Societatea Energetica Electrica S.A Annual Report 2021

Plain-text annual report

2021 ANNUAL REPORT 1 | RAPORT ANUAL 2020 ELECTRICA S.A. 1 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT2 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT3 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT6 8 MESSAGE FROM THE CHAIRMAN OF THE BOARDS OF DIRECTORS MESSAGE FROM THE CHIEF EXECUTIVE OFFICER 11 207 DIRECTORS’ REPORT FOR THE YEAR 2021 SEPARATE FINANCIAL STATEMENTS 4 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT273 279 STANDALONE AUDIT REPORT CONSOLIDATED FINANCIAL STATEMENTS 367 374 CONDOLIDATED AUDIT REPORT DECLARATION OF THE MANAGEMENT 5 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTMESSAGE FROM THE CHAIRMAN OF THE BOARDS OF DIRECTORS Dear shareholders, The events of 2021 have brought many challenges and transformations for the entire energy sector, both nationally and internationally. Implicitly, the challenges, the transformations, were also received by Electrica. We had the opportunity to prove that in any context there is an opportunity to become more focused and involved in order to achieve common goals, being needed, more than ever, a higher degree of adaptability and consistency. Also in 2021, Electrica Group has constantly sought to reflect its commitments to shareholders, consumers, and all stakeholders, through a team of over 8,000 very experienced people in the field of energy. There was good cooperation between the Board of Directors and the Group’s management team in 2021. Electrica Group makes every effort to implement the Corporate governance is a key element of Electrica’s best standards in the Investor Relation corporate strategy and is essential for the sustainable disclosure Policy, increasing the transparency and development of the company in the future, but also quality of communication with analysts, being a condition to create added value for our investors constantly thoughtful of the shareholders’ opinion. and partners. Since its listing in 2014, in order to Evidence of the recognition of these efforts was the ensure high standards of corporate governance, Group’s ranking in the top of listed companies, by transparency and integrity of the business, Electrica obtaining a rating of 10 on Vektor – the indicator of Group has adhered and applied the provisions of the communication with investors for the companies Corporate Governance Code issued by BSE and LSE. listed on the stock exchange. The award given by the Starting with 2015, the Group has created its own Association for Investor Relations at the Romanian Code of Governance which is permanently revised Stock Exchange (ARIR), for the activity carried out and supplemented. As there are updates, progress by The Group in the category „Best Sustainability and other impactful elements, the Group reports them to the capital market, given the commitment Report”, also came as a recognition of having best practices in place. made to our shareholders to communicate transparently and promptly, understanding that The Board of Directors has done its best to integrate transparency and communication are important the principles of sustainable development into elements in our relationship with investors. the company’s business model and strategy as 6 | 2021 ANNUAL REPORT ELECTRICA S.A. MESSAGE FROM THE CHAIRMAN OF THE BOARDS OF DIRECTORS well as into our investment processes, in a difficult 2021 the shareholders approved the set-up of the year, with many transformations and challenges. Electrica Foundation, an independent organization, According to the strategy for the period 2019- established with the purpose of getting involved in 2023, Electrica aims to expand in related fields and social responsibility activities throughout Romania. obtain synergies with the fields in which it operates. Managing the impact that the unfavourable context An important step towards the implementation had on the energy market in 2021 and the limitation of the growth strategy by expanding the value of the negative effects of this context was also chain was the signing of the financing agreement possible through a close collaboration with the worth RON 750 million, with Erste Group Bank AG Group’s executive management, but also with the and Raiffeisen Bank Romania S.A., for production support of the professionalism and dedication of projects from renewable resources and other value- wonderful people from the great Electrica team. added services, but also the acquisition of ready- Sure, it’s always possible to do more and better. to-build projects, of different capacities, in order to develop the electricity production line. On behalf of the entire Board of Directors, I thank you for your support and assistance and I assure Being aware of the strategic role we have in the diligence and knowledge in order to achieve the Romanian energy market, as well as in supporting planned objectives, for the long-term sustainable the objectives of the European Green Deal, we development and for increasing the value of the continued the strategy of modifying, transforming, Electrica Group. you that we, the Directors, will act with all our and integrating the activities, being approved the establishment of a subsidiary dedicated to projects in the area of power generation from renewable sources, Electrica Productie Energie S.A. I believe that the Directors must have a special involvement in the sustainability aspects, because, through their role, they militate for the long-term success of the company. In order to take to another level our involvement in the company and to remain relevant in the perception of all stakeholders, whether we are talking about shareholders, community or employees, in August Iulian Cristian BOSOANCA - Chair of the Board of Directors Electrica SA 7 | 2021 ANNUAL REPORT ELECTRICA S.A. MESSAGE FROM THE CHIEF EXECUTIVE OFFICER Dear shareholders, The energy sector has been in a continuous transformation in 2021, starting with the total liberalization of energy prices and up to the accelerated increase in acquisition costs of electricity. On the national market, the uncertainties generated by the changes in the legislative framework was added to these challenges with impact on the financial statements of the distribution operators, but especially the electricity and natural gas supply companies. In this difficult market context, and in a period marked by volatility, we have adopted a series of measures to prepare the Electric Group to act more agilely, across all business lines, and strengthens its resilience to other challenges that may occur. We proved that we are a solid company, which found the right resources and implemented the right projects to keep our promise to all interested parties. For all of this, as well as for the support provided, a big level of investment among distribution operators. “thank you” to the entire Electrica’s team. In fact, after the listing in 2014, The Electrica Group Being aware of the strategic position of the and refurbishment of the electricity distribution Group, we have focused our resources to ensure networks, with a total of over RON 4.8 billion the continuity of the activity and energy supply. invested in the period 2014-2021. For Electrica Group, the key words of 2021 were consolidation, growth, flexibility. Under the circumstances of energy market became the largest investor in the modernization liberalisation, Electrica Furnizare was the market Starting with 1 January 2021, the new company leader in 2021, with a market share of 18.42% and Distributie Energie Electrica Romania S.A. (DEER), one of our major objectives was to protect the entire resulting from the legal merger of the Group’s customers’ portfolio, the company providing energy three Distribution companies, has become the for approximately 3.5 million of consumption places. most important electricity distribution operator at For this purpose, we have kept the tariffs negotiated national level, with a coverage of 40.7% of Romania’s with the customers throughout 2021, despite the territory and 3.8 million users. increase in the purchase price, the company keeping its commitment to remain a trustful partner for its The total investments assumed and accomplished consumers. between 2018-2021, exceeded the value of RON 2.65 billion, representing by far, the highest 8 | 2021 ANNUAL REPORT ELECTRICA S.A. MESSAGE FROM THE CHIEF EXECUTIVE OFFICER With the largest portfolio of customers in the The Board of Directors proposed for the approval regulated market at the beginning of 2021, Electrica of the General Meeting of Shareholders a gross Furnizare, managed to apply measures so that, at dividend, from the individual profit registered the end of the year, over one million customers were by Electrica SA. for the financial year 2021, in the transferred to the competitive market. amount of 0.45 RON / share. The total gross value Electrica Serv S.A. is one of the most performant of the dividends amounted to RON 152.8 million, providers of energy services, in continuous corresponding to 50% of the individual net profit transformation and keeping up with the new after distribution to the legal reserve, established technologies. The company provides integrated on the basis of electrica SA’s audited individual maintenance services, design, support services financial statements for 2021. for some of the Distribution Operators as well as values-added energy services such as complete In the near future, we intend to continue the projects grid connection, energy efficiency solutions, of consolidation and sustainable development electromobility and energy installing photovoltaic power plants independence by for final across all business the acceleration of digitalization and the development lines, supported by customers, achieving in 2021 a doubling of the of the production from renewable sources. We will turnover. continue to invest in the preparation of distribution grids towards smart grid concept, in order to cope Consistent with the goal of creating medium and with the challenges of energy transition, as well long-term value for investors and reconfirming the as the development of alternative channels for Group’s commitment to aligning with the objectives interactions with end users. of the European Green Deal, we have continued the integration of activities and we proposed to our For an optimal use of opportunities, Electrica aimed, shareholders to set up a subsidiary dedicated to on long term, the development of a portfolio of projects in the area of generation of electricity from electricity generation capacities from renewable renewable sources, Electrica Productie Energie S.A., sources with a cumulative capacity of 400 MW, in cumulated with the development and operation parallel with electricity storage capacities up to 100 of storage solutions that the company intends to MW. develop and in the future. Part of the Group’s development strategy is also In 2021, the inorganic growth projects resulted the expansion of operations outside the domestic in the acquisition of four companies that have a market (at regional level) in order to ensure a portfolio of projects for the production of electricity balance between long-term value creation and from renewable sources with a projected installed maximizing profit for shareholders. capacity of 284 MW, of which 163 MW in three photovoltaic projects and 121 MW in a wind project that will include a storage capacity of 60 MWh. The On behalf of the Electrica Group team, thank you for your trust and support and we assure you that acquisition adds to the existing production capacity we will make every effort for a positive change, at the end of 2020, of 7MW. through continuing the initiatives to improve the operational and financial performance of the We have continued the process of organizational company and that we will remain the same reliable transformation and optimization, started in the partner for all stakeholders. previous years with the Group Reorganization Plan, a necessary and timely measure in order to increase financial and operational performance, reduce costs and the cultural transformation of the organization by accelerating the adoption of good practices. Georgeta Corina POPESCU - General Manager of Electrica S.A. 9 | 2021 ANNUAL REPORT ELECTRICA S.A. 10 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDIRECTORS’ REPORT FOR THE YEAR 2021 (based on the individual financial statements prepared in accordance with the Order of the Ministry of Public Finance no. 2844/2016 for the approval of the Accounting Regulations in accordance with International Financial Reporting Standards, respectively on the consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union) REGARDING THE ECONOMIC AND FINANCIAL ACTIVITY OF SOCIETATEA ENERGETICA ELECTRICA S.A. and ELECTRICA GROUP in compliance with art. 63 of the Law no. 24/2017 on issuers of financial instruments and market operations and with annex no. 15 to ASF Regulation no. 5/2018 and the Bucharest Stock Exchange Code for the 12-month period ended 31 December 2021 Free translation from Romanian, which is the official and binding version, and will prevail, in the event of any discrepancies with the English version 11 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTTABLE OF CONTENTS Glossary Identification details of Electrica 1 Electrica 2021 Overview 1.1 1.2 1.3 2021 Key financial data Key events in 2021 Subsequent events 2 Electrica Group 2.1 2.2 2.3 2.4 2.5 Organizational structure Mission, vision, values Key elements of the 2019 - 2023 Strategic Plan Outlook Key factors, directions and significant market trends affecting the operational results of Electrica Group 3 Electrica on the capital markets 3.1 3.2 3.3 3.4 3.5 3.6 3.7 Ownership structure Shares evolution on BSE and Global depository receipts (GDRs) evolution on LSE Investor relations (IR) Related parties transactions Dividends policy Dividend distribution Own shares 4 Corporate Governance in ELSA 4.1 4.2 4.3 4.4 4.5 4.6 4.7. 4.8. 4.9. 4.10 4.11 Corporate Governance Code General Meeting of ELSA’s Shareholders Shareholder’s rights ELSA’s Board of Directors The activity of ELSA’s Board of Directors and of its consultative committees in 2021 ELSA’s Executive management Remuneration of the Directors and of the Executive Managers with mandate agreements Corporate Governance in ELSA’s subsidiaries Statement regarding the corporate governance „Comply or Explain” Implementing action plans undertaken by signing the framework agreement with EBRD Internal audit activity report for 2021 14 16 17 18 24 48 51 52 53 54 57 62 65 66 67 69 70 70 71 71 73 74 76 77 80 87 94 98 102 110 120 126 12 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT 5 Operating activity of Electrica in 2021 5.1 5.2 5.3 5.4 5.5 5.6 5.7 Operating segments Fixed assets Procurement Sales activity Personnel Environmental considerations Research and development activities 6 Electrica financial reporting for 2021 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 Consolidated statement of the financial position Consolidated statement of profit or loss Consolidated cash flow statement Separate statement of the financial position Separate statement of profit or loss Separate cash flow statement Risk management Description of the main features of internal control and risk management systems in relation to the financial reporting process Anexa 1 – Litigations Anexa 2 – Details of the main investments of Electrica Group during 2021 127 128 131 135 135 138 142 144 145 146 150 158 160 165 168 170 174 177 199 13 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT GLOSSARY ANRE Romanian Energy Regulatory Authority ASF BPS BoD BRP BSE BTA Romanian Financial Supervisory Authority (Autoritatea de Suprave- ghere Financiara) Basis points Board of Directors Balance Responsible Party Bucharest Stock Exchange Business Transfer Agreement CAPEX Capital Expenditure CGC CMC CMBC (EA/CN) Corporate Governance Code Competitive Market Component Centralized Market for Bilateral EEA EBIT EBITDA EDN EGMS EFSA ELSA ERM EU EUR FCA European Economic Area Earnings before interest and tax Earnings before interest, tax, depreciation, and amortization Electrical Distribution Network Extraordinary General Meeting of Shareholders Electrica Furnizare SA Electrica SA Enterprise Risk Management European Union The monetary unit of several member states of the European Union Financial Conduct Authority – United Contracts (Extended Auction/Conti- Kingdom nuous Negotiation) FPM-LT Medium and Long-Term Flexible CMNG-AN Centralized Market for Bilateral Natural Gas Contracts – Auction and Negotiation CMNG-PA Centralized Market for Bilateral Na- tural Gas Contracts – Public Auction CMNG – OTC Centralized Market for Bilateral Natural Gas Contracts – OTC CMUS Centralized Market for Universal Service CNTEE The National Transmission System Operator CSR DAM Corporate Social Responsibility Day Ahead Market GC GDP GDR GEO GMS HV IAS IFRIC IFRS Products Market Green Certificates Gross Domestic Product Global Depositary Receipts Government Emergency Ordinance General Meeting of Shareholders High Voltage International Accounting Standard International Financial Reporting Interpretations Committee International Financial Reporting DAM-NG Day Ahead Market – Natural Gas Standard DEER DSO DMS Distributie Energie Electrica Romania Distribution System Operator Distribution Management System IM-NG Intraday Market for Natural Gas IMS IPO Integrated Management System Initial Public Offering 14 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTIR ISIN KPI kV LOC LR LSH LV MV MVA MWh MKP NAFA NES NL NRC OMPF OGMS OHS OHSAS Investor Relations Regulated Rate of Return International Securities Identification Number RRR SAD Distribution Automation System Societatea de Administrare a Participatiilor Key Performance Indicators SAPE in Energie KiloVolt Supervisory Control And Data Acquisition SCADA Land Ownership Certificate Societatea de Distributie a Energiei SDEE Electrice SA Last Resort Labor safety and health SDMN ce Muntenia Nord SA Societatea de Distributie a Energiei Electri- Low Voltage Medium Voltage Mega Volt Ampere MegaWatt hour Management Key Position National Agency for Fiscal Administration National Electricity System Network Losses Nomination and Remuneration Committee Order of Ministry of Public Finances Ordinary General Meeting of Shareholders Occupational Health and Safety Occupational Health and Safety Assessment Series Societatea de Distributie a Energiei Electri- SDTN ce Transilvania Nord SA Societatea de Distributie a Energiei Electri- SDTS ce Transilvania Sud SA Servicii Energetice Dobrogea SA Servicii Energetice Muntenia SA Servicii Energetice Oltenia SA Supplier of last resort Secondary Public Offering TeraWatt hour Transmission and system operator Unit of Measurement Universal Service United States Dollar Value Added Tax SED SEM SEO SoLR SPO TWh TSO UM US USD VAT OPCOM operator Romanian Gas and Electricity market PCB RAB RM Polychlorinated Biphenylsor Regulated Asset Base Retail Market Romanian monetary unit RON Note: The figures presented in this document are rounded based on the round to nearest method; as a result, rounding differences may appear. 15 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTIdentification details of Electrica Report date: 28 February 2022 Name of the Issuer: Societatea Energetica Electrica S.A. Headquarter: 9, Grigore Alexandrescu Street, 1st District, Bucharest, Romania Telephone/fax number: +4021.208.5999; +4021.208.5998 Fiscal code: 13267221 Trade Registry No: J40/7425/2000 LEI Code (Legal Entity Identifier): 213800P4SUNUM5AUDX61 Subscribed and paid share capital: RON 3,464,435,970 Main characteristics of issued shares: 346,443,597 ordinary shares of 10 RON nominal value, out of which 6,890,593 treasury shares and 339,553,004 shares issued in dematerialized form and freely transferable, nominative, tradable, and fully paid Regulated market where the issued securities are traded: the company’s shares are listed on the Bucharest Stock Exchange (ticker: EL) and the Global Depositary Receipts (ticker: ELSA) are listed on the London Stock Exchange Applicable accounting standards: Order of the Ministry of Public Finance no. 2844/2016 for the approval of the Accounting Regulations in accordance with International Financial Reporting Standards and the International Financial Reporting Standards as approved by the European Union Reporting period: 2021 Year (period 1 January - 31 December 2021) Audit: The individual and consolidated financial statements as of and for the period ended 31 December 2021 are audited by an independent financial auditor Ordinary shares GDRs ISIN ROELECACNOR5 US83367Y2072 Simbol Bloomberg Currency Nominal Value 0QVZ RON RON 10 ELSA:LI USD - Stock Market Bucharest Stock Exchange REGS London Stock Exchange MAIN MARKET Ticker Source: Electrica EL ELSA 16 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT1. Electrica 2021 Overview 1.1. 2021 Key financial data In 2021, the net result of the Electrica Group was a loss of RON 553 mn, a result generated mainly by the performance of the electricity supply segment significantly influenced by the increase in energy costs, to which is added the increase in electricity costs to cover CPT for distribution segment. The revenues of the Electrica Group in 2021 and 2020 were RON 7,179 mn, respectively RON 6,501 mn. (RON mn) Revenue Other operating income Operational costs EBITDA1 EBIT Gross profit Net profit Source: Electrica 2021 2020 7,179 196 (7,980) 128 606 632 (553) 2020 2019 6,501 165 (6,215) 953 459 442 388 2019 2018 6,280 160 (6,206) 718 234 226 207 As can be seen in the graphs below, the EBITDA margin decreased by 1640 ppb in 2021 compared to 2020 (vs. 330 ppb increase in 2020 compared to 2019), while the net profit margin decreased by 1370 ppb (vs. increase 270 ppb in 2020 compared to 2019). The Group has a capital structure with a net debt position of RON 1,056 mn (31 December, 2020: RON 81 mn). Figure 2: EBITDA (RON mn) and EBITDA margin (%) Figure 1: Consolidated revenue of Electrica Group (RON mn) 6,280 518 5.762 7,179 585 6.594 6,501 557 5.944 Revenues (w/o green certificates) Green Certificate Revenues 14.7% 953 11.4% 718 2019 2020 2021 Source: Electrica 2019 2020 Source: Electrica EBITDA EBITDA Margin -1.8% (128) 2021 Figure 3: Consolidated net profit (RON mn) Figure 4: Net debt/(cash) (RON mn) 3.1% 207 6.0% 388 -7.7% (553) Net Profit Net Profit margin 2019 2020 2021 Source: Electrica 1.056 Net Debt / (cash) 81 2020 2021 (166) 2019 Source: Electrica 1 Adjusted EBITDA (Earnings before interest, tax, depreciation and amortisation or namely EBITDA) is defined and calculated as profit/ (loss) before tax adjusted for i) depreciation, amortization and impairment/reversal of impairment of property, plant and equipment and intangible assets, ii) impairment of assets held for sale and iii) net finance income. EBITDA is not an IFRS measure and should not be treated as an alternative to IFRS measures. Moreover, EBITDA is not uniformly defined. The method used to calculate EBITDA by other companies may differ significantly from that used by the Group. As a consequence, the EBITDA presented in this note cannot, as such, be relied upon for the purpose of comparison to EBITDA of other companies. 2 Net debt/(Cash) is defined as bank borrowings + bank overdrafts + financial leases + funding for concession agreements - cash and cash equivalents – restricted cash - bank deposits, treasury bills and government bonds. 18 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDISTRIBUTION SEGMENT Essential market information: Electricity distribution in Romania is fulfilled mainly by six electricity distribution system operators, regulated by ANRE; Each company is responsible for the exclusive distribution of electricity in the region for which it is authorized, under a concession agreement concluded with the Romanian State; Enel owns three distribution companies each, while Electrica through Distributie Energie Electrica Romania (formed by the merger at 31 December 2020 of Societatea de Distributie a Energiei Electrice Transilvania Nord, Societatea de Distributie a Energiei Electrica Transilvania Sud and Societatea de Distributie a Energiei Electrice Muntenia Nord), CEZ through Distributie Oltenia and E.ON through Delgaz Grid own the remaining three; Electrica Group is a key player in the electricity distribution sector, both in terms of areas covered and of number of users served; The estimated Regulated Assets Base (RAB) value at the end of 2021 was RON 6,0 bn; 200,774 km of electric lines - 7,601 km for High Voltage (“HV”), 46,403 km for Medium Voltage (“MV”) and 146,771 km for Low Voltage (“LV”); The total area covered: 97,196 km2, 40.7% of Romania’s territory; 3.03 mn users (2021) for the distribution activity; 18.5 TWh of electricity distributed in 2021, a decrease of 1.6% as compared to 2020; 39.6% market share for the distribution of electricity to final users in 2020 (based on distributed quantities, according to ANRE report for 2020). Figure 5: Romanian electricity distribution map Transilvania Nord area Transilvania Sud area Source: Electrica Muntenia Nord area 19 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTFigure 6: Evolution of the number of users (mn) Figure 7: Quantity distributed (TWh) 9.45 5.72 9.55 9.67 44.80 44.90 5.78 5.87 27.15 27.17 44.10 26.62 3.73 3.77 3.80 17.65 17.73 17.48 2018 2019 2020 2018 2019 2020 Electrica Others Electrica Others Source: ANRE Report for performance indicators’ monitoring 2020 Source: ANRE Report for performance indicators’ monitoring 2020, Electrica Key financial indicators In 2021, revenues from the electricity distribution the tariffs for the electricity distribution service, the segment decreased by approx. RON 20 mn, or 0.7%, difference between the energy price for CPT achieved to RON 2,730.8 mn, from RON 2,750.8 mn in 2020. in 2021, by each Distribution Operator and the ex The effect of the decrease by RON 195.9 mn of -before established by ANRE, it will be recovered revenues recognized in accordance with IFRIC 12 through tariffs in 2023, within the minimum limit (these having no significant impact on the result), between the average price realized and the average was offset by the increase in distribution tariffs as of the prices realized in 2021 by the network operators well as the volumes of electricity distributed by 5.7%. (distribution and transport). EBITDA in the segment is adversely affected by the The net result of the segment is further influenced, increase in CPT costs and contributed to a decrease unfavorably by the increase of the negative financial of RON 251.6 mn or 40.3%. The Electricity Distribution result, to which is added the favorable impact from Operators were directly affected by this significant the decrease of the depreciation of tangible and price increase, being obliged, according to ANRE intangible assets and registered a reduction of approx. Order no. 73/2014, to purchase the electricity RON 216.1 mn. The result was also adversely affected necessary to cover their technological consumption by the provision of impairment adjustments for trade (CPT), to comply with the general conditions receivables related to the insolvency of electricity associated with the license. distribution on the wholesale electricity market, in accordance with the suppliers in the market in the amount of approximately RON 20.4 million. Law on electricity and natural gas no. 123/2012 with We also mention the fact that, at the beginning of subsequent amendments and completions (Art. the current PR4 regulatory period, ANRE made a total 45). For 2021, for the Group’s electricity distribution negative correction for the closing of PR3 in the amount subsidiary, the average electricity purchase price for of RON (730) million (nominal terms), respectively (RON CPT was 67% higher than the value set by ANRE ex- 665) million (2018 terms), of which (341) million RON for ante in tariffs, generating additional costs of RON 397 the meters recognized as investments in PR2 (2008- mn. The effect of the increase in electricity purchase 2013). The meter correction was challenged in court by prices for CPT was felt mainly in the third and fourth the distribution branch of the Electrica Group, because quarters of 2021 when the increase in prices was 36%, respectively 55% 167% compared to the same period in 2013, ANRE recognized the meters in BAR based on the principle of non-discrimination of all distribution in 2020. operators, although they were not registered as fixed According to the methodology applicable to the assets. The total negative correction related to PR3 distribution activity, respectively ANRE Order no. decreased the regulated profitability related to PR4, 169/2018 approving the Methodology for establishing with an average annual value of (146) million RON. 20 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTFigure 8: Revenues - distribution segment (RON mn) Figure 9: EBITDA – distribution segment (RON mn) 2.741 2.751 2.731 607 624 372 2019 2020 2021 2019 2020 2021 Source: Electrica Source: Electrica Figure 10: Net Profit – distribution segment ( Figure 11: Net debt/(Cash) – distribution segment RON mn) (RON mn)de distributie (mil. RON) 106 77 (139) 657 781 706 2019 2020 2021 2019 2020 2021 Source: Electrica Source: Electrica 21 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSUPPLY SEGMENT Essential market data (according to ANRE Report for November 2021) The supply market is composed of both competitive and universal service and last resort segments (US and LR); The universal service and last resort segment consist of 6 last resort suppliers designated at the national level; The competitive segment consists of 92 suppliers (including the last resort suppliers operating on the retail competitive segment), out of which 84 are relatively small (below 4% market share); EFSA is the market leader with a market share of 18.39%; it is also the leader on the LR segment having a market share of 30.67%, while its market share on the competitive segment is 12.58% (in accordance with ANRE November 2021 Report). Comparatively, in 2020, EFSA had a market share of 19.25% in the total energy market; 54.56% of the LR market, and a market share of 10.86% of the competitive market (ANRE report for December 2020). Overall Market Share – November 2021 Supplied volumes in 2021 (TWh)1 Others 33.03% Tinmar Energy 7.06% Electrica Furnizare 18.39% Electrica Furnizare 3.74 3.2 6.94 ENEL2 3.21 2.43 5.64 45.8 TWh ENEL2 18.00% EON 1.25 3.01 3.36 CEZ 1.40 1.54 2.94 CEZ Vanzare 7.61% Getica 95 COM 7.01% E.ON Energie Romania 8.90% Source: November 2021 ANRE Report Key financial indicators Revenues from the supply of electricity and natural December 2021. The acquisition market registered gas increased in 2021 by approx. RON 757,2 mn, or during 2021 significant increases, manifested at 15.1%, to RON 5,772.4 mn, from RON 5,015.1 million in the level of international and determined by the 2021. international economic and political context. This evolution represents mainly the effect of the The prices for Q products (quarter) registered an increase of the sale prices of electricity on the retail market by 12.5%, but also of a slight increase of the ascending trend since the end of the first quarter of 2021, later the growth being much faster, so quantity of electricity supplied by 1%. the prices in the wholesale market registered an Regarding EBITDA, the supply segment registered increase from RON 250-280 / MWh - to RON 1,300 / in 2021 a significant decrease of RON 705.2 mn MWh. Another important factor was the unilateral reaching the level of -RON 439.7 mn, and a decrease termination of some of the contracts concluded of the EBITDA margin from 5.3% in 2020 to -7.6% in on the wholesale market as well as the takeover of 2021. a significant number of final customers based on The main cause of this evolution is the increase in the obligations assumed as a supplier of last resort, prices on the electricity market and the impossibility which led to the need to purchase larger quantities. of transferring these price increases to the final customer. Thus, the prices on the Romanian from the Day-Ahead Market. The negative impact on the gross electricity margin, generated by the electricity market increased by approximately increase in prices is approximately RON 896,1 M in 400% on the Next Day Market from January to 2021. Although up pricing was taken in cases where 1 Based on the performance indicators published by each SoLR for Q3 2021 – last available information for all suppliers 2 ENEL refers to Enel Energie Muntenia and Enel Energie 22 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTthe legislation in force allowed the modification of of the Emergency Ordinance 118/2021, completed existing contracts, the positive impact generated by and modified by the Emergency Ordinance these steps was only partial. no. 120/2021, certain temporary energy support Also, another factor that contributed to the decrease measures were established for domestic and non- in the EBITDA margin was the impact generated by household consumers, which generated a negative the protection measures related to the liberalization impact on the company’s results as a result of the of the electricity market. Thus, according to Order supply segment. Thus, in the last quarter of the 171/2020 with the amendments and completions of year, the application of the support scheme for Order 5/2021 art. 4, paragraphs 4 and 5, for domestic the final consumer provided by GEO 118/2021, Law customers who have concluded, based on one 259/2021, and GEO 130/2021 also generated an effect of the competitive offers (transmitted either as a of reducing the EBITDA margin through the capping result of ANRE Order 171/2020 in conjunction with mechanism due to the uncertainty in regarding ANRE Order 5/2021 or published), a contract with the full recovery of the respective amounts by the effect between 1 and 30 June 2021, the electricity suppliers. consumption achieved between 1 January 2021 It should also be mentioned that the energy suppliers and the date of entry into force of the new contract are unable to terminate the existing contracts was