REG - Public Power Corp - Annual Financial Report <Origin Href="QuoteRef">DEHr.AT</Origin> - Part 11
07/04/2017 18:40
- Part 11: For the preceding part double click ID:nRSG9898Bj
Environmental Permit for Amyntaio and Megalopolis Mines.
CO2 Emissions
During March and May 2013, CO2 emission licenses have been issued for all 31 PPC installations, for the 3rd implementation
phase of the European Union Emissions Trading System (EU ETS phase III, from 1 January 2013 to 31 December 2020). By
November 2015 the license of the Lignite Centre of Western Macedonia thermal station was revoked due to its decommissioning
and as a result PPC's bound installations amount to thirty (30).
By the end of March 2017, the verification of the annual emissions reports of all 30 bound plants of PPC for 2016 by
accredited third party verifiers was completed successfully and the reports were promptly submitted to the Competent
Authority, according to the current legislation. The total verified emissions for 2016 amounted to 28.4 Mt CO2.
COMMITMENTS - INVESTMENTS
A new Steam Electric unit 660 MW in Ptolemaida
The drawing up by the Contractor of the studies for the Project licensing and their submission to PPC for review have been
completed. Οn 24.04.2015, the Installation License of the Project was issued by the Ministry of Reconstruction of
Production, Environment and Energy. On 01.07.2015 the Building Permit was issued and the Contractor was informed
accordingly. Following that, PPC paid to the Contractor the first advance payment of Euro 198 mil. against a Letter of
Guarantee of Advance Payment of Euro 227 mil., which was submitted to PPC by the Contractor, in order for the second stage
(construction) of the Project to start.
The construction on the Project will be completed within 50 months as from the date of issuance of the Building Permit and
the signing of the relevant Protocol for unhindered access to the Worksite and the necessary utilities (water, power). The
above mentioned Protocol was signed on 24.11.2015.
The second advanced payment of Euro 198 million was paid to the Contractor in August 2016, following the Contractor's
request for the granting of the second advanced payment and the presenting of the relevant Letters of Guarantee amounting
to Euro 227 mil. in accordance with the conventional provisions. Civil engineer works at the site are underway. Moreover,
PPC's examination of the submitted by the Contractor updated time schedule for the second stage of the Project is in
progress.
37. COMMITMENTS, CONTINGENCIES AND LITIGATION (CONTINUED)
On 31.12.2016 the total expenditure for the Project amounted to Euro 562 mil.
Expropriation in Ptolemaida
In October 2016, the Parent Company submitted in the Deposits and Loans Fund an amount of Euro 144.1 mil., for the
compensation of owners of properties, for the relocation of Pontokomi village in order to be able to utilize underlying
lignite deposits for the new «Ptolemaida V» Unit.
A new diesel engine Power Plant 115,4ΜW in South Rhodos burning of heavy fuel oil with low sulphur content
Civil engineer works as well as the installation works of the machines and other electrical equipment are in progress.
From 18.10.2016, the installation works of coastal installations networks, which were interrupted in the summer were
restarted.
On 31.12.2016 the total expenditure for the project amounts to Euro 148 mil.
Α new combined cycle unit at Megalopolis 811ΜW
The Unit was put into commercial operation on 27.01.2016. The Commercial Operation of the Unit ended on 09.06.2016.
Recently, performance tests of the Unit have been executed and the submission of the evaluation reports for the said tests
is expected by the Third Party.On 30.11.2016, the Temporary Acceptance Procedure of the Unit was started.
On 31.12.2016 the total expenditure for the Project amounted to Euro 514 mil.
PPC Renewable (PPCR)
Hybrid Project in Ikaria
The project of a 6.85 MW total capacity combines the utilization of two renewable energy sources, Wind and Hydroelectric.
The wind park is expected to be in operation in 2017 and the whole project to be in operation in 2019.
Until today, material supplies and works have been completed at a rate of about 85%.
Exploitation Rights of the geothermal fields
An invitation of tender was decided for the selection of a Consultant on Financial, Legal and Technical Services, in order
to prepare and conduct all relevant procedures to find and select a Partner, and with the aim of the development of leased
geothermal areas, Milos-Kimolos-Polyaigos, Nisyros, Lesvos and Methana.
Biomass project
RAE with its Decision No. 327/2016, issued an amendment of the initial license for electricity production (initial RAE
Decision No. 382/2015) from a biomass power station of 25MW. The amendment of the license refers to the installation area
of the biomass power plant, which is in the "Western Macedonia Lignite Center of the Municipal Unity Filota, on the
municipality of Amyntaio, Florina Regional Unity".
Transfer of Wind Park's Electrical Energy Production License in Voreino Pellas area
On 14.07.2016, PPC Renewables S.A proceed to the acquisition of the Power Generation License of Wind Park Fidopetra of a
capacity of 14 MW by the Voreino Pellas S.A., in which PPC Renewables S.A. owns 49% of the shares.
Repowering of SHPP Louros
On April 15th 2016, PPC Renewables issued a public tender concerning the assignment of the project for the modernization
and renovation of SHHP LOUROS, of a nominal capacity of 8.84 MW. The offer submission was on 28.06.2016. The tender is in
the phase of the contract awarding process and the signing of the construction contract.
Repowering of 11 Wind Parks in the Aegean and of the Wind Park of Toplou Monastery
On 23.12.2016, PPC Renewables S.A. issued two International Public Tenders concerning the assignment of the following
projects: a) Design, Procurement, Transport, Installation and Operation, of Eleven (11) Wind Parks in Aegean Sea of 24.30
MW total capacity, with a budgeted cost of Euro 29.34 mil. and b) Design, Procurement, Transport, Installation and
Operation of one (1) Wind Park in Moni Toplou in Crete of 7.50 MW total capacity, with a budgeted cost of Euro 9.18
mil.The above mentioned open Tenders have been declared unsuccessful, as there was no offer for these Tenders.
