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

Public Power SAAnnouncement

26/09/2017 16:26

- Part 2: For the preceding part double click  ID:nRSZ8836Ra 

PPC's objections to the correctness of applying the methodology
for calculating the PSO compensation for the Non-Interconnected Islands and for the years 2014-2016 still stand, PPC has
requested the Authority to revise this Decision. The corresponding claimed additional compensation for the years in
question is estimated at Euro 44mil. 
 
In relation to the above view of RAE's opinion 10/2017 on the simultaneous recovery system according to which the annual
compensation due is recovered in the same calendar year, in the Company's view and according to the current regulatory
framework, a deferred refund system is still in force and the estimated aggregate unrecoverable amount of PSO compensation
for the 2012-2015 period amounts to Euro 700 million including the legally claimed amounts for that period. However, if the
above RAE opinion on the simultaneous recovery system is finally adopted by the State, the unrecoverable compensation for
PPC for the five-year period 2012-2016, including legally claimed amounts, is estimated at Euro 635 mil. 
 
However, in this case, the State should ensure that PPC also recovers an amount of Euro 681.7 mil., being the PSO
compensation for the year 2011, which would have been normally recovered in 2012 with the deferral system which was
applicable then. 
 
By RAE's Decision 134/2016 an amendment was introduced to the revenue - expense  management method of the Special Account
for PSOs of the IPTO during the monthly clearing of the electricity market. 
 
Based on the provisions included in the above Decision and the HETS and HEDN management codes, there is a time
incompatibility on the management of similar transactions, between the Interconnected and the Non - Inerconnected markets
for the Participants in both markets, with time - lagged cash flows of receivables. 
 
It is clear that a party liable to pay PSO charges that is also the provider of the service, should be by the regulatory
framework subject to simultaneous financial transactions for both the Interconnected System and the Non-Interconnected
Islands (NII) so that there is no economic charge, which, as already mentioned, does not apply. 
 
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 were transitional - like the transitional CAM (the "Transitional Flexibility Assurance
Mechanism" according to L. 4389/2016) which expired on April 30th 2017, 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 the 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 mil. .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 four (4) equal installments out of the total amount of Euro 96.6 mil. The hearing of this lawsuit has
been scheduled after postponement for June 7, 2017 when it was canceled. 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 129.3 mil 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 126.4 mil.. PPC reserving all its legal rights, approved the payment of the
remaining deficit of Euro 71.8 mil. 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), of Law 4414/2016 (New operating aid scheme for RES) and Decision No. 57/19.5.2017 of the Government's Economic
Policy Council (Structural measures for the access of PPC SA to lignite), may have a significant impact on the Group's and
the Parent Company's activities, contractual commitments and financial results. 
 
Similarly, the package of Directives, Regulatory Decisions, Guidelines, etc. announced by the European Commission on
November 30th 2016 under the general title "Clean Energy Package", which concerns the period 2021- 2030 and is currently
under consultation between the European Institutions (Parliament, Commission and Council), may have a significant impact on
the Group and the Parent Company. 
 
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 January 1st 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. Laws 4389/2016 and 4472/2017 as well as Decisions 35/2016 and 38/2016 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. More specifically, industrial electricity consumers 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. The third auction took place on April 26th 2017
for 145 MW of electricity for a twelve (12) month period, from June 1st 2017 to May 31st  2018, whereas on July 19th 2017
the fourth auction took place. for 145 MW of electricity for a twelve (12) month period, from September 1st 2017 to August
31st 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 three (3) forward products auctions. On July 2017,
the above mentioned minimum price was updated using the same calculation methodology on the actual data for the year 2016
resulting in a new starting price of E32.05 / MWh. This price was used for the fourth auction and will be applicable for
auction until the end of June 2018. 
 
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 provided  for the quantities of forward electricity
products to be auctioned each year to be a percentage of the annual demand of 8% for 2016, 12% for 2017, 13% for 2018 and
13% for 2019, Law 4472/2017 eventually establishes increased  annual quantities of forward electricity products to be
auctioned : 16% of the annual demand for  2017, 19% for 218 and 22% for 2019.  These increased quantities are valid
provided that the annual target of PPC's market share decrease as provided by Law 4389/2016 is met, while if PPC's market
share exceeds the annual target by more than two (2) percentage points, then the annual quantities to be auctioned will
increase accordingly, which may 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,
4389/2016 and 4472/207.. 
 
