REG - Public Power Corp - Annual Financial Report <Origin Href="QuoteRef">DEHr.AT</Origin> - Part 2

Public Power SAAnnouncement

07/04/2017 18:40

- Part 2: For the preceding part double click  ID:nRSG9898Ba 

rights policies, kept its buying schedule on track and covered its needs for
2016 as planned. 
 
The exposure of the Parent Company to the risk of increasing CO2 emission rights prices is linked to its ability to fully
incorporate these increases in its electricity tariffs. Therefore, any increase in CO2 emission rights prices could
materially, directly or indirectly, affect the Group's and the Parent Company's financial condition, results of operations
and cash flows. 
 
It should also be noted that there is an on-going dialogue in the European Union (EU) concerning the reform of the EU
Emissions Trading System (EU-ETS) for the period 2021-2030. CO2 rights prices and the Company's compliance cost will be
affected by the outcome of this dialogue, as well as by the already adopted regulations amending the EU-ETS (i.e. the
withdrawal of significant quantities from CO2 rights auctions (backloading) in the early years of the period 2013-2020, and
the Market Stability Reserve (MSR) which aims to actively control the supply of CO2 rights from 2019 onwards). 
 
Risk of exposure in competition 
 
The Parent Company faces intense competition mainly in the wholesale market where share loss is due to IPPs' power plants
and the increased penetration of Renewables units in the System and the Network, as well as to increased electricity
imports from the neighboring countries. In the current situation of very low gas prices and very low wholesale electricity
prices in most energy Exchanges in neighboring countries, competition in the wholesale market in Greece is very strong,
with high loading of the gas fueled thermal units and a very high volume of electricity imports. Adverse changes in the
competitive environment through the continuation of existing and/or creation of new regulatory or / and legislative
mechanisms (i.e. after the completion of the second evaluation of the Greek Republic's Funding Program) in the electricity
market which strengthen the Group's competitors may have a negative impact on its results of operations and cash flows. 
 
For instance, RAE recently introduced into public consultations a new transitory Capacity Assurance Mechanism, as well as a
proposed new Variable Cost Recovery Mechanism for electricity generation units. For the variable cost recovery, L.
4336/2015 provides that "Until September 2015 the Authorities shall modify the regulations of the electricity market in
order to prevent the necessity of plants' operating below their variable cost", while for the Capacity Assurance Mechanism,
the same Law provides that «Until September 2015 the Authorities will apply a regime for the temporary and permanent
capacity payments' system». RAE put into effect a new "Variable Cost Recovery Mechanism" with its decision 392/2015 and
specified the mechanism implementation details by its decision 468/2015. Regarding the Capacity Assurance Mechanism (both
temporary and permanent), final results and decisions on the permanent mechanism are pending (a set of RAE's proposals is
under public consultation from 27/7//2016) while the temporary mechanism is already in effect. The transitory capacity
assurance mechanism, which for the time being is called the "Transitional Flexibility Assurance Mechanism", was enacted
with L. 4389/2016 and its implementation details were determined with RAE's decision 284/2016. Its duration will be 12
months at the most from the date of its enactment (01/05/2016) and compensates only natural gas fueled thermal units and
part of hydroelectric ones (lignite fueled units are excluded), This treatment creates a competitive disadvantage for PPC's
electricity generation portfolio (mainly lignite units) in relation to its competitors in the wholesale market (exclusively
gas units). The Unique Compensation Price for the provision of flexible capacity was set to E45/ kW for a 12 month period,
with an upper compensation limit of Euro fifteen (E15) mil per production unit., while the total annual compensation amount
of the mechanism has been set to Euro two hundred twenty five (E225) mil. All the above mentioned mechanisms (variable cost
recovery, transitional flexibility assurance and permanent capacity assurance) may have a considerable impact on the
Group's and the Parent Company's operation, cash flows and financial results. 
 
Tariff risk for the competitive activities 
 
Following the liberalization of High and Medium Voltage tariffs, Low Voltage tariffs are fully liberalized from July 1st
.2013 for end customers, excluding vulnerable ones. 
 
However a number of factors affect the Parent Company's ability and freedom to increase the competitive component of
tariffs, in order to be cost effective, such as the ability of customers to cope with new possibly increased tariffs,
initiatives of the Greek Government, decisions of the Regulator etc., especially in view of the current socioeconomic
condition in Greece. 
 
Furthermore, the Parent Company may face difficulties incorporating a potentially increased commodity cost, as well as
costs related to electricity and CO2 emission rights to electricity bills, through increased tariffs. 
 
With respect to HV customers: 
 
There were several tariff disputes, between ALOUMINION of Greece (ALOUMINION) and PPC since the termination of the initial
(dating back to 1960) electricity supply contract of the said customer. The dispute about electricity price between the two
parties was submitted before the Arbitration Court at RAE, which issued its decision on October 31st, 2013, setting the
sale price of the energy component of the electricity at E 36.6/MWh for the time period from July 1st  2010 to December
31st 2013.. PPC has filed an appeal for the annulment of the Arbitration Decision and a complaint to the European
Commission (Commission) for state aid due to the price set by the arbitration court. The Commission subsequently issued on
25/03/2015 a decision which found that PPC's complaint required no further investigation because no state aid existed. PPC
appealed (on June 29th 2015) before the General Court against this decision. Regarding PPC's petition for annulment, the
Athens Court of Appeal issued on February 18th 2016 a decision, which did not accept PPC's petition. PPC has the option to
appeal to the Supreme Court against the Court of Appeal's decision. Despite the discount approved on HV tariffs by the
Extraordinary General Meeting of PPC's Shareholders of February 28th 2014, ALOUMINION only paid part of the electricity
bills amounts. 
 
