715
73,462
490,609
1,609,752
2,449
107,519
62,477
28,040,235
1,079,826
1,227,288
556,322
166,512
3,029,948
31,070,183
31. December
21,533,623
2,600,388
73,689
81,320
429,775
1,613,901
3,124
110,563
129,071
26,575,454
955,450
1,323,312
321,832
159,599
2,760,193
29,335,647
101
2007 2006
HRK000 HRK000 HRK000 HRK000
HEPGroup
Consolidated Balance Sheet HEP Group (continued) As at 31 December 2007
CAPITAL AND LIABILITIES
Share capital
Capital reserves
Retained earnings
Equity attributable to equity holder
Minority interest
Total equity
Long-term borrowings
Long-term liabilities to the state
Long-term provisions
Liabilities under securities
Other long-term liabilities
Total non-current liabilities
Trade payables
Current portion of long-term borrowings
Short-term borrowings
Taxes payable
Interest payable
Liabilities to employees
Other payables
Total current liabilities
TOTAL CAPITAL AND LIABILITIES
Notes
22
22
22
15
23
24
26
27
28
23
29
30
31
31. December
19,792,159
(2,035,736)
256,690
18,013,113
122,064
18,135,177
2,928,740
66,061
511,317
1,196,590
3,792,602
8,495,310
2,579,830
612,485
905,449
123,987
42,646
108,843
66,456
4,439,696
31,070,183
31. December
19,792,159
(2,031,587)
252,876
18,013,448
137,670
18,151,118
3,128,904
69,225
967,832
497,670
3,173,701
7,837,332
1,711,008
650,599
386,313
181,832
43,408
185,560
188,477
3,347,197
29,335,647
2007 2006
Consolidated Statement of Changes in Equity - HEP group For the year ended 31 December 2007
103
Balance at 31 December 2005
Restatement in respect of NP Krko
Balance at 1 January 2006
Minority interest
Distribution of dividend to RWE
Proft for the year
Exchange differences
Minority interest
Distribution of dividend to RWE
Proft for the year
Share capital
19,792,159
-
19,792,159
-
-
-
-
19,792,159
-
-
-
-
19,792,159
Capital
reserves
(2,013,364)
(11,196)
(2,024,560)
-
-
-
(7,027)
(2,031,587)
-
-
-
(4,149)
(2,035,736)
Retained
earnings/
(Accumulated
losses )
41,070
-
41,070
(5,064)
-
216,870
-
252,876
-
-
3,814
-
256,690
Equity attrib-
utable to the
equity holder
of the Parent
17,819,865
(11,196)
17,808,669
(5,064)
-
216,870
(7,027)
18,013,448
-
-
3,814
(4,149)
18,013,113
Minority
interest
153,579
-
153,579
(27,879)
(12,473)
25,008
(565)
137,670
(25,008)
(12,540)
22,192
(250)
122,064
Total
equity
17,973,444
(11,196)
17,962,248
(32,943)
(12,473)
241,878
(7,592)
18,151,118
(25,008)
(12,540)
26,006
(4,399)
18,135,77
The accompanying notes form an integral part of these consolidated fnancial statements.
Ivan Mravak
Ivan Mravak
Darko Dvornik
Member of the Board
Darko Dvornik
Member of the Board
HRK000
HRK000 HRK000 HRK000 HRK000 HRK000 HRK000
HRK000
HEPGroup
Consolidated Cash Flow Statement HEP Group For the year ended 31 December 2007
Cash fows from operating activities
Proft for the year
Income tax expense recognised in proft or loss
Net fnancial loss
Deferred tax (assets)/liabilities
Gains on derivatives
Depreciation and amortisation
Impairment loss on fxtures and equipment
(Decrease)/increase in provisions for doubtful receivables
(Decrease)/increase in provisions
Operating cash fows before movements in working capital
Decrease/(increase) in trade receivables
(Increase) in inventories
(Increase)/decrease in other current assets
Increase in trade payables
(Decrease) in other liabilities
(Decrease)/increase in liabilities to employees
(Decrease)/increase in tax liabilities
Increase in long-term liabilities
Cash generated from operations
Income taxes paid
Interest paid
NET CASH FROM OPERATING ACTIVITIES
26,006
80,985
97,814
(66,563)
591
1,592,366
-
(17,878)
(456,515)
1,256,806
113,902
(124,376)
(240,636)
868,822
(122,352)
(76,717)
(56,974)
615,737
2,234,212
(14,423)
(173,955)
2,045,834
241,878
76,242
82,528
33,537
2,525
1,781,069
-
10,074
95,510
2,323,363
(29,573)
(12,018)
119,742
116,056
65,015
46,754
18,377
439,765
3,087,481
(109,779)
(160,118)
2,817,584
2007 2006
INVESTING ACTIVITIES
Interest received
Proft distributions from subsidiaries
Disposal of property, plant and equipment
Increase in property, plant and equipment
Decrease/(increase) in other non-current assets
Change in minority interest
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Repayments of borrowings
New bank loans raised
NET CASH FROM FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
Effect of changes in exchange rates
CASH AND CASH EQUIVALENTS AT END OF YEAR
4,150
49,366
35,744
(3,077,040)
14,003
(15,606)
__________
(2,989,383)
(1,921,194)
2,943,647
1,022,453
78,904
159,599
(71,991)
166,512
5,140
5,061
28,179
(2,769,553)
(372,678)
(15,909)
__________
(3,119,760)
(1,684,810)
2,042,906
358,096
55,920
168,543
(64,864)
159,599
2007 2006
105
Ivan Mravak
Darko Dvornik
Member of the Board
HEPGroup
1. GENERAL
Hrvatska elektroprivreda Group (the Group) consists of the parent company Hrvatska elektroprivreda
d.d., Zagreb (HEP, the Parent Company or the Company) and the subsidiaries listed in Note 31.
HEP d.d. is registered in Zagreb, Ulica grada Vukovara 37. The principal activities of HEP Group are the
generation, transmission and distribution of electricity, and the control of the electric power systems.
In addition to these main activities, HEP Group deals with the production and distribution of thermal
power through the district heating systems in Zagreb in Osijek, and the distribution of gas in Osijek and
akovo.
All the Groups activities are governed by applicable laws, regulations and decisions issued by the
Croatian Government.
At 31 December 2007, the number of staff employed by the Group was 14 269 (31 December 2006: 14
336).
These fnancial statements are presented in Croatian Kuna (HRK) since that is the currency in which the
majority of the Groups transactions are denominated.
Energy Laws
On 3 December 2004, the Croatian Parliament ratifed the amendments to the following laws: The En-
ergy Law, the Law on Electricity Market and the Law on the Regulation of Energy Activities.
The subsidiaries and HEP d.d. continue their regulated activities as public services companies for tariff-
based customers: production of electricity, transmission of electricity, distribution of electricity, organiz-
ing electricity market and supplying of electricity to tariff-based customers.
Production and supply of electricity to eligible buyers and trading on the energy market are done as
market activities.
Supply of electricity for eligible customers (corporate customers) is performed according to rules
governing market relations, which allow these customers to purchase electricity in a free market. Tariff-
based customers are supplied with electricity in the system of obligatory public services in accordance
with prices from the tariff system for electricity.
Notes to the fnancial statements of the HEP Group For the year ended 31 December 2007 According to the Law on the Amendments to the Energy Law from December 2004, the Croatian En-
ergy Regulatory Agency (CERA) was to prepare a methodology for determining the tariff systems for
different customers within two years.
In December 2006, the CERA published the tariff models for regulated electricity activities: The Electric-
ity Generation Tariff Model, with the exemption of eligible customers, with no tariff item amounts; The
Electricity Transmission Tariff Model, with no tariff item amounts. The Electricity Distribution Tariff Model,
with no tariff amounts; and the Electricity Supply Tariff Model, with the exemption of eligible customers,
with no tariff amounts.
According to the new laws, HEP restructured its operations, by forming separate companies, for elec-
tricity generation, transmission, distribution, power supply management, and electricity market man-
agement, all of which commenced their respective business activities on 1 July 2002. HEP is obligated
to adjust the organization of the Group in accordance with these amended laws.
Law on the Privatisation of HEP d.d.
The Law on the Privatisation of Hrvatska Elektroprivreda d.d. was passed on 25 March 2002. According
to the Law, the privatisation of HEP is to be carried out as follows: 7% of its shares are to be trans-
ferred to Croatian war veterans without consideration, 7% of the shares will be sold to the Companys
present and former employees, minimum 15% of the shares will be sold by way of public offering frst
to the Croatian citizens and then to domestic and foreign legal entities. The remaining shares will be
sold in the capital markets. The Republic of Croatia will retain direct ownership over 51% of HEPs
shares until the admission of the Republic of Croatia to the European Union. After the admission, sepa-
rate laws may be passed to further privatise the shares held by the state. To date, HEP remains fully
owned by the Republic of Croatia and the privatisation process has still not yet begun.
107
Governance and management
The Assembly consists of the members representing the interests of the HEP Group:
Assembly of HEP d.d
Miljenko Pavlakovi, B.Sc.Econ. President Member since February 2008
Vladimir Vrankovi, B.E.E. President Member since 2004 until February 2008
HEPGroup
Supervisory Board of HEP d.d.
Members of Supervisory Board:
Leo Begovi, B.E.E. President Member since 28 April 2008
Professor Kreimir osi, D.Sc. Member Member since 28 April 2008
Dasenko Baldasari, B.E.E. Member Member since 28 April 2008
Luciano Delbianco, D.Sc. Member Member since 28 April 2008
Zdenko Juri, B.L.L.. Member Member since 28 April 2008
Slavko Konfc Member Member since 28 April 2008
Members of Supervisory Board in 2007:
eljko Tomi, M.Sc. President Member since 2006 until March 2008
Professor Kreimir osi, D.Sc. Member Member since 2004 until March 2008
Dasenko Baldasari, B.E.E. Member Member since 2004 until March 2008
Luciano Delbianco, D.Sc. Member Member since 2004 until March 2008
Zdenko Juri, B.L.L.. Member Member since 2004 until March 2008
Franc Ferenak, eng. Member Member since 2004 until March 2008
Management Board:
mr. sc. Ivan Mravak President Member since 2004
eljko Kljakovi-Gapi, B.E.E. Member Member since 1 March 2008
Darko Dvornik, D.Sc. Member Member since 1 March 2008
Stjepan Tvrdini, B.E.E. Member Member since 18 March 2008
eljko Tomi, M.Sc. Member Member since 29 April 2008
Nikola Rukavina, B.E.E. Member Member since 29 April 2008
109
Management Board 2007:

Ante Despot, B.E.E. Member Member from 2004 until 29 February 2008
Ivica Toljan, M.Sc. Member Member from 2004 until 29 February 2008
Ivo ovi, B.E.E. Member Member from 2004 until 29 February 2008
Kaimir Vranki, M.Sc. Member Member from 2004 until 29 February 2008
Velimir Lovri, M.Sc. Member Member from 2006 until 29 February 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Groupss principal accounting policies which have been applied consistently in the
current year and with the prior year, is set out below.
Presentation of the fnancial statements
The fnancial statemetns have been prepared in accordance with International Financial Reporting
Standards as published by the International Accounting Standards Board.
The fnancial statements have been prepared on the historical cost basis, except for certain fnancial
instruments that are presented at revalued amounts. The fnancial statements are presented in thou-
sands of Croatian Kuna (HRK000), since that is the currency in which the majority of the Comopanys
transactions are denominated.
The fnancial statements have been prepared under the going-concern assumption.

Basis of accounting
The Group maintains its accounting records in the Croatian language, in Croatian kuna and in ac-
cordance with Croatian law and the accounting principles and practices observed by enterprises in
Croatia. The accounting records of the Companys subsidiaries in Croatia and abroad are maintained in
accordance with the requirements of the respective local jurisdictions.

HEPGroup
Adoption of new and revised International Financial Reporting Standards
Standards and Interpretations effective in the current period
In the current year, the Group has adopted all of the new and revised Standards and Interpretations
issued by the International Accounting Standards Board (the IASB) and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective
for accounting periods beginning on 1 January 2007:
IFRS 7 Financial Instruments: Disclosures effective for annual reporting periods beginning on or after 1
January 2007, and the consequential amendments to IAS 1 Presentation of Financial Statements.
The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures
provided in these fnancial statements regarding the Groups fnancial instruments and management of
capital (see note 36).
Four Interpretations issued by the International Financial Reporting Interpretations Committee are
effective for the current period. These are:
IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinfationary
Economies (effective date annual periods beginning on or after 1 March 2006)
IFRIC 8 Scope of IFRS 2 (effective date annual periods beginning on or after 1 May 2006)
IFRIC 9 Reassessment of Embedded Derivatives (effective date annual periods beginning on or after 1
June 2006) ; and
IFRIC 10 Interim Financial Reporting and Impairment (effective date annual periods beginning on or
after 1 November 2006). The adoption of the new Interpretations has not resulted in changes to the ac-
counting policies of Hrvatska elektroprivreda.
Standards and Interpretations in issue not yet adopted
At the date of authorisation of these fnancial statements, the following Interpretations and Standards
were in issue but not yet effective:
IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after 1 January
2009);
IFRS 8 Operating Segments (effective for accounting periods beginning on or after 1 January 2009);
and
IFRIC 13 Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 July
2008).
IFRIC 11 IFRS 2 Group and Treasury Share Transactions (effective 1 March 2007);
IFRIC 12 Service Concession Arrangements (effective 1 January 2008);
IFRIC 14 IAS 19 The Limit on a Defned Beneft Asset, Minimum Funding Requirements and their
Interaction (effective 1 January 2008). The directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the fnancial statements of the Group.
Basis of the preparation of the Group fnancial statements
The fnancial statements of the Group represent aggregate amounts of the Companys assets, liabilities,
capital and reserves at 31 December 2007, and the results of its operations for the year then ended. All
internal balances and transactions have been eliminated.
111
Notes to the fnancial statements of the HEP Group For the year ended 31 December 2007
(continued)
HEPGroup
Principles and methods of consolidation
The consolidated fnancial statements incorporate the fnancial statements of HEP d.d. and entities
controlled by HEP d.d. (its subsidiaries). A listing of the Groups subsidiaries is provided in Note 31.
Control is achieved where HEP d.d. has the power to govern the fnancial and operating policies of an
entity so as to obtain benefts from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated
income statement from the effective date of acquisition or up to the effective date of disposal, as ap-
propriate.

Where necessary, adjustments are made to the fnancial statements of subsidiaries to bring their ac-
counting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are identifed separately from the
Groups equity therein. Minority interests consist of the amount of those interests at the date of the
original business combination and the minoritys share of changes in equity since the date of the com-
bination. Losses applicable to the minority in excess of the minoritys interest in the subsidiarys equity
are allocated against the interests of the Group except to the extent that the minority has a binding
obligation and is able to make an additional investment to cover the losses.
Investments in subsidiaries
Subsidiary undertakings are those companies in which the Company (as parent) has control or other-
wise has power to exercise control over fnancial and operational policies of the investee. Investments
in subsidiaries are presented in the balance sheet at cost adjusted by any changes in the Companys
share in the net assets of a subsidiary subsequent to acquisition, and less any impairment of an indi-
vidual investment.

Investments in associates
An associate is an entity over which the Group is in a position to exercise signifcant infuence, but
not control or joint control, through participation in the fnancial and operating policy decisions of the
investee.
The results and assets and liabilities of associates are incorporated in these consolidated fnancial
statements using the equity method of accounting except when classifed as held for sale in accor-
dance with IFRS 5 Non-current Assets Held For Sale and Discontinued Operations. Investments in as-
sociates are carried in the consolidated balance sheet at cost as adjusted by post-acquisition changes
in the Groups share of the net assets of the associate, less any impairment in the value of individual
investments. Losses of an associate in excess of the Groups interest in that associate (which includes
any long-term interests that, in substance, form part of the Groups net investment in the associate) are
not recognised, unless the Group has incurred legal or constructive obligations or made payments on
behalf of the associate.
Any excess of the cost of acquisition over the Groups share of the fair values of the identifable net
assets of the associate at the date of acquisition is recognised as goodwill. Any defciency of the cost
of acquisition below the Groups share of the fair values of the identifable net assets of the associate at
the date of acquisition is credited to proft and loss in the period of acquisition.
Where the Group transacts with its associate, profts and losses are eliminated to the extent of the
Groups interest in the relevant associate.
Investments in jointly controlled entities
Jointly controlled entities are entities where control is shared with other parties through contractual ar-
rangements and are included in the Group accounts using the method of proportionate consolidation.
Where a group entity undertakes its activities under joint venture arrangements directly, the Groups
share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognised
in the fnancial statements of the relevant entity and classifed according to their nature. Liabilities and
expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an
accrual basis. Income from the sale or use of the Companys share of the output of jointly controlled
assets, and its share of joint venture expenses, are recognised when it is probable that the economic
benefts associated with the transactions will fow to/from the Company and their amount can be mea-
sured reliably.
113
HEPGroup
Joint venture arrangements that involve the establishment of a separate entity in which each venturer
has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly
controlled entities using proportionate consolidation. The Groups share of the assets, liabilities, income
and expenses of jointly controlled entities are combined with the equivalent items in the consolidated f-
nancial statements on a line-by-line basis. Where the Group transacts with its jointly controlled entities,
unrealised profts and losses are eliminated to the extent of the Groups interest in the joint venture.
Reporting currency
The Companys and the Groups fnancial statements are prepared in Croatian kuna (HRK). As at 31 De-
cember 2007, the offcial exchange rates for EUR 1 and USD 1 were HRK 7.33 and HRK 4.99, respec-
tively (at 31 December 2006: EUR 1 = HRK 7.34 and USD 1 = HRK 5.58). Average middle exchange rate
of CNB in year 2007 was EUR 1 = 7.34 and USD 1 = 5.37. (In year 2006 EUR 1 = 7.32 and
USD 1 = 5,84).
Retirement and other employee beneft costs
The Group has no defned post-retirement beneft plans for its employees or management in Croatia or
abroad. Accordingly, no provision for these costs has been included.
Legal pension and health insurance contributions are paid on behalf of the Groups employees in the
Republic of Croatia. This obligation applies to all staff hired on the basis of employment contract. The
contributions are paid at a certain percentage determined on the basis of gross salary.
Pension insurance contributions
Health insurance contributions
Employment Fund contribution
Occupational injury
20%
15%
1.7%
0.5%
20%
15%
1.7%
0.5%
The Group companies have the obligation to withold the pension insurance contributions from the em-
ployees gross salaries.
Contributions on behalf of the employer and the employees are recognised as cost in the period in
which they are incurred (see Note 7).
The Group provides employees with jubilee and one off retirement awards. The obligation and costs of
these benefts are determined using a projected unit credit method. The Projected Unit Credit Method
considers each period of service as giving rise to an additional unit of beneft entitlement and measures
each unit separately to build up the fnal obligation. The pension obligation is measured at the present
value of estimated future cash fows using a discount rate that is similar to the interest rate on high-
quality corporate bonds quoted in the Republic of Croatia where the currency and terms of the govern-
ment bonds are consistent with the currency and estimated terms of the beneft obligation.
Property, plant and equipment are carried at cost less accmulated depreciation and any impairment
losses, except for land, which is carried at cost.
The estimated useful lives, residual values and depreciation methods are reviewed at each year end,
with the effect of any changes in estimate.
115
HEPGroup
Fixed assets in use are depreciated using the straight-line method on the following bases:
BUILDINGS
Hydroelectric power plants (Dams, embankments, buildings and other structures and facilities)
Thermal power plants (Buildings and other structures)
Electricity transmission and distribution plants and facilities (Transmission lines and buildings of
transformer stations, switch-yard and dispatch centers)
Water and steam pipelines and other thermal power generation and transmission
plants and facilities
Gas pipelines
Administrative buildings
Plant and equipment
Hydroelectric power plants
Thermal power plants
Electricity transmission plants and facilities (electric parts of transformer stations and transformers;
and electric parts of transmission lines)
Electricity distribution plants and facilities (electric parts of transformer stations and transformers,
electric parts of distribution lines, measuring instruments, meters and other equipment)
Thermal power stations, hot-water pipelines and other equipments
Gas meters and other gas network equipment
Other equipment and vehicles
IT equipment
Software licences
Telecommunications equipment
Motor vehicles
Offce furniture
20 50 years
33 50 years
8 33 years
33 years
20 - 25 years
50 years
10 25 years
6 25 years
8 33 years
8 33 years
15 30 years
5 20 years
3 20 years
5 years
5 20 years
5 8 years
15 years
20 50 years
33 50 years
20 40 years
33 years
20 - 25 years
50 years
10 33 years
6 25 years
15 40 years
8 40 years
15 30 years
5 20 years
5-20 years
5 years
5 20 years
5 8 years
10 years
2007 2006
In 2007, the Company reviewed the useful lives of its non-current assets as provided in IAS 16. Con-
sidering the development of new technologies, as well as the global practice in estimating the useful
lives of power plants and structures, the Company established that the useful lives of the canals, hydro
power plants, production equipment at the power plants, transformer stations and grids should be
extended. A decrease in the useful life of offce furniture from 15 to 10 years was suggested.
The initial cost of property, plant and equipment contain the purchase price, including all customs du-
ties and non-refundable taxes and all costs directly attributable to bringing an asset to the condition
and location for its indended use.
Expenditures incurred after the property, plant and equipment have been put into use are charged to
expense the period in which they are incurred.
In situations where it can be clearly demonstrated that the expenditures have resulted in an increase
in the future economic benefts expected to be obtained from the use of an item of property, plant and
equipment beyond its originally assessed standard performance, the expenditures are capitalised as
an additional cost of property, plant and equipment. Costs eligible for capitalization include costs of
periodic, planned signifcant inspections and overhauls necessary for further operation.
The gain or loss arising from disposal or withdrawal of property, plant and equipment is determined as
the difference between the gains on sale and the carrying amount of the asset and are credited and
charged, respectively, to the income statement.
Impairment of tangible and intangible assets
Items of tangible and intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the
carrying amount of an asset exceeds its recoverable amount, an impairment loss is charged to the
income statement.
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible as-
sets to determine whether there is any indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an
individual asset, the the Group estimates the recoverable amount of the cash-generating unit to which
the asset belongs.
117
HEPGroup
Investment property
Investment properties, which is property held to earn rentals and/or for capital appreciation, are stated
at cost, less accumulated depreciation and impairment losses, if any. Cost consists of invoiced amount
plus all other direct costs attributable to bringing an asset to its intended use.
Depreciation is charged so as to write off the cost or valuation of the assets over their estimated useful
lives, using the straight-line method, on the following basis:
Finance and operating leases
The Group has no fnance lease arragements and no signifcant operating lease agreements were en-
tered into during 2007 and 2006. Amounts payable under operating leases are recognised as expense
on a straight-line basis over the term of the relevant lease, unless there is another systematic basis that
would be more representative of the time pattern of the users beneft.
Trade debtors and prepayments
Trade receivables are carried at invoiced amounts. Since 1 July 2002, the subsidiary HEP Distribucija
d.o.o. has been providing electricity distribution services, keeping record and collecting the related
receivables from tariff-based customers, and HEP Opskrba d.o.o. has been providing electricity distri-
bution services to eligible customers for the account of HEP d.d. since 26 February 2003.
The risk of collectability of receivables from the sale of electricity is borne by HEP d.d., and an allow-
ance for bad and doubtful receivables is made based on the estimate of HEPs management. All trade
debtors in bankruptcy and receivables claimed through court are fully written off.
Intangible assets with indefnite useful lives and intangible assets not yet available for use are tested for
impairment annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash fows are discounted to their present value using a pre-tax discount rate
that refects current market assessments of the time value of money and the risks specifc to the asset.
The net selling price is the amount obtainable from the sale of an asset in an arms length transac-
tion less the cost of disposal, while value in use is the present value using a pre-tax discount rate that
refects current market assessments of the time value of money and the risks specifc to the asset of
estimated future cash fows expected to arise from the continuing use of an asset and from its disposal
at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not pos-
sible, for the relevant cash-generating unit.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carry-
ing amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised immediately in proft or loss, unless the relevant asset is land
or a building other than an investment property carried at a revalued amount, in which case the impair-
ment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating
unit) is increased to the revised estimate of its recoverable amount, but so that the increased carry-
ing amount does not exceed the carrying amount that would have been determined had no impair-
ment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impair-
ment loss is recognised immediately in proft or loss, unless the relevant asset is carried at a revalued
amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Intangible assets
Intangible fxed assets include patents, trade marks and licences and are carried at cost less accumu-
lated amortisation. Amortisation is provided on a straight-line basis over a period from 5 to 20 years.
119
F l a t s 50 years
HEPGroup
Management provides for doubtful receivables based on a review of the overall ageing of all receivables
and a specifc review of signifcant individual amounts receivable.
As the collectability of certain receivables over a longer term is not certain, the Company makes an
allowance for unrecoverable amounts, based on a reasonable estimate and past experience, in order to
write down or write off those amounts as follows:
Ageing of past due
61 90 days
91-120 days
121-365 days
Over one year
Write down in percentage
5%
10%
20%
100%
Outstanding receivables claimed through court and those not included in bankruptcy estate (the prin-
cipal debt and intrest) are fully written off, reglardless of the number of past due days. Such write-offs
are charged to value adjustment of assets and credited to the allowance account on short-term receiv-
ables.
Inventories
Inventories consist mainly of material and small inventory, and are carried at the lower of weighted
average cost less value adjustment for obsolete and excessive inventories and net realisable value.
Management provides for doubtful receivables based on a review of the overall ageing of all receivables
and a specifc review of signifcant individual amounts receivable.
Cost includes invoiced price and other costs directly attributable to brining inventories to their present
location and condition.
Cash and cash equivalents comprise cash on hand and demand deposits with banks and other short-
term highly liquid investments that are readily convertible to a known amount of cash and are subject to
an insignifcant risk of changes in value.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use
or sale, are added to the cost of those assets, until such time as the assets are substantially ready for
their intended use or sale. Investment income earned on the temporary investment of specifc borrow-
ings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in the statement of income in the period in which they are
incurred. Short-term borrowings and supplier loans are recorded at original amount granted less repay-
ment. Interest expense is charged to income statement on an accrual basis. In 2007, the borrowing
costs of a short-term club bridge loan, which was used to fnance investments until the receipt of funds
under issued bonds, were added to the costs of the assets.
Foreign currencies
The individual fnancial statements of each Company and the Group entity are presented in the cur-
rency of the primary economic environment in which the entity operates (its functional currency). For
the purpose of the consolidated fnancial statements, the results and fnancial position of each Group
entity are expressed in Croatian kunas (HRK), which is the functional currency of the Company and the
presentation currency for the consolidated fnancial statements.
In preparing the fnancial statements of the individual Group entities, transactions in currencies other
than the entitys functional currency (foreign currencies) are translated to the functional currency of the
entity at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date,
monetary items denominated in foreign currencies are retranslated to the functional currency of the
entity at the year-end rates. Non-monetary items carried at fair value that are denominated in foreign
currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
121
HEPGroup
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary
items, are included in proft or loss for the period. Exchange differences arising on the retranslation of
non-monetary items carried at fair value are included in proft or loss for the period as fnance cost ex-
cept for differences arising on the retranslation of non-monetary assets available for sale, in respect of
which gains and losses are recognised directly in equity. For such non-monetary items, any exchange
component of that gain or loss is also recognised directly in equity.
For the purpose of presenting consolidated fnancial statements, the assets and liabilities of the
Groups foreign operations are expressed in Croatian kuna using exchange rates prevailing at the bal-
ance sheet date. Income and expense items (together with the corresponding fgures) are translated
at the average exchange rates for the period, unless exchange rates fuctuated signifcantly during that
period, in which case the exchange rates at the dates of the transactions are used. Exchange differ-
ences arising on the year-end translation, if any, are classifed as equity and recognised in the Groups
foreign currency translation reserve. Such exchange differences are recognised in proft or loss in the
period in which the foreign operation is disposed of.

Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable proft for the year. Taxable proft differs from proft as
reported in the income statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The Com-
panys and the Groups liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the
fnancial statements and the corresponding tax bases used in the computation of taxable proft, and is
accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax
assets are generally recognised for all deductible temporary differences to the extent that it is prob-
able that taxable profts will be available against which those deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill
or from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable proft nor the accounting proft.
Deferred tax liabilities are recognised on the basis of taxable temporary differences on investments in
subsidiaries and associates and joint ventures, unless the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that suffcient taxable profts will be available to allow all or part of
the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period
in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been
enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities
and assets refects the amount in which the Group expects, at the reporting date, to recover or settle
the carrying amount of its assets and liabilities.
Current and deferred tax for the period
Current and deferred tax are recognised as an expense or income in proft or loss, except when they
relate to items credited or debited directly to equity, in which case the tax is also recognised directly in
equity, or where they arise from the initial accounting for a business combination.
In the case of a business combination, the tax effect is taken into account in calculating goodwill or in
determining the excess of the acquirers interest in the net fair value of the acquirees identifable as-
sets, liabilities and contingent liabilities over cost.

123
HEPGroup
Financial assets
Investments are recognised and derecognised on a trade date where the purchase or sale of an invest-
ment is under a contract whose terms require delivery of the investment within the timeframe estab-
lished by the market concerned, and are initially measured at fair value, net of transaction costs, except
for those fnancial assets classifed as at fair value through proft or loss, which are initially measured at
fair value.
Financial assets are classifed into as assets available for sale and loans and receivables. The clas-
sifcation depends on the nature and purpose of the fnancial assets and is determined at the time of
initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a fnancial asset and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash receipts through the expected life of the fnancial asset, or, where ap-
propriate, a shorter period.
Income is recognised on an effective interest basis for debt instruments.
Financial assets available for sale
Unlisted shares held by the Company and the Group that are traded in an active market are classifed
as being AFS and are stated at fair value. Fair value is determined in the manner described in Note 24.
Gains and losses arising from changes in fair value are recognised directly in equity in the investments
revaluation reserve with the exception of impairment losses, interest calculated using the effective inter-
est method and foreign exchange gains and losses on monetary assets, which are recognised directly
in proft or loss. Where the investment is disposed of or is determined to be impaired, the cumulative
gain or loss previously recognised in the investments revaluation reserve is included in proft or loss for
the period.
Dividends on AFS equity instruments are recognised in proft or loss when the Groups right to receive
the dividends has been established.
The fair value of AFS fnancial assets denominated in a foreign currency is determined in that foreign
currency and translated at the spot rate at the balance sheet date. The change in fair value attributable
to translation differences that result from a change in amortised cost of the asset is recognised in proft
or loss, and other changes are recognised in equity.
Loans and receivables
Trade receivables, loans, and other receivables with fxed or regular payments that are not quoted in an
active market are classifed as loans and receivables. Loans and receivables are measured at amortised
cost using the effective interest method, less any impairment. Interest income is recognised by apply-
ing the effective interest rate, except for short-term receivables when the recognition of interest would
be immaterial.
Impairment of fnancial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets
are impaired where there is objective evidence that, as a result of one or more events that occurred
after the initial recognition of the fnancial asset, the estimated future cash fows of the investment have
been impacted. For fnancial assets carried at amortised cost, the amount of the impairment is the
difference between the assets carrying amount and the present value of estimated future cash fows,
discounted at the fnancial assets original effective interest rate.
The carrying amount of the fnancial asset is reduced by the impairment loss directly for all fnancial as-
sets with the exception of trade receivables, where the carrying amount is reduced through the use of
an allowance account. When a trade receivable is considered uncollectible, it is written off against the
allowance account. Subsequent recoveries of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of the allowance account are recognised in proft
or loss.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed through proft or loss to the ex-
tent that the carrying amount of the investment at the date the impairment is reversed does not exceed
what the amortised cost would have been had the impairment not been recognised.
In respect of AFS equity securities, any increase in fair value subsequent to an impairment loss is rec-
ognised directly in equity.
Investments
Investments in immaterial non-consolidated companies are generally recorded at cost less provisions
for any impairment.
125
HEPGroup
Financial liabilities
Financial liabilities are classifed as other fnancial liabilities.
Other fnancial liabilities, including borrowings, are initially measured at fair value, net of transaction
costs.
Other fnancial liabilities are subsequently measured at amortised cost using the effective interest meth-
od, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a fnancial liability and
of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the fnancial liability, or, where
appropriate, a shorter period.
The Group derecognises fnancial liabilities when, and only when, the Groups obligations are dis-
charged, cancelled or have expired.
Derivative fnancial instruments
During 2007 and 2006, the Company had no derivative fnancial instruments.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of
a past event and it is probable (i.e. more likely than not) that an outfow of resources will be required to
settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions
are reviewed at each balance sheet date and adjusted to refect the current best estimate. Where the
effect of discounting is material, the amount of the provision is the present value of the expenditures
expected to be required to settle the obligation. Where discounting is used, the increase in provisions
that refects the passage of time is recognized as interest expense.
Use of estimates in the preparation of the fnancial statements
The preparation of fnancial statements in conformity with International Reporting Financial Standards,
as published by the International Accounting Standards Board requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, income and expenses and
disclosure of contingencies. The signifcant areas of estimation used in the preparation of the accom-
panying fnancial statements relate to employee benefts, useful lives of property, plant and equipment,
impairment of assets and determination of fair values of assets and liabilities, and estimated decom-
missioning costs. Future events may occur which will cause the assumptions used in arriving at the es-
timates to change. The effect of any changes in estimates will be recorded in the fnancial statements,
when determinable.
Revenue recognition
Revenue is earned primarily from the sale of electricity to households, industrial and other users within
Croatia.
These sales constitute the main source of the Groups operating income.
Electricity sales are recognised based on the managements best estimate of the actual consumption
of the energy delivered to customers.
Interest income is recognised on an accrual basis, by reference to the principal settled and at the ef-
fective interest rate applied. The Company revised its estimate with respect to recognition of interest in
2007, as the analysis of collected amounts revealed that the difference between interest accrued and
interest collected is insignifcant.
Segmental disclosures
The Group has opted not to present any segmental information, since the equity instruments of the
Group are not traded on public markets.
127
HEPGroup
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
Critical judgements in applying accounting policies
In the application of the accounting policies, which are described in Note 2, the management made
certain judgements that had a signifcant impact on the amounts reported in the fnancial statements
(irrespective of the underlying estimates referred to below).
These judgements are provided in detail in the accompanying notes. However, the critical judgements
relate to the following areas:
Useful lives of property, plant and equipment
As described in Note 2, the Company reviews the estimated useful lives of property, plant and equip-
ment at the end of each annual reporting period.
During the fnancial year, as a result of the changes in depreciation rates, the depreciation charge was
decreased by HRK 228,375 thousand.
Fair value of fnancial assets and interest-rate swap
As described in Note 19, the management uses judgement to estimate whether trade and other re-
ceivables have sufferred an impairment loss. The management believes that the carrying amount of the
interest-rate swap approximates its fair value as disclosed in Note 25.
Provisions for environmental protection
The exact scope of activities or technologies to be applied has not been specifed by the applicable
laws or regulations. In determining the level of provisions for environmental protection and decomis-
sioning, the management relies on the prior experience and its own interpretation of the current laws
and regulations. Pursuant to Article 4.1 of the Law on Acknowledgeing the Contract between the Gov-
ernment of the Republic of Croatia and the Government of the Republic of Slovenia on Regulating the
Status and other Legal Relations in Respect of Investments in, Exploitation and Decomissioning of, the
Nuclear Power Plant Krko (Offcial Gazette No. 9/2002), the Croatian Government issued on 28 April
2006 a decree on the payment of the funds for the decomissioniong and disposal of radioactive waste
and consumed nuclear fuel of the NPP Krko.
The decomissioning costs of thermal power plants represent the discounted value of the estiamted
decommissioning costs of the Groups thermal power plants.

Impairment of non-current assets
The impairment calculation requires the estimate of the value in use of the cash generating units. Value
in use is measured using the discounted cash fow projections. The most signifcant variables in deter-
mining cash fows are discount rates, time values, the period of cash fow projections, as well as as-
sumptions and judgements used in determining cash receipts and expenditure. There were no impair-
ments of assets of the Company that would result from the projections described above.
The Company engaged an independent frm to appraise the fair value of NPP Krko d.o.o. as of 31
December 2007. In determining the fair value, all technical and technological, as well as economic and
market characteristics of the power plant were taken into account. Accordingly, the fair value represents
the discounted free cash fow as a free net category (the difference between income and expenses)
attributable to the investors. The appraised fair value of the NPP Krko was signifcantly higher than its
carrying amount and, as a result, the provision of HRK 263,181 thousand, included in the balance sheet
as at 31 December 2006, was reversed and credited to income in the current year.
Availability of taxable profts against which the deferred tax assets could be recognised
A deferred tax asset is recognized only to the extent that it is probable that the related tax beneft will
be realized. In determining the amount of deferred taxes that can be recognised are required, which
are based on the probable quantifcation of time and level of future taxable profts, together with the
future tax planning strategy. The carrying amounts of deferred tax assets at 31 December 2007 and
31 December 2006 amounted to HRK (66,563) thousand and HRK 33,537 thousand, respectively (see
Note 9).
Actuarial estimates used in determining the retirement bonuses
The cost of defned benefts is determined using actuarial estimates. Actuarial estimates involve as-
sumptions about discount rates, future salary increases and the mortality or fuctuation rates. Because
of the long-term nature of those plans, there is uncertainty surrounding those estimates. Provisions for
jubilee awards and retirement bonuses amounted to HRK 230,161 thousand and HRK 291,023 thou-
sand at 31 December 2007 and 31 December 2006, respectively (see Note 26).
Consequences of certain legal actions
There is a number of legal actions involving the Group, which have arisen from the regular course of
their operations. The management makes estimates when the probable outcome of the legal action has
been estimated, and the provisions are recognised on a consistent basis (see Note 26).
The principal accounting policies applied in the preparation of the fnancial statements for the year
2007 are consistent with those applied in the prior year, unless stated otherwise.
129
HEPGroup
4. SEGMENT INFORMATION
The Group generates income from its operations in a single geographical area the Republic of
Croatia.
The Groups reportable segments are separated as follows: electricity (generation, distribution and sale
of electricity), heating (distribution and sale of thermal power), and gas (distribution and sale of gas).
Each segments operating proft or loss includes all revenue and expenses directly attributable to the
reporting business segments. Information about segment fnancial income/expense and income tax is
not provided on a segment level, as the segments are disclosed based on operating proft.
Revenue
Result from operations
Finance cost
Income tax
Net proft
Electricity Group Heating Gas
10,057,069
308,142
9,484,425
482,094
502,094
(101,858)
509,383
(70,631)
256,335
(1,479)
253,449
(10,815)
10,815,498
204,805
(97,814)
(80,985)
26,006
10,247,257
400,648
(82,528)
(76,242)
241,878
2007 2006 2007 2006 2007 2006 2007 2006
HRK000
HRK000 HRK000 HRK000 HRK000 HRK000 HRK000 HRK000
Segment assets consist primarily of property, plant and equipment, receivables, cash and inventories.
Segment liabilities consist of trade and other payables. Non-segment assets and liabilities consist of
assets and liabilities that cannot be reasonably attributed to the reporting business segments.
Total unallocated assets include investments in NPP Krko, a part of property, plant and equipment,
and unallocated fnancial assets. Total unallocated liabilities include long-term loans, short-term loans
and various other liabilities.
131
2007 2006
Income from reversal of long-term provisions for NPP Krko
Services performed
Income from capitalized assets
Income from assets received free of charge
Income from lease of electricity sale facilities
Income from reversal of long-term provisions for retirement benefts and jubilee awards
Income from reversal of long-term litigation provision
Late-payment interest
Collection of receivables previously provided against
Income from electricity in transit foreign revenues
Income from reversal of long-term provisions decommissioning of thermal power plants
Income from sale of tangible assets
Recovery of written-off receivables
Income from reversal of provisions under Collective Agreement
Gain on settlement/forgiven debt
Inventory surplus
Other
Electricity
Heating
Gas
Unallocated
Group
25,865,750
1,005,080
272,134
3,927,219
31,070,183
25,517,213
794,523
261,747
2,762,164
29,335,647
7,047,886
278,341
154,305
5,454,474
12,935,006
6,071,091
194,198
144,091
4,775,149
11,184,529
2007 2006 2007 2006
Total segment assets Total segment liabilities
5. OTHER OPERATING INCOME
During 2007, the Company reversed the provision of HRK 263,181 thousand for the investment in NPP
Krko as a result of the appraisal of the fair value of NPP Krko.
263,181
230,460
186,125
137,662
61,793
61,498
55,838
54,787
52,421
51,266
43,014
29,719
15,954
15,549
12,764
2,314
115,490
1,389,835
-
158,176
144,451
141,215
5,930
-
10,680
56,447
51,399
46,980
11,100
9,009
19,269
-
8,789
1,149
135,477
800,071
HRK000 HRK000
HEPGroup
6. STAFF COSTS
Reimbursement of costs to employees includes commutation allowances in the amount of HRK 80,477
thousand (2006: HRK 78,460), daily allowances and travelling expenses in the amount of HRK 29,619
thousand (2006: HRK 33,755 thousand), additional health insurance amounting to HRK 14,974 thou-
sand (HRK 16,019 thousand) and other similar expenses.
Net salaries
Taxes and contributions
950,845
624,404
1,575,249
984,349
660,880
1,645,229
2007 2006
Gross salaries
Reimbursement of costs to employees (Note 7)
Employee benefts (Note 7)
1,575,249
147,056
183,149
1,905,454
1,645,229
145,851
112,758
1,903,838
2007 2006
Total staff costs:
Gross salaries
Pension contributions
Benefts in kind
6,684
1,115
824
8,623
7,792
1,478
1,095
10,365
2007 2006
Directors and executives remuneration:
133
Employee beneft costs include benefts under Collective Agreement and consists primarily of Christ-
mas and Easter allowance, solidarity support, jubilee awards, family separation allowances and feld-
work bonuses, holiday bonuses, child benefts and other in the total amount of HRK 56,895 thousand
(2006: HRK 59,971 thousand) and early retirement incentives in the amount of HRK 48,329 thousand
(2006: HRK 119,433 thousand).
2007 2006
7. OPERATING EXPENSES
536,803
470,800
199,069
112,758
160,851
145,851
104,448
-
119,896
23,355
71,236
54,989
38,997
26,207
15,968
884
20,056
1.807
6,220
253,921
2,364,116
761,682
448,295
209,907
183,149
157,094
147,056
105,424
84,942
61,474
17,312
64,104
49,846
31,581
25,550
27,869
11,752
18,768
9,921
-
269,799
2,685,525
Maintenance costs
General and administrative expenses
Gas costs
Other employee benefts (Note 6)
Cost of material
Reimbursement of costs to employees (Note 6)
NPP Krko decommissioning
NPP Krko valuation of investment
Provisions for bad and doubtful receivables
Write-off of bad debt
Contributions to the State
Water levies
Write-off of tangible and intangible assets
Insurance costs
Litigation provision
Provisions for retirement bonuses and jubilee awards
Research and development
Restructuring costs
Disposal of equity investment
HRK000
HRK000
HRK000
HRK000
HRK000
HRK000
HRK000
HRK000
HEPGroup
8. FINANCE REVENUE AND COSTS
2007 2006
4,150
93,189
591
-
97,930
(170,276)
(21,789)
(3,679)
(195,744)
(97,814)
5,140
91,668
2,525
5,061
104,394
(156,437)
(26,804)
(3,681)
(186,922)
(82,528)
Financial income
Interest income
Foreign exchange gains
Fair value of intrest rate swap
Other
Total fnancial income
Finance costs
Interest expense
Foreign exchange losses
Amortization of deferred interest
Total fnancial expenses
Net fnance loss
9. INCOME TAX
2007 2006
Current taxes
Deferred tax expense/(income) relating to the origination and reversal
of temporary differences
Income tax expense
109,779
(33,537)
76,242
14,422
66,563
80,985
135
2007 2006
Adjustments to deferred tax assets were as follows:
129,071
(32)
(70,033)
3,471
62,477
95,533
-
(4,177)
37,715
129,071
Balance at 1 January
Restatement - HROTE
Reversal of deferred tax assets
Deferred tax assets recognised
Balance at 31 December
Deferred tax assets have arisen on provisions for jubilee awards and regular retirement benefts not
recognised for tax purposes, provisions for trade debtors households, provisions for the NPP Krko
and provisions for legal actions.
The reconciliation between income tax and proft reported in the income statement is set out below:
2007 2006
106,991
21,398
(25,479)
(66,562)
(1,362)
152,990
80,985
318,120
63,624
5,797
-
(7,353)
14,174
76,242
Proft before taxation
Income tax at the applicable rate of 20%
Tax disallowable expense/(income) permanent differences
Tax effect
Tax effect of losses brought forward
Tax effect of Group entities operating with loss
Tax expense for the year
HRK000
HRK000
HRK000
HRK000
HRK000
HRK000
HRK000
HRK000
HEPGroup
The Group and its subsidiaries are subject to income tax separately, according to the tax laws and
regulations of the Republic of Croatia. Other subsidiaries in the Group reported total tax losses of HRK
587,003 thousand (2006: HRK 243,336 thousand), while the Group recorded a total income tax expense
of HRK 15,101 thousand (2006: HRK 109,779 thousand) and reported deferred tax assets in the amount
of HRK 62,477 thousand for the current year and HRK 129,071 thousand for prior years.
Tax losses are available for carry forward and offsetting against the tax base in future taxation periods
until their expiration as prescribed by law, which is 5 years following the year in which the tax losses
were incurred.
Total tax loss reported
by the Group
45,401
23,233
67,646
68,250
382,473
587,003
Year of expiry
2008
2009
2010
2011
2012
Year of loss origination
2003
2004
2005
2006
2007
Tax losses reported by the Group and their expiry are presented below:
137
The following table summarizes the movement in deferred tax assets during the year:
As of 31 December 2007 the Group did not recognise deferred tax assets arising from tax losses car-
ried forward at certain subsidiaries because the availability of future taxable proft against which the
unused tax losses can be utilized is not certain.
The Croatian Tax Authorities have not performed a review of the income tax returns of the Company
and its subsidiaries. In accordance with local regulations, the Tax Authority may at any time inspect the
books and records of any Group company within 3 years following the year in which the tax liability is
reported and may impose additional tax assessments and penalties. The Group management is not
aware of any circumstances that may give rise to a potential material liability in this respect.
At 1 January 2007
Restatement - HROTE
Credited to proft and losss
for the year
At 31 December 2007
Unbilled
revenue
24,864
-
(24,864)
-
Provisions
for jubilee
and retire-
ment benefts
56,120
(32)
(5,318)
50,770
Value
adjustment
NPP Krko
34,168
-
(34,168)
-
Litigation
provision
11,103
-
(2,841)
8,262
Deprecia-
tion at rates
above statu-
tory rates
1,190
-
581
1,771
Other
1,626
-
48
1,674
Total
129,071
(32)
(66,562)
62,477
HRK000
HEPGroup
10. PROPERTY, PLANT AND EQUIPMENT
Land and
buildings
30,647,496
927
-
816,120
-
(52,968)
31,411,575
-
(44,470)
-
1,037,966
-
(89,265)
32,315,806
COST
At 1 January 2006
Transfers
Additions
Transfers from assets under construction
Disposals
At 1 January 2007
Restatement - HROTE
Transfers
Additions
Transfers from assets under construction
Disposals
At 31 December 2007
Fixtures and
equipment
26,633,857
18,427
-
1,322,660
-
(286,664)
27,688,280
(1,473)
11,535
-
1,655,033
-
(225,186)
29,128,189
Assets under
construction
1,994,594
-
2,738,493
(2,138,780)
10,456
(4,375)
2,600,388
-
4,699
3,037,226
(2,692,999)
74,833
(2,999)
3,021,148
Total
59,275,947
19,354
2,738,493
-
10,456
(344,007)
61,700,243
(1,473)
(28,236)
3,037,226
-
74,833
(317,450)
64,465,143
139
Land and
buildings
18,717,809
6,330
728,150
1,048
393
(50,986)
19,402,744
-
(32,284)
671,107
-
2,776
(71,543)
19,972,800
12,343,006
12,008,831
ACCUMULATED DEPRECIATION
At 1 January 2006
Transfers
Charge for the year
Impairment losses
Value adjustment of additions
Eliminated on disposal
At 1 January 2007
Restatement - HROTE
Transfers
Charge for the year
Impairment losses
Value adjustment of additions
Eliminated on disposal
At 31 December 2007
CARRYING AMOUNT
At 31 December 2007
At 31 December 2006
Fixtures and
equipment
17,378,473
23,952
1,028,937
-
-
(267,874)
18,163,488
(791)
33,471
895,189
-
9,759
(217,025)
18,884,091
10,244,098
9,524,792
Assets under
construction
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,021,148
2,600,388
Total
36,096,282
30,282
1,757,087
1,048
393
(318,860)
37,566,232
(791)
1,187
1.566,296
-
12,535
(288,568)
38,856,891
25,608,252
24,134,011
HRK000 HRK000
HEPGroup
Disposals from capital work in progress during 2007 in the amount of HRK 2,999 thousand (2006: HRK
2,383 thousand) represent write-offs based on the estimate of management that no future economic
benefts will be derived from those assets.
Due to political developments in Croatia since 1990, certain local municipal land registers have not
been fully established. The company is in the process of registering, through the local courts in Croatia,
its title to land and buildings. To date, no claims have been made against the company concerning its
title to these assets.
The Group has pledged property, plant and equipment having a carrying amount of approximately
HRK 959,361 thousand (2006: HRK 1,092,354 thousand) to secure the banking facilities provided to TE
Plomin d.o.o.
141
11. INTANGIBLE ASSETS
COST
At 1 January 2006
Transfers
Additions
Disposals
At 1 January 2007
Transfers
Additions
Disposals
At 31 December 2007
ACCUMULATED AMORTISATION
At 1 January 2006
Transfers
Charge for the year
Disposals
At 1 January 2007
Transfers
Charge for the year
Disposals
At 31 December 2007
CARRYING AMOUNT
At 31 December 2007
At 31 December 2006
614,482
(30,523)
23,410
(84,757)
522,612
(7,800)
38,600
(7,663)
545,749
539,302
(26,990)
21,274
(84,663)
448,923
(4,480)
23,254
(7,663)
460,034
85,715
73,689
HRK000
HEPGroup
12. INVESTMENT PROPERTY
COST
At 1 January 2006
Additions
Disposals
At 1 January 2007
Transfers
Additions
Disposals
At 31 December 2007
ACCUMULATED DEPRECIATION
At 1 January 2006
Transfers
Charge for the year
Disposals
At 1 January 2007
Transfers
Charge for the year
Disposals
At 31 December 2007
CARRYING AMOUNT
At 31 December 2007
At 31 December 2006
Total
124,117
7,655
(3,865)
127,907
810
1,214
(8,541)
121,390
45,005
(198)
2,708
(928)
46,587
397
2,624
(1,680)
47,928
73,462
81,320
Residential
buildings
84,749
6,457
(3,865)
87,341
-
1,026
(8,541)
79,826
25,655
8
1,735
(928)