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 first four auctions was E37.39 E / MWh, E41.06 / MWh,
E39.68 / MWh and E43.04 / MWh respectively, namely the prices were significantly lower than both the System Marginal Price
(monthly fluctuation between E44.6 / MWh and E74.6 / MWh for the period December 2016 - July 2017) and PPC's production
costs. 
 
Risk relating to structural measures for the divestment of lignite-fired units 
 
According to the Decision 57/19.05.2017 of the Government's Council for Economic Policy, on "The structural measures for
PPC's access to lignite" and in compliance with the decisions C (2008) 824 and C (2009) 6244 of the European Commission on
PPC's monopoly access to lignite, which became irreversible after the (2016) 733 and (2016) 748 decisions of the General
Court of the European Union, Greece will propose to the Commission's Directorate General for Competition (DG Comp.) binding
remedial structural measures based on the following principles. 
 
a. The measures will include PPC's disinvestment of lignite power generating units to existing or new alternative suppliers
or other investors. 
 
b. PPC will not have any involvement or connection with any element of disinvestment, including preferential electricity
supply. The purchaser (s) : 
 
•       will be independent of and will not have any association with PPC and its affiliated companies 
 
•       will have the financial resources, proven know-how and incentive to maintain and develop the disinvested portfolio
of power generating stations as a viable and active competitive power in relation to PPC and other competitors. 
 
•       on the basis of the information available, they would not cause or threaten to cause prima facie competition
concerns and they would not create a risk of delay in the implementation of the structural measures. 
 
c. The disinvestment will account for about 40% of PPC's lignite power generating capacity. The exact percentage will be
determined during technical discussions with the European Commission in accordance with the abovementioned decisions (the
disinvestment will include the associated lignite reserves). 
 
d. The disinvestment will have equivalent economic characteristics to PPC's lignite power generating capacity, particularly
in terms of efficiency and life, reflecting the start and end of lignite power generating capacity. 
 
e. The measures will be designed and implemented in accordance with the applicable and substantive competition rules. They
will be finalized through the formal submission of the agreed binding proposal by the Hellenic Republic to the European
Commission's Directorate-General for Competition until November 2017 and will be implemented by June 2018. 
 
The above mentioned structural measures may have a significant impact on the Group's and the Parent Company's operation,
contractual obligations, liquidity and financial results. 
 
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
balancing market has not been completed by the end of June 2017. Moreover, the details of the operation of the individual
markets of the Target Model (forward, pre-day, intraday and balancing) have not yet been enacted. 
 
·      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 third 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, as well as finding sufficiently competitive
conditions in the domestic market and 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 such legislation,  entails, 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, the media, 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. In this context, reports involving
complaints and accusations for allegedly unlawful acts of executives against the Group usually involve their further
investigation by the Prosecuting Authorities in the so-called preliminary proceedings, which usually ends up in the closing
of the investigated case due to lack of 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 at present 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, although 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. 
 
The Parent Company pays a special levy for the development of areas where electricity is generated from lignite, equal to
0.5% of its annual turnover. 
 
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. 
 
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 and liquidity may 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 1:4 ratio (a recruitment for every four employees leaving) for the year 2017
and 1:3 for the year 2018 concerning all public sector entities .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 the Risk Management, Planning and Control Department but Risk Management has not been
staffed, as a result of the lack of experienced staff due to constraints in hiring, as well as due to other adverse factors
mentioned in the previous section. 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 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 operations are based on information systems; therefore they are
exposed to the risk of non-availability, data integrity corruption and unauthorized access to these systems. In order to
minimize these risks, the Group and the Parent Company take measures for the enhancement of their IT security. 
 
The Group and the Parent Company believe that they currently have adequate security policies in place to cover risks
associated with the operation and maintenance of their IT infrastructure and perform regular audits of their systems.
However, there can be no assurances that they will be able to prevent technology failures or IT security breaches in a
timely manner or continue to have adequate insurance coverage to compensate for related losses (including litigation
claims, liability and data loss), which could disrupt their operations or harm their reputation and have a materially
adverse effect on their business. 
 