Subsequently, PPC Renewables S.A. proceeded in an invitation for participation in a negotiation procedure, without any
publication of a Tender for the above mentioned Projects.
37. COMMITMENTS, CONTINGENCIES AND LITIGATION (CONTINUED)
IPTO S.A.
New investments by IPTO in the Energy Transmission System
· High Electrical Interconnection of "NEA MAKRI - POLYPOTAMOS" and High Voltage Network in South Evia
Following yearly endeavors, the subterranean interconnection section between the Nea Makri High Voltage Center to the
Polypotamos High Voltage Center was successfully electrified on 07/04/2015. The overhead cable of the interconnection
between the Polypotamos High Voltage Center and South Evia (Evia 7 High Voltage Center) has been received with some
qualifications. The above mentioned portion was successfully electrified on 24/07/2015 and was then turned off, still
remaining inactive as Wind Power Stations in the southern tip of Evia are paused at present by the users of the project.
Small civil engineer works to the Terminal Polypotamos and to the Polypotamos Substation which do not impede in case of the
Interconnection put into commercial operation are pending. Until today IPTO proceeded in signing interconnection contracts
with only 8 of the 41 users of projects who have production license. Due to non coverage of the total cost of project
amounting Euro 77,7 by the users of the project and to the fact that the covered capacity of the Wind Power Stations with
interconnection contract fell short to the project's capacity, RAE by its decision 453/2015 and before the deadline of
signing the interconnection contracts, for an effective regulatory policy in order to avoid significant fluctuations from
year to year in tariffs of users of the national network, approved, as System Operator, an amount of Euro 30 mil. for 2016
that should be included in the Required Revenue of IPTO (in the term K of the calculation ratio of the Required Revenue) so
as the cost of the project to be covered by the use of transmission system charges. In accordance with RAE's decision
No.404/2016, the remaining amount of the construction project which has not been covered by the users will be divided
equally into six years starting in 2017 (Euro 7.6 mil. annually).
· High Voltage Center (HVC) in Aliveri
The construction of Aliveri's (GIS) HVC, which will serve the new thermal power unit and RES generators in Evia, was
concluded and is in operation. On 24.12.2015 the temporary as well as the final acceptance of the HVC were concluded.
· High Voltage Center (HVC) in Megalopolis and connection with the Transmission System (400 kV and 150 kV)
Within a time frame of only two years, IPTO constructed the new High Voltage Center (HVC) of GIS type and open air
insulation in Megalopolis. The HVC was electrified in August 2013. The project was co-financed by the NSRF 2007-2013.
The construction of the 150 kV interconnecting transmission lines of the HVC as well as both 400 kV transmission lines
connecting the HVC with the new natural gas unit of Megalopolis V, have been concluded.
As far as the construction of the 400 kV interconnection lines of the Megalopolis HVC to the Patra area and from there
through submarine and overhead transmission lines to the 400 kV Mainland System, land expropriations following the approval
of Environmental Terms on May 23, 2014 were concluded. It must be noted that there is a recourse against the Ministry of
Environment (currently the Ministry of Reconstruction of Production, Environment & Energy) in the State Council against the
annulment of the obligatory land expropriations in the Antirio area and objections to the construction of the transition
station in the area of the Patras University. In order to override objections a modification for the Environmental Study
for the 400Kv transmission line (Athens - Aheloos) - Interconnection to Antirio - Patras HVC - as well as for the 400kV
Patras HVC - Megalopolis HVC was submitted on August 6th, 2015 and on October 19th, 2015 respectively to the appropriate
authorities. At the same time a terminal point location outside the University of Patras area has been found. The
Environmental Study and the approval from the Forest Authority are pending. At the same time the related preliminary
construction works of the overhead transmission line are in progress.
· Interconnection of Cyclades to the Mainland Transmission System
The contracts concerning Phase A' of the project have been signed since September 10, 2014 with the four contractors of the
project with a cost of Euro 231 mil., approximately.
The submarine cables of the interconnection of Lavrio-Syros (Group A) and Syros - Mykonos, Syros-Paros and Syros-Tinos
(Group B) have been constructed, immersed, tested and temporarily accepted by IPTO. The submarine cable on Tinos has also
been constructed and installed. The installation works of underground parts of the cable connections are pending since the
construction of the High Voltage Stations have not been completed yet. Civil engineer works on the High Voltage Stations in
Lavrio, Syros, Paros and Mykonos (Group C) are in progress while the E/M instalations have begun. Civil engineer works as
well as most of the E/M works of the Automatic Compensation of Reactive Power - SVC (Group D) have been completed, tested
and temporarily accepted by IPTO, with the exception of installation parts concerning to interfaces spots with the High
Voltage Station in Syros, which may be completed when the construction of the High Voltage Station in Syros will be
completed.
37. COMMITMENTS, CONTINGENCIES AND LITIGATION (CONTINUED)
The overall project is estimated to be completed during the third Quarter of 2017.
The project was co-financed by the NSRF 2007-2013 and its co-financing continues by the NSRF 2014-2020.
· Interconnection of Crete to the Mainland Transmission System
IPTO has proceeded to preliminary actions for the implementation of the project aiming to achieve Phase I (Alternating
Current or AC) towards the end of 2019 to early 2020 and the main interconnection Phase II (Direct Current or DC) at the
end of 2023. In the abovementioned context, a seabed's preliminary study for the main interconnection (DC) has been
conducted in collaboration with the University of Patras. At the same time the locations for the construction of terminal
stations in Crete as well as the location of the lagoon for the installation of electrodes have been finalized. The
consultation with the local authorities in Crete is in progress.