Given that PPC proceeded on January 2nd 2015 to an order for the deactivation of ALOUMINION's load meters and invited IPTO
to proceed to all necessary actions, ALOUMINION has filed to RAE (on January 9th 2015) a complaint -application for interim
measures  PPC, which was notified to IPTO. RAE, by a letter addressed to all parties postponed the discussion and the
taking of a decision on the application. On March 20th 2015 a document of the Competition Committee (CC) was notified to
PPC, by which CC asked the submission of PPC's views on a memo submitted by ALOUMINION. At the set date of the hearing
(September 25th2015), CC interrupted the discussion of the case for October 14th 2015 (its next Meeting date) and granted
to PPC a deadline for submitting a commitment proposal under the provisions of Law 3959/2011. 
 
After the discussion of the case, PPC submitted the relevant commitments Note undertaking that :  a) within ten (10) days
of the notification of the CC's decision, PPC would proceed in recalling the order for the deactivation of ALOUMINION's
load meters which has been sent by PPC to ALOUMINION and IPTO SA. and b) that It will continue to supply electricity to
ALOUMUNION under the current terms and conditions, until the issue of ALOUMINION's electricity tariffs, will be resolved
through either direct negotiation between the parties or by any other means. The above mentioned PPC's commitments were
accepted by the CC, which issued the relevant decision (621 / 2015). Abiding by its commitments, PPC recalled the order for
the deactivation of ALOUMINION's load meters. Negotiations between the two parties to reach an agreement on tariff policy
for ALUMINION for the period from January 1st 2014 onwards had not yet been resolved when The "Electricity Supply Agreement
between PPC S.A. and ALOUMINION OF GREECE S.A" agenda item was introduced at the 14th Annual General Meeting of PPC's
Shareholders dated July 11th 2016, which decided to postpone its decision on the matter for the next General Meeting. On
September 13th 2016 PPC's BoD decided to convene an Extraordinary General Meeting of PPC's Shareholders on October 5th
2016. On the latter's agenda the above mentioned matter was included. 
 
The Extraordinary General Meeting of PPC's Shareholders approved on October 5th 2016 ALOUMINION's pricing terms for the
period July 1st 2016 - December 31st 2020, as well as the pricing terms for the period January 1st 2014 - June 30th 2016.
In accordance with the EGM's decisions, a Supply Agreement was signed on October 20th 2016 between ALUMINION and PPC. Under
the signed agreement, ALOUMINION proceeded to a prepayment of Euro 100 mil for future electricity bills for the period July
1st 2016 to June 30th 2017.. 
 
Furthermore, LARCO, the Parent Company's largest outstanding debtor, is liable for sums due and payable to PPC related to
the consumption of electricity and currently pays only a small part of its electricity consumption bills. Given that LARCO
has challenged electricity tariffs for the period from July 1st 2010 to December 31st 2013, both parties had resorted to
arbitration to determine the price of electricity for the said period, as well as the settlement of LARCO's debts to PPC.
The Arbitration Court with its Decision No 13/15.02.2017 the supply electricity price for LARCO to E43.41 / MWh plus the
CO2 emission rights charges, the regulated charges as well as other taxes and fees 
 
In the meantime, PPC' BoD  added on the agenda of PPC's Shareholders Extraordinary General Meeting of January 12th 2017 for
approval, LARCO's pricing terms, as well as the settlement of LARCO's debts from previous years. PPC's Shareholders EGM
approved LARCO's pricing terms for the period January 1st 2016 to December 31th 2020, as well as the settlement of LARCO's
debts for the period July 1st 2010 to December 31st 2016. LARCO's Shareholders General Meeting respectively, approved the
aforementioned electricity supply contract in order to proceed to signing it. 
 
Similarly, other industrial customers do not fully pay their electricity consumption bills alleging either lack of
liquidity due to the adverse economic environment or non - acceptance of the competitive charges of  the relevant tariffs.
Although LARCO's Management has implemented measures and actions (with the support of greek government) in order to prepare
a new business plan, aiming to improve its economic situation, there is no assurance that LARCO or such other industrial
customers will discharge their debts for the amounts billed in relation to their electricity consumption. Especially for
LARCO, after the Arbitration Court's decision concerning the electricity supply price for the period July 1st 2010 to
December 31st 2013, together with the adjustment of invoiced electricity quantity and taking into account the inclusion of
a clause in the new electricity supply contract to further safeguard the collection of future electricity bills (with a
lien on the company's bank account), it is expected that its ability to pay electricity bills will improve. 
 
Any such events as described above may have a material adverse effect on the Parent Company's business, results of
operations and financial condition. 
 
PPC offers from January 1st 2016 to HV customers seven (7) new tariffs for Competitive Charges, which practically
correspond to the distinct consumption profiles of these customers. These tariffs are applicable for electricity
consumption for the period January 1st 2016 up to December 31st 2017 and customers are entitled to choose between a monthly
and a ten day period billing. 
 
These new tariffs are accompanied by incentives (discounts) to HV customers for high electricity consumption during the
Minimum Load Zone (nights, weekends and holidays). 
 