Extraordinary events 
 
Unexpected events, including natural disasters, fires, war, terrorist activities, strikes, etc., may lead to a breakdown or
the interruption of the operation of the Group's and the Parent Company's mines, the generation function and electricity
transmission and distribution. Additionally, adverse macroeconomic developments, as well as financial and operating
problems of basic suppliers, service providers and contractors may have a negative impact on the Group's and the Parent
Company's ability to purchase liquid fuels, spare parts and materials and may increase their operating costs. 
 
The Group's and the Parent Company's operations are susceptible to industrial accidents, and employees or third parties may
suffer bodily injury or death as a result of such accidents. In particular, while the Group and the Parent Company believe
that their equipment has been well designed and manufactured and is subject to rigorous quality control tests, quality
assurance tests, and is in compliance with applicable health and safety standards and regulation, the design and
manufacturing process is ultimately controlled by their equipment suppliers or manufacturers or EPC contractors rather than
by the them, and there can be no assurance that accidents will not result during the installation or operation of this
equipment. Furthermore, the consequences of these events may create significant and long-lasting environmental or health
hazards and pollution and may be harmful or a nuisance to neighboring residents. 
 
The Group and the Parent Company may be required to pay damages or fines, clean up environmental damage or dismantle power
plants in order to comply with environmental or health and safety regulations. 
 
The Group and the Parent Company may also face civil liabilities or fines in the ordinary course of their business as a
result of damages to third parties caused by the natural and man-made disasters mentioned above. These liabilities may
result in the Group and the Parent Company being required to make indemnification payments in accordance with applicable
laws. 
 
Licensing Risk) 
 
The procedures for obtaining and renewing authorizations and permits for the Group's and the Parent Company's activities
can be protracted and complex. Obtaining these authorizations is not routine and the conditions attached to obtaining them
are subject to change and may not be predictable. As a result, the Group and the Parent Company may incur significant
expenses in order to comply with the requirements associated with obtaining or renewing these authorizations. Failure to
obtain or renew the necessary licenses and permits might result in interruptions to some of the Group's and the Parent
Company's operations, including also the ability to obtain funding for their activities. 
 
Any failure to obtain, maintain, renew or extend all the administrative authorizations and licenses necessary for the
operation of their business and execution of their strategy, could have a material adverse effect on the Group's and the
Parent Company's business, strategic and financial planning, results of operations, financial condition and cash flows. 
 
Risk from impairment of Assets 
 
In relation to the value of their participation in the share capital of subsidiaries and associates and the value of their
tangible assets, the Group and the Parent Company are exposed to the following risks: 
 
• The risk from a significant change or / and the non-recoverability of the value of the Parent's Company, participation in
the share capital of subsidiaries and associates 
 
• The risk from a significant change in the fair value of their tangible assets in the context of their periodic
reassessment. 
 
Provision of guarantee to Subsidiaries 
 
The Parent Company has a policy of reviewing on a case by case basis and only after the Decision of its Board of Directors
to provide guarantees or intercompany loans only to subsidiaries or associates. It is noted that, pursuant to article 23a
of L. 2190/1920, the provision of guarantees in favor of subsidiaries is subject to the (prior or subsequent) approval of
the General Meeting of Shareholders. 
 
2H2017 OUTLOOK 
 
Profitability is expected to recover in the second half of the year. More specifically, for the full year and under the
assumptions that the Brent oil price will be at $ 50 / bbl, the E / $ exchange rate at 1,13, System Marginal Price will
stand at E51 / MWh and that CO2 emission rights price will be at E5.2 / ton, we estimate that the primary financial figures
of the Group , excluding IPTO's activity (transmission of electricity), will stand at : 
 
·      revenues from electricity sales :  E 4.6 bil. 
 
·      total revenues  E 4.9 bil. 
 
·      EBITDA margin will be 12% - 13%. 
 
These estimates do not include any additional revenue from Public Service Obligations (PSO's) compensation recovery from
previous years. 
 