The route and the finalization of the required projects for the Phase I of the Interconnection (Alternating Current or AC)
have been completed. This interconnection will connect the High Voltage Center (HVC) of Molai with the High Voltage Center
(HVC) of Chania. The submarine cable Ε.Ρ, 150 kV, 200 MVA will connect the Southern tip of Cape Malea with the beach in
Kissamos Bay Chania and from there will terminate to the High Voltage Center (HVC) of Chania. The Environmental Impact
Assessment (EIA) was submitted to the Ministry of Energy on October 31st 2016. The proposal submission for co-financing by
the NSRF 2014-2020 has been scheduled.
· Project for the reinforcement of the "Nea Santa" High Voltage Center (HVC)
The "Nea Santa" HVC is a project of extreme importance for the Eastern Macedonia and Thrace areas. Through the "Nea Santa"
HVC the interconnection of the Hellenic Electricity Transmission System with the Turkish one and the Bulgarian one
(Maritsa) in the future, the absorption of the total of the produced energy by the new RES station in Thrace as well as the
upgrade of the reliability of the Northeastern System have been achieved. The project is in the acceptance stage.
This project has been co-financed by the NSRF 2007 - 2013.
· Construction project for the transmission line of 400 kV between the Lagadas and Filippi HVCs.
In July 2014, the contract for the construction of the transmission line 400 kV from the HVC Lagadas to the HVC Filippi,
with a length of 110 km, was signed with ATERMON S.A. as the contractor and a contractual price of Euro 26.7 mil. The
project includes and the relocation of the existing transmission line from the HVC Filippi to another location in order to
create space for the connection of the transmission line 400 kV from the HVC Lagadas to the HVC Filippi. The construction
works began in August 2014 and were completed within the contractual time in October 2016.
The project is of great importance as it contributes, along with the other transmission projects scheduled in this region,
in achieving the following objectives:
o strengthening the interconnection Greece-Turkey and in general of Turkey with the European System,
o increasing the transmission capacity from Romania-Serbia-Bulgaria to Greece-FYROM-Albania,
o providing access to new thermal power plants that have been licensed in the area,
o increasing wind penetration in Eastern Macedonia and Thrace area and finally
o enhancing the reliability of the Transmission System between Thessaloniki area and Eastern Macedonia and Thrace area.
The project is being co-financed by the NSRF 2014 - 2020.
· Project of upgrading System 400 kV
· Projects for the replacement of switches 400kV in HVC Pallini, Κardia, Larissa, Thessaloniki, Larimna and Distomo.
Works on HVC Pallini, Kardia and Larimna have already been completed.
In particular, obsolete switches 400kV of air insulation replaced with new ones SF6.
· Projects Compensation of Reactive Power of the transmission line 400kV with installation of self-inductors 400kV.
In particular the installation of self-inductors 400 kV - 30 MVAr in HVC Larimna (2), HVC Agios Stefanos (2) and two (2) 50
MVAr in HVC Aliveri have been included in the investment plan. All the above mentioned installations have been completed
with the exception of one (1) in HVC Larimna due to the delay of the licensing of the civil engineer works. Moreover the
siting of three (3) self-inductors 400 kV in HVC Megalopolis and one (1) self-inductor 400kV in HVC Acheloos and one (1)
self-inductor 400 kV in HVC Distomo have been completed.
37. COMMITMENTS, CONTINGENCIES AND LITIGATION (CONTINUED)
Ten Year Network Development Plan (TYNDP) of the subsidiary IPTO S.A.
From February 17th to March 16th, 2017, IPTO, by its BoD's Decision 9/16.02.2017, put into public consultation the
preliminary draft of the TYNDP for the period 2018-2027. Following that and after taking under consideration the outcome of
the above mentioned public consultation, IPTO will submit the draft of the Ten Year Network Development Plan (TYNDP)
2018-2027 to RAE.
Business Collaborations
Memorandum of Cooperation between PPC and DEPA
On 08.09.2016, PPC and DEPA signed a memorandum of understanding according to which they will jointly explore the
possibility of cooperation in the supply of power generation units in the Non-Interconnected system with liquefied natural
gas, and the development of natural gas distribution systems in neighboring and / or remote areas that are not supplied by
DEPA network, as well as in providing combined energy products. Possible cooperation will be initially explored in Crete,
Rhodes, Patra, Lesvos and Samos, while it may expand to other areas. The two companies have set up Working Groups to
implement the Memorandum of Cooperation.
Memorandum of Understanding between PPC and CMEC
On 14.09.2016 PPC and Chinese company China Machinery Engineering Corporation (CMEC) signed a Memorandum of Understanding,
according to which CMEC will explore its interest in participating, along with PPC, in a company which will undertake the
construction and operation of the already licensed lignite plant Meliti II, the operation of the existing plant Meliti I,
as well as the development and exploitation of lignite mines in Meliti - Florina region. Planning of the company includes
the participation of other partners with mining activities in the area. Participation of each of the participants in the
company will be proportional to the value of the assets that will be contributed. Moreover, on October 24th 2016 PPC and
CMEC signed a Strategic Cooperation Agreement, under which the two companies will be examining in the future their
cooperation for investing in Greece and other countries of interest.
Project for disposal of a segment of customer portfolio
Law 4336/2015 provides the gradual reduction of PPC's retail market shares in order to reach a below 50% level in 2020. In
order to be achieved this share loss, PPC through NOME type of auctions will provide access to third parties on its
electricity generation in very low prices.
The planned project involves the disposal of a segment of PPC's customer portfolio in third parties through an
International Tender. PPC's aim, is to achieve a reduction of its market share by maintaining greater control over its
client mix, as well as preventing the adverse effect of NOME auctions on its profitability.