In addition to the above, the Extraordinary General Meeting of PPC's Shareholders of December 7th 2015 decided on the
duration period for the new tariffs, on the provision of volume discounts for the competitive load and energy charges based
on the total annual HV electricity consumption for individual Companies or Group of companies. Out of nineteen (19) HV
customers representing, in terms of consumption, more than 99% of the total of High Voltage consumption, fourteen (14) of
them have already signed an Electricity Supply Contract or a Supplementary Electricity Supply Contracts, while one (1) is
in the process of signing a Supplementary Electricity Supply Contract (after the appointment of a new liquidator, since the
company in question is in liquidation). From the remaining four (4) customers, the case of LARCO has already been
discussed, while there are also three additional customers with considerable overdue debts. For the other HV customers,
having forty two (42) renewable energy installations, Supplementary Electricity Supply Contracts have been signed. 
 
Risk from regulated rates of return on Network activities 
 
The regulated rates of return on Network investments combined with the approved by the Regulator asset base on which
depreciation and returns are calculated, may have a negative impact on the Groups' profitability and value, if they do not
provide for a reasonable return on the invested capital and an adequate additional incentive for future strategic
investments. As a result, any changes in regulated charges that may affect the Group's revenues from electricity
transmission and distribution could have a material adverse effect on the Group's business, results of operations and
financial condition, as well as to hamper the Group's ability to raise equity or loans for funding investment plans of
Transmission and Distribution. 
 
Risks from the implementation of Law 4412 /08.08.2016 (integration of the EU Directives 2014/24/EU and 2014/25/EU
provisions). 
 
From August 8th 2016 Law 4412/ 2016 (Procurement Works, Supplies and Services), has come into effect, which applies, in
accordance with the specific provisions in it, on the procurement and project implementation contract procedures of PPC. 
 
Since according to the above mentioned Law. the activities of PPC Group fall within its provisions ,  the "Regulation on
Works, Supplies and Services acquired by PPC (Board Decision 206 / 30.09.2008)" are included in the repealed provisions of
the said Law, some chapters of the law have not come yet into force, while some provisions of it  need to be further 
clarified probably via ministerial decrees , there is a possibility that delays will occur concerning Procurement and
Contract execution, resulting to an adverse impact on the Group's and the Parent Company's smooth running of their business
activities. 
 
Regulatory Risk 
 
Potential modifications to the regulatory and legislative framework governing the electricity market, such as the
implementation of EU legislation, the Memorandum of Economic and Financial Policy, as well as decisions by RAE concerning
the regulation and functioning of the Greek electricity market in general, as well as any restructuring or other changes to
the Group's business  due to the compliance to the regulatory framework, may have a materially adverse effect on the
Group's and the Parent Company's business, financial condition, results of operations and cash flows. 
 
The Group's and the Parent Company's business and capital investment activity program are subject to decisions of numerous
national, international and European Union institutions, as well as to regulatory and administrative authorities. Such
authorities may issue decisions that restrict or significantly affect the Group's and the Parent Company's operations
without taking into account and weigh all the relevant factors and interdependences which affect the Group's and the Parent
Company's business and operations and may adversely impacting the Group's and the Parent Company's business, results of
operations and financial condition. 
 
In addition, given the increased human, technical and financial resources needed to respond to decisions by the Regulator
or other national or international institutions, the Group and the Parent Company cannot give any assurance that they will
be at all times in a position to fully and timely satisfy the regulatory, environmental, financial, and any other
requirements imposed by the above mentioned authorities. 
 
Risk from providing Public Service Obligations (PSOs) 
 
The PSOs for which the Parent Company is entitled to compensation relate to (i) the supply of electricity to the
Non-Interconnected Islands at the same tariffs as those in the Interconnected System, (ii) the supply of electricity at
special rates to families with more than three children, (iii) the supply of electricity to the beneficiaries of the Social
Residential Tariff ("SRT") which is currently provided to persons of low income, families with three or more children,
long-term unemployed, people with special needs and people on life support and (iv) the supply of electricity at special
rates to public welfare entities. PSO compensation is based on the relevant costs incurred by PPC and other electricity
suppliers providing PSOs and is calculated according to a methodology published by RAE. 
 
With RAE's Decision 14/2014 (for implementation in 2012), the PSO compensation calculation methodology was determined for
the Non - Interconnected Islands. According to the Decision, the PSO compensation for suppliers of electricity active in
the Non-Interconnected Islands will cover any excess cost in which they are subject to, compared to their cots on the
Interconnected System, in order to ensure uniform tariff rate by customer category. 
 
In addition, with RAE's Decision 356/2014, the annual PSO compensation for the years 2012 and 2013 was determined, namely
PSO compensation for the non-Interconnected Islands, for families with three or more children, as well as the compensation
for the SRT. 
 
Furthermore, with RAE's Decision 357/2014, the Last Resort Supplier compensation that PPC will receive for providing the
service, was determined for the period 25/01/12 to 30/04/2013 according to L. 4001/2011 Art.56 par 4. 
 
Finally, with RAE's decision 457/2015 the compensation for the SRT for the year 2014 was determined. 
 
Despite the fact that with RAE's decision, the PSO compensation for 2012 and 2013 was determined, in order for unit charges
per customer category to be integrated to electricity bills a legislative act is required. Such legislative act has not
been effected till now from the Ministry of Environment and Energy,, resulting in the partial recovery of the total PSO
compensation. PPC has raised this issue with the competent Ministry. 
 