billed at the price of the universal service offer according to the Law on Electricity and Natural Gas communicated by the supplier of last resort. If the no. 123/2012, based on Article 57. customer did not enter the competitive market until The supply segment has a net cash financial position 30 June 2021, a commercial discount was applied for the period 01 January 2021 - 30 June 2021, a discount which has decreased compared to 2020 by approx. RON 424.3 mn, following the decrease of the cash which was supplemented by a discount for the level, the use of overdrafts, the increase of trade period 01.07.2021-31.08.2021, which generated a total receivables, and the usage of funds from the cash negative impact of RON 18.3 M in total gross margin. pooling scheme. According to Law 259/2021, regarding the approval Figure 12: Revenues - supply segment (RON mn) Figure 13: EBITDA - supply segment (RON mn) 4,768 518 4.250 5,015 557 4.458 5,772 585 5.187 Revenues from Green Certificates Revenues (w/o Green Certificates) 5.3% 265 2.9% 139 -7.6% EBITDA EBITDA Margin (440) 2019 2020 2021 2019 2020 2021 Source: Electrica Source: Electrica Figure 14: Net profit - supply segment (RON mn) Figure 15: Net debt/(Cash) - supply segment 4.3% 214 2.2% 104 (RON mn) -6.8% (390) Net profit Net Profit Margin (257) (183) 242 Net Debt / (cash) 2019 2020 2021 2019 2020 2021 Source: Electrica Source: Electrica 23 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT1.2. Key events in 2021 In 2021 the following main events took place: ELSA’s General Meetings of Shareholders (GMS) and the main projects developed and completed during the year as a result of the approval received from ELSA’s GMS In 2021, an Ordinary General Meetings of Shareholders (OGMS) took place on 28 April, and three Extraordinary General Meetings of Shareholders (EGMS) were held on 28 April, 11 August, and, respectively, on 8 December. On 4 March 2021, ELSA’s BoD approved the convening of ELSA’s Ordinary General Meeting of Shareholders (OGMS) and of the Extraordinary General Meeting of Shareholders (EGMS), meetings that took place on 28 April 2021. During the OGMS, ELSA’s shareholders approved mainly the following: the audited annual financial statements for 2020 and the ELSA’s budget of revenues and expenses for 2021, both at individual and consolidated level; distribution of the net profit for the financial year 2020: total value of gross dividends - RON 247.9 M, the value of gross dividend/share - RON 0.73, ex date – 2 June 2021, registration date – 3 June 2021, date of dividends’ payment – 25 June 2021; discharge of liability of the members of ELSA’s Board of Directors for the financial year 2020; prolongation of the mandate of the financial auditor of ELSA, Deloitte Audit S.R.L., for two years, respectively for the financial years 2021 and 2022; the Remuneration Policy of the Directors and Executive Managers; the election of the BoD’s members, by applying the cumulative voting method. Following the elections, ELSA’s new Board of Directors is composed of: Mr. Iulian Cristian Bosoanca, Mr. Gicu Iorga, Mr. Ion-Cosmin Petrescu, Mr. Adrian-Florin Lotrean, Mr. Radu Mircea Florescu, Mr. Dragos-Valentin Neacsu, and Mr. George Cristodorescu. The mandate’s duration for the elected directors is for four years. The shareholders attending the EGMS approved mainly the following: the guarantee to be issued by ELSA for the term loan in the amount of up to EUR 210 M or equivalent in RON that DEER will contract from the European Investment Bank (EIB) for financing the investments plan for the period 2021-2023, the value of the independent guarantee provided by ELSA for the first request being of maximum EUR 252 M or equivalent in RON; ELSA’s contracting of a non-binding bridge loan in the amount of up to RON 750 M from a consortium comprised by Erste Bank and Raiffeisen Bank, together with an engagement letter for arranging a bond issue (conditional upon obtaining the necessary corporate approvals) to finance the inorganic growth opportunities, having a single guarantee, respectively a mortgage on the bank accounts opened by ELSA with BCR and Raiffeisen Bank, for a maximum value of RON 825 M. On 18 June 2021, ELSA’s BoD approved the convening of ELSA’s Extraordinary General Meeting of Shareholders (EGMS), which took place on 11 August 2021. The ELSA’s shareholders attending the EGMS approved, mainly, the following: The empowerment of the ELSA representative to participate in the EGMS of DEER and to express the vote in favor of the approval to transfer one share held by ELSA in DEER towards SERV, representing 0.00000071% of DEER’s share capital, for the total price of RON 10 and approving the article 6 amendment - Share Capital, from the Articles of Association of DEER, to reflect the new shareholdings of the two shareholders; The empowerment of the ELSA representative to participate in the EGMS of SERV and to express the vote in favor of the approval to transfer one share held by ELSA in SERV towards DEER, representing 0.00001905% of SERV’s share capital, for the total price of RON 10 and approving the amendment of article 6 - Share Capital, from the Articles of Association of SERV, to reflect the new shareholdings of the two shareholders; The approval of the participation of ELSA, as a founding member, to the establishment of Electrica Foundation; The approval for the amendment of the ELSA’s Articles of Association, regarding: - the alignment of the art. 12, para. (2) provisions with the Law 24/2017 regarding the issuers of financial instruments and market operations; - the introduction of a new attribution of the OGMS regarding the approval of the Remuneration Policy for Directors and Executive Managers; - the completion of the situations in which the secret vote is applied, in accordance with the applicable legal provisions. 24 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe approval of ELSA’s participation, together with SERV, in the establishment of a new legal entity - Electrica Productie Energie S.A., organized as a public limited liability company, a subsidiary of ELSA, in which ELSA holds a percentage of 99.9920% of the share capital and SERV holds a percentage of 0.0080% of the share capital. On 15 October 2021, ELSA’s BoD approved the convening of ELSA’s Extraordinary General Meeting of Shareholders (EGMS), which took place on 8 December 2021. The shareholders attending the EGMS rejected: The acquisition by Electrica, as Buyer, of the following holdings of MT Project B.V. (“MTP”) and HiTech Solar Investment GmbH (‚HSI’), as Sellers: - in TCV Impex S.A. („TCV”), a company of Romanian nationality, having its registered office at 1/VII Bd. Pipera, Nord City Tower Building, office no. 1, Section A7, 8th floor, Voluntari, Ilfov County, registered with Ilfov Trade Registry under no. J23/1072/2018, sole registration code 19123942, - n ACV Solar Technology S.A. (“ACV”), a company of Romanian nationality, having its registered office at 1/VII Bd. Pipera, Nord City Tower Building, office no. 1, Section A6, 8th floor, Voluntari, Ilfov County, registered with Ilfov Trade Registry under no. J23/351/2018, sole registration code 30042717, - in TIS Energy S.A. („TIS”), a company of Romanian nationality, having its registered office at 1/VII Bd. Pipera, Nord City Tower Building, office no. 1, Section A5, 8th floor, Voluntari, Ilfov County, registered with Ilfov Trade Registry under no. J23/354/2018, sole registration code 28563306, - in Delta & Zeta Energy S.A. (“DZE”), a company of Romanian nationality, having its registered office at 1/VII Bd. Pipera, Nord City Tower Building, office no. 1, Section A3, 8th floor, Voluntari, Ilfov county, registered with Ilfov Trade Registry under no. J23/350/2018, sole registration code 29092649, - in the Gama & Delta Energy S.A. („GDE”), a company of Romanian nationality, having its registered office at 1/VII Bd. Pipera, Nord City Tower Building, office no. 1, Section A4, 8th floor, Voluntari, Ilfov county, registered with Ilfov Trade Registry under no. J23/349/2018, sole registration code 29092657, hereinafter referred to as the Companies, holdings which together represent 100% of the share capital of each Company, as follows: - 4,597,060 shares held by MTP out of the total number of 4,600,000 shares, representing 99.936087%, respectively 2,940 shares held by HSI out of the total number of 4,600,000 shares, representing 0.063913% of the share capital of TCV for a total price of EUR 5,997,900 which will be adjusted in accordance with the provisions of the Sale Purchase Agreement („SPA”); - 4,249,100 shares held by MTP out of the total number of 4,250,000 shares, representing 99.978824%, respectively 900 shares held by HSI out of the total number of 4,250,000 shares, representing 0.021176% of the share capital of ACV for a total price of EUR 6,058,500 which will be adjusted in accordance with the provisions of the SPA; - 5,899,100 shares held by MTP out of the total number of 5,900,000 shares, representing 99.984746%, respectively 900 shares held by HSI out of the total number of 5,900,000 shares, representing 0.015254% of the share capital of TIS for a total price of EUR 7,094,500 which will be adjusted in accordance with the provisions of the SPA; - 5,993,322 shares held by MTP out of the total number of 6,000,000 shares, representing 99.888700%, respectively 6,678 shares held by HSI out of the total number of 6,000,000 shares, representing 0.111300% of the share capital of DZE for a total price of EUR 7,924,550 which will be adjusted in accordance with the provisions of the SPA; - 6,693,382 shares held by MTP out of the total number of 6,700,000 shares, representing 99.901224%, respectively 6,618 shares held by HSI out of the total number of 6,700,000 shares, representing 0.098776% of the share capital of GDE for a total price of EUR 7,924,550 which will be adjusted in accordance with the provisions of the SPA. Also, the shareholders attending the EGMS approved: The completion of the guarantee structure for the bridge loan up to RON 750,000,000 of non-binding nature to be contracted by Electrica from a consortium of banks comprising by Erste Bank and Raiffeisen Bank accompanied by an engagement letter for the arrangement of a bond issue (bond issue conditional upon obtaining the necessary corporate approvals) to finance inorganic growth opportunities, the contracting of which was approved by Electrica’s EGMS resolution no 1 of 28 April 2021, as follows: in addition to the mortgage guarantee on the bank accounts opened by Electrica to BCR and Raiffeisen Bank, which will be 25 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTmade up for a maximum amount of RON 825,000,000, as approved by Electrica’s EGMS resolution no 1 of 28 April 2021, a mortgage on the present and future receivables of Electrica, resulting from the intragroup loan agreements that will be concluded with its subsidiaries in order to carry out the inorganic growth transactions granted from the amounts drawn from the bridge loan, shall be constituted as a guarantee in favour of the banks, subject to the fulfilment of certain conditions detailed in the bridge loan agreement, this being to be constituted for a maximum value that will not exceed the total ceiling of the previously approved guarantees, in the amount of RON 825,000,000. Changes in the structure of ELSA’s Board of Directors (BoD) and its committees At the beginning of 2021, the composition of the Board of Directors was as follows: Mrs. Ramona Ungur, Mr. Dragos Andrei, Mr. Iulian Cristian Bosoanca, Mr. Bogdan Iliescu, Mr. Gicu Iorga, Mr. Radu Mircea Florescu and Mr. Valentin Radu. On 22 April 2021, the Board of Directors took note of the resignation of Mrs. Ramona Ungur as the administrator of the Company. Subsequently, on 28 April 2021, during the OGMS meeting, ELSA’s shareholders elected the following BoD members: Mr. Iulian Cristian Bosoanca, Mr. Gicu Iorga, Mr. Ion-Cosmin Petrescu, Mr. Adrian-Florin Lotrean, Mr. Radu Mircea Florescu, Mr. Dragos Valentin Neacsu, and Mr. George Cristodorescu. 1 January - 28 April 2021 28 April - 31 December 2021 Ms. Ramona Ungur Mr. Dragos Andrei Mr. Iulian Cristian Bosoanca Mr. Gicu Iorga Mr. Iulian Cristian Bosoanca Mr. Ion-Cosmin Petrescu Mr. Bogdan Iliescu Mr. Gicu Iorga Mr. Adrian-Florin Lotrean Mr. Radu Mircea Florescu Mr. Radu Mircea Florescu Mr. Dragos-Valentin Neacsu Mr. Valentin Radu Mr. George Cristodorescu Regarding the position of Chairman of ELSA’s BoD, it was occupied by Mr. Iulian Cristian Bosoanca being elected in this capacity during the Board meeting of 15 December 2020 for the period starting from 1 January 2021 and until 31 December 2021. Subsequently, as a result of the change of the BoD structure, during the meeting of 6 May 2021, Mr. Iulian Cristian Bosoanca was re-elected as Chairman of the Board of Directors starting with 6 May 2021 and until 31 December 2021. Regarding the composition of ELSA’s BoD consultative committees, it underwent changes during 2021 by the decision of ELSA’s BoD dated 15 December 2020, and of the one from 6 May 2021. Thus, as of 31 December 2021, the composition of the consultative committees of ELSA’s BoD was the following: The Nomination and Remuneration Committee The Audit and Risk Committee The Strategy and Corporate Governance Committee Chairman Mr. Adrian-Florin Lotrean Chairman Mr. Radu Mircea Florescu Chairman Mr. Gicu Iorga Member Mr. Radu Mircea Florescu Member Mr. Dragos-Valentin Neacsu Member Mr. George Cristodorescu Member Mr. Ion Cosmin Petrescu Member Mr. Iulian Cristian Bosoanca Member Mr. Adrian-Florin Lotrean 26 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT In accordance with the decision of the Board of Directors of 15 December 2021, the composition of the committees will remain the same during 2022. Regarding ELSA’s executive management during 2021, several changes occurred, as follows: The Board of Directors approved the continuation of the collaboration with Mrs. Livioara Șujdea and her appointment as Chief Distribution Officer (CDO), starting with February 1st, 2021, for a 4 years mandate. On 1 May 2021, the mandate agreement of the Chief Corporate Development Officer, Mrs. Anamaria Dana Acristini Georgescu, has terminated, upon the lapse of the mandate duration. During the meeting held on 22 September 2021, ELSA’s Board of Directors decided on the appointment of Mr. Stefan Ionut Pascu as Chief Corporate Development Officer, until 31 December 2021. During the meeting held on 22 December 2021, the mandate agreement of Mr. Stefan Ionut Pascu has been extended until 31 December 2022. On 11 December 2021, the mandate agreement of the Chief Marketing Officer, Mrs. Catalina Popa, has terminated, upon the lapse of the mandate duration. During the meeting held on 15 December 2021, ELSA’s Board of Directors revoked, without cause, Mrs. Bibiana Constantin from the position of Chief Human Resources Officer, starting with 1 January 2022, 31 December 2021, being the last day of exercising the mandate agreement. During the meeting held on 15 December 2021, ELSA’s Board of Directors took note of the expiration on 3 January 2022 of the mandate agreement between the Company and the Chief Financial Officer, Mr. Mihai Darie. Other relevant events In 2021 the following main events took place: Changes in the structure of shareholders within the subsidiaries of the Group On 18 August 2021, the second shareholder was introduced within DEER and SERV (DEER within FISE and FISE within DEER) in compliance with the assumed term by the Merger Project of the distribution subsidiaries, respectively by the Merger Project of energy services companies, mergers that took place during the year 2020; Amendments to the articles of association within the Group’s subsidiaries The amendment of the Article of Association of SERV by reducing to 3 the number of members for SERV’s Board of Directors through EGMS of 30 December 2021. Establishment of a new subsidiary of the Group On 6 September 2021, a new legal entity is established, Electrica Productie Energie S.A., organized as a public limited company, in which Electrica SA holds a percentage of 99.9920% of the share capital and Electrica Serv S.A. holds a percentage of 0.0080% of the share capital. The object of the activity is the production of electricity from renewable sources through the acquisition and development of projects, namely the operation of renewable electricity generation parks, combined with the development and operation of independent storage solutions which they intend to develop in the near future. Fitch Ratings In April 2021, Electrica has received confirmation of maintaining the corporate rating of BBB (Investment Grade), with a Negative outlook, from the rating agency Fitch Ratings. The negative perspective is imposed by the rating of Romania (BBB- with negative perspective) taking into account that Fitch considers that the rating of the Company must be limited to one notch above that of the Romanian State, its main shareholder. Any revision of the Outlook of the Romanian sovereign rating back to Stable would result in a similar action for Electrica’s rating. In Fitch Ratings’ opinion, the BBB rating continues to reflect Electrica Group’s solid financial profile, adequate liquidity, low gearing level, as well as the fact that the distribution segment dominates the Group’s activities. Fitch Ratings also viewed as positive for the analysis of Electrica’s credit profile the consolidations achieved through the mergers of the distribution subsidiaries and, respectively, of the energy services subsidiaries, as they have simplified the Group structure and is estimated to provide costs savings and an improvement of internal business processes. Also, in the rating agency’s opinion, the Group’s business profile proved to be solid, resilient to the COVID-19 outbreak and related economic shock, the volumes of distributed and respectively supplied energy in 2020 being only slightly lower than in 2019, while the investment projects in the distribution area were unfolded according to the planning. 27 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTInvestments in entities producing electricity from renewable sources On 28 July 2021, three shares sales and purchase agreements (“SPAs”) were signed in three project companies, by ELSA, as a buyer, with Mr. Emanuel Muntmark, and with Mr. Catalin Mrejeru, as sellers, having as the main object of activity the production of energy from renewable sources, as follows: - A SPA regarding the acquisition of 100% of the shares held by the sellers in Crucea Power Park SRL for an estimated total price of EUR 8,470,000. The final price will be determined by adjusting the total estimated price depending on the production capacity, respectively the authorized storage, based on a contractually established calculation formula. Crucea Power Park SRL develops the eolian project “Crucea Est”, with a designed installed capacity of 121 MW and a projected electricity storage capacity of 60 MWh (15 MW x 4h), located outside the Crucea commune, Constanta county; - A SPA regarding the acquisition of 100% of the shares held by the sellers in Sunwind Energy SRL for a total estimated price of EUR 1,485,000. The final price will be determined by adjusting the total estimated price according to the authorized production capacity, based on a contractually established calculation formula. Sunwind Energy SRL is developing the photovoltaic project „Satu Mare 2” with a designed installed capacity of 27 MW, located near Satu Mare; - A SPA regarding the acquisition of 100% of the shares held by the sellers in New Trend Energy SRL for a total estimated price of EUR 3,245,000. The final price will be determined by adjusting the total estimated price according to the authorized production capacity, based on a contractually established calculation formula. New Trend Energy SRL develops the photovoltaic project „Satu Mare 3”, with a designed capacity of 59 MW, located near Satu Mare. On 7 December 2021, Electrica signed, as a buyer, with Mr. Emanuel Muntmark, and with Mr. Catalin Mrejeru, as sellers, a shares sales and purchase agreement (“SPAs”) in one project company having as the main object of activity the production of energy from renewable sources. The SPA concerns the acquisition of 100% of the shares of Foton Power Energy S.R.L, wholly owned by the sellers, for an estimated total price of EUR 4,262,500. The final price will be determined by adjusting the total estimated price depending on the production capacity, respectively the authorized storage, based on a contractually established calculation formula. Foton Power Energy S.R.L. develops the photovoltaic project “Bihor 1”, with a designed installed capacity of 77.5 MW, located near Oradea city. The SPAs stipulate the acquisition by Electrica of the shares in the three companies and the payment of the corresponding price in four stages; in the first stage, when signing the sale-purchase agreements, 30% of the share capital of the three companies will be acquired, and subsequently, the rest of the shares will be acquired depending on the development stage of the project and provided that the suspensive conditions are met. Treasury matters On 10 June 2021, was signed the Addendum no. 1 to the Convention no. 25/5 February 2020 concluded by ELSA with EFSA on Internal Treasury, by which the amount that can be borrowed by EFSA within the Convention is increased from up to RON 30 M to up to RON 180 M. On 12 October 2021, Electrica concluded with DEER an Intragroup Credit Agreement, valid until 12 October 2029, the amount that can be borrowed by DEER under the contract being up to RON 246,325,000. On 22 October 2021, was signed the Addendum no. 2 to the Convention no. 25/5 February 2020 concluded by ELSA with EFSA on Internal Treasury, by which the amount that can be borrowed by EFSA within the Convention is increased from up to RON 180 M to up to RON 245 M. IT&C activities Using the strategic advantage obtained in 2020 by merging the IT&C responsible operational entities and implementing capabilities-based departments and centers of excellence, the IT&C organizations of Electrica SA and its subsidiaries have taken over the needed tasks and projects to further consolidate the legal merger activities, by absorption. In turn, projects were triggered to unify the system and data used by each merging entity, others to align the support processes and prepare the expected flexibility to exploit the economies of scale and scope. Hence, the following activities have been achieved: The enrollments into the National Registry of Essential Services Operations of Distributie Energie Electrica Romania SA and Electrica Furnizare SA as Essential Services Operators. 28 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe current applications (used by SDTN, SDMN, SDTS) consolidation, a complex process involving the initial evaluation of three alternatives in use, choosing the optimum and extending its utilization to the other two operators. Merging and standardization of the common procurement operations for IT&C at the Group level in order to cover the licensing and producer support needs while acquiring the expected volume discount. Preparation of the projects for the unification of complex ERP (Enterprise Resource Planning) systems at DEER (from the three Distribution Operators) and FISE (from the two Electrical Services organizations), in sync with the 2021 EFSA ERP system update. Maximize the existing IT&C resource existing in Group key organizations, DEER and EFSA, in order to implement digital solutions required to fulfill speed and flexibility expectations. The IT&C Governance framework alignment in order to respond to the standardization and blending the IT&C specific processes and projects. Litigations On 3 February 2021, the Bucharest Court, Civil Section VII, confirmed the reorganization plan of the company Transenergo Com S.A. (Transenergo), proposed by the special administrator from case no. 1372/3/2017. According to this plan, unsecured creditors will not benefit from any distributions of amounts. ELSA holds an unsecured receivable of RON 37 M composed of the main debit of RON 35.7 M and penalties of RON 1.3 M calculated until the date of insolvency proceedings’ opening. Since ELSA is the beneficiary of an insurance policy of RON 4 M having as object the guarantee of the payment obligations of Transenergo resulting from the BRP Services Agreement no. 77/2005, the amount of RON 4 M was submitted under the resolutive condition of recovering the amounts from the insurer. ELSA appealed the sentence confirming the reorganization plan, an appeal that was the object of file no. 1372/3/2017/a35 of the Bucharest Court of Appeal. On 23 June 2021, the court definitely rejected the appeal filed by ELSA against the decision for the confirmation of the reorganization plan of Transenergo Com S.A. no. 469/3 February 2021 issued by Bucharest Courthouse – Civil Section VII - in case no. 1372/3/2017. Considering that the exposure registered by ELSA concerning Transenergo is fully provisioned, this file resolution has no negative impact on the company’s financial results for 2020 or 2021, the impact is recorded in the previous periods (2016 and 2017). By the conclusion from 27 April 2021, the Bucharest Courthouse decided to suspend the trial of the case that forms the object of file no. 35729/3/2019 until the final settlement of file no. 2229/2/2017, pending before the Bucharest Court of Appeal. File no. 35729/3/2019 has as object the patrimonial liability incurring of the persons who have held positions of directors and respectively of executive managers of ELSA, for not fulfilled and/or improperly fulfilled obligations, according to art. 155 of Law no. 31/1990, which determined the damages retained by the Romanian Court of Accounts by Decision no. 11/23 December 2016, as well as against the representative of the Authority of Valuation of the State Assets in ELSA’s OGMS on 10 December 2008 and the issuer of the voting mandate for the respective OGMS. Decision no. 1368/18 December 2020 issued in the retrial of case no. 4804/2/2020 (former no. 7341/2/2014) of the Bucharest Court of Appeal by which it dismissed the action and the ancillary intervention requests as unfounded, became final by non-appealing it by Fondul Proprietatea. The object of the case is Fondul Proprietatea’s request for the cancellation of art. I, points 2, 3, 8, 9, and 10 of ANRE Order no. 112/2014 for amending and completing the Methodology for setting the electricity distribution service tariffs, approved by ANRE Order no. 72/2013. ELSA and DEER are accessory intervenients in the case. On 18 October 2021, the Company, as Defendant, has received a statement of claim of Mrs. Augusta Romana Alexandra Borislavschi Popescu, who was Chief of Corporate Governance & M&A for a period of 4 years, by which the plaintiff requests: 1. The obligation of the defendant to pay to the plaintiff the amount of RON 166,738, representing the percentage of 55% of the OAVT package, in accordance with the provisions of Annex 3 to the mandate contract no. 42/10.08.2015; The obligation of the defendant to pay to the plaintiff damages for non-execution of the obligation to 2. pay the percentage of 55% of the OAVT package; 3. The obligation of the defendant to pay the amount of RON 11,973, representing the annual variable remuneration for 2018; 29 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4. The obligation of the defendant to pay the amount of RON 24,756, representing the annual variable remuneration related to 2019; 5. Updating the amounts provided in the previous items, with penalizing legal interest. The asked damages should be calculated as the legal penalty interest plus 8% payable per each day of delay as of the date of the registration of the claim until the payment of the 55% of OAVT package by the defendant. 6. The obligation of the defendant to pay the expenses incurred by the request for arbitration. The case was registered before the Vienna International Arbitral Centre, under no. ARB-5670 Borislavschi (RO) vs Energetica Electrica (RO). In case no. 35647/3/2019, on 13 December 2021, the Bucharest Court of Appeal rejected as unfounded the appeal filed by Electrica Furnizare S.A. (EFSA) against the decision pronounced by the Bucharest Court, maintaining as legal and valid the sentence pronounced by the Bucharest Court. The Decision is not final, it can be appealed within 30 days of the communication. In this file, Societatea Energetica Electrica S.A. (Electrica) has the legal quality of being called in warranty. We mention that Bucharest Court admitted the exceptions of limitation periods regarding the claim filed by EFSA and consequently rejected as devoid of purpose the warranty claims filed by Mircea Patrascoiu, Anca Dobrica, and Victoria Lupu in file no. 35647/3/2019 having as object the underscoring of the liability of the members of the Board of Directors and the Chief Executive Officer of EFSA, claim submitted by the company concerned, following the damages ascertained by the Court of Accounts of Romania in the Decision no. 11/23 December 2016 and in the Control Report no. 5799/29 November 2016. Policies in force On 7 May 2021, Electrica published on the company’s website, in the section Investors -> Corporate Governance -> Corporate policies and other documents, the updated form of the Remuneration Policy for Directors and Executive Managers, following its approval within the OGMS dated 28 April 2021. Measures adopted in COVID-19 context In the context of the crisis generated by the COVID-19 pandemic, ELSA’s representatives communicated with stakeholders, mostly internally, announcements being released to present the measures taken by the Group companies and COVID-19’s impact on activity. In the fight against the COVID-19 pandemic, ELSA has adopted all the necessary measures so that the activity of the companies within the Group to continue to be carried out under conditions as close to normal as possible. Ever since the beginning of the crisis, the resilience plan in force at the Group level was constantly updated to respond to the pandemic context and legal framework evolutions. Essential activities and critical roles have been identified, staff backup has been insured and the action scenarios on escalation levels depending on the situation evolution from the external environment of the company have been redefined, in order to ensure the smooth running of the operations and the continuity in the electricity supply, as well as for the protection of the Group customers, employees, and partners. During accelerated growth and peaks periods of the pandemic, the activities that involve interaction with clients and/or access to consumers’ homes had been limited and the scheduled works had been reprioritized, in order for the scheduled interruptions in the electricity supply to be diminished. EFSA’s customers had been encouraged to use digital instruments (MyElectrica, website, digital invoice) offered or methods of mediated interaction (by e-mail, by telephone) to solve the various requests, using also online payment methods (MyElectrica account, internet banking, and mobile banking). In order to limit the spread of COVID-19 and to protect the employees, firstly for the frontline ones, various measures have been implemented, such as: providing medical protection devices and hygienic-sanitary materials, creation of a rotation system to minimize meetings between teams, work-from-home – where feasible, limiting or temporarily suspending access to certain locations, including customer relations centers, and redirecting communication and correspondence to alternative electronic channels, disinfection performed in locations in the case of occurrence, etc. Social distancing measures have been recommended to the shareholders, who have been guided to use electronic means/remote interaction for solving any requests regarding the activity of Electrica Group. Regarding the electricity and natural gas supply segment, the cash collection activities through own cashiers, the activities of the customer relations centers, as well as the field activities for B2B customers (Business-to-Business) 30 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTwere carried out in strict compliance with the protection measures (use of the mask, distance, limitation of the number of people present in the premises) and with the monthly assessment of the situation according to the evolution of the context at national/regional level, for offering all services in safe conditions. The action plans of the distribution operators consider keeping the general preventive measures for their staff, users, and collaborators, as well as the organizational measures to ensure safe management and operation of the network infrastructure, at a superior quality level for the electricity distribution service. The delays in investments and maintenance works, including those requiring consumers’ interruption, in compliance with the Performance Standard for the distribution service, have been recovered. The management permanently monitors the financial performance and liquidity of the Group companies on several tiers, in order to ensure the availability of the necessary funds for carrying out the activity, by analyzing with priority the cash flow, including the impact that the legislative changes may have on the Group’s activities. The aim is to secure the receivables collection from customers, to use the banking structures for liquidity concentration (“cash-pooling”) implemented last year, as well as the available financing for the companies within the Group. Distribution segment At the end of 2020, Electrica has successfully completed the merger of the three electricity distribution companies within the Group. Starting with 1 January 2021, the new company Distributie Energie Electrica Romania S.A. (DEER) becomes the most important electricity distribution operator at the national level, with a coverage of 40.7% of the Romanian territory, which serves over 3.8 million network users. By implementing the merger, medium and long-term benefits could be obtained for all stakeholders. The current priorities for the distribution segment are: cost efficiency; accelerating the main business processes digitization; orientation towards the smart grid concept by promoting on a large scale the smart metering; operational performance improving; distribution service quality increasing; distribution network losses reduction. In 2021, the new company Distributie Energie Electrica Romania S.A. (DEER), created by the merger of the three electricity distribution companies within the Group, started the implementation of a multi-annual legal post- merger integration program, having as objectives the continuous improvement in the operational area and building a performance based culture within the Electrica Group, in a customer-centric paradigm, keeping costs under control. The long-term goal of the management team is a corporate cultural transformation of the organization, focused on efficiency and performance, to ensure the sustainability of the business. In this approach, efforts to maximize efficiency potential focus on three relevant areas: 1. 