26,470
-
1,620
(1,680)
26,410
53,416
60,871
Recreational
facilities
39,368
1,198
-
40,566
810
188
-
41,564
19,350
(206)
973
-
20,117
397
1,004
-
21,518
20,046
20,449
143
As of 31 December 2007 and 2006 investment property includes fats held for sale and recreational
facilities held for use by the employees of the Group. Currently, management is in process of estimating
fair value of investment property.
13. PREPAYMENTS FOR FIXED ASSETS
Prepayments made by the Group to its suppliers amounted to HRK 490,609 thousand at 31 December
2007. The largest prepayment balances in 2006 comprised HRK 300,000 thousand, made for electricity
facilities along the highways and advances for projects of assets under construction in amount of HRK
148,050 thousand.
HRK000
HEPGroup
145
Current status
According to the above stated agreement, the decommissioning of NPP will be a joint obligation of
both parties. Each party will provide half of the funds necessary to prepare the decommissioning plan
and to cover the cost of implementation of the plan. In addition, each party will form a separate fund to
allocate the funds for this purpose in the amounts estimated by the decommissioning plans. When the
Croatian parliament accepts the decommissioning programme (including radioactive waste disposal), it
is expected that a Croatian fund for gathering decommissioning funds and for nuclear waste manage-
ment will be incorporated. The amount of annual payments to be made to the Fund will be determined
taking into account the decommissioning programme. In the period 2004 to 2007, the Company made
a provision for decommissioning costs amounting to HRK 427,385 thousand, and paid HRK 137,109 on
the separate account in 2006 and HRK 148,172 in 2007. The decomissioning provision at the year-end
amounts to HRK 142,105 thousand (Note 26).
The investment in NPPKis accounted for using the equity method and amounts to HRK 1,609,753 thou-
sand. The negative foreign exchange difference arising on recalculating the capital from the companys
investment amounting to HRK 4,148 thousand was charged to capital reserves.
Extracted fnancial information
The following table presents the fnancial information extracted from the fnancial statements of NPPK
as at 31 December 2007 and 2006:
Until 2007, the Company valued its investment in NE Krko d.o.o. by comparing the difference between
the price of electricity supplied from the NE Krko d.o.o., plus decommisioning costs and loan expense
in respect of the NPP Krko, and the electricity imported, on one hand, and 1/19 of the investment
value, on the other hand and charging the lower of the two prices to expense. In 2007, the Company
engaged an idependent frm that appraised the fair value of the investment in NE Krko d.o.o. In deter-
mining the fair value, all technical and technological, as well as economic and market characteristics
of the power plant were taken into account. Accordingly, the fair value represents the discounted free
cash fow as a free net category (the difference between income and expenses) attributable to the
investors.
14. INVESTMENT IN THE NUCLEAR POWER PLANT KRKO
Investment background
The legal status of the Nuclear Power Plant Krko (NPP Krko) was regulated by inter-republic agree-
ment dating back to 1970 and various agreements between the founders from 1974 and 1982. Pursu-
ant to the stated agreements, the Company had a 50% interest in the NPP Krko in Slovenia, the other
50% was held by ELES GEN d.o.o., Ljubljana, the legal successor of the Slovenian power utility.
In 1998, the Slovene government passed a decree transforming the Nuclear Power Plant Krko into a
public company, NPPK d.o.o. (NPPK), and nationalizing the nuclear power plant. Additionally, due
to operational disputes, which include disagreements on energy prices to be charged and approval of
annual budgets, the supply of power to HEP from NPPK was cut on 31 July 1998 and was not restored
until 19 April 2003. The absence of power from NPPK has been compensated by increased generation
from other HEP generation facilities and increased imports.
In late 2001, the Governments of the Republic of Croatia the Republic of Slovenia signed an agreement
governing the status and other legal relations in connection with their respective investment in NPPK,
usage and decommissioning, as well as a partnership agreement between HEP and ELES GEN. This
agreement was ratifed by the Croatian parliament during 2002, and it come into effect as at 11 March
2003, following the ratifcation by the Slovene parliament on 25 February 2003.
The agreement acknowledges the ownership rights of HEP in the newly formed company, Nuklearna
elektrana Krko d.o.o. (NPPK) in respect to its 50% holding in NPPK, which were previously denied.
Both parties have agreed to extend the useful life of the power plant at least to the year 2023. The
agreement also regulates that the produced electricity is supplied 50:50 to both contracting parties,
and that the price of the electricity supplied is determined based on total production cost.
HEP started to receive electricity from NPPK on 19 April 2003, and expects to receive 2,550 GWh
annually up to 2023, representing 16% of electricity consumption in Croatia. By the end of 2003, the
provisions of the agreement have been implemented according to which HEP and NPPK waive mutual
receivables for damages and withdraw all claims arising there from up to 30 June 2002, including the
disputed liabilities for electricity purchase and amounts due with respect to the previously calculated
contribution for fnancing the decommissioning of the power plant and funds to cover the losses from
previous years. After implementing the changes, the capital of NPPK as at 31 December 2003 amount-
ed to SIT 84.7 billion (approximately: HRK 2.8 billion). Still there are some outstanding off-balance
receivables from HEP to NPPK and Slovenia from the past, which do not have any infuence on the
current business relations.
Opening balance
Negative exchange difference (charged to capital reserves)
31 December
2007
HRK 000 31 December
2006
1,613,901
(4,149)
1,609,752
1,620,928
(7,027)
1,613,901
31 December
2007
HRK 000
31 December
2006
Capital and reserves
Gross sales
Net proft
Cash fows from operating activities
3,188,505
3,219,505
945,820
490
133,442
3,228,201
3,227,802
869,186
1,900
266,567
HEPGroup
15. INVESTMENT IN PLOMIN
In November 1996, HEP entered into a Joint Venture Agreement with RWE Energie Aktiengesellschaft,
Germany (RWE) regarding the completion and operation of TPP Plomin II. Consequently, a joint ven-
ture, TE Plomin d.o.o. (Plomin) was formed in December 1996, with each partner holding 50 % of the
equity of the new entity. A number of agreements were entered into, which regulate the relationship
between the joint venture partners and their respective relationships with the new groups.
In accordance with the 1996 Asset Contribution Agreement, HEP contributed property, plant and
equipment previously acquired for the project valued (by Croatian valuation experts) at DEM 50,000
thousand (HRK 179,138 thousand) as a contribution in kind to Plomin. Of this amount, HRK 50 thou-
sand was allocated as share capital, while HRK 179,088 thousand was allocated to reserves. In ac-
cordance with the Joint Venture Agreement, RWE contributed an equal amount of cash over the period
of construction. The initial cash contribution of HRK 50 thousand was allocated as share capital and
the remainder to reserves. The RWE capital contributed is distributed back to RWE over the term of the
joint venture of 15 years, starting from the date of operation of the power plant at 30 April 2000.
In 2007 the distribution of RWE invested equity amounted to HRK 12,540 thousand (2006: HRK 12,473
thousand). The remaining undistributed RWE invested capital amounted to HRK 110 million at 31 De-
cember 2007 (2006: HRK 113 million).
Under the Statute of Plomin, RWE is entitled to an annual return during the term of the joint venture of
14% to 17% on invested capital (based on the actual number of hours of peak exploitation during the
year). The invested capital includes RWE undistributed equity contribution as the unpaid portion of the
accrued cumulative interest earned on investment during construction.
During the period of construction, the accrued cumulative interest on the RWE capital amounted to
HRK 54,717 thousand (EUR 7,536 thousand) and is payable on a straight-line basis during the period of
exploitation. At 31 December 2007, accrued undistributed interest amounted to HRK 26,988 thousand
(2006: HRK 30,752 thousand).
The RWE annual return on invested capital, effectively a preferred dividend, is paid out from net proft
of Plomin. The rate in 2007 and 2006 was 17%. The amount paid out in 2007 in respect of 2006 profts
was HRK 25,008 thousand and in 2006 HRK 27,879 thousand in respect of 2005 profts. In 2005, HRK
37,499 thousand was paid in respect of 2004 profts.
These distributions have priority to HEPs interest in the results of the joint venture and any other pay-
ments to HEP. Since HEPs share has been used to pay RWE interest on capital since 2000, HEP has
not realized any portion of profts earned by Plomin.
The joint venture partners entered into a number of agreements necessary for power plant operations,
including: operation and maintenance agreements, a joint use and supply agreement and a power pur-
chase agreement (PPA). The PPA agreement regulates the sale of electric energy to the Company by
Plomin d.o.o. HEP is obliged to purchase all energy produced by TE Plomin d.o.o. at prices calculated
in accordance with specifed formulas in the PPA, which are designed to cover all costs of operations
of Plomin, and ensure the guaranteed return on capital to RWE.
In these fnancial statements, the Group has presented its interest in TE Plomin using the method of full
consolidation.

147
16. LONG-TERM LOAN RECEIVABLES AND DEPOSITS
Year loan
approved
Loans given
Current portion of loans given
Long-term portion
Loans to third entities:
31 December
2007
31 December
2006
3,107
(658)
2,449
3,799
(675)
3,124
HRK 000
Currency 31 December
2007
31 December
2006
Loan
amount
Town of Sisak
Town of Pregrada
Vrni d.o.o.
Did d.o.o.
Others
Total
Current portion
Long-term portion
2005
2006
2007
2007
3 years
10 years
3 years
4 years
4,810
1,358
247
1,010
134
1,358
247
968
400
3,107
(658)
2,449
1,737
1,358
-
-
704
3,799
(675)
3,124
HRK 000
HEPGroup
17. OTHER NON-CURRENT ASSETS
Prior to 1996, the Group had sold apartments it owned to its employees, the sale of which were gov-
erned by the laws of the Republic of Croatia. This property was generally sold on credit, and the related
housing receivables, which are secured and bear interest at rates below market, are repayable on a
monthly basis over periods of 20-35 years. Receivables for sold fats were transferred to new subsidiar-
ies as of 1 July 2002. The housing receivables are shown in the fnancial statements at their discounted
net present values, determined using an interest rate of 6.3 %. The state payable which represents 65%
of the value of sold apartments is recorded in non-current liabilities to the state (Note 24). The receiv-
ables are secured by mortgages over the sold apartments.
Calculated intercalary interest towards RWE represents deferred interest on the funds invested by
RWE in the period between the initial capital contribution and the start of operation of TPP Plomin. This
amount is depreciated over 15 years.
18. INVENTORIES
31 December
2007
HRK 000
31 December
2006
63,761
26,988
16,770
107,519
69,246
30,752
10,565
110,563
Housing loan receivables
Calculated intercalary interest RWE
31 December
2007
HRK 000
31 December
2006
Inventories of fuel and other material
Electric materials
Spare parts
Construction material
Other inventories
592,713
205,083
175,599
91,915
14,516
1,079,826
495,506
195,377
168,989
86,057
9,521
955,450
149
19. TRADE RECEIVABLES
31 December
2007
31 December
2006
HRK 000
31 December
2007
31 December
2006
HRK 000
Not yet due
0-60 days
61-90 days
91-120 days
121-365 days
636,755
502,423
40,998
16,339
30,773
1,227,288
609,990
597,473
34,216
19,794
61,839
1,323,312
Electricity Corporate customers
Electricity Households
Heating, gas and services
Foreign sales
Other
Allowance for bad and doubtful receivables
790,954
296,155
392,167
52,244
13,781
1,545,301
(318,013)
1,227,288
838,546
399,953
349,117
43,211
28,376
1,659,203
(335,891)
1,323,312
Ageing analysis of receivables not impaired
HEPGroup
Movements in impairment allowance were as follows:
31 December
2007
HRK 000
31 December
2006
At 1 January
Restated
At 1 January
Provisions for potential losses (Note 7)
Reversal of prior-year provisions
Amounts collected (Note 5)
At 31 December
335,891
10,401
346,292
119,896
(95,754)
(52,421)
318,013
325,816
-
325,816
61,474
-
(51,399)
335,891
20. OTHER SHORT-TERM RECEIVABLES
31 December
2007
31 December
2006
HRK 000
Demand and time deposits
VAT receivable
Income tax prepayments
Receivables for Government bonds
Receivables from the State in respect of employees
Interest receivable
Accrued electricity sales households
96,053
145,275
75,996
22,563
10,452
2,996
91,059
111,928
556,322
49,468
132,299
22,467
22,650
12,942
3,238
-
78,768
321,832
21. CASH AND CASH EQUIVALENTS
31 December
2007
31 December
2006
HRK 000
Giro accounts - Kunas
Petty cash registers - Kunas
Giro accounts Foreign
Special purposes giro accounts
Special purposes giro accounts postal payments
130,627
590
29,823
5,416
56
166,512
125,016
763
15,290
18,506
24
159,599
151
Accrued electricity sales at 31 December 2007 amounted to HRK 91,059 thousand (2006: HRK
124,323 thousand, see Note 28). In 2007, HRK 215,381 thousand were credited to income based on
the underestimated electricity sales to households. The estimate is based on the calculation of losses
determined using a logarithmic regression on the distribution level (HEP ODS) and the average electric-
ity price for households without a permanent monthly fee.
HEPGroup
22. CAPITAL AND RESERVES
The original registration of share capital on 12 December 1994 was made in German Marks (DEM
5,784,832 thousand). On 19 July 1995, the share capital was reregistered in Croatian Kuna in the value
of HRK 19,792,159 thousand. The share capital consists of 10,995,644 ordinary shares, with a nominal
value of HRK 1,800 each.
In 2005, 2006 and 2007, the value adjustment of the investment in NPP Krko in respect of exchange
differences in the amount of HRK 63,556 thousand, HRK 7,028 thousand and HRK 4,148 thousand,
respectively, was charged to equity.
At 31 December 2007, the exchange differences on NPP Krko amounted to HRK 144,666 thousand.
Retained earnings in the amount of HRK 256,690 thousand comprise prior year profts in the amount
of HRK 124,363 thousand, legal reserves in the amount of HRK 106,321 thousasnd, proft for the year
in the amount of HRK 26,006 thousand, of which HRK 3,814 and HRK 22,192 thousand represent
dividends attributable to the foreign equity holder. The minority interest attributable to RWE amounts to
HRK 122,064 thousand.
23. NON-CURRENT BORROWINGS
31 December
2007
HRK 000
31 December
2006
Interest rates
EURIBOR+
(1.00%-2.0%)
EURIBOR+
(0.50%-1.50%)
EURIBOR+
1.95%
EURIBOR+
1.5%
Domestic bank borrowings
Foreign bank borrowings
Liabilities to domestic companies
Liabilities to foreign companies (taken up via domestic
banks)
Loan from RWE
Rescheduled debt
Total long-term borrowings
Current portion
Long-term portion
1,029,153
2,190,377
32,365
-
26,988
262,342
3,541,225
(612,485)
2,928,740
1,052,119
2,247,248
50,215
3,339
30,753
395,829
3,779,503
(650,599)
3,128,904
Loans from domestic banks are secured by bills of exchange and promissory notes. Loans from foreign
banks are partly secured by state guarantees (loan for the project of special state care, and IBRD loan)
and total assets of Plomin.
During the year, around EUR 46 million out of a long-term loan of EUR 200 million, based on the un-
derlying agreement concluded in 2005, was used for the fnancing of the L Block at Thermal Power and
District Heating Plant Zagreb and Hyrdoelectric Power Plant Lee. The undrawn balance at 31 Decem-
ber 2007 amounted to EUR 63.9 million. The loan expires in February 2009.
The loan agreement, concluded with the International Bank for Reconstruction and Development, for a
loan of EUR 24 million to fnance the Toplinarstvo Project, became effective in April 2007. The undrawn
loan balance at 31 December 2007 amounted to EUR 16.4 million. The loan expires on 30 June 2010.
The loan agreement, concluded with the International Bank for Reconstruction and Development, for a
loan of EUR 4.4 million to fnance the implementation of the Energy Effciency Project via HEP ESCO,
was concluded in 2003. The undrawn balance at 31 December 2007 was EUR 3.5 million.
The annual principal repayment schedule for the following fve years is as follows:
Amount
153
2008
2009
2010
2011
2012
Thereafter
Total
612,485
872,641
549,347
498,040
397,151
611,561
3,541,225
HEPGroup
The covenants, as defned in the applicable loan agreements, specifcally require the Company to meet
certain prescribed levels of the following ratios: operating ratio, debt service coverage, internal cash
generation, tangible net worth, and net borrowing.

The analysis of long-term borrowings in various foreign currencies is provided below (in 000):
Rescheduled debt
The status of rescheduled debt is presented below:
31 December
2007
Currency 31 December
2006
USD
EUR
40,845
453,486
56,249
468,073
Amount
Rescheduled Paris Club debt
Rescheduled London Club debt
Total rescheduled debt
156,404
105,938
262,342
155
Paris Club Debt
The rescheduling of the majority of the Paris Club debt was fnalized in 1998.
For the purpose of rescheduling of the remaining Paris Club Debt, the Croatian Government singed
on 16 December 2005 a bilateral agreement with the Italian Government in connection with the debt
consolidation according to the Law on the Methods and Conditions for the Settlement of Loan and
Other Debts with the Paris Club Member Governments (Offcial Gazette No. 34/1996). Following the
ratifcation in the Parliament and the publication of the Agreement in the Offcial Gazette No. 01/06, the
Company concluded an agreement with Erste & Steiermrkische Bank d.d., Rijeka on 31 January 2006.
Under the loan agreement, 51.78 % of the total loan debt principal (EUR 999,719.99) was paid on 15
February 2006, together with all accrued interest, in order to align the terms and conditions applicable
to this debt with other Paris Club Loans. The remaining portion of 48.22 % of the loan principal, or EUR
925,399.35, will be repaid by the Group in seven semi-annual instalments, with a regular interest equal
to 6-month EURIBOR + 0.50%.
The last instalment under the rescheduled Paris Club Debt is due on 31 July 2009.
During 2007, interest was charged at fxed or variable rates, determined by reference to interest rates
on short-term loans in the respective country of the lender, and ranged from 5.23 % to 7.90 % at 31
December 2007 (2006: 3.00% to 7.90%).
London Club Debt
The rescheduling agreements for the London Club debt, which comprised 29 loans in a variety of cur-
rencies, resulted in all principal and interest being translated into US dollars at 30 June 1997 using the
Croatian National Bank offcial rate as at that date. These rescheduled loans have a variable interest
rate (six-month LIBOR + 13/16%), and the principal is repayable as follows:
Loan repayments originally due from 1 August 1996 onwards are repayable in 20 semi-annual
installments, commencing 31 January 2000, with a fnal maturity at 31 July 2010.

24. LONG-TERM LIABILITIES TO THE GOVERNMENT
The long-term debt to the Government in the amount of HRK 66,061 thousand relates to the obligation
arising on the sale of housing units to employees under the Government program, which was discon-
tinued in 1996. According to the law regulating housing sales, 65% of the proceeds from the sale of
apartments to employees were payable to the state at such time as the proceeds were collected. Ac-
cording to the law, HEP has no liability to remit the funds, unless and until they are collected from the
employee.
HEPGroup
25. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap
The Group has one interest rate swap contract which hedges the Groups exposure to variable interest
rate debt. Under the contract, the six-month interest rate payable by the Company is fxed at 5.39%,
while the swapped interest rate is equal to the six-month EURIBOR rate, approximately 4.709 % at 31
December 2007 (2006: approximately 3.851 %).
Contract settlements are payable every six months. The contract matures on 25 October 2012. The
notional principal amount of the interest rate swap contract at 31 December 2007 was EUR 25,565
thousand (2006: EUR 30,678 thousand). The fair value of the interest rate swap contract, representing
a future obligation, at 31 December 2007 amounted to HRK 4,702 thousand (2006: HRK 9,589 thou-
sand). The related deferred tax asset at 31 December 2007 amounted to HRK 940 thousand (2006:
HRK 1,918 thousand).
The non-current and the current portions of the obligation are presented below:
Long-term portion (Note 28)
Current portion (Note 31)
31 december
2007
1,384
3,318
4,702
2,408
7,181
9,589
31 December
2006
HRK 000
157
26. LONG-TERM PROVISIONS
The thermal power plant decomissioning provision in the amount of HRK 73,719 thousand represents a
discounted value of the estimated decomissioning costs of the Groups thermal power plants.
Movements in the present value of defned beneft obligations in the current period were as follows:
31 december
2007
31 December
2006
HRK 000
Litigation provision
Provision for retirement bonuses
Provision for jubilee awards
Thermal power plant decomissioning provision
Other provisions
Provision for NPP Krko decommissioning
Provision for NPP Krko valuation of investment
57,647
179,169
50,992
73,719
7,685
142,105
-
511,317
97,105
233,300
57,723
123,010
7,684
185,829
263,181
967,832
HRK 000
At 1 January 2007
New provisions made
Decrease in provisions
(amounts paid)
Decrease in provision on
valuation
At 31 December 2007
97,105
13,595
(10,291)
(42,762)
57,647
Legal
actions
Retirement
bonuses
Jubilee
awards
NPPK
valuation
Decomissioning
- NPPK
Decomissioning
of TPPs
Other Total
233,300
-
(1,249)
(52,882)
179,169
57,723
1,189
(6,945)
(975)
50,992
263,181
-
-
(263,181)
-
185,829
104,448
(148,172)
-
142,105
123,010
4,823
(11,100)
(43,014)
73,719
7,685
-
-
-
7,685
967,833
124,055
(177,757)
(402,814)
511,317
HEPGroup
Movements in the present value of defned beneft obligations in respect of employee benefts during
the current period were as follows:
The following assumptions were used in preparing the calculations:
The rates of withdrawal are based on statistical data on employees mobility at the Company
for the period 1999-2007. From the withdrawal experience we assumed a decreasing with age
the turnover rate. Thus, a turnover rate for 30 years of age was estimated at 3%, for 31 to 40
years of age 2%, for 41-50 of age 1,3% and for 51 to 60 years of age 0.3%.
The probability of death by age and sex is based on Croatian Mortality Tables 2004 published
by the Croatian Statistical Bureau. It is assumed that the population of employees of the
Company represents average with respect to mortality and health status.
We assumed the annual salary growth of 3%
The average tas rate applied in calculating the termination benefts was 25%.
The present value of the obligation was determined using a 7 % discount rate.
Jubilee
awards
Total
HRK 000
At 1 January 2007
Cost of services
Interest expenses
Benefts paid
Actuatrial gains/(losses)
At 31 December 2007
233,300
15,997
12,739
(1,249)
(81,618)
179,169
Retirement
benefts
57,723
4,287
2,986
(6,945)
(7,059)
50,992
291,023
20,284
15,725
(8,194)
(88,677)
230,161
159
27. LIABILITIES UNDER CORPORATE BONDS
The preparations for the issue of the frst corporate bonds of Hrvatska elektroprivreda d.d. in the
amount of HRK 500,000,000 started in early 2006. The reasons for HEPs participation on the
domestic capital market, in addition to a reduced level of foreign debt, is mainly in the diversi-
fcation of the sources of funding, decreasing the currency risk exposure, eliminating the risk
of movements in EURIBOR in the following medium term, as well as the fact that this would be
the frst step towards attracting investors, who will defnitely play a signifcant role in the future
stages of the HEP privatisation process.
The issue was arranged by a consortium of Privredna banka Zagreb d.d., Raiffeisenbank Austria
d.d. and Zagrebaka banka d.d. Zagreb. The bonds were issued on 29 November 2006, with a
coupon intrest of 5.00%, semi-annual payment of principal, and the issue price of 99.534 %.
The bonds mature on a one-off basis, seven years from the date of issuance (2013). The funds
are intended for the implementation of the 2006 capital investment plan. On 1 December 2006,
the HEP bond was included in the First Quotation of the Zagreb Stock Echange, and has been
actively traded on the secondary market ever since.
Around the middle of 2007, activities were initiated to issue corporate bonds of Hrvatska elek-
troprivreda d.d. in the amount of HRK 700,000,000. The reasons for HEPs participation on the
domestic capital market, in addition to a reduced level of foreign debt, is mainly in the diversif-
cation of the sources of funding, decreasing the currency risk exposure, eliminating the risk of
movements in EURIBOR in the following medium term, as well as attracting potential investors.
The issue was arranged by a consortium of Privredna banka Zagreb d.d., Raiffeisenbank Aus-
tria d.d. and Zagrebaka banka d.d. Zagreb, with Erste&Steiermrkische bank d.d. and Societe
Generale-Splitska banka d.d. acting as co-arrangers. The bonds were issued on 7 December
2007, with a coupon intrest of 6.50%, semi-annual payment of principal, and the issue price of
99.805 %. The bond principal will be repaid in 15 installments on a semi-annual basis, commenc-
ing on the third year from the date of issue. The last installment is due on 7 December 2017. The
funds have been reduced by the actual investments in 2007. On 28 December 2007, the HEP
bonds were included in the First Quotation of the Zagreb Stock Echange, and have been actively
traded on the secondary market ever since.
HEPGroup
28. OTHER NON-CURRENT LIABILITIES
Deferred revenue is related to fxed assets contributed by customers and others without charge. The
revenue is recognized into income over the same periods as the related assets are amortized.
HRK 000
Nominal value of bonds
Discount
1,200.000
(3,410)
1,196,590
500,000
(2,330)
497,670
31 December
2007
31 December
2006
HRK 000
Deferred income
Long-term debt under interest rate swap (Note 25)
3,791,218
1,384
3,792,602
3,171,293
2,408
3,173,701
31 December
2007
31 December
2006
161
29. SHORT-TERM BORROWINGS
During 2007, the Group used short-term loans from domestic banks for working capital pur-
poses and for the settlement of trade payables.
30. LIABILITIES TO EMPLOYEES
31 December
2007
31 December
2006
HRK 000
Borrowings from domestic banks and branch offces of foreign banks, de-
nominated in various currencies on the following terms:
Interst rates ranging from EURIBOR + (0.245 1.15%%)
Interest rates on Ministry of Finance Treasury Bills + (1.90 2.65%)
- Secured by bills of exchange
Borrowings from domestic companies on the following terms:
Interest rate 7.25%
- Secured by bills of exchange
Current portion of RWE loan
898,873
-
-
-
2,896
-
-
3,680
905,449
379,630
-
-
-
2,993
-
-
3,690
386,313
31 December
2007
31 December
2006
HRK 000
Provisions for obligations under Collective Agreement
Net salaries
Contributions
Termination bonuses