In Addition, PPC raised objections on the proper application, from RAE's part, of the calculation methodology used to
determine PSO calculation for 2012 and 2013 for the Non Interconnected Islands resulting, according to PPC's estimation, to
a reduced PSO compensation of E52 mil. 
 
Due to the above, PPC has filed a petition for Annulment to the State Council against RAE's decision 356/2014. The
additional claimed amount from PCC's part (for the years 2012 and 2013), according to its estimation, amounts to E450 mil. 
 
Although no PSO compensation amount has been approved for the years 2014 and 2015, according to available data (December
31st 2016), the aggregate unrecoverable amount of PSO compensation for the period 2012 - 2015 (according to PPC's
estimation) amounts to E715 mil. approximately. 
 
Potential changes in compensation rights for the existing PSOs that PPC provides, or changes in the calculation methodology
of such PSO compensation, which do not allow the full recovery of PPC's costs, or partial recovery of PSO compensation for
previous years, or a potential introduction of new PSOs for which PPC may not be entitled to full compensation may have an
adverse effect on the Group's and the Parent Company's costs, financial position, results of operations and cash flows. 
 
Finally, the opening of the retail electricity market for Crete and Rhodes poses the risk of compensating alternative
suppliers for the provision of PSO's to their clients, prior to PPC, as provided by the NII Code as applicable. 
 
Other regulatory risks - uncertainties 
 
Given the fact that the wholesale energy market model and certain Decisions issued by RAE are transitional, the framework
of the energy market remains volatile, with constantly new regulatory decisions and related developments, which may have an
adverse impact on PPC's business and financial condition. 
 
For example, the introduction of certain regulatory measures in the Greek wholesale electricity market in the past has
benefited certain new power producers at the expense of existing market participants. These include measures such as the
Variable Cost Recovery Mechanism (VCRM), the transitional and permanent Capacity Assurance Mechanism (CAM) and the
introduction of measures to promote Renewables penetration mainly through the provision of fixed feed-in tariffs for
Renewables, as well as the new methodology for calculating the price paid by suppliers to RES generators in the wholesale
market. 
 
Although some of these measures are transitional - like the transitional CAM (the "Transitional Flexibility Assurance
Mechanism" according to L. 4389/2016), there can be no assurance that replacement regulatory measures which may create new
distortions or market effects that are unfavourable to PPC will not be introduced. To the extent that such measures remain,
or similar new measures are implemented, the Group's results of operations and profitability may be negatively affected. 
 
Furthermore, the deficit of HEMO for Renewables which is due to the fact that the total income of the relevant Renewables
account with HEMO does not cover the regulated fixed feed-in tariff paid to Renewables producers creates uncertainty and
related cash flow issues in the market. The primary sources of income for this account are the amounts that Suppliers pay
for Renewables generated electricity, the special Renewables levy paid by Customers (ETMEAR), which as already mentioned
limits their ability for the timely payment of their electricity bills and various other smaller amounts according to the
relevant legislation. 
 
According to L. 4111/2013, the deficit should have been reduced to zero by the end of 2014 and since this was not possible,
additional measures were put into effect. 
 
More specifically according to Law.4152 / 2013, the price that Suppliers paid to purchase electricity generated from
Renewables from the Pool, was determined in such a way as to reflect at the minimum the average variable cost of
conventional thermal power plants, which had an adverse impact on the Parent Company's results of operations and cash
flows. 
 
Furthermore, additional measures have been taken under the provisions of L. 4254/2014 to reduce the deficit. 
 
Because the above measures have not led to the achievement of a zero deficit, according to the provisions of Article 23 of
Law 4414/2016 (New operating aid scheme for RES) a new charge was imposed on Load Representatives (electricity suppliers),
in order for the deficit of HEMO's RES Account to be reduced to zero by the end of 2017. In particular, Load
Representatives are required to pay a charge on the total energy absorbed by them from the wholesale market for their
customers (excluding exports) multiplied by the difference between the System Marginal Price (SMP) in the wholesale market
and the SMP that would have existed if the RES did not enter to the system. Specifically, the Load Representatives will be
charged gradually as follows: for fourth quarter of 2016 the charge amounts to 50% of the charge resulting from the
application of the above methodology and for 2017 and onwards the charge amounts to 100%. This charge will materially and
adversely impact the Group's and the Parent Company's financial results and cash flows. 
 
There is also no assurance that the Greek State will no further increase the cost of purchasing Renewables energy by
Suppliers in the future, which could have a material adverse effect on the Group's results of operations and financial
condition. 
 
EMO is operating at a considerable deficit, in part caused by the due and unpaid obligations of two major alternative
energy suppliers who exited the market in 2012. Following RAE's Decision 285/2013, the deficit created by the exit of the
aforementioned electricity suppliers was allocated to wholesale conventional generators, proportionally to their market
share. 
 
EMO applying the transitional provisions of Article 92 of the Electricity Trade Code initially allocated the account
deficit to electricity generators. The total amount of Euro 96.6 mill.corresponding to PPC's generation activity was
divided in seven monthly installments of Euro 13.8 mill each, starting in August 2013. 
 