2. 3. a unified organizational structure and efficiency of support activities; he optimization of imbalances and the cost of purchasing electricity to cover losses in distribution networks; the optimization of the function of Information and Communication Technology and related components. ANRE has issued documents for the regulatory framework that requires additional efforts from distribution operators in order to comply with the new requirements: a) Regulations regarding tariffs: The distribution tariffs approved for 2022 were approved by ANRE Order no. 119/24 November 2021, the regional average tariffs for DEER having the following increase compared to the 2021 tariffs: MN +8.1%; TN +10.4%; TS +7.4%. The distribution tariffs approved for 2022 ANRE approved the Order no. 3/20 January 2021 regarding the amendment of the Methodology for distribution tariffs setting approved by ANRE Order no. 169/18 September 2018: - granting a 2% additional incentive to RRR for investments in the electrical distribution network made with own funds within projects in which European non-reimbursable funds were also attracted, if the investments were made and put into operation by operators after 1st February 2021; 31 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT- if for certain assets categories, the primary legislation establishes other regulated depreciation periods than those provided by the Methodology or by the Catalogue for the classification and normal useful lives of fixed assets, approved by Government decision, the annual regulated depreciation related to those fixed assets is calculated based on the regulated depreciation periods established by the primary legislation. ANRE approved Order no. 101/30.09.2021 for the modification and completion of the Methodology for establishing the tariffs for the distribution service - in force since October 1st, 2021: - Network losses price: (i) ANRE has the right to correct the projection of distribution tariffs for a regulatory period of one year if it finds that there have been significant variations in prices on the electricity market, which lead to a significant change in distribution service costs; (ii) at the justified request of the DO, the regulated income of year t+1 may include a cost adjustment with regulated network losses forecast for year t+1, by changing the reference price, depending on the evolution of prices on the electricity market and the result of the analysis on the evolution of tariffs for the current - - - regulatory period. Personnel costs - at the request of the DO accompanied by supporting documents, ANRE may accept in the regulated income for year t+1 a variation of the personnel costs approved for year t+1, generated by the appearance of unforeseen conditions during the substantiation and approval of the forecast. costs. Destination of non-household consumption place - DO are obliged to find non-compliance with the obligation of non-household users to keep the destination of a place of consumption, and in this case, users are obliged to return the value of design and execution works paid by DO, and DO exclude fixed assets from RAB. Connection workings done by users - Fixed assets made in year t of the connection workings paid by users are not included in the RAB, but they are recognized in the regulated income for year t+1, by including one-fifth of the refundable value. - the accounting depreciation of the fixed assets that are not part of the RAB and that were financed from own resources and for which the DO has assigned the use to a third party is taken into account to gross profit computation from other unregulated activities. b) Investments Procedure ANRE Order no. 19/16 March 2021 - in force since 19 March 2021: - the amendment considers the establishment of the DSO obligation to carry out the connection workings to the final customers, additionally to the annual investment plan. c) Licenses ANRE Order no. 115/2021 for amendment and completion The Regulation for granting licenses and authorizations for the electricity sector approved by ANRE Order no. 12/2015 - in force since 2 of December 2021: DSOs have the obligation to send to ANRE: - until 31 December 2021 - information on power lines, power stations, and medium and high voltage substations (technical data according to ANRE Order no. 181/2019); until 31 December 2022 - information on medium and high voltage power lines, according to ANRE - Order no. 115/2021 - including economic attributes; - until December 31, 2023 - all the information regarding the LV, according to the ANRE Order no. 115/2021 - including the economic attributes. Starting with 01 January 2022 enters into force the new scheme published on the ANRE website regarding the GIS information in the national stereographic coordinate system 1970, which has attached as attributes to the spatial data requested within the GIS application, a set of associated data to presented spatial data, which includes the fixed asset number and value for the electrical transmission/distribution network components, necessary for ANRE to verify the fixed assets made by the licensees in order to recognize them in RAB d) Smart metering regulations (SM): ANRE approved Order no. 94 / 18.08.2021 for the amendment and completion of the Framework Conditions for the realization of the implementation calendar of the intelligent electricity measurement systems at the national level approved by ANRE Order no. 177/2018 - in force since 1 January 2022 32 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT- The value of the indicator „Annual average of the daily success rates of data transmission from meter to HES / MDMS” of at least 80%. The indicator taken into account is calculated annually on each transformation station in the areas where the SMI has been implemented. In case of non-fulfillment of this condition, ANRE proceeds to the non-recognition of the depreciation costs and profitability corresponding to the equipment that ensures the transmission of the data related to the respective transformation stations, for the respective year. - The DOs have the obligation to fulfill the annual targets provided in the implementation schedule of the SMI at the national approved level, in a proportion of at least 90% regarding the total number of users provided for integration, respecting all the areas planned for integration in that period. - The invoicing of the distribution service is to be performed based on the measurement data registered by SMI for the users whose consumption/production and consumption places are integrated with SMI. - The installation of meters that can be integrated with the SMI when connecting new users should be done only for consumption/production and consumption places located in areas where the implementation of the SMI is scheduled in the next 5 years. e) Technical regulations Network connection ANRE Order no. 16/10 March 2021 - the amendment of the Regulation on connecting users to electricity networks of public interest (ANRE Order no. 59/2013) - in force since 16 March 2021: - the introduction of provisions regarding reinforcement works - the introduction of the DSO’s obligation to recalculate the value of the connection tariff component; - elimination of the ANRE endorsement of the procedures regarding the users’ connection to the network; - clarification of the termination circumstances of the effects of the framework convention for the handing over of user-financed connection facilities in their ownership. ANRE Order no. 17/10 March 2021 - The procedure regarding the connection to the electricity networks of public interest of the consumption places belonging to the non-household final customer type users through connection installations with lengths up to 2,500 meters and household customers - revision of ANRE Order no. 183/2020 - in force since 16 March 2021: - the inclusion of household customers in the category of those for which the DSO have the obligation to finance and carry out the design and execution works of the connection installation; - the possibility for household and non-household customers to agree on the connection installation design and execution directly with a certified economic operator chosen by them; - the application of the procedure also for the consumption places with storage facilities or consumption and production places, with or without storage facilities, provided with installations for the production of electricity from renewable sources (prosumers); - applies to: a. household users who have submitted connection requests to the concessionaire distribution operators after 19 December 2020; b. to non-household final customers type users, who submitted connection requests to the concessionaire distribution operators after 30 July 2020. ANRE Order no. 45/2021 - the amendment of the Regulation on connecting users to electricity networks of public interest - in force since 23 June 2021: - Elimination of the user’s obligation to send to the network operator (NO), through the documentation attached to the connection request, the approved zonal urban plan („PUZ”) or the approved detailed urban plan („PUD”), if it was requested by the urbanism certificate; ANRE Order no. 53/2021 for the approval of the Methodology for evaluating the financing conditions of the investments for the localities’ electrification or the electricity distribution networks’ extension approved by ANRE Order no. 36/2019 - in force since 28 June 2021: - also applicable if an association of public authorities requests the DSO to develop the electricity network of public interest in order to connect based on regional development and urbanism plans; the definition of electricity distribution networks’ extensions has been modified, by eliminating the - phrase “urban” from its content; - for the situation in which the public authority/user/group of users decides to fully finance the investment, it was explicitly introduced, besides the term for returning the operators’ co-financing quota, also the term for taking over by the network operator the elements related to the returned quota. It is mentioned that this completion is an explanation because the restitution of the quota is done simultaneously with the takeover; 33 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT- clarifications were made regarding the value of the quota returned to the public authority/user/group of users, in case they decide to fully finance the investment, by establishing the quota based on the minimum between the value of works according to the DSO offer and the value of works specified in the reception documents for the works’ commissioning; - for the situation in which the public authority/user/group of users decides to fully finance the investment, it was specified that the technical project and the request for proposal are carried out by them, with an economic operator certified by ANRE; - based on the technical project and the specifications, the public authority/user/group of users carries out the works regarding the development of the electricity distribution network for electrifying the localities or for extending the electricity distribution networks with an economic operator certified by ANRE. ANRE Order no. 85/2021 - Order for the amendment and completion of ANRE Order no. 74/2014 for the approval of the Framework Content of the technical connection approvals (TCA) - in force from 6 July 2021: the elimination of the DSO’s obligation to send to ANRE reports regarding the users’ appeals regarding the issuance of TCA. ANRE Order no. 137/2021 Order for the approval of the Procedure regarding the determination of the available capacity in the electrical networks for the connection of new installations of electricity production - in force starting with 1st of March 2022: - rules for determining the capacity available in the electrical transmission network/electrical distribution network at the 110 kV voltage level; - - rules for the data publication regarding available capacities; deadlines and frequency of data publication regarding available capacities by network operators: monthly starting with 1st of April 2022; twice a month starting with 1 July 2022. Prosumers ANRE Order no. 15/10 March 2021 - Procedure regarding the connection to the electricity networks of public interest of the consumption and production places belonging to the prosumers who have installations for electricity production from renewable sources with the installed power of at most 100 kW/consumption place - in force since 16 March 2021: - considering the legislative amendments brought by Law no. 290/2020, in force since 19 December 2020, it was necessary to revise the previously proposed form regarding the DSO’s obligations to finance and realize the design and execution works of the connection installations for non-household final customers, through connection installations with lengths up to 2,500 meters and the design and execution of connection installations for household customers. ANRE Order no. 50/2021 for the approval of the trading rules for the electricity produced in power plants from renewable sources with an installed power of up to 100 kW belonging to prosumers - in force since 1 July 2021: - - repeals the ANRE Order no. 226/2018; revised as a result of the amendments brought by Law nr. 155/2020 and Ministry of the Environment, Waters and Forests Order no. 121/2021 amending the Financing Guide of the Program regarding the installation of photovoltaic panel systems for electricity production, in order to cover the necessary consumption and the surplus delivery in the national network, approved by Ministry of Environment Order no. 1287/2018; elimination of the reporting models from Appendices 1 and 2 of the ANRE Order no. 226/2018, with - their full takeover in the draft revision order of ANRE Order no. 195/2019. ANRE Order no. 52/2021 for the approval of the Methodology for monitoring the system for promoting the electricity from renewable energy sources production (RES) – in force since 1 July 2021: - - repeals the ANRE Order no. 195/2019; systematization of data collection by integrating the information and data contained in the regulations in the field of electricity promotion in RES; - completing the data necessary to be collected for the monitoring of the promotion system for the electricity produced in RES power plants with an installed electrical power of at most 100 kW belonging to prosumers, through a dedicated software interface directly on the ANRE website; introduces the DSO obligation to publish on their website, every month, information on the prosumers - connected to the electricity grid; - introduces the obligation of the DSO and TSO, as appropriate, to publish on their website, every month, the information on technical connection approvals, connection contract and connection certificates issued in the previous month for power plants belonging to the producers of electricity from renewable energy sources (E-RES) and prosumers. 34 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDistribution service performance standard ANRE Order no. 46/15 June 2021 for the approval of the Distribution Service Performance Standard - in force since 1 July 2021: - the standard imposes additional obligations for the DSOs, and in order to fulfill them, additional investments and the increase of operating expenses will be necessary; - the obligation of the DSO to monitor the short interruptions, and to grant compensations for non- compliance with the imposed thresholds: HV=300 RON (>10 interruption/year), MV =10 RON (>10 interruption/week), LV=5 RON (>10 interruption/week); - the obligation to comply with the 90-day deadline for commissioning a connection, including the reception and commissioning of the connection installation, the compensation for non-compliance being 100 RON; - the obligation of the DSO to ensure, starting with 1 January 2022, reduced voltage deviations for LV level (from +10% to +5% of the nominal voltage value, monitored weekly), the compensations being for legal entities: HV - 270 RON, MV and LV - 130 RON (for each monitoring period), and for individuals: HV - 270 RON, MV and LV - 70 RON (for each monitoring period); - setting an implementation calendar for the quality analyzers, so that 100% of the power stations will be monitored with the help of this equipment until the end of 2026, respectively 100% of the transformation stations until 1st January 2028. This implementation program is correlated with the provisions of the SM implementation schedule; setting intervals for the reception of telephone calls made by network users through the call centers - managed by distribution operators, namely: a. maximum 30 seconds from the call initiation by the user until it is taken over, without the intervention of the human operator; b. maximum 180 seconds from receiving the call for the user to be able to select the option to transfer the call to a human operator; c. maximum 20 minutes from taking over the call to start the user’s conversation with a human operator. Commercial Regulations ANRE Order no. 25/2021 regarding the amendment of the Framework Contract for the distribution service - in force since 1st July 2021: - in the process of changing the supplier, for the small household and non-household customers, the measurement group index reading for settlement related to a consumption place is performed by the DSO, if the final customer does not send the self-read index; - the DSO has the obligation to inform the supplier about the change of the measuring group reading period at least 60 days before the change date; - within a maximum of two months from the entry into force of this order, the DSO and the electricity suppliers update the electricity distribution service contracts according to the provisions of the framework contract from the Appendix no. 1 to the ANRE Order no. 90/2015, with subsequent amendments and completions; ANRE Order no. 82/2021 for the amendment and completion of the Regulation for the supply of electricity to final customers, approved by ANRE Order no. 235/2019 and the repeal of ANRE Order no. 130/2015 regarding the approval of the Procedure regarding the electricity supply of the DSO own consumption places – in force from 1st July 2021 (except for the provisions of art. I points 25-27, 33 and 34 which enter into force on 1st January 2022): - in case of the electricity supplier change, the customers can communicate to the new supplier the self-read index at the date of sending the change of supplier notification; the supplier has the obligation to take over and send to the DSO the index self-read by the final customer; the self-read index is taken into account by the DSO when setting the electricity consumption in the process of changing the supplier; if the final customer does not send the self-read index, the DSO has the obligation to read the - index of the measuring equipment in the period between the date of sending the supplier change notification and the date of the actual change of the supplier; - the DSO has the obligation to create and maintain in the database, for each consumption place, for each month from the period January - December, information on the estimated active electricity consumption, established as appropriate, based on: (i) consumption of electricity recorded at 35 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTthe consumption place in the similar period of the previous year or of the determined electricity consumption taking into account the most recent readings made by the DSO; (ii) the specific consumption profile, determined by the DSO for the respective category of the final customer if there is no consumption history for the place of consumption. - the DSO has the obligation to allow free access to all electricity suppliers to the data in the database - - and to inform them on how to access the data; until 1st November 2021, the DSOs have the obligation to make available to the electricity suppliers the consumption data provided in the order and to publish on its web pages information regarding the way of accessing these data; starting with 1st January 2022, in the case of consumption places for which consumer agreements are concluded, the distribution service invoicing will be performed by the DSO, based on these agreements, if there is no index for these consumption places read by the DSO or by the end customer. Compliance Regulation ANRE approved Order no. 97 / 08.09.2021 approving the Regulation on establishing the compliance program and designating the compliance agent by the electricity / natural gas distribution operators and by the natural gas storage operators that are part of a vertically integrated economic operator effective 1 January 2022: - - designating the approval and activity of the compliance agents - DO will send to ANRE the nominations of the compliance agent until 1st of November 2021, conditions: (i) at least 3 years before the date of designation as compliance agent and for the entire period in which a compliance agent is appointed, not to have held / not to hold any professional position or responsibility, interest or business relationship, of direct or indirect order, with the vertically integrated economic operator or with any part thereof; (ii) have at least 5 years of experience in the field of electricity / natural gas; - the manner of elaboration and the content of the compliance programs drawn up by the DO for electricity / natural gas, respectively for the storage of natural gas; - implementation of the measures provided in the compliance program and monitoring the application of the compliance programs, respectively of the measures therein; f) Primary legislation: Energy law no. 123/2012 - amended by Government Emergency Ordinance “GEO” no. 143/2021 - in force starting with 31 December 2021 - new attributions of Ministry of Energy: approves the development plans of TSO and DOs from the point of view of ensuring the concordance with the provisions of the energy strategy and PNIESC 2021-2030; approves the reliability standard. - Directly negotiated bilateral transactions can be concluded on the wholesale market in all time intervals; - In the case of the final household customer, in order to issue the regularization invoice, the DO has the obligation to ensure the reading of the index of the measuring group at a time interval of a maximum of 3 months. Each DO acts as a neutral market facilitator in electricity acquisition to cover NL, in accordance with - transparent, non-discriminatory, and market-based procedures, in consideration of ANRE regulations. - household connections - In the case of household customers, when commissioning the connection workings, DO will reimburse the applicant the effective value of the connection design and execution works, up to an average value of a connection, established according to a methodology approved by ANRE. The assets resulting from the connection workings become the property of the distribution operator from the moment of commissioning, through the effect of this law, at the value reimbursed to the household customer, being recognized by ANRE as part of the regulated assets base. - non-household connections - In the case of non-household customers, the value of the connection workings, including those for the design of the connection/connection made, is fully financed by them. The assets resulting from the connection workings enter the patrimony of the distribution operator from the moment of commissioning, through the effect of the present law, without being recognized by ANRE as part of the base of the regulated assets. -in case the final customers do not have SMI, OD provides them with individual conventional meters that accurately measure their real consumption. OD ensures that end customers can easily read their conventional meters, either directly or indirectly, through an online interface or another appropriate interface that does not involve a physical connection to the meter. 36 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTGEO no. 84/2021 - in force starting with August 6, 2021 - Repeals the provision of art. 72, paragraph (1) from GEO nr. 70/2020, according to which DOs and TSO ensure the continuity of electricity supply in the alert state - The cessation of the provision of services corresponding to the non-payment of outstanding debts cannot be achieved earlier than 90 days from the entry into force of GEO no. 84/2021. Law no. 259/29.10.2021 for the approval of GEO no. 118/2021 regarding the establishment of a compensation scheme for the consumption of electricity and natural gas for the cold season 2021-2022, as well as for the completion of the Government Ordinance no. 27/1996 regarding providing facilities to persons residing or working in some localities in the Apuseni Mountains and the Biosphere Reserve „Danube Delta” - For the period November 1st, 2021 - March 31, 2022, a support scheme was established for the payment - of invoices related to the consumption of power and gas for several categories of final customers. To regularize the amounts related to the support scheme, the electricity / natural gas distribution operators have the obligation, in April-June 2022, in addition to the readings established according to the regulations in force, to read the meter index to final customers who have benefited from the support scheme and to communicate to the electricity / natural gas suppliers their measurement data. - Exemption of some categories of small consumers (SMEs, PFA) from the payment of distribution tariffs, transport, green certificates, the contribution for high-efficiency cogeneration, and excise. g) Alignment with the European legislation - EU Regulation no. 943/2019: 15 minutes settlement ANRE Order no. 27/31 March 2021 - ANRE orders amendment - settlement interval (SI) to 15 minutes - in force since 1st April 2021: - the amendment of ANRE orders containing references to trading/delivery/settlement intervals lasting one hour, with the intent to modify by using the phrase “settlement interval” and setting the duration of this interval to 15 minutes. The settlement interval is one hour until 1 July 2021, respectively 15 minutes, starting with 1 July 2021. Electricity market functioning ANRE Order no. 26/31 March 2021 for the amendment of art. VII of the ANRE Order no. 65/2020 - in force since 1st April 2021: - long-term supply contract means any contract with a delivery duration equal to or higher than one month; Draft order approving the balancing clauses and conditions - public debate – phase III: - the purchase by the TSO, on the European trading platforms for balancing energy, of energy from the balancing service providers from EU member countries; - separate activation by direction of the balancing energy from the frequency restoration reserve with automatic activation (RRFa = the new term used to define the secondary setting); the use of standard balancing energy products within each European balancing energy platform, - which have the same static characteristics for all balancing service providers from each EU member state; - considering, in the internal balancing market settlement, the unintentional electricity trade between state members; - the emergence of the capacity market for frequency recovery reserves (RSF = the new term used to - - define the setting); enters into force starting with 1st October 2022; the ODs collaborates and elaborates, following a public consultation process, a unique procedure regarding the way of establishing, verifying, confirming by the involved parties, and implementing the way of aggregating the measured values related to a BM, which each OD then publishes on its own website within three months from the publication of the order. ANRE Order no. 128/2021 - Order for the approval of suspension and re-establishment Rules of market activities and for the applicable settlement Rules – in force since 1 October 2022: - determining the situations and conditions in which TSO can suspend market activities with diminishing the impact on the coupling of DAM and IM energy markets; identification of the market activities that can be suspended and of the procedure of their suspension 37 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTand restoration: stages, role, and responsibilities TSO / designated electricity market operator/factors involved; - - the communication procedure detailing the tasks and actions that each party must perform; the suspension during the collapse period and the restoration from the collapse of SEN of all contracts on the wholesale market (including transactions concluded on DAM and IM), and its sale/acquisition will be made at a single restoration price, respectively the settlement method applicable in these situations and the way of making payments and contesting the settlement. - the order will be applied to start with the 1 October 2022, the date from which the ANRE Order no. 23/2016 repeals. ANRE Order 3/2021 approving the Regulation on the organization and operation of the online supplier change platform (POSF) and for contracting the supply of electricity and natural gas - in force since August 28, 2022 - The online platform (POSF) is unique at the national level, end customers and economic operators involved in changing the supplier and contracting the supply have the obligation to use exclusively - - - - this platform. Implementation of the platform starting on 28 August 2022. Duration of the supplier change process 24 hours The client is obliged to register the self-read index in POSF The client uploads the self-read index at the beginning of the supplier change process and a second self-read index at the date of the actual change of the supplier. If the end customer does not upload the index on the date of the actual change of the supplier, OD has the obligation to register in POSF, within 5 days from the date of the actual change of the supplier by the end customer, the index read by OD or provided by the system. intelligent measurement. - The regulation details: how the POSF is organized and operated, the content of the POSF database, the data needed to create the POSF access account, the rights and obligations of POSF users, the rules for concluding the supply contract, the actual supplier change procedure. - ANRE is the administrator and operator of the Online Platform intended for the change by the final customer of the electricity and/or natural gas (POSF) supplier - In the period between the date of entry into force of the Order and August 28, 2022, all economic operators are obliged to comply with any ANRE requests for the realization and implementation of POSF. Investments In 2021, the operator Distributie Energie Electrica Romania (DEER), resulting from the merger in 2021 of the three distribution operators of Electrica Group realized and commissioned investments amounting to RON 541.4 M, representing 96.69 % of the commissioning program value planned for 2021 (eg. RON 558.6 M, of which RON 549.2 M related to the 2021 plan and RON 9.4 M for values carried forward related to 2020; RON 532.2 M were realized in the first category related to 2021 and RON 8.2 M were related to 2020). In 2022, Distributie Energie Electrica Romania (DEER), will continue to invest in distribution infrastructure, the investments to be commissioned for 2022 by DEER, cumulating RON 587.5 M (of which, RON 558.5 M plan for 2022 and RON 29 M values related to the plan for 2021). In addition to the works in the distribution networks provided in the investment plan 2022, it is estimated the realization of works for connecting users, considering the new legal requirements introduced by government emergency ordinance OUG nr. 143/2021 which amended and supplemented Energy Law no. 123/10 July 2012, as well as amending other legislation. The investment plans were prepared in accordance with the requirements provided by ANRE in the “Procedure regarding the elaboration and approval of the investment programs of the concessionary economic operators of the electricity distribution service” approved by ANRE order no. 204/14 November 2019 with subsequent amendments and completions. Supply segment Key Projects Starting from the significant changes in the energy market regarding the regulatory framework and growing competition, EFSA finished an ambitious internal transformation project which set to successfully meet the current and future challenges, and which mainly targeted the internal reorganization of the company, in terms of internal and external work processes and streamlining the customer experience in all points of contact, as well as the development of new skills specific to the sales area. 38 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTIn the first stage, the project focused on developing the sales strategy, and in the second stage, the effort focused on internal processes, systems, and technology improvement, and, naturally, on upgrading organizational structures. A process of redesign and adjustment to present market challenges came next, aiming to upgrade and re-think relevant activities in order to supply customers with the highest level of services. In 2021, EFSA continued its efforts to transform the internal processes in the sales and customer relations areas, focusing on digitization and automation. The current priorities in the supply segment are: - - - - improving operational performance; speeding up the digitization of main business processes; continuous development of value-added products and services; increasing the quality of supply service. Regulatory Framework a. Primary legislation In 2021, the following legal acts, with an impact on the supply of electricity and gas, have been approved: Government Emergency Ordinance no. 143/2021 amending Electricity and Gas Law no. 123/2012: - - the ordinance primarily aims to transpose Directive (EU) 944/2019 on common rules for the internal electricity market, bringing several amendments/additions concerning mainly the following: universal service (US): by any supplier on the competitive market (who shall elaborate US offers and supply the US to customers, if requested), exclusively to household customers; - electricity end-user price: removal of all provisions concerning regulation/approval of end-user prices; in return, the ordinance provides for the possibility of public interventions in the price setting for the supply of electricity to vulnerable or energy-poor customers, under certain conditions and with notification to the European Commission; - wholesale electricity market: removal of exclusively public and centralized trading obligation; the new stipulations explicitly mentioned “the directly negotiated bilateral transactions”; - suppliers’ obligations: removal of the obligation to set up physical customer care centers for US customers at max. 50 km; - suppliers’ (misc.) rights: permission to charge customers (without discrimination) contract termination fees where those customers voluntarily terminate fixed-term, fixed-price electricity supply contracts before their maturity; permission to charge customers, except for households and small enterprises, supplier switching fees; - electricity supplier switching: until 2026, supplier switching shall be performed in 24 h at the latest, in any working day; customers shall be given the right to engage in collection supplier switching schemes; - electricity standard offers/price comparison tool: expansion of suppliers’ obligation to elaborate standard offers also for microenterprises*, and upload them to ANRE Price Comparison tool (eg. an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million) with an expected yearly consumption of below 100 000 kWh; misleading/incorrect commercial practices in the field of electricity and gas supply: maintain the - infringement identified by ANRE only concerning non-household customers; also, the penalty for breach of obligation calculated as a percentage of the annual turnover shall be replaced with a lump sum penalty; with regard to household customers, the non-compliance will be assessed by the National Consumer Protection Authority(NACP); - electricity and gas billing: settlement bills for household customers shall be issued once every 3 months at the least; the breach of the obligation shall be fined with a lump sum penalty; - prohibition of disconnection for electricity: ANRE shall be granted the right to identify additional categories of customers that cannot be disconnected, apart from the vulnerable ones; - offences: the repeated breach is (again) defined as at least 2 breaches occurring in 12 consecutive months (as opposed to at least 2 breaches); - prosumers: prosumers shall benefit also from net metering, in addition to the financial settlement before; installed capacity limits have been increased. 