5,305
62,478
36,834
4,226
108,843
24,948
59,974
38,314
62,324
185,560
HEPGroup
In 2004, the Supreme Court of the Republic of Croatia decided that the Collective Agreement between
the Management Board of HEP and the Union was terminated unfoundedly. HEP fled an appeal to the
decision, which was rejected. Based on the principle of prudence, the Company recorded a provision
of HRK 288,809 thousand in 2003 in respect of total costs of additional benefts to employees, includ-
ing interest (Note 26). In 2004, 2005, 2006 and 2007, HRK 161,757 thousand, HRK 99,239 thousand,
HRK 1,171 thousand, and HRK 2,620 thousand, respectively, were paid to employees, and the remain-
ing portion will be settled in 2008. Based on the estimates, a provision of HRK 15,549 thousand was
reversed.
31. OTHER PAYABLES
32. RELATED PARTY TRANSACTIONS
The Group has a 50% interest in the capital of the joint venture NE Krko d.o.o.
The produced electric energy at NPP Krko is delivered to HEP at 50% of total produced quantities at a
price which is determined in accordance with the total production costs of NE Krko d.o.o.
Receivables and payables, and income and expenditure arisen from related party transactions are pre-
sented in the table below:
HRK 000
Deferred income and received advances
Current portion of the liability under interest rate swap (Note 22)
Accrued expenses
Adjustment of electricity sales for unbilled revenue
Other payables
12,222
3,318
7,448
-
43,468
66,456
9,917
7,181
7,477
124,323
39,579
188,477
31 December
2007
31 December
2006
HRK 000
NE Krko d.o.o.
Liabilities for purchased electricity
Cost of purchased electricity
40,077
469,029
36,988
428,453
31 December
2007
31 December
2006
163
Enterprises controlled by the Government Sales revenue
2007 2006
Purchases
2007 2006
HRK 000
Hrvatske eljenznice
INA-Industrija nafte
Hrvatske telekomunikacija
Croatia osiguranje
Hrvatska pota
Hrvatske ume
Jadrolinija
Narodne novine
Croatian Radio & Television
Plovput
Croatia Airlines
Petrokemija Kutina
Ministry of Foreign Affairs
Ministry of Defence
Ministry of Interior
Elementary and secondary schools
Judicial institutions
Colleges and universities
Legislative, executive and other bodies of the Republic of
Croatia
Health institutions and organisations
Other users
TOTAL
17,146
1,443,910
37,318
17,936
33,972
10,906
775
4,714
1,098
160
479
8
-
-
5
56
214
14,651
9,299
8,845
3,393
1,604,885
14,261
2,202,838
33,859
17,769
31,629
12,196
473
6,122
1,590
157
244
6
-
-
20
141
243
16,128
9,256
7,544
4,659
2,359,135
84,359
150,627
52,151
4,217
16,031
5,589
1,074
2,217
19,086
481
739
28,132
3,820
42,589
20,286
62,748
20,982
40,764
62,964
131,916
136,148
886,920
80,357
119,744
46,480
3,691
14,014
4,876
977
1,513
19,169
357
580
13,879
639
35,027
22,277
62,318
22,842
36,503
62,986
126,585
97,673
772,487
HEPGroup
Enterprises controlled by the Government Receivables
31 December
2007
Payables
31 December
2006
31 December
2007
31 December
2006
HRK 000
Under the Croatian energy laws, the Company is an elligible gas buyer, for whom gas prices differ from
the market ones.
165
34. CONTINGENT LIABILITIES AND COMMITMENTS
Legal actions
In 2007, the Group established a provision for legal actions estimated to be ruled against HEP.
The Group has long-term fnancial investments in the territory of Bosnia and Herzegovina, and
Serbia which in 1994 had a historical cost of HRK 1,243,970 thousand. At the time of the trans-
formation of the Company into a joint stock company in 1994, this amount was excluded from
the net asset value.
Operating commitments
As at 31 December 2007, as part of its investing activities, the Group has concluded contracts
under which the construction of a number of signifcant facilities and other investments has
commenced but has not been completed. The unrealised contract value for most signifcant
projects amounts to approximately HRK 557,568 thousand (2006: HRK 348,485 thousand).

Environmental matters
The principal activities of the Group are generation, transmission and distribution of electricity,
and the control of the electric power systems.
In addition to these main activities, the HEP Group deals with the production and distribution
of thermal power through the district heating systems in Zagreb in Osijek, and the distribu-
tion of gas in Osijek and akovo. These principal business activities can have inherent effects
on the environment in terms of emissions into soil, water and air. The environmental effects of
the Companys and Groups activities are monitored by local management and environmental
authorities.
Croatia requested membership to the European Union. As part of the succession process
environmental regulations similar to those at other EU countries might be introduced in Croatia.
Such environmental regulations might have an impact on environmental liabilities for the Group.

Hrvatske eljeznice
INA-Industrija nafte
Hrvatske telekomunikacija
Croatia osiguranje
Hrvatska pota
Hrvatske ume
Jadrolinija
Narodne novine
Croatian Radio & Television
Plovput
Croatia Airlines
Petrokemija Kutina
Ministry of Foreign Affairs
Ministry of Defence
Ministry of Interior
Elementary and secondary schools
Judicial institutions
Colleges and universities
Legislative, executive and other bodies of the Republic of
Croatia
Health institutions and organisations
Other users
UKUPNO
16,386
24,544
5,781
527
1,914
684
113
287
2,619
84
73
770
105
5,784
4,336
9,522
2,002
3,536
7,138
47,804
9,276
143,285
12,024
3,743
5,473
297
1,737
476
161
189
1,528
42
50
690
92
5,672
4,376
9,441
1,321
4,482
5,040
37,010
12,799
106,643
2,473
287,949
7,203
2,068
3,257
5,570
842
1,074
153
32
557
-
-
-
-
-
-
-
-
-
19,161
330,339
5,959
396,745
4,972
2,195
3,265
2,367
550
2,690
256
96
375
-
-
-
-
-
-
-
-
-
13,443
432,913
HEPGroup
35. SUBSIDIARIES
As at 31 December 2007, the Group had the following subsidiaries:
The majority of these subsidiaries were created for the purpose of reorganization and re-structuring the
core business activities driven by the new energy legislation, which came into effect as of 1 January
2002, as indicated in Note 1.
Interest in
(%)
Main activity Subsidiary Country
HEP-Operator prijenosnog sustava d.o.o.
HEP-Operator distribucijskog sustava d.o.o.
HEP Opskrba d.o.o.
HEP Trgovina d.o.o.
HEP-Plin d.o.o.
TE Plomin d.o.o.
Agencija za posebni otpad d.o.o.
HEP ESCO d.o.o.
Teppo d.o.o.
Buko Blato d.o.o.
HEP-Telecom d.o.o.
HEP-Odmor i rekreacija d.o.o.
HEP-NOC Velika
HEP-Obnovljivi izvori energije d.o.o.
Croatia
Croatia
Croatia
Croatia
Croatia
Croatia
Croatia
Croatia
Croatia
Croatia
Croatia
Croatia
Bosnia and Herzegovina
Croatia
Croatia
Croatia
Croatia
100
100
100
100
100
100
100
50
100
100
100
75
100
100
100
100
100
Electricity generation and heating
Electricity transmission
Electricity distribution
Electricity supply
Thermal power generation and distribution
Electrical energy trading and optimization
of power plats production
Gas distribution
Electricity generation
Special waste management
Financing of energy effciency projects
Development of infrastructure in area
around Plomin
In liquidation
Maintenance of hydro power plants
Telecommunications
Accommodation and recreation services
Accommodation and training
Electricity generation
167
36. FINANCIAL INSTRUMENTS
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern
while maximising the return to stakeholders through the optimisation of the debt and equity
balance.
The capital structure of the Company consists of debt, which includes the borrowings and is-
sued bonds disclosed in Note 20, cash and cash equivalents and equity attributable to equity
holders of the parent, comprising issued capital, legal and other reserves and retained earn-
ings.
Gearing ratio
The Groups risk management committee reviews the capital structure on a semi-annual basis.
As part of this review, the committee considers the cost of capital and the risks associated with
each class of sources of funding. The gearing ratio at the year end can be presented as follows:
Signifcant accounting policies
Details of the signifcant accounting policies and methods adopted, including the criteria for
recognition, the basis of measurement and the basis on which income and expenses are rec-
ognised, in respect of each class of fnancial asset, fnancial liability and equity instrument are
disclosed in Note 2 to the fnancial statements.
31 December
2007
31 December
2006
Debt
Net debt
Equity
Net debt to equity ratio
5,643,264
(166,512)
5,476,752
18,013,113
30%
4,663,486
(159,599)
4,503,887
18,013,448
25%
HRK 000
HEPGroup
Foreign currency sensitivity analysis
The Group is mainly exposed to the changes of euro (EUR) and US dollar (USD). The following
table details the Groups sensitivity to a 10% increase and decrease in the HRK against EUR
and USD. 10% is the sensitivity rate used when reporting foreign currency risk internally to key
management personnel and represents Managements assessment of the reasonably possible
change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign cur-
rency denominated receivables and liabilities and adjusts their translation at the period end for
a 10% change in foreign currency rates. The sensitivity analysis includes external loans where
the denomination of the loan is in a currency other than the currency of the lender or the bor-
rower. A positive/negative number below indicates an increase in proft and other equity where
HRK strengthens 10% against the relevant currency. For a 10% weakening of the HRK against
the relevant currency, there would be an equal effect, but the balance would be negative.
Interest rate risk management
The Group is exposed to interest rate risk as it borrow funds at foating interest rates. The
Groups exposures to interest rates on fnancial assets and fnancial liabilities are detailed in
Note 36, the liquidity risk management. The Group manages this risk by maintaining an appro-
priate mix between fxed and foating rate borrowings, by the use of interest rate swap con-
tracts.
Categories of fnancial instruments
Financial risk management objectives
The Groups Treasury function provides services to the business, co-ordinates access to domestic and
international fnancial markets, monitors and manages the fnancial risks relating to the operations of
the Group through internal risk reports which analyse exposures by degree and magnitude of risks.
These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit
risk, liquidity risk and cash fow interest rate risk.
Market risk
The Groups activities expose it primarily to the fnancial risks of changes in foreign currency exchange
rates and interest rates (see below). Market risk exposures are supplemented by sensitivity analysis.
There has been no change to the Groups exposure to market risks or the manner in which it manages
and measures the risk.
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to
exchange rate fuctuations arise. Exchange rate exposures are managed within approved policy param-
eters utilising forward foreign exchange contracts.
The carrying amounts of the Groups foreign currency denominated monetary assets and monetary
liabilities at the reporting date are as follows:
Financial assets
Loans and receivables (including cash and cash equivalents)
Financial liabilities
Non-current liabilities
Current liabilities
2,442,413
107,519
4,803,876
3,827,211
2,237,642
110,563
4,346,398
2,696,598
Europska Unija (EUR)
USD
514,314
74,724
541,277
72,747
5,882
-
Assets
31 December 2007 31 December 2006 31 December 2007
31 December 2007
31 December 2006
31 December 2006
7,222
-
Liabilities
169
2007 2006
EUR change impact
Proft or loss
USD change impact
Proft or loss
391,202
36,267
373,447
41,684
(HRK 000)
(HRK 000)
(HRK 000)
HEPGroup
Interest rate sensitivity analysis
The sensitivity analysis has been determined based on the interest rate exposure of the Group to f-
nancial instruments at the balance sheet date. For foating rates, the analysis is prepared assuming the
amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 50 basis
point increase or decrease is used when reporting interest rate risk internally to key management per-
sonnel and represents Managements assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the
Groups:
Proft for the year ended 31 December 2007 would decrease/increase by HRK 19,628
thousand (2006; HRK 20,302 thousand), based on exposure to interest rate risk. This is mainly
attributable to the Groups exposure to interest rates on its variable rate borrowings, which
accounted for 71 % in 2007 (2006: 88 %); and
the Groups sensitivity to interest rates has decreased during the current period mainly due to
the reduction in variable rate of debt instruments.

Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in
fnancial loss to the Group. The Group is the sole provider of electric energy in the Republic of Croatia.
As such, it has a public responsibility to provide services to all users, and locations within the country,
irrespective of credit risk associated with particular customers. Trade receivables, net, consist of a large
number of customers, spread across diverse industries and geographical areas.
The Group does not have any signifcant credit risk exposure to any single counterparty or any group of
counterparties having similar characteristics. The Group defnes counterparties as having similar char-
acteristics if they are related entities. Credit risk with respect to trade receivables is primarily related to
domestic corporate receivables, specifcally where services are provided to economic concerns, which
are in a diffcult fnancial position. Overdue receivables from households are limited due to Groups abil-
ity to disconnect such customers from the power supply network.
Except as detailed in the following table, the carrying amount of fnancial assets recorded in the fnan-
cial statements, which is net of impairment losses, represents the Groups maximum exposure to credit
risk without taking account of the value of any collateral obtained.
171
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Management Board, which
has built an appropriate liquidity risk management framework for the management of the
Groups short, medium and long-term funding and liquidity management requirements. The
Company manages liquidity risk by maintaining adequate reserves, banking facilities and other
sources of fnancing, by continuously monitoring forecast and actual cash fows and matching
the maturity profles of fnancial assets and liabilities.
Liquidity and interest rate risk tables
The following table details the remaining period to contractual maturity for the Groups non-de-
rivative fnancial assets. The tables below have been drawn up based on the undiscounted cash
fows of the fnancial assets including interest that will be earned on those assets except where
the Group anticipates that the cash fow will occur in a different period.
Maturity of non-derivative fnancial assets
Non-interest bearing
Variable interest rate instruments
Fixed interest rate instruments
Total
Total
683,741
141
-
683,882
669,935
301
670,236
256,809
451
199
257,459
34,371
2,242
36,613
444,342
1,020
731
446,093
485,748
1,781
487,529
45,875
-
764
46,639
45,763
-
45,763
5.29%
4.01%
5.12%
1,116,058
60
140
1,116,258
1,108,589
-
1,108,589
2,546,825
1,672
1,834
2,550,331
2,344,406
4,324
2,348,730
(HRK 000) Less than
1 month
3 -12
months
Weighted average
effective interest
rate
1 - 3
months
1 - 5
years
Over 5
years
Total
31 December 2007
31 December 2006
HEPGroup
The following tables detail the Groups remaining contractual maturity for its non-derivative fnancial
liabilities. The tables have been drawn up based on the undiscounted cash fows of fnancial liabilities
based on the earliest date on which the Group can be required to pay.
Maturity of non-derivative fnancial liabilities
The Group has access to fnancing facilities, the total unused amount which is HRK 742,902 thousand
at the balance sheet date. The Group expects to meet its other obligations from operating cash fows
and proceeds of maturing fnancial assets.
Maturity of derivative fnancial liabilities
The Group has an interest rate swap, which it uses to hedge its exposure to variable rate debt. Based
on the underlying agreement, the six-month interest rate payable by the Company is fxed at 5.39 %,
whereas the swap rate is equal to six-month EURIBOR, or approximated at 4.709 % at 31 December
2007 (2006: 3.851 %), as disclosed in detail in Note 22.
Total
Total
320,750
1,048,753
93,162
1,462,665
658,634
723,068
50,773
1,432,475
963,284
223,130
13,627
1,200,041
825,155
237,378
8,622
1,071,155
9,418
2,199,651
889,622
3,098,691
9,321
2,171,012
529,780
2,710,113
11,581
710,561
1,045,809
1,767,951
12,243
992,761
537,550
1,542,554
-
5.46%
5.37%
-
4.43%
5.14%
1,616,729
399,808
216
2,016,753
804,932
212,860
1,154
1,018,946
2,921,762
4,581,903
2,042,436
9,546,101
2,310,285
4,337,079
1,127,879
7,775,243
173
Fair value of fnancial instruments
The fair values of fnancial assets and fnancial liabilities are determined as follows:
The fair value of fnancial assets and fnancial liabilities with standard terms and conditions and
traded on active liquid markets is determined with reference to quoted market prices.
The fair value of other fnancial assets and fnancial liabilities is determined in accordance with
generally accepted pricing models based on discounted cash fow analysis using prices from
observable current market transactions.
39. APPROVAL OF THE FINANCIAL STATEMENTS
These fnancial statements were approved by the Board and authorised for issue on 11 April
2008.
Less than
1 month
3 -12
months
Total
Total
5,553
(6,357)
(804)
6,806
(7,791)
(985)
-
-
-
-
-
-
22,154
(25,358)
(3,204)
32,115
(36,759)
(4,644)
-
-
-
1,856
(2,125)
(269)
(HRK 000)
(HRK 000)
3
1