PPC considered that EMO's alleged claim violates fundamental principles of law, while simultaneously neither the amount nor
the reasons for this claim are substantiated. In addition, the relevant RAE Decision was contested in court. In particular,
PPC had already filed an application for annulment of RAE's Decision 285/2013, before the Council of State, as well as, an
action for suspension of such Decision, until a final judgment is issued by the Council of State. The hearing for the
application for the annulment took place on March 18, 2014. In the meantime, the Council of State had issued an interim
Decision (n. 62/2014), which suspended the payment of 50% of the amount of Euro 96.6 mil., which is attributable to PPC. 
 
At the same time, EMO has filed a lawsuit in the Multimember Court of First Instance for an amount of Euro 55 mil. which is
the equivalent of 4 equal installments out the total amount of Euro 96.6 mil. The hearing of this lawsuit has been
scheduled after postponement for June 7, 2017. The above mentioned case depended on the State Council's decision for the
validity of RAE's Decision 285/2013, which constitutes the legal basis of the dispute in the court. 
 
PPC, following the State Council's interim decision, has recognized in its books since 2014 a provision of 50% of the
amount of Euro 96.6 mil. due to the uncertainty of the recoverability of this amount in the future. In September 2016,
PPC's application for annulment was rejected by the State Council (Section D', decision 1761/2016). As a consequence, PPC
recognized the remaining 50% of the above amount in the results for the six month period ended on June 30th 2016. 
 
However, after the issuance of such final decision of the State Council, EMO implementing the provisions of Article 61 of
the Electricity Trade Code, allocated the whole deficit amounting to Euro 129,277,769.18 to Electricity Suppliers (Load
Representatives) taking into account their share in the electricity supply market at the time the deficit arose. The
allocated to PPC deficit amounted to Euro 126,385,001.02. PPC reserving all its legal rights, approved the payment of the
remaining deficit of Euro 71.766.679,78 in 12 equal interest free installments starting in January 2017. 
 
This or any similar decisions by RAE in the future, addressing electricity market deficits , through allocation of these
obligations to other parties, for example by prohibiting by setting off amounts the Group and the Parent Company owe to
HEMO with amounts owed to the Group and the Parent Company by HEMO may have a material adverse effect on their financial
condition, cash flows and cash 
 
Risk from the potential implementation of measures relating to the electricity and natural gas market harmonization to the
European legislation and practices. 
 
Negotiation between the Hellenic Republic, the European Union, the European Central Bank, the European Stability Mechanism
and the International Monetary Fund for reviewing the terms for Greece's financing program provides for decisions and
relevant actions for the electricity market. The unsuccessful analytical planning and/or implementation of these actions
may create significant risks for the Group and the Parent Company. Any potential modification or/and additions of the
electricity market legislation and regulatory framework, in order to implement the European Union legislation as well as
for the implementation of Law 4336/2015 (Pension provisions - Ratification of the Agreement Plan for the Financial
Assistance from the European Stability Mechanism and Arrangements for the implementation of the Funding Agreement), of Law
4389/2016 (Urgent Provisions for the implementation of the Financial Targets and Structural Reforms Agreement and other
provisions) and Law 4414/2016 (New operating aid scheme for RES), may have a significant impact on the Group's and the
Parent Company's activities, contractual commitments and financial results. 
 
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% and up to max. 24% of IPTO's shares in a strategic investor
which will be either a European Transmission System Operator or a 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. 
 
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 E 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. 
 
Risk relating to Forward Electricity Products Auctions 
 
Under the provisions of Law 4336/2015, PPC's market share both in the wholesale electricity market as well as in the retail
electricity market should be immediately reduced by 25%, while from January 1st 2020 no entity will be allowed to either
generate or import - directly or indirectly- energy quantities greater than 50% of the total energy quantity either
generated or imported, annually in the country. The Competition Commission will assess the possibility of achieving the
above mentioned objective by 01/01/2019 and in case of failure to achieve it, will propose appropriate measures. In case of
the companies' non-compliance, fines amounting to 5% up to 10% on the annual turnover of the previous year will be imposed.
The new Law 4389/2016 as well as Decisions 35 and 38 of the Government's Council for the Economic Policy determine PPC's
share market levels in the retail market for the period 2016 - 2019 (87.24% for 2016, 75.24% for 2017, 62.24% for 2018 and
49.25% for 2019) as well as other key features for Regulated Forward Electricity Products Auctions, including cost elements
that should be taken into account for the calculation of the Auctions' starting price. 
 
The first auction of forward electricity products was scheduled to take place by the end of September 2016 and the physical
deliveries to start in the fourth quarter of 2016. Beneficiaries of forward products would be licensed suppliers (which
would be registered in a special register solely for forward electricity products purposes) with the exception of PPC and
other industrial electricity consumers who may not buy forward products unless they maintain or develop a separate
electricity supply activity. Eventually, the first auction took place on October 25th 2016 for 460 MW of electricity for a
twelve (12) month period, from December 1st 2016 to November 30th 2017. The second auction took place on January 31st 2017
for 145 MW of electricity for a twelve (12) month period, from March 1st 2017 to February 28th 2018. 
 
With the Joint Ministerial Decision FIN.182348 (OG B' 2848/07.09.16) the methodology for the determination of the starting
forward products auction's prices was established as well as the therefrom resulting price for the first period of
implementation of the mechanism, which amounted to E37.37  / MWh. The abovementioned price was set considering the total
lignite and hydroelectric production for 2015 as well as PPC's variable costs as further defined in this Joint Ministerial
Decision. The abovementioned starting price was applicable for the first two forward products auctions. 
 