Technical-economic and legal consultant have been hired in order to support PPC in designing and implementation of the
Tender and of the transaction.
PPC's Participation in the Concession Tender of HPP Menzelet and Kilavuzlu in Turkey
PPC Elektrik Tedarik ve Ticaret Anonim Şirketi, a wholly owned PPC subsidiary trading company in Turkey, participated, upon
a Parent Company's BoD decision, in the concession tender of HPP Menzelet and Kilavuzlu in Turkey but has not declared a
preferred bidder.
Collaboration framework with DEPA S.A.
PPC covers its needs for natural gas by the new contract signed on October 29th, 2012 with DEPA which pertains to the
procurement and transportation of natural gas through the Hellenic Natural Gas System (HNGT).
Following DEPA's commitments, which were accepted by the Competition Commission in relation to the existing contractual
quantitative obligations by DEPA's clients, the Parent Company proceeded for the years 2015, 2016 and 2017 to the
readjustment of the Annual Contractual Quantity according to its real needs.
Since 2013 - and until today - DEPA has proceeded to the unilateral determination of the implementation of the new DESFA
tariffs on the contract between DEPA - PPC, as far as the usage cost of borders' entry points is concerned, as well as the
pricing of natural gas purchases. The above mentioned charges have not been accepted by PPC and the relevant amounts of the
invoices issued by DEPA, have not yet been paid. The negotiations between the parties for the settlement of the
aforementioned abeyance are in their final stages.
Furthermore, the certification of the relevant calculation formulae by an independent verifier, in accordance with the long
term contracts between DEPA and its suppliers, is still pending for the previous years (2012-2015).
Following the publication of the revised Operational Code for the National Gas System and in accordance to both the
contractual provisions as well as DEPA's commitments to the Competition Commission, the latter has sent to PPC a draft
version of the contract for the supply of natural gas without the inclusion of transportation service through the national
network. This draft version will be examined in light of the final arrangements that resulted from the amended National Gas
System Management Code as well as the new use charges tariffs.
37. COMMITMENTS, CONTINGENCIES AND LITIGATION (CONTINUED)
Finally it should be noted that an additional expenditure of Euro 24 mil. was incurred by PPC, due to the revision
(increase) of the natural gas supply price in the contract between DEPA - BOTAS for the years 2012-2015, following a
relevant decision of the International Court of Arbitration that settled the dispute between the two aforementioned
companies. This amount is payable to DEPA in twelve (12) equal monthly interest free installments, starting from October
2016.
Special Consumption Tax on Electricity
In implementing the audit findings by the Audit Department of the Customs House regarding the special consumption tax on
electricity self-consumption by power plants, the Parent Company includes in its monthly special consumption tax returns
the related tax and pays it with recourse, while also resorting to the Administrative Courts. The Parent Company will
continue to pay with recourse, the relevant special consumption tax on self-consumed electricity until a final decision by
the court is issued.
The Group and PPC are subject to certain laws and regulations generally applicable to companies of the broader public
sector
As long as the Hellenic Republic, as the major shareholder of PPC, holds 51% of its share capital, the Company shall, in
some respects, continue to be considered a public sector company in Greece. Therefore, its operations shall continue to be
subject to certain laws and regulations generally applicable to public sector, affecting thus specific procedures,
including but not limited to personnel salaries, maximum level of salaries, recruitments of employees, as well as the
procurement policies etc.
The said laws and regulations, particularly within the framework of the current financial conjecture and the relevant
decisions of the Central Administration, which are not expected to be applicable to the Parent Company's current and future
competitors, may limit the Parent Company's operational flexibility and may also have significant negative impact on its
financial results, cash flow and on business risk management.
It should be noted that the Group did not have for several years (till today) the ability to recruit experienced personnel
in the range of its business activities while, today's average personnel age is above 49 years. The Group's inability to
recruit specialized personnel negatively affects the ability of the new PPC Group to elaborate and implement its strategy
in the new competitive and financial environment, as well as to adequately staff basic supportive operations at the level
of new subsidiaries. Finally, there is a risk of losing managers and experienced personnel to the competition mainly
because of restrictions on remuneration policies. The viability and development of PPC Group in the new business
environment notably depend on the ability to attract and maintain skilled and specialized personnel and executives.
According to L. 3833/2010 and L. 4057/2012 , concerning the recruiting of permanent staff an approval of the
Interministerial Committee is necessary (AIC 33/2006), as well as an allocative act of the Minister of the Interiors and
Administrative reorganization according to the 1:5 ratio (a recruitment for every five employees leaving). By the above
mentioned and introduced by law hiring procedure, the Parent Company's recruitment needs are significantly hindered,
creating critical lack of personnel and managers and may have a negative impact on the implementation of the Groups'
activity.
38 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Fair value and fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuing
technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly.
Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on
observable market data.
During the reporting period there were no transfers between level 1 and level 2 fair value measurement, and no transfers
into and out of level 3 fair value measurement.