D
e
c
e
m
b
e
r

2
0
0
7
3
1

D
e
c
e
m
b
e
r

2
0
0
7
3
1

D
e
c
e
m
b
e
r

2
0
0
6
3
1

D
e
c
e
m
b
e
r

2
0
0
6
Weighted average
effective interest
rate
1 - 3
months
1 - 5
years
Over 5
years
4.709%
5.39%
3.85%
5.39%
6,170
(7,063)
(893)
4,666
(5,341)
(675)
33,877
(38,778)
(4,901)
45,443
(52,016)
(6,573)
Total
Less than
1 month
3 -12
months
Weighted average
effective interest
rate
1 - 3
months
1 - 5
years
Over 5
years
Total
Signed on behalf of the Management Board on 11 April 2008:
Ivan Mravak
Darko Dvornik
Member of the Board
HEPGroup
eports by HEP Group companies
175
HEP d.d.
HEP - Operator prijenosnog sustava d.o.o.
HEP - Operator distribucijskog sustava d.o.o.
HEP - Plin d.o.o.
company profle
chairmans report
presidents report
customer relations
safety at work
developments
auditors report...
reports by other...
addresses
HEPGroup
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
MANAGEMENT BOARD
MANAGEMENT
BOARDS OFFICE
REPRESENTATIVE
OFFICES
MANAGEMENT BOARDS SUPPORT UNIT
DIVISIONS OFFICE DIVISIONS OFFICE DIVISIONS OFFICE
STRATEGIC RISKS UNIT
LEGAL DEPARTMENT JOINT VENTURES DEPARTMENT
GENERAL AFFAIRS DEPARTMNET ACCOUNTING DEPARTMENT
PROCUREMENT DEPARTMENT
CONTROLING DEPARTMENT
CORPORATE FINANCE DEPARTMENT
HUMAN RESOURCES MANAGEMENT
DEPARTMENT
DEPARTMENT FORSTRATEGICAND
BUSINESSSYSTEMDEVELOPMENT
DEPARTMENT FORRELATIONSWITH
STATEINSTITUTIONSANDINTERNATIONAL
COOPERATION
SPOKEPERSON SECTION
PROTOCOL SECTION
CORPORATE DEVELOPMENT AND
STRATEGY DIVISION
HUMAN RESOURCES MANAGEMENT,
LEGAL AND GENERAL AFFAIRS
DIVISION
ECONOMIC AFFAIRS DIVISION
PUBLIC RELATIONS AND INFORMATION
UNIT
Organization chart (as at December 31, 2007)
HEPGroup
177
SOFTWARE SUPPORT UNIT
UNIT FOR INTERNAL AUDIT OF
BUSINESS OPERATIONS
TELECOMMUNICATIONS UNIT
COMMON FUNCTIONS UNIT
COMPUTER AND INFORMATION
SUPPORT UNIT
LOCAL UNITS OSIJEK, RIJEKA, SPLIT
TECHNICAL AFFAIRS
INFORMATION SYSTEM
INTERNAL AUDIT DEPARTMENT INFORMATION TECHNOLOGY AND
TELECOMMUNICATIONS DEPARTMENT
eports by HEP Group companies
Financial report
Independent auditors report
To the Owners of Hrvatska elektroprivreda d.d.:
We have audited the unconsolidated accompanying fnancial statements of Hrvatska elektroprivreda d.d.
(the Company), which comprise the unconsolidated balance sheet as at 31 December 2007 and the relat-
ed unconsolidated statement of income, unconsolidated statements of changes in equity and of cash fows
for the year then ended, and a summary of signifcant accounting policies and other explanatory notes.
Management is responsible for the preparation and fair presentation of these unconsolidated fnancial
statements in accordance with International Financial Reporting Standards. This responsibility includes:
designing, implementing and maintaining internal control relevant to the preparation and fair presentation
of fnancial statements that are free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.
Our responsibility is to express an opinion on unconsolidated these fnancial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
fnancial statements. The procedures selected depend on the auditors judgment, including the assessment
of the risks of material misstatement of the fnancial statements, whether due to fraud or error. In mak-
ing those risk assessments, the auditor considers internal control relevant to the entitys preparation and
fair presentation of the fnancial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entities internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the reason-
ableness of accounting estimates made by management, as well as evaluating the overall presentation of
the fnancial statements.
We believe that the audit evidence we have obtained is suffcient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the unconsolidated fnancial statements present fairly, in all material respects, the fnancial
position of the Company as at 31 December 2007, the results of its operations and its cash fows for the
year then ended in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to note 2 to the unconsolidated fnancial statements,
discussing the accounting policies for revenue recognition. The Company recognizes revenue based on the
invoicing of its subsidiary HEP Operator distribucijskog sustava d.o.o. to the fnal customers of the Group.
However, the receivables from the fnal customers remain with the subsidiary. This policy is in accordance
with the Croatian law.
The current regulatory framework did not provide details of allocation of the rewards pertaining to the elec-
tricity generation activity. In accordance with the Law on the Amendments to the Energy Law from Decem-
ber 2004, a model for determining the tariff systems for different customers was developed in December
2006, the application of which was postponed to 2007. The Group developed the model that was appli-
cable throughout the year 2007.
We also draw attention to Note 2 to the accompanying unconsolidated fnancial statements discussing
HRVATSKA ELEKTROPRIVREDA d.d., ZAGREB
179
the accounting policy for leases. The Company has leased fxed assets under fnance lease agreements to
its subsidiary HEP Proizvodnja d.o.o.. Due to the special organizational structure of the HEP Group and the
temporary situation of the regulatory framework, the allocation of risks and rewards related to the assets is
still not defned.
Furthermore, the Company has receivables from fnance lease agreements with its other subsidiaries. These
leases bear interest only to the extent that the Company has acquired external fnancing to construct the
corresponding asset. These receivables are carried at nominal amounts because of the special organizational
framework of the HEP Group. Therefore, for a better understanding of the operations of the Company, the ac-
companying fnancial statements should be read in conjunction with the consolidated fnancial statements of
the HEP Group.
Deloitte d.o.o.
Unconsolidated Income Statement Hrvatska elektroprivreda d.d.
for the year ended 31 December 2007
HRK 000
Electricity sales
Service revenues related companies
8,558,652
1,005,707
502,284
10,066,643
8,747,024
813,413
185,519
9,745,956
2006 2007
(2,857,537)
(69,675)
(54,889)
(6,232,395)
(450,275)
(9,664,771)
Finance revenue
Finance costs
Net fnancial gains
Proft before tax
Income tax expense
Proft for the year
401,872
214,255
(164,348)
49,907
451,779
(66,192)
385,587
77,904
212,111
(159,446)
52,665
130,569
(18,965)
111,604
Ivan Mravak
Darko Dvornik
Member of the Board
Purchase of electricity
Staff costs
Fee expense in respect of electricity generation, transmission
and distribution related companies
(2,535,923)
(63,104)
(42,017)
(6,603,275)
(423,733)
(9,668,052)
HEPGroup
Assets 31 December
2007
HRK 000
31 December
2006
Intangible assets
Investment property
Investment in NPP Krko
Investment in, and receivables from TPP Plomin
Investments in subsidiaries
Investments available for sale
Long-term loan receivables and deposits
Long-term lease receivables from related companies
Long-term loan receivables from related companies
Deferred tax assets
Total non-current assets
Inventories
Trade receivables
Current portion of long-term loan receivables from related companies
Current portion of long-term receivables
Receivables from related companies
Total current assets
TOTAL ASSETS
309,206
95,374
27,461
2,170
381,453
1,609,753
766,058
6,548
2
1,235
17,061,389
159,214
69,475
3,127
20,492,465
8,044
30,827
1,401,773
658
189,430
3,410,148
30,452
5,071,332
25,563,797
278,268
110,521
11,501
25,201
313,728
1,613,901
819,558
12,748
2
3,124
16,315,819
-
13,493
64,359
19,582,223
11,834
50,771
1,642,765
675
130,661
3,420,553
36,042
5,293,301
24,875,524
Unconsolidated Balance Sheet Hrvatska elektroprivreda d.d.
At 31 December 2007
Unconsolidated Balance Sheet Hrvatska elektroprivreda d.d.
At 31 December 2007
Ivan Mravak
Darko Dvornik
Member of the Board
181
Share capital
Capital reserves
Retained earnings
Total equity
EQUITY AND LIABILITIES
19,792,159
(2,035,735)
902,243
18,658,667
19,792,159
(2,031,587)
516,656
18,277,228
31 December
2007
HRK 000 31 December
2006
Liabilities under issued bonds
Long-term borrowings
Long-term liabilities to the state
Liabilities to related companies
1,196,590
2,722,041
24,307
203,471
43,907
18,367
4,208,683
497,670
2,850,129
24,362
461,812
-
33,623
3,867,596
Trade payables
Current portion of long-term borrowings
Short-term borrowings
Taxes payable
Interest payable
Liabilities to employees
Other payables
TOTAL EQUITY AND LIABILITIES
614,704
544,999
901,825
144,657
41,954
423,317
10,155
14,836
2,696,447
25,563,797
378,327
582,929
382,478
51,201
42,212
1,119,617
28,103
145,833
2,730,700
24,875,524
Ivan Mravak
Darko Dvornik
Member of the Board
HEPGroup
The determinants of business operations of
HEP-Proizvodnja d.o.o. (HEP Production) in
2007 were based on the decisions of HEP d.d.
Management Board which were aimed at ad-
justing HEP Group operations to the changes
in the energy market. As part of the adjustment,
the company has begun reorganization as have
other members of HEP Group.
The open market, which has been gradually es-
tablished in Croatia, requires that every producer
in addition to delivering electricity and heat to the
system must be able to provide other services
as well such as system services through primary,
secondary and tertiary control and to cover the
necessary balancing energy. HEP Proizvodnja
d.o.o., which wants to remain the leading pro-
ducer in the market, has been adjusting to the
new requirements.
In order to make business processes in the com-
pany more effcient, three new departments have
been set up: Department for Production Prepa-
ration, Department for Economic Affairs and
Department for Legal, Personnel and General
Affairs. The departments have been gradually
staffed and brought into line with activities and
guidelines at HEP Group level. Besides the com-
panys reorganization, due to the requirements
of the business environment, account was taken
of technological improvements in availability of
power plants and their capability to respond
quickly to market demands. Therefore, as part
of regular maintenance, modernization and re-
furbishment, the activities continued to improve
the system of control of hydro power plants and
to make the control system capable of handling
rapid load changes.
As part of the restructuring of the market, HEP
Proizvodnja d.o.o. specialists in close coopera-
tion with other members of HEP Group and with
HERA, HROTE and Ministry of Economy, Labour
and Entreprenurship, worked on adjustments to
the market and harmonization with the EU re-
quirements. This included dividing the tariff sys-
tem for eligible customers into network parts of
the tariffs and the part for covering of electricity
production costs, in all tariff models.
Business operations in 2007 were determined
by unfavorable hydrologic conditions and insuf-
fcient quantities of gas. Specifcally, despite the
expansion of the gas transport system in Croatia,
natural gas deliveries to HEP in winter months
were reduced. An especially signifcant effect
on business operations was the keeping of the
production part in tariffs for electricity custom-
ers at the same level while prices of all energy
183
sources rose to unexpected levels. For this rea-
son, measures were carried out to reduce all
controllable internal costs and to use internal
reserves taking into account not to jeopardize
the operational readiness of plants, which was
accomplished thanks to maximum efforts of all
employees.
HEP Proizvodnja d.o.o., on behalf of HEP
Group, is organizing and implementing the con-
struction of new power plants: Unit L at TE-TO
Zagreb and Lee HPP. In 2007, HEP d.d. took
decision to build a cogeneration unit at Sisak
TPP and preparatory works make it possible to
start construction soon.
Special attention is paid to the implementation
of environmental legislation. Emissions from all
thermal power plants are regularly monitored,
emission monitoring systems have been up-
graded and CISEM project provides in a single
place access to current emissions from all ther-
mal power plants and allows appropriate re-
porting to relevant state and local authorities. A
program to reduce emissions of CO2 has been
prepared, in accordance with Croatias obliga-
tions under the Kyoto Protocol and other inter-
national documents, and has been submitted
to the ministry in charge. In 2007 , as part of
the regular verifcation, all hydro power plants
were again certifed for energy production from
renewable sources as well as for ISO certif-
cates series 9000 and 14000. Preparations for
obtaining certifcates for the remaining thermal
power plants have continued.
HEP Proizvodnja gives an important place to
safety at work and fre protection. As part of
the reorganization of the company, safety and
fre protection have been functionally organized
in a vertically organized department which
works from the offce of the companys director
through a section in every production area and
every thermal power plant to every employee
who participates in the work process. Apart
from regular activities, particular care is taken
that there is constant education and constant
increase in the degree of work safety.
In conclusion, the business year 2007 can in
light of the complex conditions be considered
successful thanks to all employees in the chain
of production of electricity and heat, primarily
all employees of HEP Proizvodnja d.o.o., but
also those of other HEP Group companies, and
even those outside HEP who are directly or in-
directly involved in our activities
Petar ubeli
Director
*Director of HEP-Proizvodnja since March 17, 2008. In the reporting
period the director was eljko Dori
company profle
chairmans report
presidents report
customer relations
safety at work
DVLP of ELECTY and BIZ SYS
auditors report...
reports by other...
addresses
HEPGroup
Organization chart
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
MANAGEMENT BOARD
DIRECTOR
DIRECTORS OFFICE
Hydro Produc-
tion Area North
Hydro Produc-
tion Area West
Hydro Produc-
tion Area Suoth
TPP Plomin
HPP Varadin HPP Senj RHPP Velebit
HPP akovec HPP Vinodol HPP na Krki
HPP Dubrovnik
CS Buko Blato
HPP Gojak i
Lee
HPP Orlovac
HPP Dubrava HPP Rijeka HPP Perua
HPP Ozalj HPP ale
HPP Zakuac
HPP Kraljevac
TPP Sisak
TPP Rijeka
CCPP Jertovec
TE-TO Zagreb
TE-TO Osijek
EL-TO Zagreb
THERMAL POWER PLANTS DEPT. HYDRO POWER PLANTS DEPT.
185
DEPARTMENT FOR
PRODUCTION PREPARATION
ECONOMIC AFFAIRS
DEPARTMENT
LEGAL, PERSONNEL AND
GENERAL AFFAIRS DEPARTMENT
Notes: Department for Production Preparation has not been set up

CS Buko blato d.o.o. is a daughter company of HEP Proizvodnja,
founded in Bosnia-Herzegovina
(as at December 31, 2007)
HEPGroup
Generating plants
CS: pumping station CHE: pumped storage RHE: reversible pump turbine
Hydro power plants
VARADIN A,B,C
AKOVEC A,B,C,D
DUBRAVA A,B,C,D,E
RIJEKA A,B
VINODOL A,B,C
CHE Fuine A
Lepenica A
CHE Zeleni Vir A,B
SENJ A,B,C
HE Sklope A
GOJAK A,B,C
OZALJ A,B,C,D,E
VELEBIT A,B
HPPs on the Krka
Miljacka A,B,C,D
HE Kri A
Golubi A,B
Jaruga A,B
PERUA A,B
Unit 1 uprated to 30 MW, but not tested
ORLOVAC A,B,C
CS Buko blato A,B,C
ALE A,B
KRALJEVAC A,B,C
ZAKUAC A,B,C,D
DUBROVNIK A,B
Zavrelje A
TOTAL HPPs for Croatia
Unit Dubrovnik HPP operates for FBIH
TOTAL HPPs
2x47 (max. 86)+0.46
2x40.3 (max. 76)+1.1+0.34
2x40.3 (maks.76)+1.1+2x0.34
2x18
3x30 (max. 84)
4/(-4.8)
1.4(-1.25)
0.9+0.8
3x72
22.5
3x18
3x1.1+2x1.1
2x138/(2x-120)
4.8+3x6.4
0.34
2x3.27
2x3.6
30 + 20.8
3x79
3x3.8/3x(-3.4)
2x20.4
2x20.8+4.8
2x108+2x135
2x108
2
1,963.26/(-256,35)
108
2,071.26/(-256.35)
86.46
77.44
77.78
36
84
4/(-4.8)
1.4(-1.25)
1.7
216
22.5
54
5.5
276/(-240)
24
0.34
6.54
7.2
20.8
237
11.4/(-10.3)
40.8
46.4
486.0
108
2
1,963.26/(-256.35)
108
2,071.26(-256.35)
2x18
2x15
2x15
2x9
0
3x33
3x2
80
1
1
5
50
0,81
6
1
50+80
50
2x225
2x250
2x250
2x10.5
3x5
3x20
46
3x16.7
2x30/(-20)
6+3x8
2x7
2x60
3x23.3
2x110
65
2x50+2x60
2x45
Power plan type
RUN-OF-RIVER
RUN-OF-RIVER
RUN-OF-RIVER
RUN-OF-RIVER
STORAGE
STORAGE
STORAGE
STORAGE
STORAGE
STORAGE
RUN-OF-RIVER
RUN-OF-RIVER
STORAGE
RUN-OF-RIVER
RUN-OF-RIVER
RUN-OF-RIVER
RUN-OF-RIVER
STORAGE
STORAGE
STORAGE
STORAGE
RUN-OF-RIVER
STORAGE
STORAGE
STORAGE
Available capacity
MIN. SAFE OUTPUT
[MW]
Installed fow
m3/s
GENERATOR
[MW]
TOTAL
[MW]
HEPGroup
187
Thermal power plants
SISAK A,B
RIJEKA A
Plomin PLOMIN A
KTE JERTOVEC A,B
TE-TO ZAGREB A,C,D,E,F,G,H
TE-TO ZAGREB K
TE-TO OSIJEK A,C,D,E
TE-TO OSIJEK K
EL-TO ZAGREB A,B,D,E,G
EL-TO ZAGREB H
TOTAL TPPs
TOTAL HPPs and TPPs for Croatia
TE Plomin d.o.o. (B)
TOTAL HEP PROIZVODNJA d.o.o.
NE KRKO (50%)
TOTAL
396
303
110
83
110
202
42
48
40
50
1,384
3,347.26
192
3,539.26
338
3,877.26
2x210
320
115
2x42.5
120
208
45
2x25
12.5+32
2x26
1,459.5
3,422.76
210
3,632.76
353.5
4,094.26
90+90
90
60
8+8
12+60
90
10
1+1
3+5.5
2x1
110
110
32
400
80
90
34
168
2,8
788
788
788
788
50
90
60
70
180
2x61
570
570
570
570
oil/gas
oil
coal
gas/oil
oil/gas
gas/oil
oil/gas
gas/oil
oil/gas
gas
hard coal
UO2
Available capacity
MIN. SAFE OUTPUT
[MWel.]
Heat
[MWther.]
Process
steam[t/h.]
FUEL
GROSS
[MW]
NET
[MW]
prosj. 1,800 h/god
Operational indicators 2007
Comparison of HPP and TPP availability 2006 and 2007
H
P
P
- 0
6
H
P
P
- 0
7
T
P
P
- 0
6
T
P
P
- 0
7
8,760
7,008
5,265
3,504
1,752
0
H
o
u
r
s
Operation
Reserve
Maintenance
Overhaul
Breakdown
Water shortage
Planned and actual availability of HPPs and TPPs in 2007
HPP TPP TOTAL
8,760
7,008
5,265
3,504
1,752
0
H
o
u
r
s
Availability hours
Non - availability hours
HPP and TPP availability
189
Structure of planned and actual production by HPPs and TPPs in 2007
Comparison of planned and actual production by HPPs and TPPs in 2007
TPP
2007 - plan
HPP
2007 - actual
2007 - plan
HPP TPP TOTAL
4,662 5,444
5,979 4,357
2007 - actual
9,000
10,000
11,000
12,000
7,000
8,000
5,000
6,000
3,000
4,000
1,000
2,000
0
0
G
W
h
G
W
h
TPP
HPP
HPP and TPP electricity production
43.8%
44.5%
56.2%
55.5%
5,979
4,357 4,662
5,444
10,641
9,801
HEPGroup
Financial report
To the Owners of HEP Proizvodnja d.o.o.:
We have audited fnancial statements of HEP Proizvodnja d.o.o.. (the Company), which comprise the bal-
ance sheet as at 31 December 2007 and the related statement of income, statements of changes in equity
and of cash fows for the year then ended, and a summary of signifcant accounting policies and other ex-
planatory notes.
Management is responsible for the preparation and fair presentation of these fnancial statements in accor-
dance with International Financial Reporting Standards. This responsibility includes: designing, implementing
and maintaining internal control relevant to the preparation and fair presentation of fnancial statements that
are free from material misstatement, whether due to fraud or error; selecting and applying appropriate ac-
counting policies; and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an independent opinion on these fnancial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether
the fnancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
fnancial statements. The procedures selected depend on the auditors judgment, including the assessment
of the risks of material misstatement of the fnancial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair pre-
sentation of the fnancial statements in order to design audit procedures that are appropriate in the circum-
stances, but not for the purpose of expressing an opinion on the effectiveness of the entities internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the fnancial
statements.
We believe that the audit evidence we have obtained is suffcient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, fnancial statements present fairly, in all material respects, the fnancial position of the Com-
pany as at 31 December 2007 in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to note 2 to fnancial statements, discussing the account-
ing policies for revenue recognition. The Company recognizes revenue when it is probable that the economic
benefts associated with the transactions will fow to the Company and their amount can be measured reli-
ably. Sales revenue is recognised net of taxes and discounts. Income from provision of services is recognised
by reference to the stage of completion. Operating income generated from electricity and thermal power
generation services to a related company is recognised upon the completion of services, at the date of bill-
ing. The current regulatory framework does not provide details of allocation of the rewards pertaining to the
electricity generation activity. In accordance with the Law on the Amendments to the Energy Law from De-
cember 2004, a model for determining the tariff systems for different customers was developed in December
2006, the application of which was postponed to 2007. The Group developed the model that was applicable
throughout the year ended on 31 December 2007.
HEP PROIZVODNJA d.o.o., ZAGREB
191
We also draw attention to Note 2 to the accompanying fnancial statements discussing the accounting policy
for leases. Due to the special organizational structure, fxed assets under lease are carried at their original
book value as originally stated by HEP d.d.. The fnancial lease liabilities are stated within long term-liabilities
at nominal value. The leases bear interest only to the extent that the lessor has acquired external fnancing to
construct the corresponding asset.
Therefore, for a better understanding of the operations of the Company, the accompanying fnancial state-
ments should be read in conjunction with the consolidated fnancial statements of the HEP Group.
Deloitte d.o.o.
Electricity sales related companies
Cost of energy sources, material and spare parts
Service cost
Staff costs
Depreciation and amortization
Administrative expenses related companies
(Loss) / Proft from operations
Finance income
Finance expenses
Net fnancial loss
(Loss)/ Proft before tax
Income tax
Loss for the year
Income Statement HEP proizvodnja d.o.o.
for the year ended 31 December2007
3,478,141
101,475
3,579,616
2,244,370
308,656
305,669
432,823
127,721
246,146
3,665,385
(85,769)
306
(24,607)
(24,301)
(110,070)
(1,452)
(111,522)

3,170,545
35,813
3,206,358
1,534,254
409,648
287,966
491,610
83,267
227,867
3,034,612
171,746
319
(39,527)
(39,208)
132,538
(28,613)
103,925
Petar ubeli, B.E.E.
2007 2006
HRK 000
HEPGroup
Balance sheet HEP Proizvodnja d.o.o. at 31 December 2007
Petar ubeli, B.E.E.
Assets
Intangible assets
Investment in progress
Investment property
Investments in related companies
Receivables from the sale of fats
Deferred tax assets
Inventories
Other current assets
Trade receivables
TOTAL ASSETS
31 December
7,656
6,382,839
1,206,137
15,552
107,032
7
21,544
12,274
7,753,041
634,946
133,245
376,873
1,701
2,420
6,210
1,155,395
8,908,436
31 December
10,679
6,567,767
659,615
16,146
110,028
8
23,155
13,726
7,401,124
537,433
23,730
669,979
1,739
2,637
21,047
1,256,565
8,657,689
HRK 000
2007 2006
193
Share capital
Capital reserves
Accumulated losses

Total equity
Long term liabilities to related companies
Trade payables
Current portion of long-term debt - related companies
Other payables
Balance sheet HEP Proizvodnja d.o.o. at 31 December 2007
31 December