39 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTLaw no. 226/2021 approving social protection measures for the vulnerable energy consumers: - - the law applies as of 1 November 221; the following financial measures have been approved to support vulnerable consumers: the aid for residential heating, during the cold season, eg. 1 November – 31 March (max. RON 500 /month for electricity, and RON 250 /month for natural gas); the energy subsidy, to be given all year long (RON 30 /month for lighting and RON 70 /month in case electricity is the only source of energy used, and RON 10 /month for gas); the money for both types of aid shall be paid directly to energy suppliers, and deducted from the invoices; - consumers fulfilling the income-related eligibility criteria will benefit from the financial protection: the maximum monthly net average income that qualifies for the heating aid is RON 1,386 /person for families, and RON 2,053 for single persons. Government Emergency Ordinance (OUG) no. 118/2021 establishing a compensation scheme for the consumption of electricity and gas during the 2021-2022 cold season, approved with amendments by Law No. 259/2021: - the support scheme shall be applied for the consumption of electricity and gas from November 2021 to March 2022, and has been approved given the surge in international energy prices and the impact - - thereof on the Romanian population; The following support mechanisms have been put in place: compensation for household customers provided they fall within the maximum consumption limits set for the whole period (eg. 1,500 kWh for electricity, and 1,000 m3 for gas), as well as per month, and within the reference price set at 0.68 lei/kWh for electricity, and 125 lei/MWh for gas; the compensation amounts to 0.291 lei/kWh for electricity, and 33% of the invoice for gas; - exemption from all energy regulated tariffs and taxes for SMEs, individual medical practices and other liberal professions, microenterprises, authorized natural persons, individual enterprises, family enterprises (eg. regulated transmission tariffs/cut-off from the network, distribution tariff, system services tariff, transmission tariffs, green certificates, high-efficiency cogeneration contribution, energy tax – for electricity; transmission costs, distribution tariff, and energy tax – for gas); - capping of the end-user price at max. 1 leu/kWh for electricity (out of which max. 0.525 lei/kWh will be the energy component), and max. 0.37 lei/kWh for gas (out of which max. 0.250 lei/kWh will be the energy component) for household customers, public and private hospitals, public and private schools, kindergartens for small babies, NGOs, churches, public and private social service providers; - moratorium on bills – upon request, only for vulnerable consumers, for min. 1 month and max. 6 months; - the legislation also provides for reimbursement mechanisms from the state budget to electricity and gas suppliers. Order of the minister of labor and social protection (No. 1.155/25.11.2021), minister of energy (no. 1.240/25.11.2021), and minister of finance (no. 1.480/26.11.2021) approving the procedure for compensation of suppliers for the consumer support scheme set by OUG no.118/2021: - - - the order clarifies as to the implementation of support schemes and compensation of suppliers; regarding the household customers support scheme: the order mentions the documents to be sent by suppliers for compensation and related deadlines; scheme for exemption of non-household customers from regulated tariffs, energy tax, contributions, etc. – the order includes the following: the documents to be sent by suppliers for compensation; a template for customers’ application and declaration; the fact that the benefit shall be granted starting with the month of the application (except for the applications made in December, where the benefit shall be granted starting with November); the fact that, in case of supplier switching, customers shall be compensated pro-rata; - price cap – the order mentions that: the subscription (the value of subscription services) is not included in the price cap (eg. RON 1 /kWh for electricity, RON 0,37 /kWh for gas); the average price in the suppliers’ compensation formula refers to procurements made by each supplier; the calculation for suppliers’ compensation shall be calculated on a monthly basis, and a settlement shall follow at the end of the scheme’s implementation period. Government Emergency Ordinance no. 130/2021 regarding fiscal-budgetary measures, the extension of deadlines amending, inter alia, certain pieces of legislation: - - the ordinance brought several changes to OUG no. 118/2021 and Law no. 259/2021 concerning mainly: compensation of suppliers for the energy price cap scheme: the calculation formula shall factor in the average price of ongoing contracts with physical deliveries over the scheme’s implementation 40 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTperiod; procurements related to supply of last resort shall be analyzed separately so as to reflect the additional volumes purchased for the supply of last resort to customers; underlying documents for compensation of suppliers shall consist in volumes and prices from ongoing procurement contracts with physical deliveries over the scheme’s implementation period, and electricity/gas volumes delivered to cap priced customers. Government Decision no. 1077/2021 approving the preventive action plan for the safeguard of security of gas supply in Romania - - the Plan does not include important new elements as compared to the previous one; the suppliers remain under the obligation to secure, in emergency situations, continuity of gas supply to protected customers in the three crisis cases respectively (eg. household customers, SMEs, essential service providers, district heating installations supplying heat to protected customers who cannot operate with other fuels and supply heat to the protected mentioned customers); gas supply cannot be cut to the protected customers. Regarding the legislation related to the energy sector, in the context of the COVID-19 pandemic, the Government has decided to successively extend the state of alert initially established in 2020 (by Decision No. 394/2020), with 30 days each time, as follows: starting with 13 January 2021, by GD no. 3/2021; starting with 12 February 2021, by GD no. 35/2021; starting with 14 March 2021, by GD no. 293/2021; starting with 13 April 2021, by GD no. 432/2021; starting with 13 May 2021, by GD no. 531/2021; starting with 12 June 2021, by GD no. 636/2021; starting with 12 July 2021, by GD no. 730/2021; starting with 11 August 2021, through GD no. 826/2021; starting with 10 September 2021, by GD no. 932/2021; starting with 10 October 2021, by GD no. 1090/2021; starting with 9 November 2021, by GD no. 1183/2021; starting with 9 December 2021, by GD no. 1242/2021; starting with 8 January 2022, by GD no. 34/2022. Correlatively, until 6 August 2021, this implied the application of the measures with impact on the electricity and natural gas supply activity (i.e., the obligation of the transmission and distribution operators of electricity and natural gas to ensure the continuity of service supply, and, in case a situation of disconnection occurs, the postponement of performing this operation until the end of the state of alert). As of 6 august 2021, when GEO no. 84/2021 had been enforced, the prohibition to disconnect electricity and gas customers during the state of alert had been removed. Regarding the supply cessation in case of non-payment of the outstanding debts, according to GEO no. 84/2021, this measure could not have been taken earlier than 90 days from the entry into force of GEO no. 84/2021. b. Secondary legislation During the period analyzed, at the level of the regulatory framework, there were changes and completions in the following areas of activity and regulation: Liberalization of the electricity market ANRE Order no. 5/2021 amending the ANRE Order No. 171/2020 for the approval of the suppliers of last resort (SoLR) electricity supply conditions and for amending and supplementing the Framework agreement for the supply of electricity to SoLR household customers, approved by the ANRE Order No. 88/2015: - it includes provisions regarding the discount the SoLRs can grant to household customers who choose a competitive supply agreement. This discount, equal to the difference between the price in the universal service offer applicable between 1 January - 30 June 2021 and the price in the competitive offer with the lowest value, available on 20 January 2021, applies for the period from 1 January 2021 and until at least 30 June 2021; - New information obligations have been introduced for SoLRs for household customers from their own portfolio: until 30 June 2021, accompanying each invoice issued: information regarding the regulated tariffs’ elimination, as well as an offer selection form, in the form established by ANRE, containing the competitive offer with the lowest value, a competitive alternative offer, and the universal service offer, offers applicable in the first semester of 2021, as well as the value of the commercial discount granted and the application period, if applicable; between 1 May - 30 June 2021, monthly: a competitive offer and the universal service offer, valid as of 1 July 2021; in the second semester of 2021, accompanying each invoice issued: notification regarding the regulated tariffs’ elimination. 41 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTANRE Order no. 6/2021 for the amendment of the Regulation for the electricity SoLR designation, approved by ANRE Order No. 188/2020: - the definition of the non-household customers under supply of last resort regime (LR) has been modified, to include the customers who are taken over because there is no other supply source ensured, as well as those who request the supply in the LR regime. Retail electricity/gas market – commercial regulations ANRE Order no. 82/2021 and no. 91/2021 amending and supplementing the Regulation on the supply of electricity to final customers: - the amendments/completions are applicable, as a general rule, from 1 July 2021, and, as an exception (e.g., the new provisions regarding the settlement of customer complaints regarding the invoice, payment of compensations due based on the Performance Standard), from 1 January 2022; - the changes concern mainly: the content and publication of the offer and the supply contract (it must include all the price elements and it is published, cumulatively, in the ANRE Price Comparator, on the website and at the single point of contact), the determination method of the consumption for invoicing in the absence of the read/self-read index (estimation of consumption by the supplier based on the most recent readings or consumption from the previous similar period being allowed only until the end of 2021, afterwards will be made exclusively based on the consumption agreement issued by the distributor and concluded with the final customer by the supplier), the supply agreement conclusion – necessary documents (eg. the ownership deed is no longer mandatory, being replaced with a declaration on own responsibility on the ownership right over the consumption place), settlement of invoice-related complaints and the supply contract termination for non-payment of the invoices (without being mandatory the consumption place disconnection), completing the mandatory content of the disconnection notice. ANRE Order no. 83/2021 approving the Performance Standard for the electricity/gas supply activity: - the Regulation is common for electricity and gas, replaces the standards in force for the two areas, and is applicable from 1 January 2022, except for the provisions regarding the reception of telephone calls through the call center (applicable from 1 July 2023, respectively from 1 January 2024 regarding the payment of the compensations); - 11 guaranteed quality indicators are established regarding the response times to requests related to: supply offer communication; supply contract conclusion; amendment/completion of the supply contract; invoices; supply interruption/limitation at the consumption place, as the case may be, requested by the supplier; resumption of supply at the consumption place, whose interruption/ limitation was ordered by the supplier, subject related to the field of activity of the network operator; communication of responses received from the network operator; supplier change process; supply activity, other than those expressly provided; the response time of a telephone call made through call center service; - for each quality indicator, ANRE has established a guaranteed level that the suppliers have the obligation to respect and for whose non-compliance the suppliers will automatically/legally pay compensations to all categories of final customers; - a manner of evaluating by ANRE the activity carried out by the suppliers is introduced, through a scoring system established considering the degree of observance of the quality indicators guaranteed levels, a classification that will be made public through the ANRE Price Comparator; - in conclusion, by comparison with the current standards: the scope was extended in terms of automatic payment of compensations to all categories of customers, several guaranteed quality indicators were introduced (11 compared to 8 for electricity, respectively 4 for natural gas, currently), the compensation levels for natural gas have been doubled/tripled, the suppliers’ classification manner according to the level of compliance with the guaranteed quality indicators has been introduced. ANRE Order no. 138/2021 amending several ANRE orders: - several provisions and enforcement deadlines related to the performance standards for electricity/ gas supply have been changed as follows: - the deadline for sending the customer the response to complaints concerning electricity bills has been changed to 15 working days (instead of 5 working days before); - the deadline for sending the customer the response to complaints concerning gas bills has been changed to 15 working days (instead of 15 calendar days before); - enforcement of certain changes brought to the Electricity Supply Regulation, by ANRE Order no. 82/2021, has been postponed until 1 July 2022 (from 1 January 2022 before); most importantly, the 42 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTenforcement of automatic compensation of all categories of customers (not only US customers) in case of breach of obligations; - the enforcement of the new performance standard for the supply of electricity/gas (approved by ANRE Order no. 83/2021) has been postponed until 1 July 2022 (from 1 January 2022 before). ANRE Order no. 139/2021 amending and supplementing the gas distribution framework- contract, and related general conditions (approved by ANRE Order no. 78/2020), as well as the Gas Supply Regulation (as approved by ANRE Order no. 29/2016): - the order contains changes concerning mainly the following: documents needed for signing a gas supply contract (e.g. a self-declaration shall replace the deed of ownership or use needed before); management of supplier-distributor gas distribution contracts (removal of the obligation to sign addenda in case of prolongation or change of contract); metering (distributor shall read the meter at the beginning and end of the supply, including in case of supplier switching; a standard template shall be used for the data sent by the distributor for gas measuring; distribution services shall be invoiced based on actual measurements or customers’ meter self-reading). Supply of last resort ANRE Order no. 125/2021 changing the Gas Supply of last Resort Regulation (approved by ANRE Order no. 173/2020): - - the order contains changes concerning mainly the following: designation of suppliers of last resort (SoLR): at least 5 SoLRs, with an aggregated market share in terms of customers and volumes of min. 70% (as opposed to at least 3 SoLRs with no associated conditions); - conditions under which a supplier may relinquish its SoLR quality – the new aggregated conditions for the SoLRs appointed based on availability and eligibility (such as Electrica Furnizare) are: after at least 1 year from designation (as before); not to have any customer supplied under SoLR at the date of the relinquish (newly added requirement); with prior notification of ANRE with at least 60 days before (compared to 45 days before); - duration of the supply of last resort: min. 12 months from takeover for small customers, eg. customers with an annual consumption below or equal to 28 000 MWh (compared to 3 months before); - supply of last resort price: supply and transmission components of the price shall be maintained unchanged for 3 months from takeover (as opposed to monthly setting of all energy price components); exemption from this rule – where these components decrease; - criteria for selection of SoLRs for the automatic takeover of customers: the “lowest cost” criterion; the takeover capacity criterion, under which the number of customers taken over may not exceed 30% of SoLR’s number of customers; the availability to take over criterion, in case SoLRs do not meet previously mentioned criterion (as compared to a single criterion, eg. “the lowest cost”, before). ANRE Decisions on termination of several gas SoLRs designation decisions, and on the designation of several new gas SoLRs: - termination of SoLR designation decisions, upon request of the suppliers concerned to renounce at this quality, for: CEZ Vanzare (starting with 2 January 2022) – ANRE Decision no. 2233/2021, CIS Gaz (starting with 14 December 2021) – ANRE Decision no. 2234/2021; designation of new SoLRs (according to the new rules introduced by ANRE Order no. 125/2021): E.ON - Energie Romania – ANRE Decision no. 2237/2021, OMV Petrom – ANRE Decision no. 2238/2021, both starting with 15 December 2021; - Electrica Furnizare still SoLR for gas. Wholesale electricity/natural gas market ANRE Order no. 7/2021 approving the Regulation on the organized framework for trading standardized products on the centralized natural gas markets managed by Romanian Commodities Exchange S.A.: - the Regulation includes trading rules for the centralized markets related to short, medium, and long- term products, as well as flexible medium and long-term products. ANRE order no. 26/2021 for the amendment of ANRE Order No. 65/2020 regarding the amendment and completion of certain ANRE orders: - in the application of the EU Regulation no. 943/2019 provisions on the internal electricity market (relating to the over-the-counter sale of energy), the long-term supply contract was redefined as any contract with a delivery duration greater than or equal to one month (compared to one year, according to previous regulations); 43 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT- the above-mentioned contracts are concluded in compliance with the competition rules and are reported according to the provisions of the EU Regulation on the integrity and transparency of the energy wholesale market (REMIT). ANRE Order no. 27/2021 on amending and supplementing of certain ANRE orders: - in the implementation of the European rules regarding the settlement interval at 15 minutes, nine regulations have been modified that establish trading rules on the centralized term markets for electricity, in which the reference to the duration of one hour will be replaced with the reference to the settlement interval, and this duration of the settlement interval should be one hour until 1 July 2021, respectively 15 minutes starting with 1 July 2021. ANRE Order no. 33/2021 regarding the amendment and completion of ANRE Order no. 213/2020 for the approval of the Regulation for the calculation and settlement of the balance responsible parties’ imbalances - single imbalance price: - - the new rules apply to start with 1 June 2021; the calculation method for determining the imbalance and the payment obligations/collection rights used in the imbalance price formula is replaced, with the values for these exchanges received by TSO from the European platform; the remuneration way for the electricity produced in production capacities/electricity storage installations that are in the trial period is modified. ANRE Order no. 37/2014 for the repealing of the Regulation on the organization and functioning of the electricity Day-Ahead Market (DAM), respecting the mechanism of markets price coupling and the amendment of some normative acts that regulate the electricity DAM: - the repeal enters into force on 17 June 2021 and occurs in the context of the application of harmonized norms at the European level to unify the day-ahead markets. ANRE Order no. 30/2021 regarding the amendment and completion of the Methodology for regularizing the differences between the allocations and the quantities of distributed natural gas approved by ANRE Order no. 16/2020: - the new rules apply in the process of gas system balancing and regulate the situation in which a distribution operator does not transmit to a network user the differences between the allocation and the distributed quantities and/or the differences between the final monthly allocation and the sum of the daily allocated quantities, as well as the specification of the weighted average price that applies in case the distribution contract terminates during the respective gas year. ANRE Order No. 96/2021 amending the Regulation on calculation and settlement of electricity imbalances – the single imbalance price, approved by ANRE Order No. 213/2020: - the following elements have been updated: the way imbalances are determined; the formula for calculating starting short and long prices; the deadline for the submission by Transelectrica of preliminary and final data on the settlement of unintended exchanges; formula for calculating the costs/revenues and actual costs for the imbalance energy. Renewable energy sources, green certificates, prosumers ANRE Order no. 9/2021 establishing the mandatory green certificate (GC) purchase quota for 2020: - the quota has been set at 0.45074 GC/MWh (as compared to 0.45061 GC/MWh estimated quota for 2020 and 0.433548 GC/MWh mandatory quota for 2019). ANRE Order no. 15/2021 for the approval of the procedure regarding the connection to the public interest electricity networks of the consumption and production places belonging to the prosumers who own installations for the electricity production from renewable sources with the installed power of at most 100 kW/consumption place: - the regulation is relevant for the electricity supplier as it can carry out, on behalf of the prosumer, the connection-related procedures, i.e., the transmission of the connection request, of the notification for connection work execution to the DSO, and the request for the prosumer quality certification. ANRE Order no. 50/2021 for the approval of the rules for the sale of electricity produced in power plants, from renewable sources, with an installed electrical power of no more than 100 kW belonging to prosumers: - - The new rules are applicable from 1 July 2021; it is introduced, compared to the previous division into natural persons prosumers and legal person prosumers, the division into natural person prosumers with max. 27 kW installed power, respectively individual prosumers over 27 kW and max. 100 kW and legal entities max. 100 kW, in the application of the provisions regarding: determining the quantity of electricity that benefits from the special applicable price, transmitting the measurement data by invoice or according to the sale-purchase contract concluded with the supplier, and regularization in the invoice or between invoices. 44 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTANRE Order no. 52/2021 for the approval of the Methodology on monitoring the promoting system of the electricity production from renewable energy sources: - - the new Methodology is applicable from 1 July 2021; it is taken over from the Rules for selling electricity produced by prosumers and completed, both in terms of transmission methods and content, the obligation of suppliers to submit monthly to ANRE information on sales-purchase contracts concluded with prosumers. ANRE Order no. 131/2021 setting the estimated mandatory green certificates purchase quota for 2022: - the estimated quota set at 0.5014313 green certificates/MWh (as compared to the estimated quota for 2021 of 0.4505 green certificates/MWh) ANRE Order no. 117/2021 approving the rules on mitigating green certificate annual impact in electricity consumers’ bills: - the order sets a calculation algorithm aiming at maintaining the average impact of green certificates in electricity consumer’s bills at the present legal value of EUR 14.5 /MWh for as long as the excess of green certificates in the green certificates market in percentages is higher or equal to the average value of the previous 3 years. In case the excess of green certificates in the green certificates market, in percentages, falls below the average of the 3 previous years, the average impact of green certificates in consumers’ bills shall be reduced. ANRE Order no. 137/2021 approving the Procedure on the determination of available electricity network capacity for connection of new electricity generation facilities: - the procedure has been drafted given the European Green Deal and “Fit for 55” objectives, which Romania shall have to endorse, and that calls for the construction of new electricity generation facilities. It consequently became necessary, especially in the absence of network consolidation works, to determine the available electricity network capacity; - the procedure sets: rules for determining the available electricity transmission and distribution (110kV) network capacity; rules on the publication transparently and periodically by the transmission and system operator of data concerning the available capacities in the electricity transmission and distribution (110kV) networks; deadlines for the publication by networks operators of data on available capacities (eg. on a monthly basis as of 1 April 2022; twice a month as of 1 July 2022; weekly as of 1st October 2022). Regulated tariffs, and other taxes and contributions ANRE Order no. 10/2021 regarding the amendment of the ANRE Order no. 214/2020 on the approval of the average tariff for the transmission service, of the components of the transmission tariff for the insertion of electricity in the network (TG), and for the extraction of electricity from the network (TL), of the tariff for the system service and of the regulated price for reactive electricity practiced by Transelectrica S.A.: - - the new tariffs are applicable from 1 March 2021; transmission tariff – introducing electricity into the network component - TG = RON 1.3/MWh (same level as before); - transmission tariff – electricity extraction from the network component - TL = RON 19.22/MWh (same level as before); - system service tariff = RON 10.82/MWh (lower by 9.5% compared to the previous level). ANRE Order no. 21/2021 for the abrogation of the ANRE Order No. 14/2019 on the approval of the Methodology establishing the regulated tariffs for the provision of underground natural gas storage services: - the Order aims the implementation of the amendments brought in 2020 to the Law on electricity and natural gas No. 123/2020, with subsequent amendments and completions, according to which, after 2020-2021 extraction cycle, the natural gas storage will no longer be a regulated activity; - therefore, starting with 1 April 2021, the underground natural gas storage service tariffs are no longer regulated by ANRE but established by the storage operators, and the access to the storage depots (eg. the related conditions) will be negotiated between the storage operators and users. ANRE Order No. 111/2021 amending ANRE Order No. 123/2017 approving the high-efficiency cogeneration contribution: - The new contribution is applied as of 1 November 2021, is included in the final end-user price for electricity, and is 50% higher than the previous value (eg. 0.02554 lei/kWh from 0.01712 lei/kWh). ANRE Orders no. 118-123/2021 approving electricity distribution tariffs and the price for reactive electricity: - - the new tariffs are in place as of 1 January 2022; the low voltage tariffs for Distributie Energie Electrica Romania are 10% to 14% higher compared to 2021. 45 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTANRE Order no. 124/2021 approving Transelectrica’s average electricity transmission tariff, the injection (T_G) and withdrawal transmission charges (T_L), the system service tariff, and the regulated price for reactive energy: - - the new tariffs are in place as of 1 January 2022; the average electricity transmission tariff is 16.6% higher than in 2021. ANRE Order no. 143/2021 approving the fees and contributions charged by ANRE in 2022: - the annual contribution owed by suppliers amounts to 0.1% of the annual turnover for electricity (as opposed to 0.2% in 2021), and 0.056 lei/MWH for gas; - given the implementation of customers’ support schemes approved by OUG no. 118/2021, as approved by Law no. 259/2021, the order includes clarification as to the calculation of the turnover, eg. this shall be calculated as a net turnover, excluding green certificates and the cogeneration fee from the calculation. Investigation on the energy market ANRE Order no. 22/2021 on amending and supplementing the Regulation for the organization and development of the investigation activity in the field of energy regarding the functioning of the wholesale energy market, approved by the ANRE Order No. 25/2017: - the amendments to the Regulation refer to, among others, the procedure for resolving complaints/ notifications, providing the data, information, and documents requested by ANRE, the rights of the investigation team members concerning the market participants. Licenses and authorizations ANRE Order no. 24/2021 on amending and supplementing certain ANRE orders: - changes to the Validity Conditions associated with the natural gas supply license have been approved: e.g. obligation to notify ANRE, within 5 working days, for any changes of the name, headquarters, or contact data; elimination of the obligation to notify ANRE on the decisions to change/establish/ dissolve the main or secondary headquarter/headquarters, the single points of contact, the regional/ local information points; completing the ways of communicating with or transmitting information to ANRE (e.g. including magnetic support - CD/DVD/memory stick transmitted/deposited at the ANRE registry; by uploading on the ANRE website, etc.). ANRE Order no. 42/2021 on the approval of the Framework conditions for validity associated with the license for the activity of natural gas trader: - the rights and obligations of the natural gas trader license holders are established, with the mention that the trader license is absolutely necessary only in the case of an exclusive development of this activity, otherwise, the natural gas supply license also allows the trading activity. ANRE Orders no. 103 and 112 of 2021 changing the gas authorization and licensing Regulation (as approved by ANRE Order no. 199/2020): - the order hardens the procedure on withdrawal of license upon request (eg. motivated request for withdrawal, confirmation that obligations towards ANE had been met; additionally, for the gas supply license, suppliers need to actually not perform the activity at the time of the request). As regards the supply license, it practically becomes close to impossible to have the license withdrawn upon request. ANRE Order no. 115/2021 changing the electricity authorization and licensing Regulation (as approved by ANRE Order no. 12/2015): - the order hardens the procedure on withdrawal of license upon request; from the holder’s initiative by making it conditional and confirmation that obligations towards ANRE had been met, request and the requirement that the applicant holding a license for supplying electricity no longer carry out the activity, for which it holds the license, at the time of submitting the application; - the order also provides for additional documents to be submitted by the applicant for an aggregation license (e.g. a description of the activity the applicant intends to perform, including the electricity market/markets it intends to participate in). 