The following tables compare the carrying amount of the Group's and the Company's financial instruments that are carried at
amortized cost to their fair value,as well as those of tangible fixed assets which are revalued periodically at their
revalued amounts :
Carrying amount Fair value
Group 31.12.2016 31.12.2015 31.12.2016 31.12.2015
Non - financial assets (Note14)
Fixed Assets 11,936,838 13,590,247 11,936,838 13,590,247
Financial Assets
Trade receivables 1,597,997 1,844,208 1,597,997 1,844,208
Restricted cash 110,963 127,842 110,963 127,842
Cash and cash equivalents 207,034 451,670 207,034 451,670
Financial Liabilities
Long-term borrowings 4,582,004 5,204,961 4,514,548 5,105,970
Trade payables 1,283,795 1,848,740 1,283,795 1,848,740
Short term borrowings 30,000 127,016 30,000 127,016
Carrying amount Fair value
Parent Company 31.12.2016 31.12.2015 31.12.2016 31.12.2015
Non - financial assets (Note14)
Fixed Assets 11,714,407 11,751,414 11,714,407 11,751,414
Financial Assets
Trade receivables 1,566,858 1,699,805 1,566,858 1,699,805
Restricted cash 110,963 127,842 110,963 127,842
Cash and cash equivalents 149,414 197,592 149,414 197,592
Financial Liabilities
Long-term borrowings 4,582,014 4,761,836 4,514,558 4,662,845
Trade payables 1,864,956 1,830,239 1,864,956 1,830,239
Short term borrowings 30,000 80,000 30,000 80,000
The fair value of investments available for sale, of restricted cash, of cash and cash equivalents, as well as of
financial derivative instruments equals their carrying amount.
The fair value of trade receivables and trade accounts payable approximates their carrying amounts.
The fair value of the remaining financial assets and financial liabilities is based on future cash flows discounted using
either direct or indirect observable inputs and are within the Level 2 of the fair value hierarchy.
Fair value of tangible assets is included in level 3 of fair value hierarchy (Note 14).
38. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
As of December 31, 2016, the Group and the Parent Company held the following financial instruments measured at fair value:
Fair value Fair value Hierarchy
Group 31.12.2016 31.12.2015
Financial Assets
Investments available for sale 1,276 316 Level 1
Financial derivative instruments - 689 Level 2
Fair value Fair value Hierarchy
Parent Company 31.12.2016 31.12.2015
Financial Assets
Investments available for sale 889 316 Level 1
Financial derivative instruments - 689 Level 2
Macroeconomic conditions in Greece - Imposition of capital Controls
By the Legislative Act of 28/06/2015 (GG 65 A' / 28.06.2015) a bank holiday was declared while capital controls were
imposed. The bank holiday ended on 20.07.2015, while capital controls remain in effect, however they are smoothed
gradually. Capital controls include both quantitative restrictions on cash withdrawals and on payments abroad. As the Group
and the Parent Company are active almost exclusively in Greece, any change and development at the macroeconomic and
microeconomic environment of the country, affects directly and significantly the activities, the operating results, the
financial condition and their cash flows.
Financial Risk Management
Credit Risk
The Group's and the Parent Company's business, results of operations, financial condition, cash flows and prospects depend
highly on the social and macroeconomic conditions in Greece, as practically almost of the Group's assets and economic
activities are in Greece. Despite the fact that, electricity sales are dispersed over a large number of customers with a
wide and diversified range of operations, the Group's and the Parent Company's business activities, results of operations
and cash flows are highly dependent on their customers' ability to repay their obligations. The current economic
environment, the imposition of capital controls and the recent intense recession had a material adverse impact on the
Group's and the Parent Company's liquidity, mainly resulting from:
• Difficulties in payment and increases in delayed payments, by Low and Medium voltage customers as well as High
voltage customers. Despite the fact that a large number of the Parent Company's customers have concluded favorable
settlements for the payment of their overdue electricity bills and the granting of a uniform discount of 15% to all Low and
Medium Voltage residential and business consumers, provided they timely pay their current bills and observe any settlement
concluded or to be concluded, the Parent Company cannot estimate the number of customers that will observe the terms of the
settlement already in effect.
• A sizeable number of enterprises, especially small and medium sized which cease their operations due to the
economic conjecture and leave behind unpaid bills.
• The prospective increase of the Social Solidarity Tariff (SRT) beneficiaries along with the increased difficulty
that these customers face in paying their electricity bills
• The fact that some customers under the pretext of the current economic downturn are not fulfilling their
obligations or delay their payments, despite the fact that they afford to do so.
The Group and the Parent Company may also face difficulties or delays in their ability to collect payments from their
customers as a result of additional new measures that burden electricity bills with new or increased charges in favor of
third parties, such as the Renewables levy (ETMEAR).
This might extend the delay of collecting electricity bills and create additional needs of working capital for the Parent
Company, bearing also in mind that ETMEAR, amongst others, is paid to the competent authorities regardless of whether it
has been collected from the Parent Company's customers.
Additionally, the Parent Company's collection enforcement mechanisms may be affected by legislation or other administrative
acts, (for example by restricting disconnections for non-payment of electricity bills for certain categories of customers),
which can adversely affect the Parent Company's business activities, results of operations, financial condition and cash
flows.
38. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
Interest rate risk and foreign currency risk
The Group's and the Parent Company's debt obligations consist of bank loans, bonds and overdrafts. It is the Group's and
the Parent Company's policy to have a balanced distribution of the loan portfolio between fixed and variable interest rates
according to the prevailing conditions and to hedge on a case by case basis through derivatives, solely to mitigate risk,
against the fluctuation of floating interest rates and/or foreign currency exchange rates affecting their debt portfolio.
As of December 31st 2016 no derivative transactions exist for loans or debt hedging.
Furthermore, the fluctuation of the Euro against the U.S. dollar exchange rate may adversely impact the prices of the
Parent Company's liquid fuel purchases (diesel and heavy fuel oil). As oil prices are expressed in U.S. dollars, the Parent
Company is exposed to foreign currency risk in the event of an appreciation of the U.S. dollar against the euro. In order
to mitigate the foreign currency risk arising from liquid fuel purchases, the Parent Company examines the possibility of
undertaking, on a case by case basis and according to the prevailing market liquidity circumstances, hedging transactions
for this risk. It should be noted that a) any undertaken hedging transactions may not provide full or adequate protection
against these risks and b) capital controls and Greece's as well as the greek banking sector's economic situation
significantly limit the ability of the Parent Company in undertaking derivative hedging transactions to cover currency
risk.