20
9,188
(138,657)
(129,449)
6,005,155
126,807
14,394
6,146,356
868,094
1,501,793
432,823
88,819
2,891,529
8,908,436
31 December
20
9,188
(27,135)
(17,927)
6,135,295
215,678
15,473
6,366,446
487,074
1,239,065
491,610
91,421
2,309,170
8,657,689
Petar ubeli, B.E.E.
HRK 000
2007 2006
HEPGroup
In 2007 HEP - Operator prijenosnog sustava
d.o.o. (HEP-OPS, HEP Transmission System Op-
erator)) continued to perform its basic tasks in ac-
cordance with legal requirements operation of
the electricity system of the Republic of Croatia,
electricity transmission, development and con-
struction of the transmission network with the
aim of providing reliable supply to customers at
minimum costs.
During the year a number of new facilities were put
into operation: TS 110/20 kV Vinent; TS 110/20 kV
Karlobag; TS 110/35/(20)10 kV Drni; TS 110/20/10
kV Siscia; DV 110 kV akovoupanja of about 45
km and about 20 km of 110 kV lines for connec-
tion of new transformer substations.
Larger replacement and reconstruction work that
that was carried out include TS 400/220/110 kV
Konjsko where a fully replaced and reconstruct-
ed 400 kV switchyard was put into service and
where circuit breakers were replaced in the 220
kV transformer bays. Considerable reconstruc-
tion work was carried out on TS 110/35 kV Buje
and TS 110/35/10 kV Osijek 2, and in TS 110/20(10)
kV Novalja and in TS 110/10(20) kV Mlinovac ex-
pansion was completed. In a number of existing
transformer stations, transformers were replaced,
plants for dc supply were reconstructed, pro-
tection and measuring equipment was replaced
as well as telecommunications and telecontrol
equipment, and on several 110 kV lines conduc-
tors , insulators, and suspension and tension spi-
rals were replaced.
In 2007 there were no larger-scale emergencies
in the transmission network, There were shorter
supply interruptions in February due to the ac-
tion of busbar protection in TS Rakitje because
of bad weather, and in July in Istria because of
a fre.
In accordance with Rules on Allocation and Use
of Cross-Border Transmission Capacity, alloca-
tion began in February of cross-border capacity
on borders with neighboring system operators
from Slovenia, Serbia and Bosnia-Herzegovina,
through periodic allocation, monthly auctions
and bilateral allocation. The allocation procedure
with all necessary information is published on the
website of HEP OPS where, also in February, in
accordance with Rules on Balancing the Electric
Power System, regular information began to be
posted on energy balancing prices. HEP OPS as
the National Issuance Offce of EIC (ETSO Identi-
fcation Code) issued EIC identifcation codes to
Croatian energy companies.
In late March 2007, HEP OPS, with the consent
of the Ministry of Economy, Labour and Entre-
prenurship, defned and published Criteria for de-
termination of candidates for preliminary connec-
tion approval for connection of wind power plants
to the transmission and distribution network.
In early June 2007, a Report on the implementa-
tion of Program for Ensuring Compliance with
the Principles of Transparency, Objectivity and
Non-distrimination in HEP OPS Operations for
the period between June 2006 and June 2007
was prepared. In accordance with Electricity
Market Act, the Report was submitted to HERA
195
and published on HEP OPS website.
Based on prior approvals by HERA, in early June
HEP OPS joined the European internal ITC (Inter
TSO Compensation) mechanism for calculation
and compensation of transit costs caused by
cross-border electricity transmission, and to-
wards the end of the year joined the new IITC
mechanism for 2008-2009 which encompassed
all European transmission system operators.
Thereby HEP OPS, in accordance with the re-
quirements of the EU energy legislation (trans-
posed into the Croatian legislation) stopped to
charge fees for electricity transit.
HEP OPS, with the increasingly better bilateral
(even trilateral) cooperation with other transmis-
sion system operators (especially adjacent op-
erators) has been actively participating in the ac-
tivities of organizations of transmission system
operators such as UCTE and ETSO (European
Transmission System Operators) of which it be-
came an associate member in June, and in the
activities in the framework of Athens Forum as
one of the bodies of Energy Community Treaty.
As part of the negotiations on the accession of
the Republic of Croatia to the European Union,
HEP Group representatives participated in work-
ing groups for Chapter 15 (Energy) and Chapetr
21 (Transeuropean Networks) of the acquis.
A contract was signed in July for the construc-
tion of a 2x400 kV Ernestinovo-Pecs line with the
Hungarian transmission system operator (MA-
VIR), and in November a contract was signed
with the company Dalekovod for the construc-
tion of the Croatian section of the line.
As part of its legal obligation, in 2007 HEP OPS
prepared a three-year plan for the development
and construction of transmission network facili-
ties for the period 2008-2010 and submitted it to
HERA for approval.
In late November HEP OPS and Konar -
Inenjering za energetiku i transport signed
a contract entitled Electricity System Control
Functions, which encompasses a full replace-
ment of hardware and software of process IT as
well as addition of a number of new functions of
transmission system operator with an emphasis
on support of work in a competitive market. The
project involves the National Dispatch Center in
Zagreb, all four network centers (Osijek, Rijeka,
Split and Zagreb), adjustment of existing equip-
ment in all transformer substations and power
plants to the new control system and the estab-
lishment of a reserve national dispatch center
in a separate location. The implementation of
the project is of strategic importance for secure
and reliable control of the Croatian electricity
system and is the most signifcant activity of
HEP OPS in the next development period.
In 2007, a system for the monitoring of the elec-
tricity system in real time WAM (Wide Area
Monitoring) was established and put into op-
eration, which covers all 400 kV transformer
substations. Towards the end of the year web
portals (Intranet) of transmission areas were es-
tablished for processing of operational events.
As part of regular environmental protection
activities, in accordance with regulations and
inspection control, operational action plans
were prepared for environmental pollution ac-
cidents, rules on operation and maintaenance
of water treatment plants were updated as well
as waste management plans, and Commission
for management of the gas sulfur-hexafuorid
was set up. The activities continued on the
implementation of an Introdouction of Envi-
ronmental Management System project in the
Transmission Area Zagreb in conformity with
ISO 14001:2004, temporary waste disposal fa-
cilities were equipped and all generated waste,
hazardous, non-hazardous and communal, was
properly managed.
Dubravko Saboli
Director
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
HEPGroup
Organization chart
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
MANAGEMENT BOARD
ASSISTANT DIRECTORS
System Operation
and Training
Center
Local Area
Control Unit
Development and
Construction Unit
System Operations
Planning and System
Services Unit
Primary
Equipment Unit
Operation and
Maintenance Unit
System Operations
Analysis and
Accounting
Secondary
System Unit
Common
Functions unit
SYSTEM OPERATION
DEPARTMENT
INFORMATION
AND COMMUNICATION
TECHNOLOGIES DEPARTMENT
TRANSMISSION AREAS (OSIJEK,
RIJEKA, SPLIT, ZAGREB)
(as at December 31, 2007 )
197
Development Unit
Pre-construction
and
Construction Unit
Ecconomic
Affairs Unit
Institutional
Cooperation Unit
Investment
Operations Unit
Legal, Perssonel
and General Affairs
Unit
Network Users and
Connections Unit
Settlement Unit
DEVELOPMENT AND
INSTITUTIONAL COOPERATION
DEPARTMENT
CONSTRUCTION AND
INVESTMENT DEPT.
ECONOMIC
AFFAIRS DEPARTMENT
HEPGroup
Croatian electricity system Transmission network as at December 31, 2007
Electricity balance in 2007 (GWh)
199
Line length (km)
Transformer stations (number)
Installed capacity (MVA)
Total production*
Import (entering Croatia)
Total procurement
Export (exiting Croatia)
Total consumption
Direct procurement and consumption on distribution network
Transmission losses
Transmission consumption
Direct customers
Pumping and other auxiliary consumption
Delivered to distribution from transmission network
System peak load (Dec 17, 2007)
11,286
11,892
23,160
5,531
17,629
309
547
16,774
920
272
15,582
3,098 MWh/h
400 kV
1,159
5
4,100
220 kV
1,232
6
2,100
110 kV
4,847
106
4,861
TOTAL
7,238
117
11,061
*Including energy supplied by industrial and wind power plants and production supplied directly into distribution
network (375 GWh)
HEPGroup
Financial report
To the Owner of HEP Operator prijenosnog sustava d.o.o.:
We have audited the accompanying fnancial statements of HEP Operator prijenosnog sustava d.o.o. (the
Company), which comprise the balance sheet as at 31 December 2007 and the related statement of
income, statement of changes in equity and cash fows for the year then ended, and a summary of signif-
cant accounting policies and other explanatory notes.
implementing and maintaining internal control relevant to the preparation and fair presentation of fnancial
statements that are free from material misstatement, whether due to fraud or error; selecting and apply-
ing appropriate accounting policies; and making accounting estimates that are reasonable in the circum-
stances.
Our responsibility is to express an opinion on these fnancial statements based on our audit. We conduct-
ed our audit in accordance with International Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether
In making those risk assessments, the auditor considers internal control relevant to the entitys prepara-
tion and fair presentation of the fnancial statements in order to design audit procedures that are ap-
our audit opinion.
Opinion
In our opinion the fnancial statements present fairly, in all material respects, the fnancial position of the
Company as at 31 December 2007, and their fnancial performance and their cash fows for the year then
ended in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 2 to the fnancial statements discussing the ac-
counting policies for revenue recognition. The Company recognized revenue based on the decision of the
Energy Regulation Council regarding the tariff system in October 2003. Under this decision, the Company
is reimbursed for transmission services by its parent company, HEP d.d.. This reimbursement is based on
electricity invoiced by HEP Operator Distribucijskog sustava d.o.o. to the fnal customer multiplied by a
fxed tariff. This policy is in accordance with the Croatian law.
HEP OPERATOR PRIJENOSNOG SUSTAVA d.o.o., ZAGREB
201
In accordance with the Law on the Amendments to the Energy Law from December 2004, a model for
determining the tariff systems for different customers was developed in December 2006, with its imple-
mentation postponed until 2007. The Group has applied the model in the preparation of the fnancial
statements for the year ended 31 December 2007.
We also draw attention to Note 2 to the accompanying fnancial statements discussing the accounting
policy for leases. Due to the special organizational structure, fxed assets under lease are carried at their
original book value as originally stated by HEP d.d..The liabilities for leases are stated within long term-
liabilities at nominal value. The leases bear interest only to the extent that the lessor has acquired external
fnancing to construct the corresponding asset. Therefore, for a better understanding of the operations
of the Company, the accompanying fnancial statements should be read in conjunction with the consoli-
dated fnancial statements of the HEP Group.
Deloitte d.o.o.
Income statment HEP Operator prijenosnog sustava d.o.o.
2006 2007
HRK 000
Dubravko Saboli
Managing Director
639,159
17,352
117,484
773,995
(24,838)
(63,541)
(152,691)
(217,688)
(189,648)
(43,394)
(57,083)
(748,883)
25,112
213
(55,736)
(55,523)
(30,411)
(447)
(30,858)
Electricity transmission income
Other income - related companies
Material and spare parts expenses
Service expenses
Staff expenses
Transmission grid losses
Finance income
Finance expenses
Net fnancial costs
(Loss)/ Proft before taxation
Income tax
Loss for the year
905,994
-
20,764
926,758
(21,283)
(112,726)
(141,986)
(281,429)
(150,307)
(44,264)
(62,915)
(814,910)
111,848
28
(49,628)
(49,600)
62,248
(12,984)
49,264
HEPGroup
Dubravko Saboli
Managing Director
Assets
31 December
2007
HRK 000
31 December
2006.
Investments in progress
Intangible assets
Investment properties
Receivables from sale of fats
Deferred tax assets
Inventories
Trade receivables
TOTAL ASSETS
3,463,878
400,553
24,559
3,318
2,104
7,654
5,771
3,907,837
34,260
16,660
35,810
107,282
777
1,388
196,177
4,104,014
3,201,313
407,309
28,723
3,539
4,075
8,306
6,218
3,659,483
39,912
845
187,681
20,866
741
2,888
252,933
3,912,416
Balance Sheet HEP Operator prijenosnog sustava
As at 31 December 2007
CAPITAL AND LIABILITIES
31 December
2007
HRK 000
31 December
2006
Dubravko Saboli
Managing Director
20
40
(30,858)
(30,798)
3,276,891
25,315
5,132
3,307,338
388,078
202,911
217,688
18,797
827,474
4,104,014
Subscribed capital
Reserves
Accumulated losses/retained earnings
Total equity
Long-term liabilities to related company
Provisions for retirement and jubilee bonuses, and legal actions
Other non-current liabilities
Trade payables
Current portion of long-term liabilities to related company
Other current liabilities
20
40
49,264
49,324
2,955,014
29,768
5,462
2,990,244
388,509
171,654
281,429
31,256
872,848
3,912,416
Balance Sheet HEP Operator prijenosnog sustava
As at 31 December 2007
203
HEPGroup
In 2007 HEP Operator distribucijskog sustava
d.o.o. (HEP ODS, HEP Distribution System Op-
erator)) continued to operate in accordance with
the new Rules on Organization and Job Plan
which changed the internal organization of the
Company as from July 1, 2006. As part of the
HEP Group business policy, cutting of operat-
ing costs continued, focused on maintenance
costs of electric facilities according to a parlty
reduced plan. In 2007 the business objectives
of the Company remained to be: improvement
in payment collection, reduction in non-techni-
cal network losses, optimization of inventories
of electric materials, increase in electricity qual-
ity and raising of quality of service in the supply
business.
In the area of investment, in 2007 we focused
on:
preparation of a three-year plan of de-
velopment and construction of distribution net-
work 2008 - 2010
completion and continuation of invest-
ments into reconstruction and construction of
facilities begun in previous years
preparation and beginning of new in-
vestments.
Constructon work was completed on 110 kV
transformer stations: TS 110/10(20) kV Dujmo-
vaca, TS 110/10(20) kV Siscia with phase ar-
rangement, and TS 110/10(20) kV Karlobag. Also
completed were investments into additions to
transformers 110/10(20) kV with associated bays
20 kV in TS 110/10(20) kV Mlinovac, construction
of 110 kV ripple control in TS 110/35 kV Krasica
and refurbishment of remote control centers Za-
greb, Rijeka and Split.
Capital projects at 35 and 20 kV include invest-
ments in TS 35/10(20) Vinkovci 5 with associated
phase arrangement, reconstruction of TS 35/10
kV Mekuje and reconstruction of TS 35/10(20)
kV Grobnik.
Investments in 110 kV facilities continued, the
most important of which are the transformer
stations TS 110/10(20) kV Osijek 4 (Elektro-
slavonija Osijek), TS 110/10(20) kV Turni (Elek-
troprimorje Rijeka), TS 110/10(20) kV Dugopolje
(Elektrodalmacija Split, connection of the indus-
trial zone Dugopolje), TS 110/20 KV Tupljak (Elek-
troistra Pula, connection of the industraila zone
Podpian).
Reconstruction work on the electric network
continued to be carried out in 2007 in order to
allow construction and connection of homes to
the network, in accordance with the pace of re-
turn of displaced persons and refugees.
Activities relating to multi-year investment cycle
205
continued. Especially signifcant are reconstruc-
tion and construction projects of 110 kV and 35
kV transformer stations: TS 110/30/10(20) kV
Dugo Selo, construction of 110 kV ripple con-
trol in TS 110/10(20) kV Dubec, TS 110/10(20) kV
Sr, TS 220/110/35/10(20) kV Plat, TS 35/10 kV
Varadinske Toplice, TS 35/10 kV Istok, TS 35/10
kV Ludbreg, TS 35/10 kV Bilje and TS 35/10 kV
Orlovnjak.
In 2007 a three-year plan of development and
construction of the distribution network for the
period 2008-2010 was prepared. The plan will
help to improve the effciency and timely prep-
aration of annual plans of development and
construction of the distribution network (invest-
ment plans) and preparation of construction of
distribution network facilities.
During the year the implementation of Billing
application was completed, which enables uni-
form business practices, primarily in communi-
cations with clients. In order to further improve
its relations with customers, HEP ODS has be-
gun to monitor and oversee the quality of ser-
vices provided.
DISPO, a program in which operational events
for the entire distribution network are logged
and statistically processed, is in full application.
Data on planned and forced supply interrup-
tions have been processed, for each distribu-
tion area and as a total for HEP ODS. Indicators
have been obtained about the average number
and average duration of all interruptions. These
indicators are a part of the data that are pre-
pared for reporting on a yearly basis to Croatian
Energy Regulatory Agency (HERA).
In 2007, a signifcant step forward was made in
determining voltage quality in the entire distri-
bution network with the aim of establishing a
preliminary voltage quality monitoring system.
Data were gathered on the parameters of volt-
age quality at selected measuring points at all
voltage levels of the distribution network as
well as at the interface with the transmission
network. The analysis of measurement data
produced indicators that show current voltage
quality in the distribution network, a proposal
was drawn up of standard voltage quality levels
and a proposal for quality of electricity supply
in the distribution network.
Also, investigations have been launched in or-
der to determine compensating load curves for
certain customer categories that have meters
without the possibility of storing energy data in
a time interval. Towards the end of 2007 a single
base was established for tele-reading of cus-
tomer metering points above 30 kW.