46 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSmart metering for electricity ANRE Order No. 94/2021 amending and completing the Framework-conditions for the implementation of smart metering in Romania, approved by ANRE Order No. 177/2018, and ANRE Order No. 88/2015 approving the Framework-contracts for the supply of electricity by the suppliers of last resort: - the following aspects, applicable as of 1 January 2022, impact suppliers’ activity: processing of personal data, collected and transited via the smart meter (with the prior consent of the customer, which, in case of contracts with network regulated services included, have to be obtained by the supplier); customer information concerning the smart meter installation (which shall be carried out by the SoLRs for their customers, by sending them a related appendix to the supply contract); invoicing of the consumption/consumption and production sites with a smart meter installed (which shall be carried out by the SoLRs for their customers solely based on the data registered by the smart meter, with only one exception to the rule allowed); invoicing of distribution services for the consumption sites with smart meters installed (which shall be done solely based on the measuring data registered by the smart meter). Unbundling of gas activities ANRE Order ANRE nr. 93/2021 amending the Regulation on unbundling of accounts of gas activities, approved by ANRE Order No. 21/2020: - The provisions of interest to our activity refer to the gas supply of las resort, an unregulated activity according to ANRE change of rules in 2020; in this respect, the obligation to keep separate accounts and report to ANRE shall only apply in case of the supply of last resort at regulated prices. Corporate image In 2021, Electrica climbed two positions, reaching 8th place in the ranking of the most valuable Romanian brands, with an estimated market value of 163 million euros, an increase of 19.2% compared to the previous year, representing the largest growth in the Top 10. It is the best position occupied by Electrica in this top, so far. In terms of transparency, Electrica remained in the top of the most appreciated companies, launching, for the fifth consecutive year, the Sustainability Report, awarded by the Romanian Investors Relations Association. In 2021, the companies within Electrica Group granted around RON 1 M in donations and sponsorships in the amount of, for various charity causes. Certifications In April 2021, DEER successfully finalized the external recertification audit for its Quality-Environment-SSO Integrated Management System implemented according to ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018 requirements after the three distribution operators merger into one legal entity. No major non-conformities were identified during the audit and the new distribution company, DEER, obtained the certification valid until 2024, annual supervisory audits will be performed by the certification body during the validity period. In the second half of September 2021, EFSA was also audited by the external certification body for the recertification of its Integrated Management System Quality - Environment - SSO implemented according to the reference standards ISO 9001: 2015, ISO 14001: 2015, and ISO 45001: 2018, successfully completing the certification. The other companies within the group, being inside the validity period of the certification obtained for their Integrated Management Systems Quality - Environment - SSO implemented in accordance with the requirements of the references ISO 9001: 2015, ISO 14001: 2015, and ISO 45001: 2018, have only undergone annual supervisory audits of the external certification body, completed without major non-compliances. Ethics and Compliance The Code of Ethics and Professional Conduct was updated and a new policy was adopted, namely, The Policy of preventing, combating, and sanctioning any form of harassment in the workplace. 47 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT1.3. Subsequent events Below are the relevant events that took place at the Group level in the period between the 2020 financial year closing and the date of the present report. Decisions of ELSA’S Board of Directors During the meeting held on 2 February 2022, the Board of Directors of the Company approved the implementation of a reorganization process of the Company’s personnel structure and the initiation of the collective dismissal procedure, and the amendment of the Company’s organizational structure effective as of 1 March 2022, the notification to the relevant authorities and of the Trade Union regarding the final decision of the company to implement the reorganization process and to make collective dismissal of employees currently in jobs to be terminated, as well as the transmission of all data and information provided in Article 72 of the Labor Code, including the outcome of the information and consultation process with the Trade Union. Regarding the necessity and opportunity to carry out the reorganization process of the Company’s personnel structure, it is mentioned that this is one of a broader and complex package of measures considered by the executive management and the Board of Directors of the Company, regarding the global transformation process of Electrica Group, designed to support both Electrica and each of its subsidiaries to act in an agile manner in a field marked by volatility, uncertainty, and complexity, to face the challenges of the internal and external environment and to strengthen its financial performance, so that the Company has the resources to transpose the development projects, on which shareholders and investors are informed in accordance with the principles of transparency adopted by the Company. The organizational measures provided for in the reorganization plan have the objectives of resizing and redefining the company’s staff plan and its organization and functioning way, in order to adapt optimally the number of staff and the functions performed by the staff to the current conditions of activity on the energy market. The implementation of the organizational transformation project will achieve a reduction from an existing structure of 120 jobs to a future structure of 85 jobs and a flat structure by reducing the number of hierarchical levels. As a result of this approach, the number of organizational entities within the company will decrease significantly - a decrease of 19%, while the number of management/ coordination positions will decrease even more - a decrease of 25%. During the meeting held on 31 January 2022, the Company’s Board of Directors endorsed the draft amendment of Electrica’s Articles of Association that is submitted for stakeholders’ consultation and the approval by the General Meeting of Shareholders, after completion of the consultation process. The proposed amendments can be found in Appendix 1 of the Communication published on February 1st, 2022 on the company’s website in the section: Investors – Results and Reports – Current Reports, as well as on the company’s website, together with the Articles of Association in the form proposed by the company’s board of directors, accessing the following link: https://www.electrica.ro/investitori/guvernanta-corporativa/politici-corporative/. Documents may also be made available to interested parties in physical form at the company’s registry. During the meeting dated 28 January 2022, the Company’s Board of Directors decided to convene the Company’s Extraordinary General Meeting of Shareholders (EGMS) on 21 March 2022, regarding the approval of a total ceiling of short-term financing that can be contracted by EFSA during the financial year 2022 from banking institutions (commercial banks or international financial institutions – IFI), With Electrica warranty. During the meeting held on 3 January 2022, the Board of Directors of the Company decided the nomination of Mr. Stefan-Alexandru Frangulea, a Romanian citizen, as interim CFO, starting with 4 January 2022 until 31 December 2022. 48 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTLitigations Case no. 887/90/2013 months since its communication. On 3 February 2022, the final updated consolidated In the final updated consolidated table, Electrica is table of the debts owed by Oltchim S.A. was published registered with (i) the amount of RON 116,058,538 in IPB no. 2049/03.02.2022. The table was updated representing the secured debt, with the right to vote, mainly because of the decision of the European (ii) the amount of RON 45,106,237.96 representing Tribunal of Justice in Luxembourg, pronounced on the secured debt registered under the condition 15 December 2021, in case T565/19, a decision that precedent of pronouncing a final decision amending partially annulled the Decision of the European the decision of the EU Tribunal, without the right Commission no. C (2018) 8592 final, dated 17.12.2018, to vote and (iii) the amount of RON 509,853,434.01 which established a series of measures regarding representing the unsecured debt registered under the recovery by Romania of the state aid granted to the condition precedent of the pronouncement of Oltchim SA, in violation of art.108 paragraph 3 of the a final decision amending the decision of the EU TFEU, through some companies, including Electrica. Tribunal, without the right to vote. In its ruling, the European court annulled several Case no. ARB-5670 – Borislavschi (RO) vs Electrica measures to recover state aid established by the (RO) European Commission, including Measure 3, which On 7 February 2022, the dispute that makes the also refers to the total amount of RON 554,959,671.97 object of file no. ARB-5670 - Borislavschi (RO) vs (RON 45,106,237.96 representing the secured debt and the amount of RON 509,853,434.01 representing Electrica (RO), pending before the International Court of Arbitration in Vienna, was settled amicably the unsecured debt), considered state aid with by concluding a transaction. which Electrica was listed in the table of debts. Detailed information on the object of the case can The decision is enforceable, but not final, and can be be found in Section 1.2. – Key Events – Litigation of contested by the European Commission within two this Report. Transactions with related parties Regarding the reporting of transactions with related parties during the period between the end of the financial year 2021 and the date of this report, the following relevant events took place at the level of the Group. Between 5 January and 26 January 2022 were reported the transactions, in line with Article 108 from Law no 24/2017, transactions performed between OPCOM - DEER, OPCOM - EFSA, DEER - EFSA, and Transelectrica - EFSA, the value of which exceeds the threshold of 5 % of ELSA net assets, calculated based on Electrica’s individual financial statements for 2020, that exceeds the value of RON 202.466.778. On 26 January 2022 the financial auditor’s limited independent assurance report was published, on the transactions reported by ELSA in the second half of 2021, under Article 108 of Law No 24/2017. Supply segment In order to expand the economic activities of Electrica Furnizare S.A. (EFSA) in Hungary, the Electricity Trading License was granted by the Hungarian Energy and Public Utilities Regulatory Authority (MEKH) for Electricity Supply, by Decision no. H879 / 2022. This license will allow Electrica Furnizare to register and trade electricity in Hungary, on the wholesale market, including the derivatives market, and the operations will take place at EFSA headquarters. Legislation GEO no. 2/2022 regarding the establishment of social protection measures for employees and other professional categories in the context of prohibition, suspension, or limitation of economic activities, determined by the epidemiological situation generated by the spread of SARS-CoV-2 coronavirus, as well as for amending and supplementing normative acts : - the ordinance provides for amendments and completions of GEO no. 118/2021 as follows: extending the scope of application of the ceiling by including in the category of beneficiaries the public cultural institutions and cultural establishments subordinated to the central and local public administration authorities; 49 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTthe provision of the interdiction to disconnect or interrupt the supply of electricity to household customers until 30 June 2022; the provision, in case of invoices that do not comply with the legal provisions regarding the application of support schemes (compensation, exemption, capping), of their ex officio redone in max. 15 days from the date of issue. For the invoices already issued, the deadline for their redone is 15 days from the entry into force of this GEO, so until 3 February 2022 (inclusive). Also, the execution of the obligation to pay the invoices being recalculated is suspended, until the issuance of the new invoices. GEO no. 3/2022 for the amendment and completion of GEO no. 118/2021: the following amendments and completions of GEO no. 118/2021: - increasing the consumption margin for granting compensation, from 300 kWh/month (+ 10%) to 500 kWh / month (+ 10%) for electricity and from 200 m3/month to 300 m3/month for natural gas; changing the capped price for HOUSEHOLDS (from RON 1/kWh to RON 0.8 /kWh for electricity and from RON 0.37 /kWh to RON 0.31/kWh for natural gas) and introducing the capping for all customers non-household appliances (RON 1/kWh for electricity and RON 0.37/kWh for natural gas); the capping still targets both the final price and the purchase component of electricity/natural gas: for households – RON 0.8/kWh the final price for electricity, out of which RON 0.336 /kWh is the price component of electricity; RON 0.31/kWh final price for natural gas, out of which RON 0.200/kWh is the natural gas price component; for non-household customers: RON 1 /kWh final price for electricity, out of which RON 0.525/kWh is the price component of electricity; RON 0.37/kWh the final price for natural gas, out of which RON 0.250/kWh is the natural gas price component; the recovery of the capped amounts will be made according to the thresholds indicated above, corroborated with the application period: from 1 November 2021 to 31 January 2022, by the difference between the average monthly purchase price and the threshold of RON 525/MWh for electricity and RON 250/MWh for natural gas. From 1 February, the recovery is made: for household customers - by the difference between the average monthly purchase price and the threshold of RON 336/MWh for electricity and RON 200/MWh for natural gas; for non-household customers - due to the difference between the average monthly purchase price and the threshold of RON 525 for electricity and RON 250 /MWh for natural gas. ANRE Order no. 1/2022 for the abrogation of ANRE Order no. 32/2016 on the approval of the Methodology for drawing up the Annual Report by licensees in the electricity and heat sector: - the obligation of licensees (including suppliers) to prepare and submit to ANRE the annual report on the activities covered by the license has been eliminated. ANRE Order no. 3/2022 for the approval of the Regulation on the organization and operation of the online platform for changing the electricity and natural gas supplier and for contracting the supply of electricity and natural gas: - - application deadline - 28 August 2022; an initiative started in order to achieve the objective provided by the European legislation regarding the change of supplier in 24 hours, starting with the year 2026; - ANRE is the administrator and operator of the platform in which data will be uploaded by end customers, suppliers, network operators, aggregators, etc. (including standard offers of suppliers), which will facilitate the process of changing the supplier by going through the necessary administrative and technical stages and through which customers will be able to contract a new supplier; - The regulation details also the rules regarding the conclusion of the supply contract, respectively the effective procedure for changing the supplier, which will replace the procedure in force. ANRE Order no. 4/2022 for the amendment and completion of ANRE Order no. 143/2020 regarding the obligation to offer natural gas on the centralized markets of natural gas producers whose annual production achieved in the previous year exceeds 3,000,000 MWh: - the quantitative weight distributed for the offer on each of the standardized products was modified, provided for the period January - 31 December 2022. In the context of the COVID-19 pandemic, the government decided to successively extend the state of alert initially established in 2022 starting with 8 January 2022, by GD no. 34/2022; starting with 7 February 2022, by GD no. 171/2022. 50 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT2. Electrica Group 2.1. Organizational structure Distributie Energie Electrica Romania S.A. 99,99%2 99,99%2 Electrica Furnizare S.A. Distribution Operator HQ: Cluj-Napoca Electricity and natural gas supply company HQ: Bucharest FISE1 Electrica Serv S.A. 99,99%2 ELECTRICA S.A. HQ: Bucuresti 100%3 Electrica Energie Verde 1 S.R.L.4 Energy services company HQ: Bucharest Photovoltaic park – production of electricity Stanesti, Giurgiu County 99,99%2 Electrica Productie Energie S.A. Company established for development and operation of electricity generation capacities HQ: Bucharest % Ownership Electrica S.A. As of 31 December 2021, the Company’s associates are the following: Associate Activity Registration Code Head- quarters % shareholdings as of 31 December 2021 Production of electricity Production of electricity Production of electricity Production of electricity Source: Electrica The main activities of the Group are the operation and development of electricity distribution networks and the supply of electricity and natural gas supply to end consumers. The Group is the electricity distribution operator and the main electricity supplier in North Transylvania (Cluj, Maramures, Satu Mare, Salaj, Bihor, and Bistrita-Nasaud counties), South Transylvania (Brasov, Alba, Sibiu, Mures, Harghita, and Covasna counties), and North Muntenia (Prahova, Buzau, Dambovita, Braila, Galati and Vrancea counties), ensuring the service of the network users by operating installations that function at voltages ranging from 0.4 kV to 110 kV (power lines, substations and electrical transformer stations). The distribution operator for the three regions - TN, TS, and MN, invoices the electricity distribution service to electricity suppliers (mainly to EFSA subsidiary, the main electricity supplier in North Muntenia, North Transylvania, and South Transylvania), which further invoices the electricity consumption to end consumers. EFSA is a supplier of electricity in the competitive market and is also a designated supplier of last resort (SoLR) at the national level. 52 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe SoLR ensures the supply of electricity to final customers who benefit from, according to the legal framework, universal service, non-household customers who have not exercised their eligibility right and non-household customers taken over since they have not secured the electricity supply from any other source. However, EFSA is designated as a supplier of last resort also in the natural gas sector, only with the possibility to take over the consumers left without a supplier. Regarding the electricity production segment, this is represented by the Electrica Group subsidiary, EEV1, which owns a photovoltaic park in Stanesti, Giurgiu County, with an installed capacity of 7.5 MW (operating capacity limited to 6.8 MW). During 2021, four renewable energy projects acquired by ELSA have been added to this solar power project (three photovoltaic parks with an installed capacity of 163.5 Mw and a wind power park with an installed capacity of 121 Mw, having attached an electricity storage capacity of 60 Mw) 2.2. Mission, vision, values Electrica Group substantiates its future business development by adapting to the market context and highlighting the specific elements of its companies. Mission Energy – anywhere, anytime, for anyone! We bring energy where people materialize their dreams. Values Trust, Competence, Safety, Sustainability Vision Excellence and robustness for the traditional segments, innovation, and flexibility in new approaches. The promoter of electrification and green energy. Trust we are the partner you can rely on, now and in the future. Competence we build with skill. We are proud of the role our work gives us within society. Safety we are always careful with the safety of our employees, Sustainabaility our solutions are long-term and friendly for collaborators, and the communities in which we work. the environment as well as for the people. 53 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT2.3. Key elements of the 2019 – 2023 Strategic Plan The Strategic Plan for the period 2019-2023, which reflects the Board of Directors’ vision of the management of activities in the stakeholders’ best interest, both on a medium and a long-term horizon, has been formulated after an analysis of the following areas: the external environment, to determine the main environmental factors affecting the electricity market and the key drivers that can significantly influence the evolution of the electricity market in the future; industry analysis, in order to identify trends in the electricity market, assess the market attractiveness, and determine the critical success factors necessary for competing and surviving in this market; internal analysis of the Group, to assess its past and current performance (relative to other market players). Electrica Group remains dedicated to ensuring the balance between generating value for its customers and maximizing profit for shareholders, maintaining its ambition to become a regional player in the energy sector, within a culture of ethics, integrity, and sustainability. The Group aims to optimize the contribution of each company to the financial objectives of the group, through a homogeneous and efficient risk management system. In this regard, a unitary implementation of the strategy will be ensured, within coordinated strategic projects, focused on achieving newly defined objectives. Governance and investor relations remain priorities for the Group, aiming the constant improvement and the implementation of best practices in corporate governance and investor relations areas. For the 2019-2023 period, the Group’s key objectives are: Expanding into related fields and obtaining synergies within the areas in which the Group operates; Improving the operational performance in order to continuously increase the quality of the services offered to clients; Continuing investments in order to improve infrastructure reliability; Increasing the performance and strengthening the sustainability of economic results. In addition to the traditional areas of interest, namely the electricity distribution, electricity supply, and natural gas and energy services, there is a high interest for the development of new activities, based on innovative technology, while continuing to monitor and analyze the opportunities for growth through mergers and acquisitions. Also, a closer relationship with the clients is pursued, based on the development of competencies, as well as on an offer of products and services in line with their needs. In order to ensure the implementation of the strategic plan for the period 2019-2023, the company’s HR strategy aims to provide the qualified human resources, necessary to support the initiatives that ELSA has proposed for the next period, considering an emphasized dynamics of the labor market, significantly influenced by the context of social distancing. Thus, the HR strategy aims to ensure staff - in terms of quantity and professional competence - to increase operational performance and achieve the strategic objectives of the Group, modernizing the organization by implementing an organizational culture having as central elements excellence and safety, for staff and collaborators, modernizing the employer image and implementing a coherent system for performance management and employee evaluation. Considering that the limitations generated by the pandemic context in 2021 were extended, the calendars of some projects have been adapted to the current situation. At the Group level, a priority is to ensure the necessary human resources for key business areas, employees’ training, and capitalize on their potential, expertise, and aptitudes, in order to increase labor productivity and individual performance. Also, an important role will be played by the optimization of the classic IT&C support functions, but also by the implementation of the integrated IT&C organization as a strategic partner for the business lines; IT&C takes over the responsibility of capitalizing on the synergies, but also of supporting the specific competencies that offer strategic advantages to the business segments. In this context, beyond the processes’ digitization and their integration in IT platforms, the development of smart grids, the smart meters’ integration in the rhythm of their implementation plan, support for the operationalization of prosumers, etc. are provided in the distribution area. In the supply 54 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTarea, the development of a customer-friendly interface, the automation of contracting, reporting, and invoicing processes, and data exchange with all Romanian distributors are critical elements supported by IT&C as a strategic partner. The improvement of the corporate governance framework is continued, closely following the Corporate Governance Action Plan established with EBRD starting with 2014. In the distribution segment, the organizational transformation process started in 2017, has been developed and implemented, through the operationalized initiatives, measures aiming at the efficiency and continuous improvement of the activity. Moreover, at the end of 2019, the implementation of the newly approved strategy at the Group level was initiated - through the perspective of the megatrends that mark the energy industry (decarbonisation, decentralization, digitalization), which reveals a significant transformation process, accelerated internationally, but initiated nationally, also. The economic context at the national level, which brings additional pressure on the regulated activities, and the strategic priorities assumed in the field of energy urgent the need for transformation also at the level of electricity distribution companies, these becoming one of the important pillars for the transformation of the energy system. The need and principles for transforming the business model were analyzed in detail from the perspective of several implementation scenarios - from individual optimization to the legal merger of the three distribution operators. The latter, achieved at the end of 2020, through the proposed organizational model and the initiation of the legal post-merger integration program, is likely to create the premises for compliance with the current requirements of the framework that has been in a special dynamic lately, ensuring medium- term operational efficiency, preparing the organization for the challenges related to the energy transition and capitalizing on new medium and long-term business opportunities. The year 2021 represented the year in which the foundations of the new approach were laid in terms of reorganizing the business and organizational model, which were established - in a broad conceptual and operationalization effort - the target objectives, as well as the method and tools to be used for the current year and the next 2 years, the implementation being started in several areas: (i) the unified target organizational chart; (ii) reviewing and optimizing the processes - as a whole, but also within specific Centers of Excellence, prioritized for implementation depending on the impact in the operational area and the interaction with the client; (iii) the identification and application of those initiatives and optimization measures that would lead to the strict compliance with the targets approved by ANRE regarding the operational and personnel expenses for the distribution service; improving the model of analysis and monitoring of the results obtained compared to the established targets, with the application of a more agile approach (iv) IT&C technology area - with a decisive role in transforming the company, as a whole and in implementing all defined projects, as part of the program. Following the application, starting with 1 January 2022, of the new unified target organization chart, through which all structures in the area of strategic activities (asset management, energy management, integration program management, IT&C, strategic project management), financial and support were reunited under unique coordination at the level of the company resulting from the merger - Distributie Energie Electrica Romania SA (DEER), in the coming years will continue the process of adaptation and continuous technology improvement of processes and support, as defined by the approved Strategy for the distribution segment. Supply segment The company has focused in 2021 on increasing the profitability of the customer portfolio by developing specific measures to increase customer satisfaction, by restructuring the portfolio, and by competitive and dynamic purchase strategies, in the context of a volatile and unpredictable electricity market. Additionally, the traditional offer electricity supply was complemented with combined packages of electricity, gas, and value-added services. The measures taken during 2021 constitute a stable foundation for the Group’s ambitions to be a market leader and to ensure, in a sustainable way, profitability and satisfaction for customers and partners. As a result, the transformation project was started for the supply area in order to transform EFSA into an organization capable of successfully responding to current and future challenges in the electricity market, including the improvement of the financial results, improving NPS, defining a competitive commercial programme, improving the position and transforming the organization into a supple and agile company. 55 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT Thus, during the first half of 2021, the progress of the implementation of the Transformation Plan was evaluated through two audit exercises, and in parallel, the implementation of the initiatives identified for the efficiency of the supply segment activity continued, as follows: - - - - - - - consolidating the position outside the traditional area for the non-household customer segment; continuing the process of developing and optimizing the portfolio of products/services adapted to the clients’ needs; implementation of an IT application for the management of the electricity acquisition activity; development and optimization of the invoicing and customer management application; continued implementation of the Customer Relationship Management (CRM) system - the first two phases of the project were implemented; modernization of the integrated risk management system; implementation of a system for continuous monitoring of customer satisfaction and identification of measures to improve the quality of services; At the same time, as part of the priority measures for modernization and adaptation of internal information systems, in 2021 the preparation for the transition to the SAP HANA-ERP system and the migration of all necessary data were made, so that the system became operational starting with January 2022. In the energy services segment, after the completion of the merger between the SERV and SEM subsidiaries on 30 November 2020, it was necessary to develop a new plan of measures for operational optimization, organizational and strategic repositioning of the integrated company, Electrica Serv SA. The proposed measures are a complex and detailed response based on the current crisis situation of the company, in terms of losses suffered in 2020 and the estimation of the final financial results for 2021. The plan contains an in-depth multicriteria analysis of the company’s activities and highlights the underlying causes of the deteriorating financial situation. The measures included in the recovery plan aim at aligning costs with revenues, returning the company to positive financial results, and staff restructuring, with the ultimate goal of increasing labor productivity by eliminating production flow dysfunctions and redundancies in the decision-making process. The recovery plan also overviews the strategic repositioning of the company by developing and consolidating new activities that will serve both the companies within the Group and companies outside it. Ethics remains a priority for the organization, as a preliminary requirement for the sustainable development of the Electrica Group. The Policy on zero tolerance for corruption, fraud, and money laundering has been revised and updated accordingly with ISO 37001 standard. In the medium term, it is desired the development of an ethical culture within Electrica Group, by moving from the reactive stage to the integrity stage, by internalizing the ethical standards and the values of the organization, understanding the role of ethics as a value-enhancing factor, and providing a permanent internal control system which involves the entire company’s personnel. The CSR activities still remain very important for the Electrica Group, with multiple key areas being supported, with hundreds of projects registered annually to benefit from Electrica’s support. Also, an important role will be played by the optimization of the classic IT&C support functions, but also by the implementation of the integrated IT&C organization as a strategic partner for the business lines; IT&C takes over the responsibility of capitalizing on the synergies, but also of supporting the specific competencies that offer strategic advantages to the business units. In this context, beyond the processes’ digitization and their integration in IT platforms, the development of smart grids, the smart meters’ integration in the rhythm of their implementation plan, support for the operationalization of prosumers, etc. are provided in the distribution area. In the supply area, the development of a customer-friendly interface, the automation of contracting, reporting, and invoicing processes, and data exchange with all Romanian distributors are critical elements supported by IT&C as a strategic partner. 