The quantities, the price and the other characteristics of regulated forward electricity products auctions may have a
significant impact on the financial position, operating results, liquidity and prospects of the Parent Company. Especially
in terms of quantities - and despite the fact that Law 4389/2016 and the aforementioned Joint Ministerial Decisions clearly
define the quantities of forward electricity products to be auctioned each year (as a percentage of the annual demand of 8%
for 2016, 12% 2017 and so on) - the eventual establishment of cumulative percentages for the annual quantities of forward
electricity products to be auctioned (e.g., 8% for 2016, 20% in 2017 and so on) will have a particularly adverse effect on
the liquidity, the financial results and the prospects of the Parent Company. 
 
The Parent Company is already facing strong competition in the retail electricity market, after the liberization of tariffs
for Low Voltage customers due to the operation of third party electricity suppliers, in the a situation of very low prices
in the wholesale electricity market. Competition in the retail market is expected to intensify as a result of the
implementation of forward electricity products auctions, as well as due to the other provisions of Laws 4336/2015 and
4389/2016. 
 
More specifically the Parent Company is expected to face increasing competition in the retail electricity market if
compelled to sell energy to its competitors (alternative suppliers) at low prices, in order for them to increase their
share in the retail market and PPC reduce its own share respectively so that PPC has less than 50% of the Interconnected
System by the end of 2019. Profit margins of alternative electricity suppliers are expected to increase due to the
introduction of forward products regulated auctions, making them more aggressive in attracting new customers, since they
will be able to secure a long term (1 - 4 years) low wholesale electricity price. 
 
Should the alternative suppliers target the most trustworthy and profitable PPC's clients to develop their business, then
PPC will suffer a substantial loss of revenue, profitability and additional cash flow pressures. 
 
But the retail market's structure requires a serious analysis and assessment of the customer groups which objectively can
be the object of competition and in any case requires the exclusion of SRT and HV customers when calculating PPC's market
share. 
 
Unless there are reforms in the regulatory framework to ensure the correction of existing distortions in the wholesale
market, setting conditions of healthy competition and balanced development of suppliers in the market and promotion of
competitive tariffs without cross-subsidization, a further increase in the competition in the supply electricity sector
could have a material adverse effect on the Group's and the Parent Company's business, prospects, financial condition and
results of operations. 
 
Similarly the Group and the Parent Company will be adversely affected if the price of forward products, as will be set
within the relevant auctions, does not cover the full cost of electricity generation but only part of these costs. This
risk appears particularly high, since the already set starting auction price for auctions is based only on variable cost of
lignite and hydroelectric production, and specifically only on the variable costs of lignite mines, so it is uncertain
whether the remaining fixed costs can be recovered through auctions (capital costs, salaries, depreciation, etc. of the
production units and lignite mines). Finally, if the sale price of forward products, as this will be set within the
relevant actions, is less than the System Marginal Price (as the latter is being set from the Day Ahead Schedule), the
participating PPC's power plants in forward products (lignite and hydro power units) will undergo significant revenue
losses, and as a result the Group's and the Parent Company's business, financial condition, operating results and prospects
will be adversely impacted. 
 
If the resulting Forward Products Auction prices are substantially below the SMP, which will lead PPC generation to
excessive losses, it will constitute a cross subsidization of alternative suppliers, with all that this entails for free
competition 
 
Indicatively, the final weighted average settlement price of the two auctions of October 2016 and January 2017 was E37,39 E
/ MWh and E41,14  / MWh respectively, namely the prices were too close to the starting price of E37,37 / MWh and
significantly lower than both the System Marginal Price and PPC's production costs. 
 
Other risks relating to Law 4336/14.08.2015 
 
Apart from the above provisions, Law 4336/14.08.2015 introduces provisions for the energy and natural gas market in
relation to the following: 
 
·      RAE's jurisdiction on monitoring the account of entities operating in the energy and the natural gas sectors as well
as the account of the Transmission System and Distribution Network's  Operators, ensuring that there will be no cross
subsidies between generation, transmission, distribution and supply of electricity and 
 
·      The obligation of the Authorities to enact regulations concerning the offsetting of debts between PPC and the market
operator. They will implement discontinuation contracts as adopted by the European Commission (intermittent load auctions
have already been implemented following Ministerial Decision OG B' / 2861 / 28-12-2015). The obligation of the Authorities
to introduce a new plan for the upgrade of electricity networks, in order to improve performance, enhance interoperability
and reduce costs for consumers. 
 
·      The action map for the electricity market should be completed by December 2017. In this context, the balancing
market should be completed by June 2017. Law 4425/2016 enacted the reorganization of the Greek electricity market,
implementing the legislative framework for the integration of the European electricity market and in particular the
transition to the European Target Model. Following Law 4425/2016, RAE on December 5th 2016 put into public consultation the
Draft Guidelines and Instructions to the competent Market Operators, for the drafting up of those Markets Codes. 
 
·      The Authorities' obligation, by October 2015, to review energy's taxation as well as to reinforce RAE's financial
and operational independence. 
 
·      The Authorities' obligation, by December 2015, to approve a new framework for the support of the Renewable Energy
Sources, preserving their economic viability; establish a new scheme for the upgrading of the energy Networks and to
initiate the implementation of the roadmap for the harmonization of the energy market with the European Target Model by
December 2017. By Law 4414/2016 the new framework for the support of RES was enacted. 
 