Mio Jurkovi
Director
company profle
chairmans report
presidents report
customer relations
safety at work
DEVELOPMENT
auditors report...
reports by other...
addresses
HEPGroup
Company organization chart
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
DIRECTOR
DIRECTORS OFFICE
System
Uperation Unit
Development
and Institutional
Cooperation Unit
Economic and
Financial Affairs
Unit
Planning and
Investment Unit
Maintenance
Unit
Standards Unit Accounting Unit
Pre-construction
and Construction
Unit
IT Support Unit
Network Access
Unit
Procurement Unit
Business
Economics Unit
NETWORK MANAGEMENT
AND IT SUPPORT
DEPARTMENT
INVESTMENT AND
CONSTRUCTION
DEPARTMENT
NETWORK DEVELOPMENT
AND ACCESS
DEPARTMENT
ECONOMIC AFFAIRS
DEPARTMENT
207
Legal Unit Sales Unit
ELEKTRA ZAGREB
ELEKTRAKOPRIVNICA
ELEKTROJUG
DUBROVNIK
ELEKTRAVARADIN ELEKTRAZADAR
ELEKTRAKRI ELEKTRASISAK
ELEKTRAVINKOVCI ELEKTRAVIROVITICA
ELEKTRA ZABOK
ELEKTRA BJELOVAR ELEKTRA KARLOVAC
ELEKTRAAKOVEC ELEKTRAIBENIK
ELEKTROSLAVONIJA
OSIJEK
ELEKTRAGOSPI
ELEKTRASLAVONSKI
BROD
ELEKTRAPOEGA
ELEKTROPRIMORJE
RIJEKA
ELEKTRODALMACIJA
SPLIT
ELEKTROISTRA
PULA
Personnel and
General Affairs Unit
Customer
Relations Unit
DISTRIBUTION
AREAS
DEPARTMENT FOR SUPPLY TO
TARIFF CUSTOMERS AND CUS-
TOMERS WITHOUT SUPPLIER
LEGAL, PERSONNEL AND
GENERAL AFFAIRS
DEPARTMENT
HEPGroup
Number of transformer stations by voltage level
Line lenghts by voltage level and line type
TS 110/10(20) kV
7
Lines 110 kV (km)
Lines 10 kV (km)
Lines 35, 30 kV (km)
Network 0,4 kV (km)
Lines 20 kV (km)
Household connections (km)
OHL
128
OHL
19,224
OHL
3,377
OHL-bare
24,974
OHLinsulated
21,867
OHL
3,116
OHL-bare
5,250
Cable
17
Cable
9,307
Cable
1,229
Cable
2,306
OHLinsulated
15,128
Undersea
6
Undersea
201
Undersea
119
KB
14,215
Undersea
147
Cable
8,988
TS 20/0,4 kV
3,001
TS 35(30)/10(20) kV
335
TS 10/0,4 kV
20,448
Number of customers / metering points by consumption category (voltage level)
Description
High voltage 110 kV
Total medium voltage
Low voltage - commercial
Low voltage public lighting
Low voltage residential
TOTAL
Number of metering points
40
2,015
190,370
19,843
2,028,935
2,241,203
209
DA
Zagreb
Zabok
Varadin
akovec
Koprivnica
Bjelovar
Kri
0sijek
Vinkovci
Sl. Brod
Pula
Rijeka
Split
Zadar
ibenik
Dubrovnik
Karlovac
Sisak
Gospi
Virovitica
Poega
TOTAL
43,136,231
0
0
0
7,934,025
7,592,475
26,648,726
0
8,338,814
25,906,078
0
3,773,055
261,976,914
0
77,900,332
0
24,446,235
137,043,570
0
0
0
624,696,455
55,444,060
122,605
0
0
1,040,685
0
32,299,752
16,293,130
8,583,807
29,314,950
17,740,280
65,684,220
100,065,421
19,959,099
2,079,360
0
30,525,751
7,641,650
5,990,905
7,365,260
28,253,120
428,404,055
685,550,593
63,176,401
149,701,296
68,351,195
54,967,695
26,771,581
103,058,889
216,337,520
75,670,066
57,521,999
253,571,791
199,448,063
150,820,082
96,705,576
53,075,462
56,939,031
104,845,761
51,640,526
19,003,404
44,211,073
31,883,541
2,563,251,545
740,994,653
63,299,006
149,701,296
68,351,195
56,008,380
26,771,581
135,358,641
232,630,650
84,253,873
86,836,949
271,312,071
265,132,283
250,885,503
116,664,675
55,154,822
56,939,031
135,371,512
59,282,176
24,994,309
51,576,333
60,136,661
2,991,655,600
1,188,134,341
100,863,143
129,185,986
92,573,903
80,315,357
118,133,699
109,312,611
205,413,818
90,462,785
71,220,958
257,523,765
365,671,025
513,548,751
147,085,471
119,508,540
109,145,729
102,622,861
61,643,298
59,521,557
38,796,925
24,824,822
3,985,509,345
117,431,750
8,514,823
11,830,324
4,934,412
7,584,712
7,857,875
10,778,765
22,283,707
16,234,657
10,949,179
25,652,824
31,441,319
47,774,079
21,555,618
13,414,648
12,089,645
19,136,918
11,930,051
6,078,939
4,698,366
5,124,188
417,296,799
1,341,792,289
143,335,808
174,675,830
119,318,559
130,210,233
139,169,193
178,627,081
430,061,175
244,974,483
180,563,867
413,277,676
587,668,363
862,865,368
305,065,999
193,383,506
178.457.697
206,541,025
154,740,021
83,533,849
77,357,847
73,118,841
6,218,738,710
2,647,358,380
252,713,774
315,692,140
216,826,874
218,110,302
265,160,767
298,718,457
657,758,700
351,671,925
262,734,004
696,454,265
984,780,707
1,424,188,198
473,707,088
326,306,694
299,693,071
328,300,804
228,313,370
149,134,345
120,853,138
103,067,851
10,621,544,854
3,431,489,264
316,012,780
465,393,436
285,178,069
282,052,707
299,524,823
460,725,824
890,389,350
444,264,612
375,477,031
967,766,336
1,253,686,045
1,937,050,615
590,371,763
459,361,848
356,632,102
488,118,551
424,639,116
174,128,654
172,429,471
163,204,512
14,237,896,909
182,697,592
75,475,084
0
0
44,556,336
0
55,033,258
149,594,456
0
0
145,125,887
193,537,939
16,539,355
0
0
0
0
57,162,853
0
0
0
919,722,760
MV
HV 110 kV 35 kV 10 kV
LV-
commercial
LV-
residential
Total
medium
voltage
Total
low
voltage
Total
tariff
customers
Eligible
customers
LV-public
lighting
* Data on electricity sales for residential customers are based on estimated consumption billing.
** Sales to eligible customers within HEP Group are the responsibility of HEP Opskrba d.o.o.
Electricity consumption by distribution area in 2007 (kWh)
HEPGroup
Financial report
We have audited fnancial statements of HEP Operator distribucijskog sustava d.o.o (the Company),
which comprise the balance sheet as at 31 December 2007 and the related statement of income, state-
ments of changes in equity and of cash fows for the year then ended, and a summary of signifcant ac-
counting policies and other explanatory notes.
stances.
Our responsibility is to express an independent opinion on these fnancial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
In making those risk assessments, the auditor considers internal control relevant to the entitys prepa-
ration and fair presentation of the fnancial statements in order to design audit procedures that are ap-
our audit opinion.
Opinion
In our opinion, fnancial statements present fairly, in all material respects, the fnancial position of the
Company as at 31 December 2007, the results of its operations and its cash fows for the year then ended
in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 2 to fnancial statements, discussing the ac-
counting policies for revenue recognition. The Company recognized revenue based on the decision of the
Energy Regulation Council regarding the tariff system in October 2003. Under this decision, the Company
is reimbursed for distribution services by its parent company, HEP d.d.. This reimbursement is based on
electricity delivered to the fnal customer multiplied by a fxed tariff for distribution services. This policy is
in accordance with the Croatian laws and regulations.
Based on the current regulation, one of the main activities of the Company is to invoice electricity to end-
users (See Note 2). The receivables recognized in the accompanying fnancial statements represent these
HEP OPERATOR DISTRIBUCIJSKOG SUSTAVA d.o.o., ZAGREB
211
amounts invoiced. Recognized revenues represent only the distribution portion of the fees to end-users.
In accordance with the Law on the Amendments to the Energy Law from December 2004, a model for
determining the tariff systems for different customers was developed in December 2006, the application
of which was postponed to 2007. The Group developed the model that was applicable throughout the
year 2007.
original book value as originally stated by HEP d.d. The fnancial lease liabilities are stated within long
term-liabilities at nominal value. The leases bear interest only to the extent that the lessor has acquired
external fnancing to construct the corresponding asset.
Therefore, for a better understanding of the operations of the Company, the accompanying fnancial
statements should be read in conjunction with the consolidated fnancial statements of the HEP Group.
Deloitte d.o.o.
Income Statement HEP Operator distribucijskog sustava d.o.o.
2006 2007
HRK 000
Mio Jurkovi, B.E.E.
Managing Director
2,552,049
161,485
387,293
3,100,827
(2,466)
(512,789)
(305,043)
(1,035,929)
(677,211)
(163,075)
(465,982)
(3,162,495)
(61,668)
857
( 37,392)
(36,535)
(98,203)
(3,500)
(101,703)
Electricity distribution fee income related companies
Services rendered
Cost of externally purchased energy
Grid losses
Service expenses
Staff expenses
(Loss)/ Proft from operations
Financial income
Finance costs
Net fnancial loss
(Loss)/ Proft before tax
Income tax expense
Loss)/Proft for the year
2,894,942
117,282
311,296
3,323,520
(1,596)
(414,302)
(308,166)
(1,013,260)
(765,441)
(132,068)
(618,488)
(3,253,321)
70,199
615
(39,240)
(38,625)
31,574
(8,820)
22,754
HEPGroup
Mio Jurkovi, B.E.E.
Managing Director
Assets
31 December
2007
HRK 000
31 December
2006
Intangible assets
Investment properties
Deferred tax assets
Inventories
Trade receivables
Total assets
10,498,146
1,218,791
23,432
31,969
32,008
17
41,140
11,845,503
274,895
915,154
540,420
4,040
153,369
20,822
1,908,700
13,754,203
9,584,161
1,269,662
20,262
36,181
35,274
1,945
44,640
10,992,125
265,720
1,020,986
552,949
3,785
75,709
35,834
1,954,983
12,947,108
Balance sheet HEP Operator distribucijskog sustava d.o.o.
at 31 December 2007
31 December
2007
HRK 000
31 December
2006
Mio Jurkovi, B.E.E.
Managing Director
Balance sheet HEP Operator distribucijskog sustava d.o.o.
at 31 December 2007
Subscribed capital
Accumulated losses
Total equity
Deferred income
Trade payables
Current portion of long-term liabilities to related company
Current liabilities
20
(146,313)
(146,293)
7,341,252
21,643
3,482,149
185,200
11,030,244
641,832
1,516,512
553,427
158,481
2,870,252
13,754,203
20
(44,610)
(44,590)
6,923,382
23,272
2,928,367
225,564
10,100,585
499,489
1,574,279
636,207
181,138
2,891,113
12,947,108
213
HEPGroup
HEP-Toplinarstvo d.o.o. (HEP District Heating)
is the largest company in Croatia in the district
heating business, with the share of 80 percent
in the sector. In line with the social responsibility
that this fact entails, we can say with satisfac-
tion that we have fully met our main task, that
of reliable and quality supply of district heat and
process steam for our customers.
Currently underway are the most important and
the largest projects undertaken since HEP Topli-
narstvo was established refurbishment of the
hot water network in Zagreb and Osijek and
construction of a complete, on-site, energy plant
for the University Hospital Rebro, Zagreb. Both
projects have been unfolding according to plans,
and have already produced visible results heat
energy losses as well as makeup water losses
in the hot water system have been reduced. In
2008 we expect that absorption cooling system
at Rebro, which is powered by steam from our
district heating system, will be put into service.
We will thereby increase the usability of capac-
ity of existing steam pipelines as well as the us-
ability of operation of production plants and
decrease electricity demand for cooling during
summer months when it is most needed.
As from January 1, 2007 Sisak Operation be-
came part of HEP Toplinarstvo d.o.o. as a new
organizational unit and Toplinarstvo Sisak d.o.o.
ceased to exist as a separate company.
During 2007, there was 21 MW of new consump-
tion connected to our system, with a growth
trend, so we expect further development of the
system and increase in connected power.
HEP-Toplinarstvo pays special attention to pro-
fessional development and training of its employ-
ees. Competent and motivated staff is a guaran-
tee that we will maintain the signifcance of the
company as the largest and the most important
district heating company and that we will con-
tinuously increase the technological level of the
system and introduce new services, while at the
same time improving relations with customers,
energy effciency and environmental protection.
We expect that one of our biggest problems
bringing heat prices to a level that ensures fnan-
cial viability of HEP Toplinarstvo and a possibility
of investing into system development and ex-
215
pansion will begin to be solved soon.
Ahead of us lie additional challenges in the
application of legislation applicable to district
heating, new large projects to expand the dis-
trict heating system and to connect new cus-
tomers. Continuous investment into knowl-
edge, and competence and dedication of all
employees are a guarantee for our success in
accomplishing these tasks.
Director
Robert Krklec
company profle
chairmans report
presidents report
customer relations
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auditors report...
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addresses
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SHAREHOLDERS
ASSEMLY
SUPERVISORY BOARD
MANAGEMENT BOARD
OPERATIONS
DEPARTMENT
CONSTRUCTION AND
PRE-CONSTRUCTION DEPT.
Operations Section Operations Section
IT Support
section
Section for Develop-
ment and Construc-
tion - Zagreb
Section for Develop-
ment and Construc-
tion - Osijek
Heat Production
Section
Energy/Technical
Section
Economic Affairs
Section
Technical Section Technical Section
Economic Affairs
Section
Heat Distribution
Section
Economics Affairs
Sections
Legal, Personel
and General Affairs
Section
Electrical and I&C
Maintenance
Legal, Personnel
and General Affairs
Sections
HEATING NETWORKS
ZAGREB
LOCAL BOILER PLANTS
ZAGREB
OSIJEK OPERATIVE AREA SISAK OPERATIVE AREA
(at December 31, 2007) Toplinarstvo d.o.o. . in 2007
District heating system Zagreb Local boiler plants: Zagreb, V.Gorica, Samobor, Zaprei
Osijek operative area Sisak operative area
HEP
HEP-Toplinarstvo d.o.o., in Zagreb, Samobor, Velika Gorica, Zaprei, Osijek and Sisak, at the end of
2007, had 120,583 heat customers, of which 114,824 households and 5,759 corporate entities.
In heat consumption (district heat and process steam) households accounted for 60 percent (51
percent in income) and corporate entities for 40 percent (49 percent in income). In total consumption
of district heat, the share of Zagreb (including Samobor, Velika Gorica and Zaprei) was 86 percent,
Osijek 10 percent, and Sisak 4 percent.
Consumption of process steam was 619,264 tons, the share of Zagreb being 78 percent, Osijek 17
percent, and Sisak 5 percent. Of the total supplied energy in MWh, 80 percent was district heat (hot
water), and the remaining 20 percent was process steam.
Compared to 2006, the number of customers grew 1 percent, consumption of process steam was 3
percent lower, and consumption of district heat fell 6 percent as a result of higher outdoor tempera-
tures in the heating season. Capacity contracted by district heat customers from 2004 to 2007 in-
creased by 72 MW (from 1,155 MW to 1,227 MW) or 6 percent. In the Zagreb area the increase was 47
MW (4.8 percent), in the Osijek area 16 MW (9.9 percent) and in the Sisak area 11 MW (35.7 percent).
Production:
- heat 1,462,964 MWh
- steam 639,488 t
Sales:
- heat 1,265,932 MWh
- steam 485,813 t
Number of customers: 88,072
Production:
- heat 72,266 MWh
- steam 36,072 t
Sales:
- heat 56,219 MWh
- steam 30,285 t
Production:
- heat 182,719 MWh
- steam 149,286 t
Sales:
- heat 170,405 MWh
- steam 103,166 t
Heat production: 208,898 MWh
Heat sales: 172,194 MWh
217
HEPGroup
Financial report
To the Owners of HEP Toplinarstvo d.o.o.:
We have audited the accompanying fnancial statements of HEP Toplinarstvo d.o.o. (the Company),
which comprise the balance sheet as at 31 December 2007 and the related statement of income, state-
ments of changes in equity and of cash fow statement for the year then ended, and a summary of signif-
cant accounting policies and other explanatory notes.
stances.
ducted our audit in accordance with International Standards on Auditing. Those standards require that we
our audit opinion.
Opinion
In our opinion, the fnancial statements present fairly, in all material respects, the fnancial position of the
in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 2 to the fnancial statements, describing the
matters regarding the ability of the Company to continue as a going concern. The explanation provided
shows that the business operations could be maintained in the longer term. As a result, the accounting
principles applied are based on the assumption that the Company will be able to continue as a going
concern.
HEP TOPLINARSTVO d.o.o., ZAGREB
219
original book value as originally stated by HEP d.d.. The fnancial lease liabilities are stated within long
term-liabilities at nominal value. The leases bear interest only to the extent that the lessor has acquired
external fnancing to construct the corresponding asset
Therefore, for a better understanding of the operations of the Company, the accompanying fnancial
statements should be read in conjunction with the consolidated fnancial statements of the HEP Group.
Deloitte d.o.o.
Branislav Vrtanik, Certifcated Auditor
Income statement HEP Toplinarstvo d.o.o.
for year ended 31 December 2007
Robert Krklec, B.E.E.,
Director
2006 2007
HRK 000
453,381
5,496
43,217
502,094
(75,248)
(22,880)
(43,765)
(52,083)
(372,465)
(49,249)
(615,690)
(113,596)
15,843
(4,105)
11,738
(101,858)
-
(101,858)
Income from thermal energy sale
Income from thermal energy and other income related companies
Energy, material and spare parts expenses
Service expenses
Staff expenses
Expense in respect of electricity generation and other expenses related
companies
Loss from operations
Financial revenues
Financial expenses
Net fnancial gains
Loss before tax
Income tax
Loss for the year
459,782
5,420
44,181
509,383
(90,193)
(25,670)
(41,626)
(49,227)
(320,015)
(53,283)
(580,014)
(70,631)
8,618
(482)
8,136
(62,495)
-
(62,495)
HEPGroup
Robert Krklec, B.E.E.
Director
Assets
31 December
2007
HRK 000
31 December
2006
Assets under construction
Intangible assets
Investment property
Inventories
Trade receivables
TOTAL ASSETS
668,910
93,299
2,176
1,388
243
43,907
809,923
27,976
120,562
14,923
20,055
24
11,617
195,157
1,005,080
526,307
147,335
2,286
1,415
249
-
677,592
36,653
104,067
6,079
4,163
91
14,280
165,333
842,925
Balance sheet HEP Toplinarstvo d.o.o.
At 31 December 2007
31 December
2007
HRK 000
31 December
2006
Robert Krklec, B.E.E.
Director
Balance sheet HEP Toplinarstvo d.o.o.
At 31 December 2007
Share capital
Reserves
Accumulated losses
Total equity
Long-term liabilities to related companies
Deferred income
Trade payables
Current portion of long-term debt to related companies
Other short-term liabilities
-
20
20
(374,235)
(374,195)
661,192
613
10,454
158,172
830,431
52,167
439,742
52,083
4,852
548,844
1,005,080
-
20
-
(272,357)
(272,337)
370,177
656
11,338
146,053
528,224
27,723
501,660
49,227
8,428
587,038
842,925
221
HEPGroup
The business objective of HEP Plin (HEP Gas)
is derived from the Gas Market Act, Gas Energy
Act and Decision establishing the Company. This
objective is secure, reliable and uninterrupted
gas distribution and supply to customers on the
principles of public service provision with the
highest degree of environmental protection, de-
velopment of the existing distribution and sup-
ply area and expansion to new areas. Current
operations arising from this objective have been
successfully discharged to our satisfaction and
to the satisfaction of a large majority of custom-
ers and units of local self-governemnts.
The distribution network has been maintained
in the proper and functional working order and
breakdowns at gas supply points were repaired
in the shortest period possible by duty crews.
There were no major disruptions or reduction in
gas supply, other than for the purposes of re-
pair and reconstruction of Plinacros transport
system. In the gas supply business, great efforts
were made in the area of billing and payment
collection.
Of the current operations in 2007 I would men-
tion that we prepared a proposal for changes of
gas selling prices in accordance with the new
tariff system for gas distribution and supply. The
proposal was submitted to the ministry in charge
and now its approval by HERA and submission
to the Government for enactment of tariffs is in
the process.
In 2007 in a public competitive tendering we won
the concession for gas distribution and supply
in the area of Osijek-Baranja County for another
11 units of local self-governments. The subject
matter of the concession is the construction of a
gas network and gas distribution. Thereby 2007
was yet another year in which we expanded our
distribution and supply area and thus fulflled the
Companys development objectives.
Although the fnancial result was relatively favor-
able (a proft of 4.1 million kuna), it was not real-
ized from core business activities (gas distribu-
tion and gas supply), but from other operating
activities (from deferred income from connection
charges etc.) The core businesses activities con-
tinue to reveal an operating loss (about 4.5 million
kuna). The main reason is insuffcient distribution
margin which serves to cover operating costs
223
and which we were not able to change due to
problems in applying the tariff system for gas
distribution and the tariff system for gas supply.
It must be mentioned that our selling price has
been for years among the lowest compared to
all other gas distributors in Croatia. In addition,
total gas sales fell signifcantly due to above-
average winter temperatures.
Nikola Liovi
Director
company profle
chairmans report
presidents report
customer relations
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HEPGroup
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
DIRECTOR
DIRECTORS OFFICE
Legal and General
Affairs Section
Asset Management
Section
Personnel
Section
IT and
Communication
Support Section
OPERATION AND
MAINTENANCE SECTION
TECHNICAL DEPARTMENT SUPPLY DEPARTMENT
ECCONOMIC AFFAIRS
DEPARTMENT
DUTY CREW UNIT
OPERATIVE AREA
OFFICE POEGA
OPERATIVE AREA
OFFICE AKOVO
OPERATIVE AREA
OFFICE VALPOVO
OPERATIVE AREA
OFFICE NAICE
OPERATIVE AREA
OFFICE SLATINA
OPERATIVE AREA
OFFICE DONJI MIHOLJAC
OPERATIVE AREA
OFFICE BELI MANASTIR
TECHNICAL DOCUMEN-
TATION SECTION
CALL SERVICES
SECTION
MAINTENANCEUNIT
CUSTOMER
CONNECTIONUNIT
MEASUREMENTS
SECTION
SECTION FOR INSTITUTIONS,
SMALL BUSINESSES AND
PUBLIC BOILER PLANTS
CONTROLLINGSECTION
PLANNINGAND
DEVELOPMENT SECTION
CONSTRUCTION
SECTION
OSIJEK
OPERATIVE AREA
DEVELOPMENT AND
CONSTRUCTION UNIT
ODORIZATION
SECTION
RESIDENTIAL SECTION
PROCUREMENT
SECTION
PRE-CONSTRUCTION
SECTION
TECHNICAL
SUPPORT UNIT
SUPPLYAND
TARIFF SECTION
FINANCE SECTION
TECHNICAL
SECURITY SECTION
INDUSTRY SECTION ACCOUNTINGSECTION
225
Plin d.o.o. in 2007 HEP
Number of customers
Supply area
Osijek-Baranja County
Poega-Slavonia County
Virovitica-Podravina County
Total
53,497
6,959
3,370
63,826
GAS DISTRIBUTOR HEP - PLIN d.o.o.
Beli Manastir
Vukovar
Slavonski Brod
Nova Gradika
Virovitica
Vinkovci
upanja
HEPGroup
Structure of customers
Industrial
Commercial
Residential
Total
Procurement
Sales
Losses
Losses (%)
Gas lines owned by HEP d.d. (km)
Gas lines owned by other parties (km)
Gas lines total
Reducing stations DRS (number)
Odorizors (number)
5.9
13.0
3.8
4.3
0.4
-3.8
-4.6
-2.6
2.0
0.0
1.4
0.0
0.0
1,048
3,027
57,116
61,191
166,707
157,127
9,580
5,75
1,443
562
2,005
51
25
1,110
3,421
59,295
63,826
161,667
153,115
8,552
5,29
1,472
562
2,034
51
25
2007
2007.
2007
change (%)
change (%)
change (%)
2006
2006.
2006
Gas network
Energy balance (10
3
m
3
)
62,870
8,135
86,122
157,127
63,112
7,824
82,179
153,115
227
2007. change (%) 2006.
Structure of gas sales (10
3
m
3
)
Gas sales (10
3
m
3
)
Customer category
Industrial
Commercial
Residential
Total
0.4
-3.8
-4.6
-2.6
2006
2007
Industrial Commercial Residential
50,000
60,000
70,000
80,000
90,000
40,000
30,000
20,000
10,000
0
HEPGroup
Financial report
To the Owners of HEP Plin d.o.o.:
We have audited fnancial statements of HEP Plin d.o.o. (the Company), which comprise the balance
sheet as at 31 December 2007 and the related statement of income, statements of changes in equity and
of cash fows for the year then ended, and a summary of signifcant accounting policies and notes to the
fnancial statements
stances.
ducted our audit in accordance with International Standards on Auditing. Those standards require that we
our audit opinion
Opinion
In our opinion, fnancial statements present fairly, in all material respects, the fnancial position of the
in accordance with International Financial Reporting Standards..
Deloitte d.o.o.
Branislav Vrtanik, , Certifcated Auditor
HEP PLIN d.o.o., Osijek
229
Income Statement HEP Plin d.o.o.
fot the year ended 31 December 2007
2006 2007
HRK 000
Nikola Liovi
Managing Director
235,534
1,756
2,695
16,350
256,335
(201,396)
(3,412)
(15,601)
(14,012)
(4,313)
(19,080)
(257,814)
(1,479)
6,606
(70)
6,536
5,057
-
5,057
Gas sales
Service revenues
Income from related companies
Cost of power sources, fuel and material
Service expenses
Staff expenses
Depreciation and amortization
Expenses with related parties
Loss from operations
Financial income
Financial expenses
Net fnancial proft
Proft/ (Loss) from operations before tax
Income tax
Proft/ (Loss) for the year
242,312
1,464
2,544
7,129
253,449
(212,234)
(4,182)
(13,058)
(13,727)
(3,165)
(17,898)
(264,264)
(10,815)
3,614
(1,004)
2,610
(8,205)
-
(8,205)
HEPGroup
Nikola Liovi
Managing Director
ASSETS
31 December
2007
HRK 000
31 December
2006
Investment in progress and prepayments
Intangible assets
Inventories
Trade receivables
Total assets
157,690
5,967
157
163,814
2,951
67,524
987
3,622
33,236
108,320
272,134
158,803
5,935
77
164,815
2,490
66,559
1,681
6,424
19,778
96,932
261,747
Balance sheet HEP PLIN d.o.o.
at 31 December 2007
231
31 December
2007
HRK 000
31 December
2006
Balance sheet HEP PLIN d.o.o.
at 31 December 2007
Share capital
Accumulated losses
Total equity
Deferred income
Trade payables
Current portion of long-term liabilities to related Companies
20
(14,276)
(14,256)
68,989
95,794
1,770
166,553
43,785
63,096
8,865
4,091
119,837
272,134
20
(19,333)
(19,313)
90,101
90,439
2,001
182,541
45,410
37,099
9,768
6,242
98,519
261,747
Nikola Liovi
Managing Director
HEPGroup
eports by other HEP Group companies
233
HEP-Opskrba d.o.o.
HEP-Trgovina d.o.o.
HEP ESCO d.o.o.
APO d.o.o. usluge zatite okolia
Ustanova HEP - Nastavno-obrazovni centar
company profle
chairmans report
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development
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addresses
HEPGroup
As one of the subsidiary companies of HEP d.d.
which performs a core business activity, HEP
Opskrba d.o.o. had the following main business
objectives in 2007:
staffng and making the Company ready
to operate in a competitive market,
improving payment collection and/or re-
ducing debtor days,
keeping the existing and attracting new
customers,
adjusting the Company to market condi-
tions,
improving the public image of HEP by
improving relations with customers,
expanding our offer by introducing new
tariff models and providing additional services to
customers,
procurement and development of soft-
ware for business operations.

The business operations in 2007 unfolded under
complex conditions. Subordinate regulations ap-
plicable to the electricity market were not passed
until late in the previous year. By Decision of the
Owner electricity prices for all customer catego-
ries did not change.
The company, by decision of the director and
with approval of the Supervisory Board, adopted
Organization and Job Plan which created con-
ditions for the structuring and staffng in accor-
dance with the Companys requirements and
objectives of operating across Croatia.
The Company was preparing itself for doing
business in a competitive market. The number
of employees was gradually increased, from fve
at the beginning of the year to 23 on December
31, 2007, and organizational preconditions were
created accordingly. Education was provided
to new employees about the new and exacting
competitive business environment. Towards the
end of 2007, the problem of offce space was
solved by leasing, for the headquarters of the
Company.
In 2007, the Company sold a total of 947 GWh of
electricity which accounts for 6.3 percent of the
total electricity sold by HEP Group.
Relations with customers have been signifcantly
improved, one of the results being that debtor
days decreased from 62 to 40 days and from 34
to 9 days after due date. Contracting process
has also been greatly improved and shortened.
In 2007 a new project was undertaken whereby,
based on the agreement between the Ministry
of Economy, Labour and Entrepreneurship and
HEP, the Company extends loans to future cus-
235
tomers for their obligation to pay a charge for
connection to the distribution network in busi-
ness zones provided they conclude a multi-
year eligible customer supply contract. There-
by the Company on behalf of HEP Group made
another step towards electricity customers.
Thanks to the adjustment of the HEP Billing
software to the Companys needs, HEP Op-
skrba performs accounting and billing using
its own application. Processing of bank state-
ments and bookkeeping of all debts and pay-
ments are performed by the Company. This has
created conditions for the Company to manage
the business processes of accounting, billing
and payment collection. The results are visible.
Bills are issued promptly after metering data
are received. All payments are recorded on the
same date they are made, refecting the true
status of accounts receivable.
The business year 2007, from the point of view
of organization and preparation for doing busi-
ness in a competitive market, can be assessed
positively. A big step was made into a com-
pletely new area without any experience of
our own, but using the knowledge and skills
we have acquired through our previous work.

Ivan Mrljak
Director
MISSION - to provide custom-
ers with a quality electricity
supply service
VISION - to be the leading sup-
plier in the region
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
MANAGEMENT BOARD
Management
Boards Offce
Electricity
Procurement and
Sales Department
Marketing Department
Economic Affairs
Department
Organization chart
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HEPGroup
HEP Trgovina d.o.o. (HEP Trade) was established
as a company within HEP Group on March 1,
2007. During 2007, by optimizing the operation
of HEP Group power plants combined with sales
and purchase of electricity on the electricity
market the Company fulflled all of its business
tasks, thereby contributing to the fulfllment of
HEP Group mission. In discharging its day-to-
day duties the Company had to adjust to the
changing conditions in the electricity market, os-
cillations in electricity consumption, unfavorable
hydrologic conditions, and occasional unavail-
ability of generating plants. Despite unplanned
aggravating circumstances we have achieved
good business results thanks to, among other
things, the cooperation with other companies of
HEP Group.
In 2007 we began to activate our offces in neigh-
boring countries, which were set up to increase
profts by obtaining lower prices in electricity
trade and to be able to negotiate electricity sup-
ply contracts with customers in other countries.
During the year the employees participated in
national and international conferences, keeping
abreast of the developments and trends in the
electricity market, thereby contributing to the ful-
fllment of HEP Group vision. The company con-
tinued to actively participate in EFET (European
Federation of Energy Traders).
Total electricity consumption on the transmis-
sion network was 17,630 GWh, an increase of 2.6
percent compared to 2006 but a decrease of 0.8
percent compared to the consumption planned
in the electricity balance. HEPs customers ac-
counted for 95.4 percent of the consumption.
Due to a pronouncedly dry 2007, hydroelectric
production was lower by 27.1 percent compared
to the planned production. The shortage was
compensated by a 16.8 percent higher thermal
electric production and a 30.09 percent higher
import compared to the plan. Electricity export
was 65.6 percent higher than planned due to the
circumstances in the electricity market, increas-
ing HEP Group income.
During 2007 the volume of trade was realized in
the amount of 6,549 GWh, a 37.2 percent more
than planned, primarily due to the increased im-
port and export of electricity.
arko Mudrovi
Director
237
MANAGEMENT
BOARDS OFFICE
FOREIGN OFFICES
Production
Supervision and
Optimization
Short-Term
Planning
(Scheduling)
Medium-Term
Planning
Middle Offce Back Offce
Risk
Management
Front Offce
Organization chart
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SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
MANAGEMENT BOARD
HEPGroup
17,188
6,070
3,860
2,645
1,576
5,668
-2,691
60
17,188
17,630
4,357
5,444
2,714
1,401
5,098
-1,451
66
17,630
17,778
5,979
4,662
2,665
1,369
3,896
-876
83
17,778
-0.8
-27.1
18.8
1.8
2.3
30.9
65.6
-20.0
-0.8
2.6
-28.2
41.0
2.6
-11.1
-10.1
-46.1
10.7
2.6
2007 2007
(plan)
07/06 07/07 (plan) 2006
Electricity balance (GWh)
Total consumption on the transmission network
HPP production
TPP production
NE Krko d.o.o.
TE Plomin d.o.o.
Import
Export
Industrial and wind power plants
Available electricity
Volume of trade
Structure of electricity consumption in 2007 (GWh:%)
Import
Export
239
Other consumption 38; 0.2%
Transmission losses; 547; 3.1%
Energy for pumping; 234; 1.3%
Customers; 16811; 94.4%
volume: plan 2007: 4,772
export: plan 2007: 18.4%
import: plan 2007: 81.6%
volume: actual 2007: 6,549
export: actual 2007: 22.2%
import: actual 2007: 77.8%
5,000
6,000
7,000
4,000
3,000
2,000
1,000
0
G
W
h
5,098
3,896
876
1,451
HEPGroup
HEP ESCO d.o.o. is the frst company in the
Republic of Croatia that deals with preparation,
implementation and fnancing of energy effcien-
cy projects (ESCO Energy Service Company),
in which investment in the project is paid back
through savings in energy after the investment
is made. During its four years of existence HEP
ESCO d.o.o. has been implementing Energy Ef-
fciency Program in Croatia in collaboration with
the World Bank, the Government of the Republic
of Croatia, Ministry of Finance, Croatian Bank for
Reconstruction and Development (HBOR) and
HEP. The main objectives of the Program are:
promotion of the application of energy effciency
measures, better environmental protection, pro-
motion of small and medium enterprises and
greater interest of fnancial institutions in fnanc-
ing of energy effciency measures.
HEP ESCO d.o.o. in its work program has 50
projects in different stages of preparation and
implementation in all parts of Croatia. In this
way, and with education of clients (local com-
munities, cities, privately owned companies)
using concrete examples of how ESCO model
functions, the energy effciency market has rap-
idly expanded. HEP ESCO d.o.o. has expanded
its activities in the region too by providing con-
sultancy services related to the organization of
ESCO companies and to preparation and imple-
mentation of energy effciency projects. In 2007,
the cooperation continued with the Republic of
Macedonia on the program Macedonia Sustain-
able Energy. For the Polish company Przedsie-
biorstwo Osczedzania Energii ESCO sp.z.o.o.,
Krakow, training was delivered related to the
work of HEP ESCO and cooperation with clients.
With the Slovenian company ESCO SI, Maribor,
consultancy services were agreed relating to the
work of ESCO companies and preparation of en-
ergy effciency projects
Signifcant results have been achieved in promot-
ing small and medium enterprises through our
engagement in preparation and implementation
of energy effciency projects, which is important
for the economy of Croatia as a whole. Of the
total of 106 contracts concluded with domestic
companies, 97 were concluded with small- and
medium-sized companies.
Financial institutions in Croatia have recog-
nized commercial aspects of energy effciency
projects and/or their capability to pay for them-
selves. Participating in the fnancing of energy
effciency projects are: Zagrebaka banka,
Erste&Steiermrkische Bank, Privredna banka,
Raiffeisen Bank Austria Zagreb, Splitska banka
Societe Generale Group and OTP banka.
241
The market for HEP ESCO projects comprises
public lighting, buildings (schools, hospitals,
institutions, etc.), industry, including cogenera-
tion, especially fueled by biomass, and heating
systems. In the area of public lighting, projects
were completed in Rovinj, Novigrad, part of
Zagreb, Varadin, Karlovac and Jastrebarsko.
These involve the installation of new lighting
fxtures that use less electricity, with night
lighting controls.
In the area of buildings, a Sisak hospital proj-
ect was competed, and currently underway is a
Varadin hospital project. The hospital in Sisak
was connected to the district heating system
of the city of Sisak, and the hospital in Varadin
involves optimization of the heating system. Of
the projects in schools, heating and lighting
systems were upgraded and faade windows
and doors were renewed in 15 schools in the
city of Karlovac, Varadin County and the city
of Sisak, and now underway are projects in 20
schools in Karlovac County, Krapina-Zagorje
County and Varadin County (second round).
In the industrial sector, projects were complet-
ed in the factory Alsom and in the sugar fac-
tory Sladorana upanja, and currently under-
way is the biomass cogeneration construction
project at the wood industry Strizivojna Hrast.
Income in 2007 amounting to 22 million kuna
was realized from sales of services to exter-
nal parties and from the proceeds of GEF
grant which were used as planned for a part
of technical assistance, preparation of feasi-
bility studies and investment studies and for
procurement of some equipment and works
needed for the implementation of energy ef-
fciency projects on end user sites. The proft
in 2007 was 495 thousand kuna.