BALANCES AND TRANSACTIONS WITH RELATED PARTIES 
 
PPC balances with its subsidiaries and its associates as of June 30, 2017 and December 31, 2016 are as follows: 
 
                                   June 30, 2017       December 31, 2016  
                                   Amounts in '000E    Amounts in '000E   
                                   Receivable          (Payable)            Receivable    (Payable)    
 Subsidiaries                                                                                          
 - PPC Renewables S.A.             1,385               -                    1,260         -            
 - HEDNO S.A.                      182,909             (473,470)            599,981       (1,028,540)  
 - PPC Finance PLC                 -                   (4,589)              -             (6,173)      
 - PPC ELEKTRIK                    -                   (123)                542           (86)         
 - PPC Bulgaria JSCO               -                   (748)                38            (1,524)      
                                   184,294             (478,930)            601,821       (1,036,323)  
                                                                                                       
 Associates                                                                                            
 LARCO (energy, lignite  and ash)  264,713             -                    242,709       -            
                                   264,713             -                    242,709       -            
 
 
PPC's transactions with its subsidiaries and its associates for the period ended June 30th, 2017 and June 30th, 2016, 
 
are as follows: 
 
                        June 30, 2017       June 30, 2016     
                        Amounts in '000E    Amounts in '000E  
                        Invoiced to         Invoiced from       Invoiced to    Invoiced from  
 Subsidiaries                                                                                 
 - PPC Renewables S.A.  1,585               -                   1,556          -              
 - HEDNO S.A.           611,904             (889,285)           533,242        (858,903)      
 - PPC Finance Plc      -                   (16,916)            -              (18,551)       
 - PPC ELEKTRIK         12                  (1,868)             954            (366)          
 - PPC Bulgaria JSCO    -                   (9,297)             -              (15,536)       
                        613,501             (917,366)           535,752        (893,356)      
 Associates                                                                                   
 LARCO                  (28,742)            (3,882)             29,718         (2,926)        
                        (28,742)            (3,882)             29,718         (2,926)        
 
 
Guarantee in favor of the subsidiary PPC Renewables S.A. 
 
As of June 30th 2017, the Parent Company has guaranteed for total credit line of Euro 8 mil., through overdraft agreements.
As of June 30th 2017 PPC Renewables S.A. has used Euro 896 thousand, concerning letters of guarantee. 
 
Interest bearing loan to ADMIE (IPTO) Holdings S.A. 
 
During the first half of 2017, the Parent Company granted an interest-bearing loan to the company ADMIE (IPTO) HOLDING SA
up to a maximum of Euro 1.3 million, of which an amount of Euro 831 thousand has been disbursed. Under the contract, the
loan is repayable on November 30th 2018. It should be noted that in order to secure the repayment of this loan, ADMIE
(IPTO) HOLDING SA has granted to PPC a pledge on the dividends it is entitled to receive from IPTO S.A. 
 
Transactions and balances with other government owned entities 
 
The following table presents purchases and balances with government owned entities Hellenic Petroleum ("ELPE") and National
Gas Company ("DEPA"), which are PPC's liquid fuel and natural gas suppliers, respectively and into which the Hellenic
Republic participates. Furthermore, transactions and balances with the Electricity Market Operator ("EMO"), as well as with
IPTO S.A. are presented. 
 
                                   Purchases           Balance           
                                   Amounts in '000E    Amounts in '000E  
                                   30.06.2017          30.06.2016          30.06.2017    31.12.2016  
 ELPE, purchases of liquid fuel    126,692             -                   43,535        85          
 DEPA, purchases of natural gas    211,594             122,819             119,728       105,314     
                                   338,286             122,819             163,263       105,399     
 
 
           June 30, 2017       December 31, 2016  
           Amounts in '000E    Amounts in '000E   
           Receivable          (Payable)            Receivable    (Payable)  
 EMO S.A.  112,500             (73,557)             173,764       (128,312)  
                                                                             
 
 
           June 30, 2017       June 30, 2016     
           Amounts in '000E    Amounts in '000E  
           Invoiced to         Invoiced from       Invoiced to    Invoiced from  
 EMO S.A.  864,436             (1,392,699)         617,389        (961,129)      
                                                                                 
 
 
            June 30, 2017       December 31, 2016  
            Amounts in '000E    Amounts in '000E   
            Receivable          (Payable)            Receivable    (Payable)  
 IPTO S.A.  113,956             (740,414)            152,844       (807,989)  
                                                                              
 
 
            June 30, 2017       June 30, 2016     
            Amounts in '000E    Amounts in '000E  
            Invoiced to         Invoiced from       Invoiced to    Invoiced from  
 IPTO S.A.  79,493              (283,014)           92,863         (594,465)      
                                                                                  
 
 
Further to the above, PPC enters into transactions with many, government owned, both profit and nonprofit oriented entities
within its normal course of business (sale of electricity, services received, etc.). All transactions with government owned
entities are performed at arm's length terms. 
 