The following table depicts the sensitivity to a reasonably possible change in interest rates, with all other variables
held constant, of the Group' s profit before tax through the impact on floating rate borrowings (in E million): The Group's
figures for 2016 include only continuing operations.
Increase / Decrease in basis points (%) Effect on profit before tax(Group) Effect on profit before tax(Parent)
2015
Εuro +50 (15.04) (13.13)
Εuro -50 15.04 13.13
2016
Εuro +50 (10.73) (10.73)
Εuro -50 10.73 10.73
Liquidity Risk
Current macroeconomic and financial environment in Greece, especially after the imposition of capital controls, which
remains volatile, may have a considerable adverse effect on the Group's and the Parent Company's business activity,
financial position and prospects. Currently, the economic situation in Greece has directly affected the capital levels,
liquidity and financial position of the Greek financial system, which highly affect the Group's and the Parent Company's
liquidity and access to credit as well as the liquidity of the Greek economy as a whole and the Group's as well as the
Parent Company's customers' ability to access credit. In addition, access to foreign financial markets is limited.
Liquidity risk is connected with the need to ensure adequate cash flow for the financing of the Group's and the Parent
Company's operations, including working capital needs, capital expenditure, as well as the servicing of the Group's and the
Parent Company's debt.
The Group's and the Parent Company's working capital needs may increase due to a number of factors, including:
• The increased delays in the payment or even non-payment of electricity bills.
• The obligation to pay Renewables levy (ETMEAR), Special Consumption Tax on electricity as well as VAT when
due, irrespective of whether relevant amounts have been collected from the Group's and the Parent Company's customers.
• The burden associated with the collection of taxes and levies that are not related to the sale of electricity
such as municipal taxes and levies that are currently collected through electricity bills and the inability to pay for the
electricity bills without paying as well amounts due to third parties;
• The continuous increase in the number of financially vulnerable citizens included in the register of
vulnerable customers that based on decisions of the State enjoy special privileges regarding a) longer repayment periods
for paying their bills. b) the settlement of their debts, an increased number of installments and the privilege not to have
electricity disconnected due to debt, in their residence, almost throughout the year.
• Regulatory measures on the operation of the wholesale market, which burden the cost of purchasing electricity
for PPC as a Supplier (i.e. contributions for RES Special Account).
• Potential increase of commercial losses (non-technical losses), i.e. increase of incidents of electricity
thefts and reconnection of electricity supply in cases of electricity disconnection due to debt.
38. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
The above factors may have a material adverse impact on the Group's and the Parent Company's liquidity as well as their
ability to finance new or ongoing projects. It should also be noted that the Group's and the Parent Company's borrowing
costs for, and access to, liquidity (for both the refinancing of the existing debt or / and new liquidity) are negatively
impacted by the current status of the Greek economy.
However, it is noted that in April 2017, the basic terms ("term sheet") of the syndicated bond loan of Euro 200 mil.
between the Parent Company and Greek Banks were signed. At the same time, the Parent Company in order to further enhance
its liquidity, maintained the Rewarding Program "Consistency", while from the beginning of 2017 provides the Program
"Prepaid Account" in all large corporate customers, with discount 6% if they choose to prepay the total value of one year
bills. The Program "Prepaid Account" will expand in the near future to residential, business and agricultural customers.
Finally, in 2017, the Parent Company received advance payments against debts of General Government Entities (Note 41).
The contractual maturities of the principal financial liabilities (borrowings), not including interest payments are as
follows:
(In million Euro) Ondemand 3 months 3 to 12months 1 to 5years > 5 years Total
Year ended 31December2015 (Group)
Overdraft facilities 97.01 30.0 - - - 127.01
Short term borrowings - - - - - -
Long term borrowings - 276.31 446.16 3,134.4 1,384.66 5,241.53
97.01 306.31 446.16 3,134.4 1,384.66 5,368.54
Year ended 31December2016 (Group)
Overdraft facilities - 30.0 - - - 30.0
Short term borrowings - - - - - -
Long term borrowings - 147.1 492.9 2,833.4 1,138.7 4,612.1
- 177.1 492.9 2,833.4 1,138.7 4,642.1
Year ended 31December2015 (Company)
Overdraft facilities 50.0 30.0 - - - 80.0
Short term borrowings - - - - - -
Long term borrowings - 49.26 356.07 3,106.08 1,286.99 4,798.4
50.0 79.26 356.07 3,106.08 1,286.99 4,878.4
Year ended 31December2016 (Company)
Overdraft facilities - 30.0 - - - 30.0
Short term borrowings - - - - - -
Long term borrowings - 147.1 492.9 2,833.4 1,138.7 4,612.1
- 177.1 492.9 2,833.4 1,138.7 4,642.1
Risk from exposure to the Banking Sector
The Group and the Parent Company may be exposed to risks arising from Greek banks.
It should be noted that as of 31.12.2016 the Group's and the Parent Company's debt obligations towards the Greek banking
sector amounted to 38% and 34.8% respectively of their total loan obligations.
Market risk
The sensitivity analysis on natural gas, liquid fuel and system marginal price are as follow:
Heavy fuel oil(tones) Diesel(klit) Natural Gas( in m3) System Marginal Price(MWh)
Change in price unit + 1 E(+ one Euro) + 1 E(+ one Euro) + 0.01 E(+ one Cent of Euro) + 1 E(+ one Euro)
Impact 872.5 Euro thousand 394.6 Euro thousand 10.2 Euro million 22.1 Euro million
38. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
The change in the $/E rate by 5 cents of the dollar is estimated to affect the expenditure for liquid fuel and natural gas
as well as profit before tax for the year 2017 by Euro 28.1 mil.