56 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT2.4. Outlook The year 2021 continued under the public health events (on 11 March 2020, the OMS declared the COVID-19 pandemic) and the impact of these events on the business and social environment. Electrica Group activates in a key economic sector and therefore is closely monitoring both the national and the international context, in order to make the best decisions in the following period and to address the challenges in the short and medium-term. Globally, the budgets of countries where the number of pandemic infestations is high and economic sectors such as services, production, transportation, as well as commerce and international trade are affected, all these elements influencing the energy demand, the consumers’ behavior, as well as the measures taken by the authorities, both for the energy sector and the economic environment in general. The current strategy of the Electrica Group is built on a set of trends and assumptions, and the acceleration of digitalization is one of its objectives. This aspect is even more important as during the following period it is necessary to continue to support the measures of social distancing, the need for remote intervention and back-up, as very relevant aspects for its activities. Thus, it will continue the efforts already started to support investments in IT tools and automation, both for streamlining processes and for increasing the performance of its distribution networks. Considering the energy policies developed at both EU and national level, as well as the international context of the energy markets, the following trends are expected to characterize on medium and long term the local electricity market: The volatility of electricity price, with an accentuated increasing trend - correlation of exogenous factors to the industry - tightening of the environmental conditions in which producers must operate, limiting primary energy sources through imperative policies, the lack of policies to stimulate the emergence of new producers – as well as some endogenous ones - the tendency to sell only for short periods and congestion in the balancing and peak area - accentuates price volatility and the increasing trend; Increased competition between the players in the electricity supply market at the national level, especially in terms of diversifying the portfolio of products offered to customers (offers for natural gas, insurance, home appliances, etc.) and digital services offered (mobile applications, invoices, and online payments, extending the customer service through chat solutions); the supply market liberalization imposed the priorities’ rethinking and establishing strategies for maintaining the market share; The new legislation introducing provisions related to the non-regulated market transactions will also influence the electricity market and future strategies of the SoLR regarding portfolios’ management; In the electricity distribution area, the regulatory trend is to provide remuneration to the distribution operator considering both the quality of the service, as well as the operational costs and efficiency based on comparative analysis between DSOs; Electricity distributed generation technologies will determine the distribution operators to adapt their processes and strategies regarding the upgrade and development of the network and to offer solutions to the independent producers, considering the appearance of prosumers, which are active participants in the energy market; in this context, significant investments are necessary in order to improve both the transmission and the distribution infrastructure; In the long term, fully electric vehicles, light commercial vehicles, and electrification of railways are expected to increase the consumption of electricity in the transportation sector. Future development of technologies will support energy efficiency policies such as: - - Development of transmission and distribution networks, including smart grid and smart metering; End-use energy efficiency (thermal integrity of buildings, lighting, electric appliances, motor drives, heat pumps, etc.); The smart metering implementation will offer complex tariffs options to the consumers, detailed information regarding the consumption profile, which might lead to increased flexibility and demand reduction during peak periods. Thus, the consumers shall be better informed and involved in the decision-making process, as active participants. The smart metering implementation pace depends on the implementation calendar adopted at the national level; 57 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe significant reduction in the cost of photovoltaic technologies is an opportunity for the development of small-scale generation projects, especially in the domestic area; The development of the transmission and distribution infrastructure and long-distance interconnection will become a necessity. The electricity market target model, which implies the development of Europe’s internal electricity market, will continue to evolve and be in line with future trends and challenges in the energy industry. The key drivers of changes in the electricity market are presented in the following table: Key drivers Description Impact on The economic growth is a determinant factor of electricity demand. Although there is not a one-to-one relationship between GDP growth rate and electricity demand growth rate, there is a positive correlation, mainly between the industrial demand for electricity and economic growth. In the future, household and industrial electricity demand will GDP evolution and also be influenced by energy efficiency policies. industry structure GDP evolution and industry structure The increase in electricity consumption was a constant trend in Romania in the last years. The COVID-19 pandemic has temporarily reduced electricity consumption, but the general upward trend will be maintained. Demographic evolution and technology development In contrast with the demographic decline recorded at the EU and Romanian levels, electricity consumption is positively impacted by the changes in consumer behavior and the increase in urbanization. For example, the massive increase in the number of connected devices Electricity and implicitly, in a less accelerated manner, in electricity consumption, consumption maintain the increasing trend of consumption. However, due to rising prices, the percentage of the population affected by energy poverty is expected to increase. As regards the supply of electricity, 2021 has brought several changes in the legal framework with a significant impact on this activity. The schemes that have been approved in order to support customers paying their electricity/gas bills, and that shall be implemented from 1 November 2021 to 31 March 2022, involve the ex-post compensation of suppliers for the implementation of the schemes, thus risking to affect the activity in case of delays in the recovery of the costs borne by suppliers or in case these costs are not fully recovered. Changes in As of 2022, only household customers shall have the right to universal the regulatory service. Therefore, new competitive contracts must be signed with Electricity prices framework non-household customers which previously benefitted from universal service, if not, these customers may be switched to a supplier of last resort. The new Performance Standard for electricity/gas supply shall be enforced in 2022, bringing higher quality requirements for the supply of electricity, as well as higher obligations concerning the compensation of customers, including the obligation to pay compensations to all categories of customers in case of breach of quality standards. 58 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTKey drivers Description Impact on Regarding the distribution segment, in 2019 the 4th regulatory period began (2019-2023), and ANRE approved significant changes to the Methodology for all elements of the tariff (regulated rate of return, the base of regulated assets, own consumption technological, operating, and maintenance costs, dynamic distribution tariffs starting with 2020). The energy law was amended in the period 2020-2021, so that: in 2021 OD financed the works for connecting domestic and non-domestic customers with lengths of less than 2.5 km, and starting with 2022, the free for non-domestic customers was eliminated. households, and for households the obligation to finance by OD only a connection in average value established by ANRE was maintained. The transactions concluded on the centralized platforms exceeded the threshold of 700 lei / MWh for the Year 2022 product and 1000 lei / MWh for the short-term products related to the winter period, and on DAM the weighted average price doubled compared to the beginning of the year 2021. Distribution operators purchase energy for NL at a price double that the ex-ante price approved in the distribution tariffs. Smart networks and smart meters will create benefits for the end consumers, distribution operators, and suppliers in terms of energy efficiency, resource optimization and network operation, implementation of demand response, etc. It is necessary to prepare the networks and to integrate the distributed resources (storage solutions, micro-grids, local production, electric machines, etc.), also considering the management of their impact. Romania has adopted the EU 20-20-20 targets, aiming to reduce greenhouse gas emissions, improve energy efficiency and raise the share of renewable energy. Moreover, the 2030 Framework provides even more ambitious targets and therefore more efforts are needed from governments and market players to achieve them. Source: Electrica The regulatory framework perspective and the impact on the energy market The regulatory changes with significant impact in the supply segment are the following: Enforcement of OUG no. 143/2021 amending the Electricity and Gas Law no. 123/2012, which transposes into national legislation Directive (EU) 944/2019 on common rules for the internal electricity market and brings new rights and obligations for the suppliers of electricity concerning inter alia: obligation to supply universal service (US) to household customers only; removal of the obligation to set up physical customer care centers for US customers at max. 50 km; obligation to issue settlement bills for household customers once every 3 months at the least; right to conclude directly negotiated bilateral transactions on the wholesale markets for any period of time; obligation to procure the electricity needed to cover customers’ consumptions, whose breach shall be sanctioned with a fine calculated as a percentage form the annual turnover; Implementation, from 1 November 2021 to 31 March 2022, against the background of the surge in the energy price on the international and national markets and the impact thereof on Romanian customers, of the customer support schemes approved by OUG no. 118/2021, as approved with amendments by Law no. 259/2021 and amended by OUG no. 130/2021. The way the schemes shall be implemented, i.e. through suppliers, and especially the way suppliers shall be compensated, ex-post, from the state budget for the costs borne, implies cash flow constraints, and uncertainties concerning the full recovery of the costs borne by suppliers with the implementation of the schemes; 59 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTEnforcement, in 2022, of the new Performance Standard for the supply of electricity/gas, approved by ANRE Order no. 83/2021, bringing higher quality requirements for the supply of electricity, as well as higher obligations concerning the compensation of customers, including the obligation to pay compensations to all categories of customers in case of breach of the quality standards, and more guaranteed quality indicators; Amendment of the Electricity Supply Regulation, by ANRE Order no. 82/2021 and no. 91/2021, according to which, as of 1 January 2022, the consumption of electricity from the monthly invoice sent by the network operator to suppliers shall be determined, in the absence of the meter reading, based on a consumption convention, with a positive impact on the level of invoiced consumption and the value of the distribution services priced according to the distribution tariff; Amendment of the Gas Supply of Last Resort Regulation by ANRE Order no. 125/2021, making it more difficult for suppliers of last resort (SoLRs) to voluntarily relinquish this quality and bringing changes concerning the duration of the supply of last resort (min. 12 months for small customers) and the price-setting mechanism (i.e. the supply and transmission components of the final price must be kept unchanged for at least 3 months). Also, the criteria for the selection of SoLRs for the automatic takeover of customers have been supplemented with the takeover capacity criterion, under which the number of customers taken over may not exceed 30% of SoLR’s number of customers. For the distribution segment, the significant changes in the Romanian legislation were detailed in chapter 1.2. Key Events. Based on these changes, the expected effects refer to: the changes brought by the new methodology for establishing the distribution tariffs and the RRR level will generate a negative impact on the operational and financial performances of the DSO, as a result of the ANRE approval of the operating and maintenance costs at a lower level than the necessary costs requested by the DSO, as well as of ANRE annually carrying out the costs and forecast investments corrections. the changes brought to the methodology in 2020 regarding the regulation of some aspects in case of mergers, which were materialized through the obligation of the gross benefits annual reporting, as well as of the merger associated expenses; investments in electrical distribution network - ANRE approved Order no. 3/20 January 2021 which grants a 2% additional incentive to RRR for investments in electrical distribution network made from own funds in projects in which European non-reimbursable funds were attracted, if the investments were made and commissioned by the operators after 1 February 2021; for the year 2021 it has been introduced the DSO obligation to perform, in addition to the investment plan, the connection workings of the household and non-household customers; and starting with 2022, the Energy Law was amended by GEO no. 143/2021, the connection of non-household customers will no longer be free of charge, and for domestic customers, the Distributor will pay only the average value of a connection, established by ANRE; ANRE has approved the Performance Standard for the electricity distribution service, which brings additional obligations for the DSO which will lead to operating costs and investments higher than the values approved by ANRE. The regulatory changes with significant impact in the supply segment are the following: until 31 December 2020, for household customers the supply of electricity is done in conditions regulated by ANRE; starting with 1 January 2021, the electricity market is liberalized for all categories of final customers. 60 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe human resources area perspective As it resulted from the analyzes used in the elaboration of the human resources strategy, as well as from more recent analyzes, the labor market faces new challenges, as demographic developments, labor migration, and the evolution of the economy will accentuate the shortage of skilled labor. Also, the acceleration of digitization, generated by the pandemic context, the inherent technological changes, as well as the process of succession to a new generation, inherent at the Group level, will determine the transition to new profiles for employees that include a mix of skills and, at the same time, real challenges in recruiting new employees with a high level of expertise shortly. Electrica Group operates in a competitive market, where technological progress is very fast and at a time when the approach of companies and employees is changing towards the work process, as it was defined in the past. Salary packages are no longer the only motivational lever. Non-financial benefits and the organizational climate, are increasingly important to attract employees and retain the valuable ones. Career opportunities, broadening the area of competence, and assigning more significant responsibilities must be part of the strategies and tools used. At the same time, at the Group level, the provision of the necessary human resources and the staff training in key business areas were treated as priority topics, in order to increase labor productivity and individual performance. The human resources strategy took into account these aspects and, through the proposed projects, aimed at reducing the impact of the negative aspects in the retaining and development of the human resource. At the same time, considering the evolution of the financial and operational performance, registered during the past years, as well as the transformations and the trends of the energy sector, it was decided to start a corporate reorganization plan as a necessary and opportune measure to adapt to the market context. This initiative pursues a series of strategic objectives, such as: - - - - increasing financial and operational performance; the organization corporate cultural transformation, focused on efficiency and performance, in order to ensure the sustainability of the business; work efficiency, staff improvement, and specialization; accelerating the embracing of the market’s best practices and new technologies, increasing transparency, and reducing costs. For 2022, in line with the objectives and directions included in the IT&C Strategy approved in 2019, the Group aims to complete the consolidation of integrated ERP systems from the Group’s subsidiaries, synchronizing these requirements with the needs, decisions, and initiatives to reorganize divisions and operational directions. In addition to traditional IT&C infrastructure and services, the Group aims to continue and accelerate digitization initiatives and the application of technologies that lead to faster, more flexible, and customer-friendly interaction. Last but not least, the Group set out to analyze the options for the next stage of technological development and harmonization; the future Digitization Strategy should take over the results of the current phase in 2023 and place full emphasis on optimizing internal and other processes, with all stakeholders, based on the Group’s advanced Digital Transformation technologies. 61 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT2.5. Key factors, directions, and significant market trends affecting the operational results of Electrica Group Considering the strategic elements defined for 2019- No major geopolitical turbulences have been 2023, the company analyzes the strategic options taken into account, which might significantly and aims to implement streamlining measures, affect the Romanian electricity market; including through restructuring programs and Financial markets will allow access to transformation of Group’s divisions, training, and profitable financing sources to support staff development programs, redesigning business companies’ investment programs. models, or entering new business segments, in order As a result of the adoption of the new business to improve both the quality of the services offered, as strategy of the Electrica Group and in line with the well as the financial performance. The most important assumptions considered for the strategy review are the following: The Romanian energy mix is changing significantly, being heavily disrupted by the advent of renewables, together with the main objectives and directions established by it, in 2019 a process of analysis, evaluation, formulation, and approval of a specific strategy for reorganizing Group IT&C activities took place. This strategy has clear and measurable objectives for the period 2020-2023 in order to support business projects, emergence of the prosumers in the following including among others measures to extend the years; digital transformation, increase the cyber security Romanian GDP will have a stable long-term level at the Group level, develop virtual centers of evolution; excellence based on the use of best practices and Different trends in electricity consumption benefiting from economies of scale, maximizing (an increasing trend in the medium-term, but the economic benefits. During the year 2020, the stagnation/reduction in the long term); implementation of the IT&C strategy achieved the Romania will maintain its commitment proposed objectives in the area of the personnel towards the accomplishment of the 20-20-20 reorganization, evaluation of technology and strategy regarding the climate changes and processes, and setting the alignment plans that are the implementation of the new Framework for the period 2020-2030; Moreover, the adoption by the European Commission of the already launched for 2021 and 2022. In the distribution segment, the focus operational efficiency, by reducing technological and is on European Ecological Pact (the “Green Deal”) commercial losses, optimizing internal processes, has the potential to significantly modify the ensuring an optimal level of resources used, on entire macroeconomic system, leading to a user orientation and ensuring their satisfaction, by revision of the strategy in the following period, improving the network access and the quality of depending on the local implementation; service, on development of smart grid technologies For the current regulatory period, the and cost recovery. Increasing the operational remuneration mechanism, the type of tariff performance will lead to a positive impact on the and the method of applying corrections are subject to modifications, these key factors users’ experience, ensuring continuous supply security, at high quality and high standard being considered in the strategic planning; interactions with our staff. In parallel, exploiting The supply segment will experience a short the significant optimization potential and reducing and medium-term repositioning following losses by streamlining the distribution operators’ the elimination of regulated tariffs and activities are key factors in the optimal allocation of liberalization of the electricity market starting resources, so important in this regulatory period. with 1 January 2021; One of the main factors influencing the strategic The impact that the legislative framework decisions for the Distribution area is represented by changes may have, as well as the lack of the trend of energy market prices which negatively predictability in the medium and short term, particularly regarding the prices and impacts in a significant way the cost of energy acquisition for network losses and for which there supply conditions applicable to household are no premises for a comeback, with a significant customers who currently benefit from negative impact over profitability. universal service; 62 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT The supply segment will focus on diversifying the activity through offers and services adapted to these increases for the Romanian population, will be applied, through the effect GEO no. 118/2021, customers’ needs, on operational efficiency through with subsequent amendments and completions, a optimized processes for the sale and purchase series of support schemes for electricity / natural gas of electricity, and on customer orientation and customers. In particular, given how these schemes maximizing satisfaction. The aim is to increase the are implemented and the mechanism for settling natural gas supply segment, offer value-added the amounts granted as support for customers, ex- solutions (products and services), and digitize post, from the state budget to electricity suppliers, specific operations and processes. Please note that other factors that are not they are likely to generate constraints in terms of cash flows, as well as uncertainties regarding the full available at the report date (eg. legislation and recovery of the respective amounts by the suppliers. regulatory provisions under discussion etc.) or not In this context, EFSA is reviewing its medium and presented above, or not considered by the Group long-term strategy such as to manage responsibly may occur and may have a significant impact on and sustainably the impact of these measures on the implementation and evolution of the Group’s the company’s activities, in this legal framework that strategy. has successive and high impact changes lately. Supply segment Evolution of purchase prices The legal framework has been suffering significant 2021 was a year characterized by an abrupt increase changes in the last decade, including the of prices both for energy and natural gas, reaching market liberalisation, separation of activities, historical maximum levels for trades. the implementation of the support scheme for There has been a recorded increase of over 400%, renewable energy, supporting electricity prosumers. from RON200-300/Mwh energy trading price in Starting with the 1 January 2021, together with the 2020 to over RON 1,000 /Mwh trading prices in 2021. elimination of regulated final prices for electricity, the As a result of coupling to the regional markets, the electricity market is fully liberalized for all categories trading prices from the wholesale energy market of customers. As a result, both for universal service have been aligned to those from the region. offers and for competitive market offers, the price is The main causes that favored the increase of prices: set up by suppliers in free-market conditions. Increase of trading prices for carbon At the same time, the amendments and completions emission certificates, from EUR 20-0/ton to brought to the Law on electricity and natural gas no. EUR 80-90/ton 123/2012 by GEO no. 143/2021, created new rights and Increase of natural gas price from obligations for electricity suppliers, among which: RON 60-70/Mwh in 2020 to RON 500-600/ the obligation to provide universal service only to Mwh in 2021 with direct impact on the households; elimination of the obligation regarding increase of the production costs of electrical the establishment of single physical contact points power plants that use natural gas as fuel; at max. 50 km for customers receiving universal Lack of investments in new production service; the obligation regarding the issuance of capacities. the regularization invoice for the households once In the context of the high volatility of trading at max. 3 months; the right to carry out, on the wholesale market, directly negotiated bilateral prices and the unpredictability created by the legal framework, it is difficult to assess transactions for any time interval; the obligation what would be the evolution of the wholesale regarding the purchase of electricity in order to energy market in 2022. Due to the lack ensure the coverage of the clients’ consumption, the of major investments in new production non-observance of which constitutes a contravention capacities, it is estimated that the ascending sanctioned with a fine applied to the turnover. trend will be maintained in the energy and Moreover, between 1 November 2021 and 31 March natural gas market. 2022, in the context of the increase in prices on the electricity and natural gas markets at an international and national level, as well as the effects caused by 63 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe impact on customers Continue expansion of the activity through opening new offices in the non-traditional business activity of Electrica Furnizare, with providing consulting to clients regarding the products on the competitive market and facilitating the conclusion of advantageous contracts; Developing partnerships with the scope of the open approach of the market in the dynamic context created by liberalization; Modernization of many centres for managing clients relationships, out of which are those from Cluj-Napoca, Brasov; Acceleration of digitization and streamline of processes to optimize customer relations; the dynamic of the energy market and international context has influenced the evolution of the energy market in Romania, by simplifying the processes for bidding, contracting, supplier change; Context influenced by supporting measures given to companies that operate in the sectors impacted by the pandemic crisis (ex. HoReCa); Insolvency of the energy suppliers in the context generated by pandemic, that triggered the transfer of customers to last resort supply, generating imbalances of the competitive market. 64 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT3. Electrica on the capital markets 3.1. Ownership structure Until July 2014, the Romanian State, through the Ministry of Economy, Energy, and Business Environment, was the sole shareholder of ELSA. As of 4 July 2014, after the Initial Public Offering, the Company’s shares are listed on the Bucharest Stock Exchange (BSE – ticker EL), and the Global Depositary Receipts are listed on the London Stock Exchange (LSE – ticker ELSA). After the secondary public offer that ended on 3 December 2019, during which a total number of 208,554 new shares were subscribed, with a nominal value of RON 10 and a total nominal value of RON 2,085,540, the ownership structure according to the Central Depository records (Romanian: Depozitarul Central) as of 31 December 2021 is the following: Shareholder Number of shares Stake held (% of the share capital) Percent of voting rights (%) The Romanian State, through the Ministry of Energy, Bucharest, Romania The European Bank for Reconstruction and Development Electrica SA BNY MELLON DRS, New York, USA Other legal entities* Individuals TOTAL Source: Central Depository, Electrica Note 1: Shares with voting rights - 339,553,004, representing the total number of shares (346,443,597) without the number of own shares held by Electrica (6,890,593), for which the voting right is suspended * Paval Holding, NN Group NV, and Allianz SE hold, directly or indirectly, between 5 and 10% of the total number of shares with voting rights The shares presented to be held by the Bank of New York Mellon represent the global depositary receipts (GDRs) owned by ELSA shareholders that are traded on the London Stock Exchange (LSE). A global depositary receipt represents four shares. The Bank of New York Mellon is the depositary bank for these securities. Following the stabilization process after the June 2014 IPO, ELSA owns 6,890,593 of its shares, representing 1.989% of the total share capital at 31 December 2021, with suspended voting rights, which does not entitle ELSA the right to receive dividends. 66 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTFigure 16: Ownership structure as of 31 December 2021 5.0409% 38.3817% Total shares: 346,443,597 The Romanian state through the Ministry of Economy, Energy and Business Environment 48.7948% EBRD, UK Electrica SA Bank of New York Mellon (DRS - LSE) Other legal entities Individuals 0.7842% 1.9890% 5.0096% Source: Central Depository, Electrica At the end of 2021, ELSA’s shares were owned by a total of 10,090 shareholders, of which 264 legal entities and 9,826 individuals from over 30 countries. 89.43% of the total number of shares (309,808,734 shares) were held by Romanian investors. Thus, foreign shareholders held 10.57% of the share capital (36,634,863 shares), the largest weight being represented by European citizens. Shareholders in the United Kingdom and Ireland held 5.36% of share capital, while those in the USA held 1.27%, in this category is included also in the GDR holders. 