In Addition, by Law 4336/14.08.2015 the Greek State had committed to proceed with the ongoing privatization program. The
Hellenic Republic Asset Development Fund's (HRADF) BoD has already approved the Asset Development Plan (ADP) which provides
for the privatization of assets already held by HRADF by December 31st 2014. With Decision 33/2016 of the Government
Counsil for Economic Policy, the Business Plan of HRADF was approved. 
 
Currently and since the second evaluation of the Greek Republic Funding Program has not yet been completed, it is not
possible to accurately assess the potential impact on the Greek economy and on the activities, the operating results, the
financial condition and cash flows of the Group and the Parent Company from the application of the provisions of Law.
4336/2015. 
 
Risk from the absence of Fixed Asset insurance 
 
Currently, the Group and the Parent Company do not maintain insurance against the usual risks associated with their power
plants, transmission and distribution assets, property and equipment. Only major information technology equipment is
insured. Moreover, materials and spare parts as well as liabilities against third parties are not insured. This has been
primarily due to the high costs associated with obtaining insurance against these risks comparing to the cost for
remediating the damage should any of these risks occur, and the dispersed network of power plants. Additionally, the Group
does not insure third party liabilities with respect to distribution networks. During construction, major assets (except
for networks) are insured by EPC contractors for their construction period. Cash in offices and agencies or in transfer is
insured against theft and transports of liquid fuels are also insured. 
 
Any severe damage to key power plants, transmission and distribution assets or mining equipment could have a significant
adverse impact on the Group's and the Parent Company's business, financial condition or results of operations.
Additionally, business interruptions due to labor disputes, strikes, earthquakes, fires, and adverse weather conditions,
among other factors, could potentially, depending on their severity and duration, result in a loss of revenues or increased
costs for the Group. 
 
Hydrologic Conditions 
 
The evolution of hydrologic conditions is a completely unpredictable factor and has a very significant impact on the
Group's and the Parent Company's profitability, taking into account, of course, that PPC has an accumulated experience and
expertise that allows managing in the best possible way the water resources in its reservoirs. 
 
Lignite mining risks and availability of lignite reserves 
 
Lignite mining is subject to inherent risks and is dependent upon a number of conditions beyond the Group's and the Parent
Company's control that can affect costs and production schedules at particular mines. 
 
While the Parent Company estimates that lignite reserves are adequate to cover long term levels of supply required for
power generation by lignite-fired thermal power plants, such estimates may lack complete precision and depend to some
extent on statistical and geological inferences. Furthermore exploitable reserves are not considered as such unless they
can be economically and legally extracted. 
 
Increased production costs, increased stripping ratios, changes in the regulatory regime governing the Parent Company's
mining operations, the adoption of political decisions both by the EU and Greece, contributing to the reduction of the
country's carbon footprint and the reduction of the exploitation of fossil fuels to generate electricity, the significant
decline in oil prices and consequently natural gas prices and the increase in the price of CO2 emission rights burdening 
lignite fired electricity plants costs may result in a revision of reserve data from time to time or may render exploitable
reserves uneconomical to exploit or unexploitable in the future. 
 
Restrictions imposed by national legislation on the Parent Company's ability for new recruitments may result in the future
in a shortage of skilled and qualified personnel in mining operations to operate and support its equipment and may
adversely affect lignite production through the Parent Company's own resources. 
 
EPC related risks 
 
The Group and the Parent Company face risks relating to the construction of electricity generation facilities, including
risks relating to the availability of equipment from reliable suppliers, availability of building materials and key
components, availability of key personnel, delays in construction timetables and completion of the projects within budget
and to required specifications. They may also encounter various setbacks such as adverse weather conditions, difficulties
in connecting to electricity transmission grids, construction defects, delivery failures by suppliers, unexpected delays in
obtaining zoning and other permits and authorizations or legal actions brought by third parties. 
 
Additionally, adverse macroeconomic developments, as well as financial or operating problems of main suppliers and
contractors especially after the imposition of capital controls, may have a negative impact on the Group's and the Parent
Company's ability to purchase liquid fuels, spare parts and materials, have engineering, procurement and construction
("EPC") contracts completed in a timely manner and may increase the Group's and the Parent Company's operating and
maintenance costs as well as  planning times. 
 
Risk from Potential Undertaking of Social Security Liabilities 
 
Despite the fact that under the current legislation the Group and the Parent Company do not have any obligation to cover in
the future any deficit whatsoever between income and expenses (deficit) to PPC's personnel Social Security Funds, there can
be no assurance that this regime will not change in the future. 
 
Litigations Risk 
 
The Group and the Parent Company are involved in several legal proceedings arising from their operations, and any adverse
outcome against PPC or any other of the Group's companies may have a negative impact on their business, financial condition
and reputation. 
 
In addition, as a majority state owned utility, the Group is subject to laws, rules and regulations designed to protect the
public interest, such as of public procurement or environmental protection. Violation of legislation, rules or regulations,
entail, among others, criminal sanctions for the Board of Directors members and executive officers as well as the employees
of the companies and utilities that are subject to those rules. 
 