Progression of net debt ratio
The Group's net debt/equity ratio is as follows:
2016 2015
Long term loans 4,612,043 5,241,524
Short term borrowings 30,000 127,016
Minus: cash and pledged deposits (317,997) (579,512)
Net debt 4,324,046 4,789,028
Shareholders' equity 5,945,394 5,911,556
Net debt/equity ratio 72.2% 81.0%
In long term loans, as presented above, the unamortized portion of loan issuance fees of Euro 30 mil., approximately is not
included (2015: 36.6 mil. approximately) (Note 28).
Furthermore, it is noted that for the year 2015, the accounts which form the amount of the net debt, include the
discontinuing operation (subsidiary IPTO - Note 11).
Risks relating to IPTO's ownership unbundling.
Law 4336/2015 provides that "... the authorities: a) will take irreversible measures (including the announcement of the
date for the submission of binding offers) for the privatization of the electricity transmission business, IPTO, unless an
alternative plan, with equivalent effects on competition and investment prospects, according to the best European practices
and in agreement with the Institutions to achieve full ownership unbundling of IPTO (standard delivery) is proposed".
With Law 4389/2016 "Urgent Provisions for the implementation of the Financial Targets and Structural Reforms Agreement and
other provisions", as amended and in force, and in particular with articles 142-149 and 152, the provisions for the
implementation of IPTO's ownership unbundling from PPC were determined. More specifically, the Law provides that with PPC's
Shareholders' General Meeting decision, PPC shall:
· Create a holding company, to which it will transfer 51% of IPTO's Shares. PPC will be initially the sole shareholder
of that company and later on PPC will transfer all shares of the company to its shareholders. Upon the completion of the
transfer by PPC to its shareholders of the shares held in the holding company, the company requests without undue delay its
listing in the Athens Stock Exchange, having taken all necessary steps to this end.
· Sell, through an international tender, at least 20% (up to max. 24%) of IPTO's shares in a strategic investor who
will be either a) a European Transmission System Operator or Transmission System Operator participating in a European
Transmission System Operator, or b) a consortium in which a Transmission System Operator, as a) above, will be
participating. The public invitation will be announced within one month from the above mentioned PPC's Shareholders'
General Meeting and the preferred strategic investor must be announced within four (4) months from the above mentioned
PPC's Shareholders' General Meeting. Within eight months from the aforementioned General Meeting, PPC will enter into a
share purchase agreement with the preferred strategic investor.
· Sell at least 25% of IPTO's shares in a Greek public company (named Public Holding Company of IPTO). The price per
share for that sale will be determined after a valuation of this stake as an independent stake, by an independent
valuator.
The above mentioned PPC's Shareholders' General Meeting was convened on June 30th 2016, interrupted and met again on July
11th 2016. The General Meeting decided to launch the above ownership unbundling procedures and that the stake of IPTO
shares to be sold to a strategic investor will be 24% and that the stake to be sold to a Public Holding Company of IPTO
will be 25%. By virtue of PPC's Board of Directors resolution of October 31st 2016, as this was ratified by PPC's
Shareholders' General Meeting of November 24th 2016, State Grid International Development Limited was announced as the
preferred strategic investor and the share sale and purchase agreement was signed on December 16th 2016.
38. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
Following the imposed new shareholder structure, IPTO's financial figures will no longer be consolidated in the financial
statements of PPC Group. More specifically,
· Fixed assets of a value of Euro 1,582 mil., as well as loan liabilities amounting to Euro 498 mil., as of December
31st 2016, will not be included henceforth.
· Operating profitability (EBITDA) of the new PPC Group will be reduced by about Euro 174 mil. on an annual basis (the
average EBITDA of the last four years), as IPTO, being a regulated electricity transmission company enjoys an especially
high amount of operational profitability, as well as a very high EBITDA margin.
At the same time, specific financial indicators might not be met in the future, due to both the significant reduction in
the profitability as well as the capital structure change of the new PPC Group, leading to the possibility of early
repayment of existing loans which include the relevant indicators and in any case creating additional difficulties in the
Group's future financing and development.
39 OPERATING LEASE ARRANGEMENTS
Group Company
2016 2015 2016 2015
Minimum lease payments under operating leases recognised as expense 20,792 22,774 15,346 16,276
At the balance sheet date (31.12.2016) , the Group's outstanding commitments for future minimum lease payments under
non-cancellable operating leases are approximately the current year's lease expenses, which are expected not to
significantly altered during the next years.Operating lease payments represent mainly rentals payable by the Group for
certain of its office properties, machinery, vehicles and furniture and equipment. Lease fees for office properties are
generally fixed for an average term of twelve years. Lease fees for machinery and vehicles are generally fixed for an
average of 1 and 3 year, respectively.
40. SIGNIFICANT EVENTS
High Voltage Tariffs
In the context of the February 28, 2014 Extraordinary General Shareholders Meeting, the representative of the Majority
Shareholder, namely the Hellenic Republic, proposed and the General Shareholders Meeting approved an extraordinary tariff
discount of 10% to PPC's approved tariffs for all High Voltage customers with the duration of one year plus one, effective
01.01.2014. Out of the 24 High Voltage supplies, that represent, in terms of consumption, more than 99% of the total of
High Voltage consumption, PPC initially proceeded in signing 22 supply contracts.
In addition, in January 2015, PPC announced that, in applying the decision of the Extraordinary General Shareholders
Meeting of December 22, 2014 and in view of securing the public interest the Parent Company has reached an initial
agreement with LARCO, for the signing of a contract for the supply of electricity, from 01.01.2014 onwards according to
PPC's General Shareholders' Meeting of February 28, 2014, as well as methods of settling past differences between the two
companies.