Management compensation 
 
Fees concerning management members (Board of Directors and General Managers) for the six month period ended June 30, 2017
and 2016 have as follows: 
 
                                                                 GROUP             COMPANY           
                                                                 Amounts in '000E  Amounts in '000E  
                                                                 30.06.2017        30.06.2016        30.06.2017  30.06.2016  
 Compensation of members of the Board of Directors                                                                           
 - Executive members of the Board of Directors                   123               181               29          29          
 - Non-executive members of the Board of Directors               28                27                -           -           
 - Compensation / Extra fees                                     22                20                -           -           
 - Contribution to defined contribution plans                    13                46                9           9           
 - Other Benefits                                                70                44                70          44          
                                                                 256               318               108         82          
 Compensation of Deputy Managing Directors and General Managers                                                              
 - Regular compensation                                          351               316               268         253         
 - Contribution to defined contribution plans                    104               86                80          66          
 - Compensation / Extra fees                                     13                -                 13          -           
                                                                 468               402               361         319         
 Total                                                           724               720               469         401         
 
 
It is noted that the amounts relating to the Group, for the period ended on June 30th 2017, do not include IPTO S.A, 
 
Compensation to members of the Board of Directors does not include standard payroll, paid to representatives of employees
that participate in the Parent Company's Board of Directors. Also, it does not include the benefit for the electricity
supply based on the PPC personnel invoice to the Board of Director members, the Deputy Managing Directors and the General
Managers. 
 
APENDIX 
 
Definitions and reconciliations of Alternative Performance Measures ("APMs") 
 
ALTERNATIVE PERFORMANCE MEASURES ("APMs") 
 
The Group and the Parent Company using Alternative Performance Measures ( "APMs") in taking decisions concerning the
financial, operational and strategic planning, as well as for the evaluation and publication of their performance. These
APMs serve to better understand the financial and operating results of the Group and the Parent Company, their financial
position and cash flows. Alternative indicators (APMs) should always be read in conjunction with the financial results that
have been prepared in accordance with IFRS and in no way replace them. 
 
Alternative Performance Measures ("APMs") 
 
In discussing the Group's and the Parent Company's performance, "adjusted" measures are used such as: Adjusted EBITDA
without one off effects and Adjusted EBITDA margin without one off effects. These adjusted measures are calculated by
deducting from performance measures directly derived from amounts of the annual Financial Statement the effect and costs
arising from events which have occurred during the reporting period and which have not affected the amounts of previous
periods. 
 
EBITDA (Operating Income before depreciation and impairment, net financial expenses and taxes). 
 
EBITDA serves to better analyze the operating results of the Group and the Parent Company and is calculated as follows:
Total turnover minus total operating expenses before depreciation and impairment. The EBITDA margin (%) is calculated by
dividing EBITDA by total turnover. 
 
Adjusted EBITDA (Operating Income before depreciation and impairment, net financial expenses and taxes). 
 
Adjusted EBITDA serves to better analyze the Group's operating income, excluding the impact of one-off effects. 
 
EBIT (Operating Income before net financial expenses and taxes) 
 
EBIT serves to better analyze the operating results of the Group and the Parent Company and is calculated as follows: Total
turnover minus total operating expenses. EBIT margin (%) is calculated by dividing EBIT with total turnover 
 
Adjusted Profit / Loss before tax without one off effects 
 
This measure also serves to better analyze the results and is calculated as follows: Profit / (Loss) before taxes as shown
in the Financial Statements excluding one off effects as analyzed in the note above for adjusted EBITDA. 
 
Adjusted Profit / Loss 

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