3.2. Shares evolution on BSE and Global depository receipts (GDRs) evolution on LSE ELSA’s shares are included in several BSE indices, including the BET index (the reference index for the Romanian capital market reflecting the performance of the most traded companies on the BSE’s regulated market), as well as in the BET-NG index (the sectorial index that reflects the evolution of the companies listed on BSE’s regulated market having as main activity energy and related utilities). Between 4 July 2014 - 31 December 2021, ELSA’s shares recorded a minimum price of RON 8.06 (16 March 2020) and a maximum price of RON 14.96 (12 May 2017), therefore the weighted average price was RON 11.85. The gross dividends per share granted by ELSA in this period reached a cumulative value of RON 5.2317. Thus, the aggregate yield generated by ELSA’s shares (along with dividends) from the IPO and until the end of 2021 was 38.83%. 67 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT From the IPO dated 4 July 2014 until the end of 2021, ELSA shares attracted a RON 3.92 bn liquidity on BSE, with a daily average of RON 2.04 mn. During this period of about 8 years, 332.03 mn ELSA shares have been traded (including DEAL transactions), representing 95.84% of the share capital and 97.79% of the voting rights (total shares without ELSA shares). Thus, the average daily turnover during this period on BSE was 172.935 shares. The gross dividend per share granted by ELSA in 2021 (for 2020) was RON 0.73, in line with those granted in the previous years, with a yield of 5.72% (computed at the ex-date closing price from 3 June 2021). In 2021, ELSA shares attracted liquidity of RON 217.15 mn on BSE, with a daily average of RON 858.29 thousand, dropping by 61.18% compared to 2020, the tenth in the top by trading data on BVB. The volume of shares traded was 17.65 mn, dropping by 65.37% compared to 2020, so the daily average volume was 69.743 shares. The total volume of shares traded in 2021 accounted for 5.09% of the share capital. In order to support the liquidity of its listed shares, ELSA concluded a Market-Making services contract with Wood&Co, starting 30 September 2020, its validity being extended by one year, starting 30 September 2021. The GDRs’ weight in ELSA’s total share capital diminished during the period following the Initial Public Offering, reaching a level of 0.78% at the end of 2021, compared to 10.17% at 4 July 2014. The maximum price reached by the GDRs was USD 15.3, in September 2014 and the minimum price was USD 7.9 on 6 April 2020. Subsequently, the GDRs’ prices followed a fluctuating trend. During 2021 the trend was a downward one, ending 2021 at USD 9, dropping by 28% compared to the end of 2020. In the period since IPO and until the end of 2021, 12.6 mn GDRs have been traded, out of which 35,304 GDRs in 2021. Figure 17: Evolution of the adjusted3 closing price of ELSA’s shares vs BET-TR index during 2021 EL: -14.51% BET-TR: 39.46% Ja n-21 Ja n-21 M ar-21 A pr-21 M ay-21 M ay-21 J u n-21 J ul-21 A u g-21 S e p-21 O ct-21 N ov-21 D e c-21 Source: BSE, Electrica BET-TR Electrica’s price adjusted with dividends 50.00 40.00 30.00 20.00 10.00 0.00 -10.00 -20.00 3 Adjusted to ex-data with the annual dividend/share value 68 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 Figure 18: Monthly traded volume and the evolution of the monthly weighted average price of shares on BSE (in RON) and GDRs on LSE (in USD) during 2021 2.894.263 2.218.423 1.755.148 1.799.309 1.344.710 1.252.345 1.209.435 1.255.592 1.075.017 1.174.202 12.624 18.688 7.520 7.180 56.716 2.000 388 17.508 2.600 4.744 10.680 0 0 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 867.265 776.898 BVB – Actions – Monthly volume BVB – Actions – Monthly medium closing price (RON) LSE – GDRs – Monthly volume LSE – GDRs – Monthly medium closing price (USD) Source: BSE, LSE, Electrica 3.3. Investor relations (IR) As in every year, in 2021 ELSA’s management team continued to be involved in numerous activities for investors and analysts. Although the crisis generated by the COVID-19 pandemic led to the impossibility of organizing physical meetings, ELSA’s representatives continued to be present at national and international conferences as well as at online individual meetings and attended conference calls with Romanian or foreign investors and analysts. During the year, four teleconferences were organized to present the annual, quarterly, and half-yearly financial results of the Group. The events have been streamed live through webcasts, both the supporting documents and the web-conference recordings can be accessed on the company’s website, under the section Investors > Results and Reports. Among the conferences that took place during 2021 and were attended by ELSA’s representatives, we mention: Institutional Investor Conference in Zürs, online event (12 April 2021); WOOD’s EM Energy & Commodities Conference, online event (13 April 2021); Invest Talk - Investeste la Bursa, online event (2 June 2021) Frontier Investor Days 2021 – Wood’s virtual conference, online event (2-3 September 2021); Wood’s Winter Wonderland EME Conference, online event (9-10 December 2021). In 2021 ELSA continued to be an associate member of the Romanian Investors Relations Association (ARIR), being involved in numerous ongoing projects of the association. To inform stakeholders correctly, continuously, and transparently, the Investor Relations Department has disseminated a large number of current reports and announcements on the platforms of the Bucharest Stock Exchange (BSE), the London Stock Exchange (LSE), the Financial Supervisory Authority (ASF and FCA), as well as on ELSA’s website. All these documents can be accessed on the company’s website, under the Investors section > Results and Reports. 69 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAll the actions taken during 2021, as well as the plans for the following years, have as main objective the achievement of the best-in-class investor program, increasing the transparency and quality of communication with investors and analysts, constantly driving shareholders’ retention and satisfaction. Evidence of the recognition of these efforts was ELSA’s positioning in the top listed companies in terms of transparency and communication in investor relations, by obtaining a score of 10 on Vektor – a measure of the communication of listed companies with investors (in 2021 only 10 companies have obtained a grade above 9), as well as the award granted by ARIR for the activity carried out by ELSA, at the category Best Sustainability Report. 3.4. Related parties transactions ELSA has the obligation to report the significant transactions concluded by ELSA or its subsidiaries with related parties, by drawing up and publishing reports on this aspect, as per art. 108 of law no. 24/2017. „Significant transaction” means any transfer of resources, services, or obligations, whether or not it involves the payment of a price, the individual or cumulative value of which represents more than 5% of ELSA’s net assets, according to the latest individual financial statements published by ELSA (in this case on 31 December 2020, RON 202,466,778). The current reports on this type of transaction published by ELSA in 2021 may be retrieved on the company’s website, at https://www.electrica.ro/en/investors/results-and-reports/current-reports-art-108/. 3.5. Dividends policy ELSA’s dividend policy, updated in February 2018, can be accessed on the company’s website under the Investors section > Corporate Governance > Corporate policies and other documents. ELSA’s dividends are distributed from the annual net distributable profit based on the annual individual audited financial statements after their approval by ELSA’s Ordinary General Shareholders’ Meeting (OGMS) and the approval of the dividend proposal by the OGMS. The shareholders receive dividends proportionally to their share in the company’s paid-up capital. Regarding the global deposit receipts that are traded on the London Stock Exchange, ELSA pays dividends to the GDRs issuer proportionally to its holdings. Holders of GDRs will then receive dividends from the GDR issuer, proportionally to their holdings. According to the policy in force, the dividend distribution that the Board of Directors will consider in formulating the proposal to ELSA’s OGMS will be between 65% and 100% of its distributable net profit. In case there are deviations outside this range, they will be documented and explained to shareholders in the periods in which they occur. The company will pay all dividends in RON. The dividend payout ratio from the distributable profit of the Group subsidiaries shall be consistent with ELSA’s present dividend policy. The dividends paid by the Group’s subsidiaries to ELSA in year N (related to year N-1 results) are recorded as finance income in ELSA’s financial statements in year N and thus constitute the source of the net result from which ELSA declares and subsequently pays dividends to its shareholders in year N+1 (related to the result of year N). 70 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT3.6. Dividend distribution Figure 19: Gross dividends distributed (2014-2020) - RON M 291.6 244.7 251.4 245.4 247.5 246.1 247.9 The dividends distributed by ELSA fluctuated in the period 2014 - 2020, between RON 244.7 M and RON 291.6M, and the dividend payout ratio was 96% in 2014, 100% each year between 2015-2017, 87% in 2018 (RON 35.57 M was distributed to “Others reserves”), and 100% in 2019. The dividend payout ratio for 2020 was 87.5% (RON 35.57 M was distributed to “Others reserves”). 2014 2015 2016 2017 2018 2019 2020 Source: Electrica Figure 20: Gross dividend per share (RON) and dividend yield (%) 7.3% 6.9% 6.8% 6.9% 6.1% 6.0% 0.8600 5.2% 0.7217 0.7415 0.7237 0.73 0.7248 0.73 The yield of the dividend paid in 2021, for the 2020 results, recorded a level of 6.0%, the gross dividend per share paid in 2021 being RON 0.73. The dividend yield (%) is calculated as the Gross dividend per share/Closing share price on BSE at ex-date. Thus, Electrica continues to offer investors a stable return, which is at a level between 5.2% and 7.3% for each year in the period 2014-2020. 2014 2015 2016 2017 2018 2019 2020 Source: Electrica 3.7. Own shares In July 2014, ELSA bought back for price stabilization purposes, 5,206,593 ordinary shares and 421,000 Global Depositary Receipts, equivalent to 1,684,000 shares. The total amount paid for acquiring the shares and Global Depositary Receipts was RON 75,372 thousand. There were no changes in the number of treasury shares until the date of the report. 4 Dividends refer to each financial year indicated and are paid during the following year. 5 Dividend payout ratio is calculated as Gross Dividends/Net profit distributable to dividend, whereas Net profit distributable to dividend is Net profit according to individual financial statements of ELSA less the required distributions to legal reserves. 71 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4. Corporate Governance in ELSA 4. Corporate Governance in ELSA ELSA confers great importance to the principles of good corporate governance, considering corporate governance a key element for sustainable business growth and the enhancement of long-term value for shareholders. ELSA constantly develops and adapts its corporate governance practices and model, both at standalone, as well as at the Group level, so that it can align with the increasingly rigorous capital market requirements and with the best practices in corporate governance at the European level, and also for creating opportunities and increase competitiveness. Corporate governance represents the set of principles standing at the basis of the governance framework used for the company’s management and control. Transposed in the internal rules and regulations, these principles determine the efficiency and effectiveness of the control mechanisms aiming to protect and harmonize the interests of all the stakeholders – shareholders, directors, executive managers, managers of different structures of the company, employees, and the organizations that represent their interests, customers and business partners, suppliers, central and local authorities, regulators and capital markets operators, etc. ELSA’s Code of Corporate Governance presents primarily the main work methods, attributions, and responsibilities of the management and supervisory structures of the company, as well as those of the committees, constituted to support these structures to fulfill their responsibilities. ELSA undertook, from the moment of the IPO and admission to trading from July 2014, the implementation of a corporate governance action plan, as part of the framework agreement concluded with the European Bank for Reconstruction and Development. The standards and measures provisioned in this plan have been implemented and continuously monitored. For more details about this Action plan, please see chapter 4.10. 4.1. Corporate Governance Code Starting with 2014, ELSA adheres to and applies wilfully the provisions of the Corporate Governance Code issued by BSE, reviewed periodically. This code can be accessed on the BSE’s website at the following address: http://www.bvb.ro/Regulations/LegalFramework/BvbRegulations. In order to ensure high standards of corporate governance, transparency, and business integrity, ELSA also applies provisions of the LSE’s Corporate Governance Code. Formally, ELSA adopted the Code of Corporate Governance (ELSA CGC) starting with February 2015 and made it available to all the interested parties on ELSA’s website, in the section Investors > Corporate Governance. In 2020, chapter six of the CGC ELSA regarding the risk management system was revised; in July 2020 the amended ELSA CGC was published on the company’s website and is available in the section Investors > Corporate Governance. ELSA’s compliance with BSE’s Corporate Governance Code is being thoroughly assessed, and as updates and developments appear, ELSA promptly reports them to the capital market. The “Comply or Explain” Corporate Governance Statement from chapter 4.9 presents annually the company’s compliance level with the provisions of BSE’s CGC code. This is also available on the company’s website in the section Investors > Corporate Governance > Comply or Explain. ELSA CGC embeds the general principles and conduct rules that set forth and regulate the corporate values, the responsibilities, the obligations, and the business conduct of the company. ELSA CGC contains the terms of reference and the main responsibilities of the company’s administrative and executive management, as they are detailed in ELSA’s Articles of Association, the organization and functioning regulations of the Board of Directors, and those of its committees. 74 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTELSA CGC is also a guide on business conduct and corporate governance matters for the management and the employees of ELSA, as well as for other stakeholders, and provides information about the company’s principles and policies. The corporate policies and documents referred to in ELSA CGC can be accessed on the company’s website in the section Investors > Corporate Governance > Corporate policies and other documents. During 2021 the following corporate documents have been revised and published on Electrica’s website: Remuneration Policy for Directors and Executive Managers – on 7 May 2021, the Code of Ethics and Professional Conduct – on 31 December 2021 and the Articles of Association – on 16 September 2021. Based on the principles set out in the Code of Ethics and Professional Conduct, corroborated with the need to comply with legal provisions in force, ELSA has adopted, starting with 15 December 2021 and entering into force on 1 January 2022, the Policy for preventing, combatting and sanctioning of any type of workplace harassment. This corporate policy can be found on the company’s website in the section Investors> Corporate Governance> Policies and other corporate documents. In compliance with the company’s policies and with the procedures of the Code of Ethics and Professional Conduct, the Audit and Risk Committee ensures that the company’s activity is carried on with honesty and integrity, including the implementation of the whistle-blower policy. ELSA has implemented a procedure for reporting ethical deviations, irregularities, and any other aspects of non- compliance with the law that otherwise could cause image and/or commercial prejudice or even involve legal sanctions, thus damaging the prestige and profitability of the company. The whistle-blowing reporting system which functions according to this procedure, as well as the procedure itself, are available on ELSA’s website, in the Whistleblowing section. Since ELSA’s shares are allowed for trading both on the regulated market managed by Bucharest Stock Exchange (BSE), as well as on the market managed by the London Stock Exchange (LSE), ELSA is subject to the rules imposed by the national and European laws regarding market abuse prevention and the regime applicable to inside information. Thus, ELSA has implemented a Policy on preventing the misuse of inside information, unauthorized disclosure of inside information, and market manipulation (Policy regarding Market Abuse). The purpose of this policy is to prevent violations of the legal provisions regarding the misuse of inside information, by increasing the awareness of all persons who possess inside information regarding the obligations, restrictions, and sanctions applicable in case of possession and abusive use of inside information or in case of market manipulation regarding ELSA’s securities. All the owners of financial instruments of the same type and class issued by ELSA are entitled to equal treatment. In order to ensure efficient, active, and transparent communication with its shareholders, within ELSA activates the investor relations department and related processes have been set up to ensure efficient and transparent communication with investors, in compliance with the legal obligations in force, which can be found in the Investor Relation Corporate Disclosure Policy, applicable at ELSA level, available, in the updated form, on the company’s website since 25 August 2020. The company’s rules and procedures that establish the framework for organizing and conducting general meetings of shareholders are contained in ELSA’s GMS Policy, amended on 25 August 2020 and available electronically on the company’s website in the sections Investors > General Meeting of Shareholders and Investors > Corporate Governance > Corporate policies and other documents. The section dedicated to investors is available on ELSA’s website by accessing https://www.electrica.ro/en/investors/. Up-to-date essential information, of interest for the investors, can be found in this section, providing access to documents governing the company, in accordance with the provision of the CGC issued by BSE. This section also contains the name and contact details of the person who can provide, upon request of interested parties, relevant information regarding the activity of the company. 75 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4.2. General Meeting of ELSA’s Shareholders The General Meeting of Shareholders (“GMS”) is the main corporate governance body of ELSA, deciding on the items as outlined in the Articles of Association. The convening, functioning, voting method, as well as other provisions regarding the GMS are detailed in ELSA’s Articles of Association, which is available in electronic format on ELSA’s website, in the section Group > About. Starting with 1st February 2020, ELSA has in place a policy on organizing and conducting the general meetings of shareholders of the company, which presents in detail aspects of interest for investors regarding the way of organizing and carrying out the GMS. Its update was carried out in August 2020. The policy is available on the company’s website, under the section Investors > Corporate Governance. ELSA’s ordinary general meeting of the shareholders (OGMS) has the following main duties: to appoint and revoke the members of a. ELSA’s extraordinary general meeting of the shareholders (EGMS) shall decide on the following: a. withdrawal of the preference right of the Board and establish the level of their shareholders upon subscription of new remuneration and other rights according to shares issued by the Company; the legal provisions; b. to establish the income and expenses budget, to set out the activity schedule; b. contracting any type of loans, debts or obligations representing a loan, as well as creating real or personal security related to c. to establish the income and expenses budget these loans, in each case in accordance with consolidated at the group level; the competence limits provided in Appendix d. to discuss, approve or amend the annual 1 to these Articles of Association; financial statements according to the reports c. operations regarding the acquisition, submitted by the Board and the financial alienation, exchange, or creation of auditors; encumbrances over fixed assets of the e. to approve the profit distribution according Company whose value exceeds, individually to the law and to establish the dividend; or cumulated, during any financial year, 20% f. to decide on the management activity of of the total fixed assets, fewer receivables, the directors and the discharge of liability, in and leases of tangible assets for periods accordance with the law; longer than one year, whose individual or g. to decide to file legal actions against the cumulated value towards the same co- directors, managers as well as financial contractor or involved persons or with whom auditors for damages they caused to the it acts in concert exceeds 20% of the fixed Company by breaching their obligations assets value, fewer receivables at the time of towards the Company; entering in the relevant operation, as well as h. to decide on mortgaging or leasing or closing joint ventures above the same value and with of one or more units of the company; a duration of over one year; i. to appoint and revokes the financial auditor d. approving investment projects in which the and to set the minimum term of the financial Company will be involved in accordance with audit contract; approves the Remuneration Policy j. for Directors and Executive Managers; the competence limits provided in Appendix 1 to these Articles of Association, other than the ones provided in the annual investment k. to carry out any other duties set out by the plan of the Company; law. 76 | 2021 ANNUAL REPORT ELECTRICA S.A. e. approving the issuance and admission to trading on a regulated market or an alternative trading system of shares, deposit certificates, allotment rights, or other similar financial instruments; approving the competencies delegated to the Board; f. g. changing the legal form; relocation of the registered office; h. changing the main or secondary business objects; i. increasing the share capital, as well as ELECTRICA S.A. - 2021 DIRECTOR’S REPORTdecreasing or the replenishment of the share strategy of the Company, including the capital by issuing new shares, according to corporate governance action plan; the law; j. the merger and the spin-off; k. the dissolution of the Company; s. donations within the limits of the competence provided in Appendix 1 to these Articles of Association; and l. carrying out any bond issue, as per the t. approves granting of intragroup loans with a provisions of art. 10 of the Articles of value of more than EUR 50 mil. per operation; Association, or conversion of a category of u. any other decision that requires the approval bonds in a different category or in shares; of the extraordinary general meeting of the m. approving the conversion of preferential shareholders. and nominative shares from one category to another, according to the law; The OGMS is convened at least once a year, within n. any other amendment to the Articles of a maximum of four months from the end of the Association; financial year. Except for this situation, OGMS and o. the establishment or dissolution of secondary EGMS are convened as many times as needed, offices: branches, agencies, representative being convened by ELSA’s Board of Directors offices, working points or other similar units whenever necessary for the activity of Electrica without legal status, according to the legal Group. The GMS may be convened also, upon the provisions; request of shareholders representing, individually p. participation in the establishment of new legal persons; or cumulatively, at least 5% of the share capital. In this case, the general meeting of the shareholders q. approval of the eligibility and independence shall be convened by the Board of Directors within criteria concerning the Board members; no more than 30 days and shall meet within no more r. approval of the corporate governance than 60 days from the date of receiving the request. 4.3. Shareholders’ rights The rights of all ELSA’s shareholders, independent of their holdings, are protected according to the relevant legislation. Shareholders have, amongst other rights provided under the company’s Articles of Association and the laws and regulations in force, the right to obtain information about ELSA’s operations and results, regarding the exercise of voting rights and the voting results in the GMS. Shareholders have also the right to participate and vote in the GMS, as well as to receive dividends. Except for the shares owned by ELSA following the stabilization after the IPO in 2014, there are no shares without voting rights. There are no shares granting the right to more than one vote. Moreover, shareholders have the right to challenge the decisions of GMS or to withdraw from ELSA and to request the Company to acquire their shares, in certain conditions mentioned by the law. Likewise, one or more shareholders holding, individually or jointly, at least 5% of the share capital, may request the calling of a GMS. Those shareholders have also the right to add new items to the agenda of a GMS, provided that those proposals are accompanied by a justification or a draft resolution proposed for approval and copies of the identification documents of the shareholders who make the proposals. The rights and obligations of the holders of the shares, as extracted from ELSA’s Articles of Association, are: Each share subscribed and fully paid in by the shareholders, in accordance with the law, grants the shareholders (i) the right to one vote in the general meeting of the shareholders, (ii) the right to elect the management bodies, (iii) the right to participate to the profit distribution, as well as (iv) other rights provided by these Articles of Association and by the legal provisions; The acquisition of the property right over a share by a person, directly or indirectly, has as effect the obtainment of the capacity of a shareholder of the company together with all rights and obligations deriving from this capacity, in accordance with the law and the Articles of Association; The rights and obligations deriving from the shares are transferred to the new acquirers together with the shares; When a nominative share becomes the property of several persons, the transfer shall be registered only if they appoint a sole representative for exercising the rights derived from the shares; 77 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT The obligations of the company are secured by its social patrimony, and the liability of the shareholders is limited to the subscribed share capital; The shareholder that has, in a certain operation, either personally or as representative of another person, an interest contrary to the interest of the company, must refrain from deliberations regarding the respective operation. The exercise of the rights by the holders of the depositary certificates6 is realized as follows: The rights and obligations related to the underlying shares based on which the depositary certificates were issued are exercised by the holders of the deposit certificates, proportionally to their holdings of deposit certificates and taking into account the conversion rate between underlying shares and the deposit certificates; The holder of the deposit certificates issued based on the underlying shares is the shareholder within the meaning and for the application of Law 24/2017 on the issuers of financial instruments and market operations. The issuer of the deposit certificates is fully responsible for informing the holders of the deposit certificates in a correct, complete, and timely manner, observing the provisions of the documents of the issue of the deposit certificates, regarding the documents and the informative materials related to a general meeting of shareholders, as made available by the company to the shareholders; In order to exercise its rights and obligations related to a general meeting of shareholders, a holder of deposit certificates will send to the entity where it has opened its account for deposit certificates the voting instructions for the topics on the agenda of the general meeting of the shareholders so that the respective information is sent to the issuer of the depositary certificates; The issuer of the deposit certificates votes in the general meeting of the shareholders of the company in accordance with and within the limits of the instructions of the holders of the deposit certificate which have this quality at the reference date; The issuer of the deposit certificates may cast different votes for certain underlying shares in the general meeting of the shareholders than those expressed for other underlying shares; The issuer of the deposit certificates is fully responsible for taking all necessary measures, so that the entity which keeps the records of the holders of the deposit certificates, the intermediaries involved in the custody services for holders of the deposit certificates on the market where the deposit certificates are traded and/or any other entities involved in recording the holders of the deposit certificates, to send the voting instructions of the holders of the depositary certificates related to the topics on the agenda of the general meeting of the shareholders; Any reference date for the identification of the shareholders who have the right to take part and to vote in the general meeting of the shareholders of the Company and any registration date for the identification of the shareholders which have rights deriving from their shares, as well as any other similar date set by the Company related to any corporate events of the Company will be established in accordance with the applicable legal provisions and with a prior notice sent with at least 15 free calendar days (in Romanian, zile calendaristice libere) to the issuer of the deposit certificates, in the name of which the underlying shares are registered based on which the deposit certificates mentioned above are issued. The reference date will be prior to at least 15 working days to the deadline for submitting the power of attorney related to the vote. Transfer of shares The shares are indivisible. The company shall recognize a sole owner per each share, subject to the provisions of article 11 paragraph (4) from Articles of Association. The partial or total transfer of shares between the shareholders or to third parties shall be carried out according to the terms and procedures provided by the applicable legal provisions, including the capital markets legislation. 6 According to ELSA’s Articles of Association reflecting the dispositions of Law no. 24/2017 on issuers of financial instruments and market operations. 78 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTElectrica Management 4.4. ELSA’s Board of Directors ELSA adopted a one-tier (unitary) corporate governance system, in accordance with the principles of good corporate governance, transparency, and accountability towards its shareholders and other categories of stakeholders, aiming to support and drive the business development and the efficient exchange of relevant corporate information. The Board of Directors (BoD) is responsible for taking all the necessary measures to carry out, as well as to supervise the activity of the company. Its structure, organization, duties, and responsibilities are established under the Articles of Association and the Charter (organization and functioning regulations) of the BoD. According to the provisions of the company’s Articles of Association, starting with 14 December 2015, the BoD is composed of seven non-executive directors, elected by the Ordinary General Meeting of Shareholders of the company for a four years mandate, out of which four must meet the criteria of independence provided by the Articles of Association. In 2021, the Board of Directors’ structure has undergone several changes, as follows: At the beginning of the year, the BoD consisted of the following members: Mr. Iulian Cristian Bosoanca – Chairman, Mrs. Ramona Ungur, Mr. Dragos Andrei, Mr. Radu Mircea Florescu, Mr. Bogdan George Iliescu, Mr. Gicu Iorga, and Mr. Valentin Radu; On 22 April 2021, the Company’s Board of Directors took note of the resignation of Ms. Ramona Ungur as a member of the Board of Directors; On 28 April 2021, ELSA OGMS took place, when ELSA shareholders were elected by the method of cumulative voting, with the following members of the Board of Directors: Mr. Iulian Cristian Bosoanca, Mr. George Cristodorescu, Mr. Radu Mircea Florescu, Mr. Gicu Iorga, Mr. Adrian-Florin Lotrean, Mr. Dragos-Valentin Neacsu, and Mr. Ion-Cosmin Petrescu; As a result of the changes that occurred at the level of the Board of Directors, on 6 May 2021, the members of the Board re-elected Mr. Iulian Cristian Bosoanca as Chairman of the BoD starting with 6 May 2021 and until 31 December 2021. At the beginning of 2021, the members of the BoD were the following: No Name Term of office (until 27 April 2022) Status Starting date of the first mandate Mr. Iulian Cristian Bosoanca* ~ 2 years Chairman, non-executive director 29 April 2020 Mrs. Ramona Ungur 4 years non-executive director, independent 27 April 2018 80 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTNo Name Term of office (until 27 April 2022) Status Starting date of the first mandate Mr. Dragos Andrei ~3 years and 5 months non-executive director 1 December 2018 Mr. Radu Mircea Florescu ~3 years and 3 months non-executive director, independent 7 February 2019 Mr. Bogdan George Iliescu 4 years non-executive director, independent 14 December 2015 Mr. Gicu Iorga 4 years non-executive director 1 May 2017 Mr. Valentin Radu 4 years non-executive director, independent 27 April 2018 Source: Electrica *Mr. Iulian Cristian Bosoanca was nominated to fill the vacancy, following the resignation of the non-independent director Niculae Havrilet, the term of office being equal to the period remaining until the expiration of the term related to the vacancy, respectively until 27 April 2022. 