More specifically, PPC's BoD by its decision dated 30.12.2014 has decided to accept LARCO's proposal for the direct
referral to arbitration, according to the provisions of Civil Procedure, of the dispute between the two companies relating
to the energy supply tariff for the sums due by LARCO until December 31, 2013 and the signing of a supply contract with the
above mentioned company with a tariff in accordance with the decision of PPC's Extraordinary Shareholders' Meeting of
28.02.2014, for the year 2014 as well as the year 2015 and until the next convention of PPC's General Meeting relevant to
the matter of the High Voltage Tariffs. In the above mentioned supply contract it was provided that in two months' time the
two parties would have agreed on the settlement of LARCO's debts for the period 01.01.2014 - 31.12.2014.
LARCO's General Shareholders' Meeting, by its 30.12.2014 decision, has also decided to sign the supply contract with PPC
and to refer to arbitration, according to the provisions of Civil Procedure, about the dispute between the two companies.
The parties have signed an arbitration agreement, in order to determine the price of supply of energy for the period
01.07.2010 - 31.12.2013 and in order for debts incurred by LARCO to be settled for the period before 31.12.2013, according
to the provisions of the Code for Civil Procedure (Article 867 and subs) on 25.06.2015. At the same date the contract for
the supply of energy, was signed as well.
Furthermore, it was initially assessed that, following the appointment of a new Board of Directors in LARCO, the revisit of
the tariff issue for the period 01.07.2010 - 31.12.2013 would be feasible, by using all reconciliation means between the
two companies and leaving the arbitration procedure as the last resort.
40. SIGNIFICANT EVENTS (CONTINUED)
On 05.11.2015, following written communication, LARCO was invited, to proceed to the settlement of its debts relating to
electricity consumption for the period 01.01.2014 - 31.08.2015 until 20.11.2015. Since LARCO did not settle until
20.11.2015 its debts, PPC sent an out of court letter to LARCO and to IPTO, inviting IPTO to deactivate LARCO's load
meters, setting at the same time a tight deadline for the settlement of LARCO's debts.
Meanwhile, in December 2015 the Arbitration Court was formed into body for determining the price of electricity for the
period 01.07.2010-31.12.2013 as well as the corollary to this settlement of LARCO's debts to PPC. The Arbitration court,
with its decision No. 13/15.02.2017, determined the price for the electricity supply to LARCO in the amount of 43.41 E/Mwh
plus charges for CO2 emmision rights, regulated charges and other taxes and fees. Meanwhile PPC's BoD by its decision
12/09.01.2017, raised the issue of LARCO's pricing, including the implementation of the settlement of previous years'
debts, to the Extraordinary General Shareholders Meeting (EGM) on 12.01.2017 for deciding. EGM by its decision dated on
12.01.2017 approved LARCO's pricing terms for the period 01.01.2016-31.12.2020 as well as the settlement of its debts from
electricity consumption for the period 01.07.2010-31.12.2016. Furthermore, in order to be signed an electricity supply
agreement between the parties LARCO's General Shareholders' Meeting by its decision on 29.03.2017, approved the draft of
the above mentioned supply agreement.
In addition, it should be noted that PPC and SOVEL and Sidenor were in dispute relating to the increase of ten (10%)
percent to PPC's High Voltage Tariff. This increase was effected on 1.7.2008 for PPC's High Voltage customers and hence the
dispute relates to the amounts due of the aforementioned companies regarding the above mentioned increase. Then the parties
agreed to fully and finally settle the dispute through arbitration proceedings before the Arbitration Court, consisting of
three (3) arbitrators and according to the provisions of the Code of Civil Procedure (Article 873). After conducting the
above mentioned arbitration proceedings, the relevant arbitration decision was issued (January 2016). With this decision,
the Arbitration Court determined the amount of the relative increase for the period from 1.7.2008 to 31.12.2013 to a
certain percentage of the 30.6.2008 applicable Invoice A 150, obliging the parties to pay the amounts due
New tariffs for medium and low voltage customers
In August 2015, PPC's new tariffs for medium and low voltage customers were approved. PPC's new tariffs policy follows
modern trends in the retail market and is designed in such a way in order to meet consumer needs, through the new discount
policy. Furthermore, a loyalty program for residential customers paying their bills on time and in full was launched. More
specifically:
a) Creation of new corporate tariffs
PPC designed a new tariff product - "Corporate Tariff" - offering highly competitive rates to large size companies and
groups of companies (with an aggregate annual electricity consumption equal to or greater than 10 GWh), serving their
customers on a nationwide level through many and different points of service (100 or more power supplies) in medium and low
voltage. The new "Corporate Tariff" is effective for electricity consumption as of September 1st, 2015.The validity of
"Corporate Tariff" has been approved until 31.12.2018.
b) Medium voltage customers
· The highly competitive tariffs BM1 and BM2 involving large commercial and industrial companies with an annual
consumption per power supply greater than 13 GWh will also apply to power supplies with an annual consumption greater than
10GW hand
· Reduction of the remaining tariffs BΓ, BY and BX.
c) Low voltage customers
After the substantial reduction inJuly 2014 of Tariff Γ21 addressing primarily business premises,such asshops, workshops,
small crafts and office buildings, Tariff Γ22 for commercial and industrial customers with power greater than25KVA was also
reduced.
Reductions in the Medium and Low voltage tariffs are effective for electricity consumption as of October 1st, 2015.
a) Customer rewarding
PPC returned to those residential customers who have paid on time and in full their clearing bills for the year 2015, twice
the value of the fixed fee in each clearing account for the year 2016. In this manner, PPC returned approximately Euro 30
mil., to customers that timely and fully pay their bills.
New High Voltage Tarrifs for the period 2016 - 2017
PPC offers from 01.01.2016 to HV customers seven (7) new tariffs for Competitive Charges, which practically correspond to
the distinct consumption profiles of these
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