Gordana Lui
Director
European Energy Service
Initiative - European Energy
Service Awards proclaimed HEP
ESCO d.o.o the best European
company for 2007 that provides
energy services for energy
effciency projects.
Marketing and
Sales Section
Finance Section
Project Preparation
and Implementation
Section
Organization chart
company profle
chairmans report
presidents report
customer relations
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DIRECTOR
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
HEPGroup
APO d.o.o. usluge zatite okolia (APO Envi-
ronmental Protection Services) is a consulting
and engineering company specializing in en-
vironmental protection. In 2007, APO provided
services, in addition to HEP Group, to corpo-
rate entities, government bodies, counties and
units of local government and self-government.
Environmental protection activities in 2007 can
be divided into the activities in the area of envi-
ronmental protection, hazardous and radioactive
waste involving preparation of documents and
the activities of operational waste management.
During 2007, APO prepared and delivered to cli-
ents a total of 122 documents in the area of en-
vironmental protection and waste management.
The most important among them are:
- Strateges, programs: Draft Sustainable De-
velopment Strategy of the Republic of Croatia;
Cleanup Program for the environment of former
Electrode and Ferroalloy Factory; Cleanup Pro-
gram for Katele (cleanup of locations with larger
quantities of slag and ash) in the Katele Bay;
Clenup Program for a disposal area with larger
quantities of hazardous waste Lemi Brdo near
Karlovac
- Environmental Impact studies for: Plant for
mechanical and biological treatment of waste in
the Zadar County; wind power plants Graac-
Mazin; iarija, Kamensko Votane; Vratarua
- Senj and in the location Benkovac-Obrovac
(ZD2, ZD3 i ZD4); chicken farm construction
project for Perutnina Ptuj-Pipo d.o.o. akovec in
the area of Donji Kraljevec municipality; plant for
production of biodiesel; water treatment plant
in the industrial zone aporice; rehabilitation
of waste disposal facility Vladia jama including
a follow-up work and for the compost plant in
Klotar Ivani
- Environmental protection studies: Environ-
mental impact study for collection of electric and
electronic (EE) waste for the company Sirovina
- odlagalite d.o.o. Zadar; Environmental protec-
tion study for collection, storage and use of EE
waste of the company Eko Velebit; Environmental
impact study for a 100 yearlings farm, SAPARD
- Audit of environmental emergency plans
for the counties of Dubrovnik-Neretva, Krapina-
Zagorje and Zadar
- Environmental emergency action plans for:
plants and facilities owned by HEP ODS-a; rail-
road station Ogulin; fsh farm Vitunj; Public in-
stitution for sporting facilities Dubrovnik; boiler
plant Spar Hrvatska in Zadar; and Operational
plan of emergency measures in case of water
pollution accident for plants and facilities owned
by HEP ODS
Common Functions
and Public Relations
Section
Quality Assurance
Systems and
Technologies Section
Locations Section
Security and Risk
Assessmnet Section
Organization chart
243
- Waste management plans for demolition of
the chimney TGO, and for the companies Met-
al Moneta d.o.o. and Eko Velebit Graac
- Cleanup plans TS Bobovica; illegal dump
sites in the City of Duga Resa area and waste
disposal facility Sabubnike in Privlaka Munici-
pality; and cleanup and closure (removal) of il-
legal dump sites Biljane Donje in the City of
Benkovac area, Panos in the area of Povljana
Municipality and Posedarje-above the creek in
the Posedarje Municipality
- Other: Project to protect the environment
during the construction of the bridge mainland-
Peljeac; Audit of environmental compliance of
the highway ZagrebSplit-Dubrovnik, section
Bosiljevo-Sveti Rok; Public relations action
plan; Study of possible use of alternative fuels
in the plants of Dalmacijacement; Study enti-
tled Overview of legal frameworks for environ-
mental protection relevant to Dalmacijacement
d.d.; Study entitled Preparation and construc-
tion of a solar power plant using international
sources of fnancing.

Damir Subai
Director
company profle
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APO is the recipient of the state
award for achievements in the area
of environmental protection in the
category Waste Management, 1997
MANAGEMENT
BOARD
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
HEPGroup
HEP - Obnovljivi izvori energije d.o.o (HEP Re-
newable Energy Sources) began operational
work on February 1, 2007 upon taking over em-
ployees, fxed assets long-term tangible and
intangible assets, and HEP d.d. internal rules
and regulations. The objectives for 2007 includ-
ed selection of projects and locations for further
research, contacts with potential partners, spe-
cialized education for key staff and development
and introduction of appropriate business models
and tools.
During 2007 there were many legislative news in
the area of energy, including renewable energy
sources. In early July fve pieces of subordinate
legislation were passed which regulate the area
of production of electricity from renewable ener-
gy sources and cogeneration. These subordinate
regulations set out the mandatory share of 5.8
percent of electricity produced from renewable
sources in total consumption by 2010 (about
1,100 GWh).
In oder to prepare for the selection of potential
projects and locations, in 2007 studies were de-
veloped or underway to fnd suitable locations
for renewable energy projects (wind, biomass,
small hydro and solar power plants). An analy-
sis and assessment of individual locations was
performed, including site visits, and currently
underway are benchmarking studies for project
technologies and fnancing.
A questionnaire was drawn up for a preliminary
analysis of wind power projects and sent to
main potential partners. Based on the analysis
of responses two cooperation agreements on
renewavble energy projects were signed with
the Austrian companies BEWAG and Verbund
(owners of the Croatian company CEMP d.o.o.),
and with the Croatian company Dalekovod d.d..
The cooperation under the signed agreements
has been unfolding very intensively so that the
implementation of several joint wind power proj-
ects is certain.
Investigative work was carried out as well as
contacts with the local community in the area of
development of a biomass power plant project,
and a cooperation agreement was signed with
Croatian Forests which ensures supply of forest
biomass for the future plant. Attention was also
paid to small hydro power plants (a letter of in-
tent was sent for the purchase of a small hydro
power plant of Pamuna industria Duga Resa)
and to the development of geothermal power
projects in the locations of Lunjkovac-Kutnjak
and Velika Ciglena.
A regional step forward is characterized by the
activities to develop wind power projects and
Project Financing
and General Affairs
Section
Project Preparation
and Implementation
Section
Marketing and
Sales Section
Organization chart
245
small hydro power projects in Bosnia-Herze-
govina. Contacts were established with Croa-
tian and international institutions specialized
for renewable energy projects, including de-
velopment and commercial banks.
Key staff received specialized education in the
form of seminars, workshops, sessions and
conferences, including visit to renewable ener-
gy plants (biomass power plants, wind power
plants, small hydro power plants). HEP Ob-
novljivi izvori energije put up its website with
the aim of promoting renewable sources and
the Company itself inside and outside HEP
Group. Several presentations of the company
were held at domestic and international eco-
nomic and professional gatherings.
In the area of environmental protection, the
plan for the implementation of renewable en-
ergy projects developed by HEP OIE d.o.o. has
been integrated into the HEP Group Plan for
CO2 Emission Reduction.
Considering all of the above, it can be con-
cluded that the objectives set for 2007 have
been fulflled. Promising locations have been
selected, contacts with potential partners and
local communities have been established, co-
operation agreements with partners in the re-
gion have been signed and the company has
been successfully presented to the public.

Zoran Stani
Director
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
DIRECTOR
SHAREHOLDERS
ASSEMBLY
SUPERVISORY BOARD
HEPGroup
HEP Nastavno-obrazovni centar (HEP Education
and Training Center) in the two years of its inde-
pendent work has grown into a high class pro-
fessional institution for adult education, a place
where experts of all profles meet, exchange
views, take over and develop technologies. HEP
NOC provides training according to as many as
22 verifed programs and organizes seminars
and courses according to the needs of HEP
Group employees. At the same time HEP NOC
provides training and advanced training to HEPs
subcontractors and other companies that have
their own electricity distribution plants.
Our primary objective continues to be the in-
troduction of live work technology, and we can
proudly say that the results of the training have
been exceptionally good. This is best corrobo-
rated by the fact that our trainees after complet-
ing live work training have not experienced any
injury at work.
HEP NOC employs 11 people and has a low-
voltage ground polygon and a low-voltage un-
derground polygon, a medium-voltage ground
polygon, a high.-voltage polygon and six sup-
porting facilities covering in total an area of 4.5
hectares, and has 50 beds in 30 single and dou-
ble rooms which are suffcient for accommoda-
tion of trainees.
All of the objectives set in the Annual Plan for
2007 have been fulflled to a high percentage, as
can be illustrated by the following data. In 2007,
live work training was provided to 254 employ-
ees of HEP, of which 163 linemen and 91 super-
visors. HEP employees, 210 of them, attended
other types of training. In live work technology
training was delivered to 85 employees of other
companies, and other training programs and
educational seminars were attended by 54 em-
ployees.
HEP NOC in 2007 prepared two new educational
programs, intended solely for those adults that
have not fnished technical secondary school,
which were verifed by the Ministry of Education,
Science and Sport. These programs are for the
occupation of electrical installer assistant and
locksmith assistant.
During 2007 employees attended certain cycles
of andragonic education in accordance with ob-
ligations of Adult Education Act. The testing lab-
oratory of HEP NOC expanded the range of its
service by adding periodic testing of insulation
tools and equipment used by HEP ODS d.o.o.
and performed periodic testing for the needs of
seven HEP ODS distribution areas.
In 2007 HEP NOC retained all certifcates issued
247
by EdF SECRET for live work at low and me-
dium voltage. HEP NOC promoted itself at nu-
merous domestic and international gatherings
and congresses, including MIPRO, EDZ Sym-
posium and CIGRE congresses, at which HEP
NOC represented HEP as adult training and
education provider. Thanks to this approach,
new contracts were concluded for 2008. It
should be mentioned that HEP NOC has be-
gun to offer its services and to work with com-
panies outside Croatia such as Krko NPP and
Elektrodistribucija Sarajevo.
In order to expand its activities in the are of live
work technology, in 2007 HEP NOC prepared
the construction of a high voltage polygon with
three 400 kV towers and one 110 kV mantling/
dismantling pole. Modernization of plants and
obtaining of teaching aids continued.
In the second year of its independent exis-
tence, HEP NOC training courses and accom-
modation facilities were exceptionally well
booked. In 2007 there were 4,833 nights full
board, and almost 7,700 people underwent or
participated in different education programs,
seminars, working groups and gatherings. The
testing laboratory in 2007 checked and test-
ed more that 450 pieces of special insulation
tools. The majority of the educational programs
were conducted by the employees of HEP NO
and for specialized seminars and working ses-
sions external collaborators lecturers were
engaged.
We can conclude that we are content with
what we are able to do and offer today, but we
are aware that tomorrow we will have to do it
with higher quality and effciency, on market-
based criteria. Our mission through the entire
process of education of HEP employees is to
change the old work habits and instill the new,
to develop self-confdence and the sense of
belonging to the company with a special em-
phasis on rational and responsible behavior.
HEP NOC will thus in 2008 continue to suc-
cessfully provide adult education and to cre-
ate a positive image of HEP, a company that
cares about the wellbeing of its employees
and its customers.
Zdenko Mileti
Head of the Institution
HEP NOC objectives
Improve competencies of HEP
employee
Increase quality of electricity
supply
Introduce live work technology
at all voltage levels
Improve work safety and plant
protection
Improve competencies of HEPs
subcontractors
Develop our own educational
potential
Build a good image of HEP
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
HEPGroup
005 249
ddress list
HEPGroup
company profle
chairmans report
presidents report
customer relations
safety at work
development
auditors report...
reports by other...
addresses
HRVATSKA ELEKTROPRIVREDA d.d.
10000 Zagreb, Ulica grada Vukovara 37, Croatia
TELEPHONE: +385/1/6322 111
FAX: +385/1/6170 430
www.hep.hr
MANAGEMENT BOARD
Ivan Mravak
President of the Management Board
TELEPHONE: +385/1/6322 720
FAX: +385/1/6170 439
ivan.mravak@hep.hr
Darko Dvornik, Member of
Management Board
TELEPHONE: +385/1/6170 469
FAX: 01/ 63 22 651
darko.dvornik@hep.hr
eljko Kljakovi Gapi, Member
of Management Board
TELEPHONE: +385/1/6170 468
FAX: +385/1/6170 479
zeljko.kljakovic-gaspic@hep.hr
Nikola Rukavina, Member of
Management Board
TELEPHONE: +385/1/6321 871
FAX: 01/ 63 21 870
nikola.rukavina@hep.hr
eljko Tomi, Member of
Management Board
TELEPHONE: +385/1/6170 475
FAX: +385/1/6170 467
zeljko.tomsic@hep.hr
Stjepan Tvrdini, Member of
Management Board
TELEPHONE: +385/1/6170 448
FAX: +385/1/6171 169
stjepan.tvrdinic@hep.hr
OFFICE OF MANAGEMENT BOARD
Marija Modri - Head
TELEPHONE: +385/1/6171 294
FAX: +385/1/6322 787
marija.modric@hep.hr
HR MANAGEMENT, LEGAL AND
GENERAL AFFAIRS DIVISION
Frane Barbari Director
TELEPHONE: +385/1/6322 311
FAX: +385/1/6322 060
frane.barbaric@hep.hr
INFORMATION TECHNOLOGY AND
TELECOMMUNICATIONS DEPARTMENT
Branimir Deli Director
TELEPHONE: +385/1/6322 126
FAX: +385/1/6170 438
branimir.delic@hep.hr
INTERNAL AUDT DEPARTMENT

Stanko Toki Director
TELEPHONE: +385/1/6170 436
FAX: +385/1/6322 381
stanko.tokic@hep.hr
HEP-PROIZVODNJA d.o.o.
TELEPHONE: +385/1/6322 111
Petar ubeli Director
TELEPHONE: +385/1/6322 987
FAX: +385/1/6172 016
petar.cubelic@hep.hr
Dubravko Lukaevi - Assistant Director
TELEPHONE: +385/1/6322 464
FAX: +385/1/6171 197
dubravko.lukacevic@hep.hr
HEP Group address list
251
Josip Perica Assistant Director
TELEPHONE: +385/1/6322 944
FAX: +385/1/6171 197
josip.perica@hep.hr
HYDRO POWER PLANTS DEPARTMENT
Josip Gabela Director
TELEPHONE: +385/1/6171 084
FAX: +385/1/6172 016
josip.gabela@hep.hr
THERMAL POWER PLANTS DEPARTRMENT
Damir Kopjar Director
TELEPHONE: +385/1/6131 691
FAX: +385/1/6131 979
damir.kopjar@hep.hr
HEP OPERATOR PRIJENOSNOG
SUSTAVA d.o.o.
10000 Zagreb, Kupska 4, Croatia
TELEPHONE: +385/1/6322 111
Dubravko Saboli Director
TELEPHONE: +385/1/6322 317
FAX: +385/1/6170 442
dubravko.sabolic@hep.hr
Igor Ivankovi Assistant Director
TELEPHONE: +385/1/6321 851
FAX: +3851/6170 442
igor.ivankovic@hep.hr
Marko Lovri Assistant Director
TELEPHONE:+385/21/405 800
FAX: +385/21/405 808
marko.lovric@hep.hr
Miroslav Mesi Assistant Director
TELEPHONE: +385/1/6322 036
FAX: +385/1/6322 977
miroslav.mesic@hep.hr
SYSTEM OPERATION DEPARTMENT
Tomislav Plavi Director
TELEPHONE: +385/1/6321 847
FAX: +385/1/6322 187
tomislav.plavsic@hep.hr
CONSTRUCTION AND INVESTMENT
DEPARTMENT
eljko Koak Director
TELEPHONE: +385/1/6322 733
FAX: +385/1/6322 277
zeljko.koscak@hep.hr
DFVELOPMENT AND INSTITUTIONAL
COOPERATION DEPARTMENT
Damjan Meimorec Director
TELEPHONE: +385/1/6322 608
FAX: +385/1/6322 564
damjan.medjimorec@hep.hr
INFORMATION AND COMMUNICATION
TECHNOLOGIES DEPARTMENT
Rajko Ugljea Director
TELEPHONE: +385/1/6322 652
FAX: +3851/6171 179
rajko.ugljesa@hep.hr
ECONOMIC, LEGAL AND PERSONNEL
AFFAIRS DEPARTMENT
Dragutin Dvorski Director
TELEPHONE: +385/1/6322 734
FAX: +385/1/6322 465
dragutin.dvorski@hep.hr
HEP - OPERATOR DISTRIBUCIJSKOG
SUSTAVA d.o.o.
10000 Zagreb, Ulica grada Vukovara 37,
Croatia
TELEPHONE: +385/1/6322 111
Mio Jurkovi Director
TELEPHONE: +385/1/6322 023
FAX: +385/1/6170 956
miso.jurkovic@hep.hr
HEPGroup
Ante Pavi Assistant Director
TELEPHONE: +385/1/6322 757
FAX: +385/16322 797
ante.pavic@hep.hr
eljko Vrban Assistant Director
TELEPHONE: +385/1/6321 891
FAX: +385/1/6170 956
zeljko.vrban@hep.hr
NETWORK MANAGEMENT AND IT
SUPPORT DEPARTMENT
Darko Vidovi Director
TELEPHONE:+385/1/6322 916
FAX: +385/1/6322 797
darko.vidovic@hep.hr
INVESTMENT AND CONSTRUCTION
DEPARTMENT
Anelko Tunji Director
TELEPHONE: +385/1/6322 899
FAX: +385/1/6322 797
andelko.tunjic@hep.hr
NETWORK DEVELOPMENT AND
ACCESS DEPARTMENT
Vinko Fabris Director
TELEPHONE: +385/1/6322 827
FAX: +385/1/6322 797
vinko.fabris@hep.hr
DEPARTMENT FOR SUPPLY TO TARIFF
CUSTOMERS AND CUSTOMERS
WITHOUT SUPPLIER
Zvonko Stadnik Director
TELEPHONE: +385/1/6321 438
FAX: +385/1/6322 409
zvonko.stadnik@hep.hr
HEP OPSKRBA d.o.o.
Ivan Mrljak Director
TELEPHONE: +385/1/6321 432
FAX: +385/1/6322 409
ivan.mrljak@hep.hr
Ante Matijevi - Assistant Director
TELEPHONE: +385/1/63 21 869
ante.matijevic@hep.hr
MARKETING DEPARTMENT
Nada Podnar Director
TELEPHONE: +385/1/6321 930
FAX: +385/1/6322 409
nada.podnar@hep.hr
HEP-TOPLINARSTVO d.o.o.
10000 Zagreb, Mieveka 15 a, Croatia
SWITCHBOARD: +385/1/6009 555
Robert Krklec Director
TELEPHONE: +385/1/6131 983
FAX: +385/1/6131 978
robert.krklec@hep.hr
HEATING NETWORKS
Mijo Marovi Director
TELEPHONE: +385/1/6131 999
FAX: 01/ 61 31 978
LOCAL BOILER PLANTS
Boris Pavli Director
TELEPHONE: +385/1/6131 972
FAX: +385/1/6009 628
boris.pavlic@hep.hr
253
OSIJEK OPERATIVE AREA
31000 Osijek, Ulica cara Hadrijana 3
SWITCHBOARD: +385/31/244 888
Ivica Mihaljevi Director
TELEPHONE: +385/31/244 748
FAX: +385/31/244 981
ivica.mihaljevic@hep.hr
SISAK OPERATIVE AREA
Damir Surko Director
44010 Sisak, Ulica Marijana Cvetkovia bb
TELEPHONE: +385/44/538 623
FAX: +385/44/538 494
damir.surko@hep.hr
HEP-PLIN d.o.o.
31000 Osijek, Cara Hadrijana 7, Croatia
SWITCHBOARD: +385/31/244 888
Nikola Liovi Director
TELEPHONE: +385/31/244 650
FAX: +385/31/213 199
nikola.liovic@hep.hr
TECHNICAL DEPARTMENT
Zoran Pul, Director
TELEPHONE: +385/31/244 665
FAX: +385/31/213 099
zoran.pul@hep.hr
OPERATION AND MAINTENANCE
DEPARTMENT
Zlatko Tonkovi, Director
TELEPHONE: +385/31/244 656
FAX: +385/31/213 199
zlatko.tonkovic@hep.hr
SUPPLY DEPARTMENT
Zvonko Ercegovac, Director
TELEPHONE: 031/244 644
FAX: 031/213 199
zvonko.ercegovac@hep.hr
HEP TRGOVINA d.o.o.
Croatia
arko Mudrovi Director
TELEPHONE: +385/1/6171 174
FAX: +385/1/6170 478
zarko.mudrovcic@hep.hr
Pavao Bujas Assistant Director
TELEPHONE: +385/1/6322 826
FAX: +385/1/6170 478
pavao.bujas@hep.hr
HEP ESCO d.o.o.
Croatia
Gordana Lui Director
TELEPHONE: +385/1/63 22 302
FAX: +385/1/6322 459
gordana.lucic@hep.hr
Jasmina Fanjek Assistant Director
TELEPHONE: +385/1/6322 355
FAX: +3851/6322 459
jasmina.fanjek@hep.hr
HEP OBNOVLJIVI IZVORI
ENERGIJE d.o.o.
10 000 Zagreb, Ulica grada Vukovara 37,
Croatia
Zoran Stani, Director
TELEPHONE: +385/1/6322 857
FAX: +385/1/6322 531
HEP Group address list
HEPGroup
APO d.o.o., usluge zatite okolia

10000 Zagreb, Savska cesta 41/IV, Croatia
Damir Subai Director
TELEPHONE: +385/1/6311 999
FAX: +385/1/6176 734
damir.subasic@apo.hr
HEP NASTAVNO-OBRAZOVNI CENTAR
34330 Velika, Luke Ibriimovia 9, Croatia
Zdenko Mileti Head
TELEPHONE: +385/34/313 037
FAX: +385/34/233 084
zdenko.miletic@hep.hr
HEP - ODMOR I REKREACIJA d.o.o.

Edo Virgini Director
TELEPHONE: +385/1/6322 845
FAX: +385/1/63 22 080
edo.virgini@hep.hr
CS BUKO BLATO d.o.o.
80101 Livno, Podgradina bb,
BosnIa and Herzegovina
Pero Kasalo - Director
TELEPHONE: ++387/34/245 148
FAX: ++387/34/245 666
pere.kasalo@hep.hr
TE PLOMIN d.o.o.
52234 Plomin, Plomin luka bb, Croatia
SWITCHBOARD: +385/52/ 866 400
Rallf Blomberg Member of
Management Board
TELEPHONE: +385/52/866 420
FAX: +385/52/863 447
ralf.blomberg@hep.hr
Sero Klapi Member of
Management Board
TELEPHONE: +385/52/866 420
FAX: +385/52/863 491
serdjo.klapcic@hep.hr
PLOMIN HOLDING d.o.o.
52234 Plomin, Plomin b.b., Croatia
Marino Roce Director
TELEPHONE: +385/52/863 347
FAX: +385/52/863 344
marino.roce@hep.hr
HPP hydro power plant
CS pumping station
TPP thermal power plant
CCPP combined-cycle power plant
EL-TO power plant-heating plant
TE-TO thermal power plant heating plant
NPP nuclear power plant
TS transformer station
NN Narodne novine, Croatian Offcial Gazette
HERA Croatian Energy Regulatory Agency
HROTE Croatian Energy Market Operator
EFET European Federation of Energy Traders
UCTE Union for the Co-ordination of Transmission of Electricity
ETSO European Transmission System Operators
(HRO) CIGRE (Croatian Committee of) International Council on Large Electric Systems
CIRED International Conference on Electricity Distribution
IAEA International Atomic Energy Agency
IEEE Institute of Electrical and Electronics Engineers
EDZ Electrical Engineering Society Zagreb
EIC ETSO identifcation code
BVQI Bureau Veritas Quality Insurance
FINA Financial agency
ECDL - European Computer Driving Licence
RETZOK Accounting for expenses for nature and environmental protection
LNG Liquifed natural gas
CISEM Central information system for monitoring of emissions of pollutants into the air
DISPO program for statistical processing of distribution reliability
MTU ripple control units
GEF Global Environment Facility
SAPARD Special Accession Program for Agriculture and Rural Development
255
Abbreviations used in the Report HEP Group address list
HEPGroup
Publisher:
Hrvatska elektroprivreda d.d. (HEP d.d.)
Zagreb, Ulica grada Vukovara 37, Croatia
Tel.: +385/1/63-22-111; www.hep.hr
For the Publisher:
Ivan Mravak
Production:
Public Relations and Information Unit
Unit Head:
Mihovil-Bogoslav Matkovi
Editor:
Darko Alfrev
Graphic Design:
Fimimedia d.o.o.
Print:
Tiskara Bauer

2007 Annual

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