Simultaneously, the Group is one of the largest industrial groups in Greece, with complex activities and operations across
the country. In the ordinary course of its  business, from time to time, competitors, suppliers, customers, owners of
property adjacent to the Group's  properties, media outlets, activists, and ordinary citizens, raise complaints (even to
public prosecutors) about the Group's  operations and activities, to the extent they feel that such  activities and
operations cause or are likely to cause economic damage to their views and/or interests, businesses or properties and, in
the context of advancing those complaints, they often file criminal complaints against the Group  with the public
prosecutor on a variety of grounds and allegations or make public allegations in the press, which the public prosecutor is
obligated to investigate further before they decide further actions, including the closing of the case for lack of any
conclusive evidence. These practices have intensified during the recent economic crisis, as public prosecutors and the
general public have generally become more sensitive to similar allegations, especially against companies in which the
Hellenic Republic is a major shareholder and are viewed as operating in the public interest. 
 
As a result, the Group and the Parent Company, their Board of Directors members and directors, are presently and from time
to time, and could be in the future, subject to various criminal or other investigations at various stages of procedural
advancement on a variety of grounds arising in connection with their activities in the ordinary course of business. These
investigations and legal proceedings may be disruptive to the Group's and the Parent Company's daily operations to the
extent that the officers and directors involved need to spend time and resources in connection therewith. They may also
adversely affect the Group's and the Parent Company's reputation. To date, none of the proceedings initiated against the
Group and the Group's officers or directors has resulted in any criminal convictions. 
 
Risk from tax and other regulations 
 
The taxation regime for corporations in Greece is frequently revised and the Group may be subject in the future to
increased taxation rates. The imposition of any new taxes, or changing interpretations or application of tax regulations by
the tax authorities as well as the harmonization of Greek and EU tax law and regulation may result in additional amounts
being payable by the Group and the Parent Company, which could have a material adverse effect on their business, results of
operations, financial condition and cash flows. 
 
In addition, PPC pays a special levy for the development of areas where electricity is generated from lignite, equal to
0.5% of its annual turnover. Additionally, since 2012, the Parent Company has been subject to a special levy for lignite
generated electricity equal to E2.00 / MWh and a special tax on natural gas (which was abolished from June 1st 2016).
Currently, the Group does not pay any royalty, concession fee or other fee for lignite extraction or for water used on its
hydropower plants. The application of any new royalty regime may require the abolishment of the current regime and the
Group cannot guarantee that any form of royalties, concession fees or other fees on its lignite or hydropower production
will not be introduced by the Greek Government in the future. 
 
Additionally, due to the current recession in Greece, even if the effect of any new taxes, levies, etc. is passed onto the
Group's and the Parent Company's customers, such taxes, levies, etc. may impact collection rates for PPC's electricity
bills or result in a loss of market share due to competition. Conversely, if the Group and the Parent Company do not
increase tariffs to match an increase in taxation, an adverse impact on their financial results will follow. 
 
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 approximately 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. 
 
Organization and Risk Management 
 
The Group has defined risk as an occurrence of uncertain and non-predictable conditions that may negatively affect its
overall operations, business activity, financial performance, as well as the execution of its strategy and the achievement
of its goals. 
 
The Parent Company has established but hasn't staffed the Risk Management Department yet, as a result of the lack of
experienced staff due to constraints in hiring, Till today its line management, on a case by case basis, is engaged in
identifying and primarily assessing risks in order to submit recommendations to the Board of Directors regarding the design
and approval of specific risk management procedures and policies. The Group and the Parent Company can provide no assurance
that such procedures and policies provide full protection against the risks that they face. 
 
The Group may face strikes 
 
Most of the Group's and the Parent Company's employees are members of labour unions. Extensive labour unrest may have a
significant negative impact on the Group's business activity. 
 
Health, Safety at Work and Environmental Laws and Regulations 
 
The Group's and the Parent Company's operations are subject to National as well as European laws and regulations regarding
employees' health and safety as well as environmental issues. 
 
The cost for complying with such legislation and regulations may require major investments and/or significant expenses for
actions regarding the environmental compliance, upgrade and rehabilitation. Changes in the environmental legislation may
increase the compliance cost and eventually, may have an impact on the Group's and the Parent Company's profitability as
well as its cash flow program. 
 
Furthermore, due to the nature of their operations, the Group and the Parent Company are involved in a number of
environmental proceedings that arise in the ordinary course of business. These proceedings may not involve financial
penalties and therefore cannot be quantified. Future related costs as a result of enforcement actions and/or third party
claims for environmental damage and/or insurance cost for environmental liability could have a material adverse effect on
the Group's and the Parent Company's business, results of operations and financial position. 
 
The Group and the Parent Company are also required to obtain environmental and safety permits for their operations from
various governmental authorities. Certain permits require periodic renewal or review of their environmental terms as well
as continuous monitoring and reporting of compliance with such terms. The Group and the Parent Company cannot give any
assurance that they will be able to renew such permits or that material changes to their permits requiring significant
expenditures on its end will not be imposed. 
 
Environmental, health and safety laws are complex, change frequently and tend to become more stringent over time. As a
result, the Group and the Parent Company may not at all times be in full compliance with all such applicable laws and
regulations. 
 
Additionally, as an owner and operator of generation and distribution facilities, the Group and the Parent Company may
incur in the future costs and expenses in connection with the decommissioning of such facilities, which the Group and the
Parent Company estimate to be to a large extent recoverable from the sale of decommissioned equipment, materials and
scrap. 
 
Information Technology (IT) security 
 
A large portion of the Group's and the Parent Company's 

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