81 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAt the end of 2021, as well as at the date of issuing of this report, the members of the Board of Directors were the following: No Name Term of office (until 27 April 2025) Status Starting date of the first mandate Mr. Iulian Cristian Bosoanca* 4 years Chairman, non-executive director 29 April 2020 Mr. George Cristodorescu 4 years non-executive director, independent 28 April 2021 Mr. Radu Mircea Florescu 4 years non-executive director, independent 7 February 2019 Mr. Gicu Iorga 4 years non-executive director 1 May 2017 Mr. Adrian-Florin Lotrean 4 years non-executive director, independent 28 April 2021 82 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTNo Name Term of office (until 27 April 2025) Status Starting date of the first mandate Mr. Dragos-Valentin Neacsu 4 years non-executive director, independent 28 April 2021 Mr. Ion-Cosmin Petrescu 4 years non-executive director 28 April 2021 Source: Electrica More details on the Board members’ biographies can be found on the Group’s website in the section Investors > Corporate Governance > Board of Directors. Below are presented the most relevant aspects regarding the professional experience of the BoD members. Iulian Cristian Bosoanca is a non-executive director appointed on 29 April 2020, Chairman of the Board of Directors since 18 July 2020, and member of the Risk and Audit Committee. He holds relevant professional experience in the economic field, especially in the areas of finance, accounting, economic-financial analysis, and taxation, having over 20 years of practical activity. He holds competencies in management, compliance, legal, payroll, and human resources, developed in practicing his activity and following as a result of specialized training. The basic profession, accounting, and taxation, he carries out as a freelancer ever since 2008, within the company Expert Contabilitate & Servicii S.R.L. (company member CECCAR) but also within the Individual Cabinet of Accounting Expert / Fiscal Consultant, through which he carries out activities of accounting, fiscal and judicial expert. Starting 1998, Mr. Bosoanca held several positions, executive or management positions, being also a member of the Boards of Directors in various companies such as CAZANELE S.A. in the period August 2005 – September 2006, Mehedinti County Health Insurance House in the period May 2012 – October 2014 and SECOM S.A. in the period September 2017 – May 2018 (where he was also elected Chairman of the Board of Directors). Since 2016, Iulian Cristian Bosoanca holds the function of President of the Body of Expert Accountants and Licensed of Romania (C.E.C.C.A.R), Mehedinti Branch. He also acted as a lecturer within C.E.C.C.A.R. and starting with December 2020 he holds the position of Director of the Ministry Cabinet within the Ministry of Energy. George Cristodorescu is a non-executive, independent director since 28 April 2021 and a Member of the Strategy and Corporate Governance Committee. He holds extensive professional experience in the energy field, currently holding the position of Head of Cluster for Energy and Climate within the Deutsche Gesellschaft für Internationale Zusammenarbeit, GIZ GmbH, a company where he has a cumulative experience of 12 years. 83 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTPreviously, Mr. Cristodorescu acted as Partner in Stein & Partner, Executive Search & Management Performance and freelancer, being manager and consultant in various projects of energy efficiency, renewable, district heating, and electrical networks. Between October 2013 – May 2014, Mr. Cristodorescu held the position of Chairman of the Supervisory Board of Hidroelectrica SA, where he coordinated the implementation of corporate governance, preparation of the strategic development plan of the company, and preparation of the company for the initial public offering. Between September 2005-2013, he was Deputy CEO of E.ON Romania, Head of Division, Head of Administrative Boards of 3 Companies within the E.ON Romania Group, and CEO of the E.ON Romania Renewables S.R.L, a period in which he coordinated, among others, the restructuring of the E.ON Romania group after privatization, the strategic development of the gas and electricity distribution and supply activities business and, as director, the activity of corporate governance and communications. In parallel, he was appointed as a member of the core group strategy group for E.ON AG, Düsseldorf, a member of the policy group for E.ON AG, Brussels, and President of the Association of Utility Companies in Romania. Radu Mircea Florescu is an independent non-executive director since 7 February 2019, Chair of the Audit and Risk Committee, and member of the Nomination and Remuneration Committee. Radu Mircea Florescu is currently the CEO of Centrade | Cheil, South East Europe, the regional communications hub for Cheil Worldwide, coordinating 11 markets in the Adriatic and Balkan region. For more than 38 years, Radu Florescu worked in top multinational companies from Fortune 500, activating in emerging countries, including programs financed from EU funds. Mr. Florescu began his career in trading at NYMEX where he coordinated all trading activities for petroleum products and precious metals. A graduate of Marketing and Finance from Boston College with a Bachelor of Science degree, Radu Mircea Florescu began his career in commodity trading with Merrill Lynch/EF Hutton at NYMEX (New York Mercantile Exchange), with a specific focus on WTI (West Texas Crude), fuel oil and gasoline. In 1989, he co-founded Centrade USA and became one of the leading pioneers for marketing and communication services on the Romanian market with the launch of Saatchi & Saatchi, SSX, Chainsaw Studios, Cable Direct, and Zenith Media. Radu Florescu has held other notable positions including nomination as a member to numerous board positions: founding member and board member of IAA Romania, co-founder, and member of the Union of Advertising Agencies of Romania (UAAR), member of the European Council of the European Association of Communication Agencies (EACA), representing Romania and Eastern Europe in Brussels (2012 - 2015, 2017 and presently Treasurer), member of the Board of Directors and vice-president of the American Chamber of Commerce in Romania (2013 - 2015 and 2016 - present), member of TAROM’s Board of Directors (March 2015 - June 2017), coordinator and member of the Steering Committee for Coalition for Romania’s Development – the “umbrella” group and leading association representing the business community and trade sections from key foreign embassies in Bucharest. Radu Mircea Florescu is also active in the field of social responsibility, having a long history of contribution to the local community, presently acting as a Member of the Board of Directors for different organizations such as AIESEC Romania (International Association of Students in Economics), Junior Achievement Program, OvidiuRo, Principesa Margareta Foundation, ASEBUSS and United Way Romania. Gicu Iorga is a non-executive director since 1 May 2017 and President of the Strategy and Corporate Governance Committee. Gicu Iorga has experience of over 35 years in the field of economics and public administration and currently holds the position of Head of Customs Office within A.N.A.F. – D.G.V Bucharest. Most of his professional activity was carried out in institutions such as National Customs Authority, A.N.A.F – General Customs Directorate, General Public Finances Directorate Bucharest, and National Sanitary Veterinary and Food Safety Authority (A.N.S.V.S.A.). Starting with April 2017 and until November 2019 Mr. Gicu Iorga held the position of General Secretary within the Ministry of Energy where he coordinated the good functioning of the departments and functional activities within the Ministry. Further to that, starting March 2020 and until March 2021 he occupied the position of Deputy General Secretary within the Ministry of Economy, Energy and Business Environment. 84 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAdrian-Florin Lotrean is a non-executive, independent director since 28 April 2021, the Chairman of the Nomination and Remuneration Committee, and a member of the Strategy and Corporate Governance Committee. Presently Mr. Lotrean holds the position of President/interim member of the Board within the Compania Municipala Termoenergetica S.A and an extensive professional experience in the field of insolvency, coordinating, as insolvency practician and Associated Lawyer in the civil professional company CITR SPRL, in the period February 2010 – December 2020, complex restructuring projects on production of thermal energy and electricity in cogeneration (for clients such as CET ARAD SA, Electrocentrale Constanta SA), being a consultant to the judicial administrator of Electrocentrale Bucuresti SA and coordinating the restructuring procedure of Hidroserv S.A. Previously, between September 2019 – December 2020, Mr. Lotrean held the position of Member of the Board of Directors of Electroplast SA Bistrita, between November 2007 and February 2010 he was insolvency practitioner in the professional civil company Casa de Insolvență Transilvania S.P.R.L where he participated in the management of projects for more than 50 commercial companies. Between January 2003 – November 2007, Mr. Lotrean held the position of Financial Consultant within SC Depofarm SLR, providing consultancy for the elaboration of projects financed from European funds, the elaboration of feasibility studies, business plans, and financial-fiscal consultancy. Previously, between November 2001 and December 2002, he held the position of specialized inspector within the Fiscal Control Department of the General Directorate of Public Finance Satu Mare. Dragos-Valentin Neacsu is a non-executive, independent director since 28 April 2021, and a member of the Audit and Risk Committee. Mr. Neacsu has extensive professional experience in the field of investment management and financial markets, currently holding the position of an independent member of the Board, member of the Audit Committee, and Chairman of the Appeals Commission of the Bucharest Stock Exchange S.A. Mr. Neacșu is also the CEO of the GS1 Romania Association, part of a global network of 115 not-for-profit organizations, with an activity focused on elaborating and promotion of coding systems, serialization, and traceability in business communication. Until October 2019, Mr. Neacșu held the position of Chief Executive Officer, Chairman of the Board of SAI Erste Asset Management SA, previously being Director, Financial Advisory Services of Deloitte Consultancy SRL. Between February-September 2005 he was State Secretary Minister, Head of State Treasury within the Ministry of Public Finance. Between July 1998 and February 2005, he held the position of President – CEO of SSIF Raiffeisen Capital & Investment S.A. Among other relevant positions held by Mr. Neacsu: Member of the Board of Governors EFAMA (European Fund and Asset Management Association, between 2013-2016), Romania’s representative in multilateral financial institutions (Council of Europe Bank (BDCE), Black Sea Trade and Development Bank (BSTDB)), Vice-president and then President of the Romanian Association of Asset Managers (AAF, between 2008-2016), founding member and first Vice President of the Board of Romanian Association for Privately Managed Pension Funds (APAPR in 2004), Independent non-executive member of the Supervisory Board of BCR Pensii, Private Pension Fund Management Company S.A. (between 2009-2019), Non-executive member of CEC Bank S.A Board (between 2005-2006), Non- Executive Member of the Bucharest Stock Exchange Board of Governors (2001-2005), Independent Non-Executive Member of the Board of FINS IFN SA (2018-present), Board Member of the Romanian Business Leaders Foundation (2017-present), member of the Board of “Merito” educational project. He is part of the first generation (1994-1995) of the Romanian-Canadian MBA Program, cooperation of UQAM and McGill Canadian universities, together with Academy of Economic Studies in Bucharest, and holds a BA in Civil Engineering from Technical University Bucharest (1989). Ion-Cosmin Petrescu is a non-executive director since 28 April 2021, a member of the Nomination and Remuneration Committee. Mr. Cosmin Petrescu holds extensive professional experience in business development, sales, and management, Mr. Cosmin Petrescu presently activates in FNGCIMM, where he leads the activity of IT, State Aid, and Reporting Divisions. Cosmin Petrescu is also the President of the working groups dedicated to the program IMMINVEST ROMANIA and for the relation with the European Bank of Reconstruction and Development. 85 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTStarting February 2021, he holds the position of Adviser within the Chancellery of the Prime Minister, on digitization issues. Previously, starting with the year 2001, Mr. Petrescu held different positions within companies acting in the Oil & Gas sector where he proved competence in optimizing business processes (Lean Management). Three consultative committees support the activity of the BoD, respectively the Nomination and Remuneration Committee, the Audit and Risk Committee, and the Strategy and Corporate Governance Committee, each of them composed of three directors and chaired by one of them. The majority members of the Nomination and Remuneration Committee and the Audit and Risk Committee, as well as their Chairs, are independent directors. The consultative committees’ members are elected for a period of one year. Changes in the composition of the committees during this period may intervene with the vacancy of a Board position. The organization, duties, and responsibilities of each committee are set under ELSA’s Articles of Association, respectively in the committee Charters and the Company’s Corporate Governance Code. According to the changes registered in the BoD composition, the composition of the committees changed during 2021, as it follows: 1 January – 28 April 2021 Nomination and Remuneration Committee: - Mr. Bogdan Iliescu – Chairman; - Mr. Valentin Radu – Member; - Mr. Gicu Iorga – Member 6 May – 31 December 2021 Nomination and Remuneration Committee: - Mr. Adrian-Florin Lotrean – Chairman; - Mr. Radu Mircea Florescu – Member; - Mr. Ion Cosmin Petrescu – Member. Audit and Risk Committee: Audit and Risk Committee: - Mrs. Ramona Ungur – Chairman; - Mr. Bogdan Iliescu – Member; - Mr. Cristian Bosoanca – Member. - Mr. Radu Mircea Florescu - Chairman; - Mr. Dragos-Valentin Neacsu – Member; - Mr. Iulian Cristian Bosoanca – Member. Strategy and Corporate Governance Committee: Strategy and Corporate Governance Committee: - Mr. Dragos Andrei – Chairman; - Mr. Radu Florescu – Member; - Mr. Valentin Radu – Member. - Mr. Gicu Iorga - Chairman; - Mr. George Cristodorescu – Member; - Mr. Adrian-Florin Lotrean – Member. At the issue date of this report, the composition of the BoD Committees is as follows: Nomination and Remuneration Committee: Audit and Risk Committee: Strategy and Corporate Governance Committee: Chairman Mr. Adrian-Florin Lotrean Chairman Mr. Radu Mircea Florescu Chairman Mr. Gicu Iorga Member Mr. Radu Mircea Florescu Member Mr. Dragos-Valentin Neacsu Member Mr. George Cristodorescu Member Mr. Ion Cosmin Petrescu Member Mr. Iulian Cristian Bosoanca Member Mr. Adrian-Florin Lotrean According to the available information, there is no agreement, understanding, or family relation between the directors of the company and another person who may have contributed to their appointment as directors. As of 31 December 2021, among the BoD members, Mr. Dragos-Valentin Neacsu holds a number of 20 ELSA shares. According to the available information, the BoD members were not involved in litigations or administrative proceedings regarding their activity within the company or regarding their capacity to fulfil their duties within the company in the past five years. 86 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4.5. The activity of ELSA’s Board of Directors and its consultative committees in 2021 In 2021, the Board of Directors met 28 times; of these, 21 meetings were organized with the physical presence of the members, and seven were held by conference call, in accordance with Art. 18 paragraph 20 of the company’s Articles of Association. The Board members’ attendance (in person or by conference call) in the meetings of the Board of Directors and its committees in 2021 is presented below: Name The Board of Directors (no. of meetings 28) The Audit and Risk Committee (no. of meetings - 17) The Nomination and Remuneration Committee (no. of meetings - 23) The Strategy and Corporate Governance Committee (no. of meetings - 21) Source: Electrica * The mandates ended according to the OGMS Decision no. 1/28 April 2021; ** Mrs. Ramona Ungur resigned from the position of member of the Board of Directors on 22 April 2021. The key decisions taken by the BoD during 2021 refer to: Quarterly analysis of the registered financial results and analysis of the budgetary Election of the chairman of the BoD execution; and establishing the composition of the Approval of the financing lines at Group level; consultative committees and election of their Endorsement of the establishment of chairs (after the GMS has established the new Electrica Foundation; structure); Endorsement of the updated Remuneration Revision and endorsement of ELSA’s revenue Policy for Directors and Executive Managers, and expenses budget at standalone and consolidated levels, as well as of the revenue to respond to changes in the legislative framework and expenses budgets of the company’s Participation in the competitive processes of subsidiaries for the financial year of 2021; acquisition of electricity production projects Analysis and endorsement of ELSA’s financial from renewable sources, acquisition of 100% statements at the individual and consolidated of the shares of Crucea Power Park (Crucea level, as well as of the financial statements of Est project - projected capacity of 121 MW the company’s subsidiaries, for the financial and a storage capacity of 60Mwh), Sunwind year ended at 31 December 2020; 87 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT Energy SRL (Satu Mare 2 project - projected Evaluating the performances registered capacity 27 MW), New Trend Energy (project by ELSA executive directors in 2020 and Satu Mare 3 - projected capacity 59 MW) establishing new KPIs for 2021; Foton Power Energy SRL (Bihor 1 project - Continuing the implementation of the projected capacity 77.5 MW); Human Resources strategy at the Electrica Establishment of the ELSA branch for the Group level. development and operation of electricity production capacities; Endorsement of the amended ELSA’s The main aspects of audit and financials areas referred to: Articles of Association and approval of the Ensuring the necessary financing for the amendments of the subsidiaries Articles of activity performed by the companies within Association; the Group; Revision of the Internal Standard Delegation Monitoring the internal audit plan of the Authority and the Regulation of implementation for 2021 and approving the organization and functioning at the company revised audit plan for 2022; level; Updating the Code of Ethics and Professional Conduct and adopting the Policy for preventing, combating, and sanctioning any Evaluation of the Board of Directors activity during 2021: form of harassment at work; The Board evaluates annually its activity and that Initiation of the reorganization project of the of its consultative Committees to identify areas of Company; Initiation of the project to revise the Group improvement, and to increase its efficiency. The purpose of the evaluation is to provide members Strategy; Regarding the structuring and development of the Group’s business portfolio, the BoD analyzed the existing opportunities and decided the following: Continuous analysis of investment of the Board with an overview of their activity, strengths/weaknesses, performance, and the potential of collective and individual development, in order to efficiently and effectively fulfil their responsibilities as members of the Board. opportunities, taking into account the According to the established mechanism, the energy market development, the impact on evaluation is conducted either with the support of a the activity of the group’s subsidiaries and consultant or by self-evaluation. competitive advantages of the competition and participation in various competitive At the beginning of 2022, The Board of Directors has processes for this purpose; self-evaluated its activity for the year 2021, using a Establishment of the ELSA branch for the questionnaire, internally developed, discussed, and development and operation of electricity agreed by the Board members. production capacities; Adoption of policies in the field of risk The members of the Board who contributed to the management; evaluation are: Mr. Iulian Cristian Bosoanca – Chair of Approval of the consolidated annual the BoD, Mr. George Cristodorescu, Mr. Radu Mircea investment plan at group level for 2021; Florescu, Mr. Gicu Iorga, Mr. Adrian-Florin Lotrean, Increasing the share capital of distribution Mr. Dragos Neacsu and Mr. Ion-Cosmin Petrescu. and supply subsidiaries. Regarding the human resources and the managerial Board activity in the following areas: competencies, the BoD took the following measures: Specific KPIs as provided in the mandate The questionnaire used aimed at evaluating the Awarding a new mandate in the position of agreements (the main objectives defined by CDO for a period of 4 years to Mrs. Livioara the General Meeting of Shareholders: Group Sujdea and nominating Mr. Stefan-Ionut strategy, Corporate Governance, Placement Pascu as Interim Executive Director of the of financial investments and Investments Corporate Development Division starting achievement in the distribution companies); with October 1st, 2021, initially for 3 months; Board Efficiency and Ways of Working of the subsequently, the term of the mandate was extended until 31 December 2022; Board; Board interactions and activities’ dynamics; Nomination of members in the Boards of Self-Assessment of each Board member; Directors in the Subsidiaries; Functioning of the Board Chair; Adoption of the Succession Policy for ELSA; Board’s interactions with CEO/Management; Endorsement of the Remuneration Policy Board’s interactions with stakeholders. for the Company’s Directors and Executive Managers; 88 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAfter analyzing the questionnaire’s results, the appreciated that this is done at high standards. general conclusion was that the functioning of 9. Communication within the Board in terms of the BoD activity during 2021 took place in good the frequency and intensity, issues addressed conditions, among the positive aspects the following as well as transparency and sincerity of were listed: the dialogue, is considered positive and, 1. Most of the respondents rated the overall according to the opinion of most members, the activity of the Board conducted during 2021 atmosphere at the Board level encourages the as good, the average score being 4, on a scale expression of all perspectives and open debates, from 1-5; which constitutes a base for substantiating the 2. Regarding the performance indicators of decisions adopted. the Board members, it was appreciated that, 10. Also, in the context of the atypical events to a large extent, the goal of implementing that took place during 2021, the Board corporate governance at the group level was considers that it performed well as a team, achieved. Furthermore, the Board undertook to each of the members bringing added value implement a project of revising the corporate and contributing to the activity carried out. governance framework, expectations being Moreover, the work done by the Chair received that will lead to further improvements in the positive feedback from all respondents, relationship with the companies within the especially regarding the facilitation of an open Group. 3. Regarding the level of investments during 2021, the established/expected level was reached, and constructive dialogue during the Board meetings. Regarding the collaboration with the General Manager, members appreciated that creating the premises for future development the Chair maintains a close and constructive and improvement of the results registered by professional relationship with him. the distribution subsidiary. 4. In line with previous years, the ability of the The following areas for improvement were Board to identify developments in the business suggested: environment in which the Company operates 1. It is still necessary to improve communication and certain potential opportunities were with the public and strategic communication exploited, the general appreciation being with shareholders, concrete measures are that the competence of analysis and strategic needed in this regard. Moreover, deriving from planning is at a higher level, a fact to which the need to improve communication regarding contributed the resources made available to the mission, vision, and strategic directions of the members of the Board. medium-term development of the company, the 5. Regarding the efficiency and the operating Board started an extensive process of revising of the Board, members appreciated that the adopted Strategy, subsequently to that, to their contribution to the development of the elaborate a plan for their communication. company is substantial, further considering 2. Board members believe that the functionality that it is necessary to focus on the strategic of the company’s management system can aspects of the company. Moreover, the current be improved while appreciating the changes composition of the Board was appreciated as that occurred during the year at the level of the optimum, benefiting from diversified expertise. executive management can be constituted as 6. Regarding the identification and mitigation of risks, in line with the results of the previous an incentive for other employees. At the same time, the Board considers as 3. evaluation, Board members appreciated that critical improvement of the interaction with the main risks and mitigation mechanisms have the company’s subsidiaries, major changes been identified. Furthermore, the occurrence being required from this perspective to ensure of some risks specific to the sector determined the achievement of the assumed strategic the need to further optimize the business objectives. processes, so that it would result in an increase 4. Paying more attention to succession planning of the reaction speed and adaptation to market at the Senior Management level as well as dynamics. stimulating its implementation remains a 7. Board members appreciated their personal contribution in the activity they conducted, the priority for the Board and its future activity. At the same time, the BoD considers it necessary 5. involvement, and the impact of the decisions to take measures to improve the process adopted. of preparing Board meetings, improving 8. Regarding the observance of the corporate frequency and time allocated to debates. governance principles, members of the Board 89 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTIn continuation of the effort made previously, supervises the process of the annual the Board allocates particular importance to evaluation of the effectiveness of the Council occupational health and safety issues within the and its advisory committees; Group, aiming to devote time and effort in 2022 to periodically assesses the size, composition, support management in improving the company’s and Committee’s structure and makes occupational safety culture. recommendations to the Board with regard The Nomination and Remuneration Committee to any changes; advises the Board on continuous skill development programmes for Board members and executive management; oversees the nomination process of the The Nomination and Remuneration Committee appointment of subsidiaries’ CEOs and consists of three non-executive BoD members, two executive managers according to the of its members are independent. nomination and remuneration policy. The role of the Committee is to propose candidates for the BoD, to develop and propose to the Board the selection procedure of candidates for the executive managers’ positions and other management The Committee has the following duties regarding remuneration: advises the Board relation the to in positions, to recommend the Board candidates remuneration, incentive, and compensation for these positions, to formulate proposals on the managers’ and other management positions’ remuneration. The Committee has the following responsibilities concerning nomination matters: policies of the company; advises the Board regarding the periodic review of the remuneration policy for Board members and executive managers; advises the Board in relation to the remuneration of the CEO and other recommends to the Board a nomination executive managers, including the main policy, including a target Board profile, the remuneration components, annual and long process, and principles to be considered by term performance objectives,and regarding the shareholders when proposing candidates evaluation methodology; for company’s directors, and advises the makes recommendations to the Board on the Board regarding the nomination of interim remuneration of subsidiaries’ board members directors in accordance with the policy; and the general limits of remuneration for reviews the implementation of the subsidiaries’ executive management; nomination policy, submits a report to the monitors compensation trends within areas Board on its implementation, and presents relevant to the Group; a summary of this report in the Directors’ oversees the remuneration process of Report; the subsidiaries’ chief executive officer advises the Board on the appointment and and executive managers according to the dismissal of the Chief Executive Officer, makes nomination and remuneration policy at the recommendations on the appointment Group level; and dismissal of the company’s executive verifies at least once a year the number of management team after consulting with the Chief Executive Officer and makes mandates held in other companies by the members of the Board and by the executive proposals on the appointment and dismissal managers, in order to evaluate their of subsidiaries’ board of directors members independence; in accordance with the Group Governance Oversees the annual evaluation process of Policy; the Board of Directors’ activity. recommends to the Board policies in the human resources field, including those covering recruitment and dismissal, talent management and development and succession planning across the company and its subsidiaries (the Group); The Nomination and Remuneration Committee met 23 times during 2021, among the main aspects on which the activity of the Committee focused, were the following: Analysis of ELSA executive managers’ KPIs recommends to the Board a succession achievement for 2020 and establishing of the policy, both for the members of the board KPIs for 2021, along with the performance and the executive team oversees the process evaluation methodology; for the annual evaluation of the effectiveness Supervising the evaluation process of the of the Board and its consultative committees; Board of Directors’ activity during 2020; 90 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTEndorsing the proposals regarding the reviews and advises the Board on whether nomination of the subsidiaries’ Board the content of the annual report, taken as members; a whole, represents a fair, balanced, and Endorsement of the Board Profile and the understandable account for shareholders and eligibility criteria for the Board members of provides them with the information necessary the companies within the Group; to assess the Company’s performance. Revision of the Methodology to evaluate the achievement level of short-term Key Performance Indicators (KPI) and Regarding the audit and internal control matters, the Committee has the following responsibilities: endorsement of the Methodology to evaluate endorses, for the Board’s approval, the annual the achievement level of long-term KPIs plan at Group level, based on the annual applicable to the Executive Managers at risk assessment, as well as any significant Electrica Group Level; changes to the plan and receives periodic Revision of the Remuneration Policy for reports on activities, important findings, and the Company’s Directors and Executive follow-up of internal audit reports; managers; periodically reviews the charter and internal Endorsement of the Succession Policy for audit manual and submits them to the Board, ELSA. for approval; The Audit and Risk Committee advises the Board on the appointment, dismissal, and remuneration of the Head of Internal Audit Department; The Committee is composed of three non-executive monitors the adequacy, effectiveness, and BoD members, two of them being independent. The independence of the internal audit function; Committee’s composition provided the necessary makes recommendations to the Board on expertise in finance and risk management, the appointment, rotation, or dismissal of the according to legal requirements. company’s external auditor; reviews the plan, activity, and findings of the The main role of the Committee is to support the external auditor; Board in fulfilling its duties of verifying the efficiency assesses the independence and objectivity of the company’s financial reporting, internal of the external auditor and monitors the control, and risk management. While fulfilling this compliance with relevant ethical and role, the Committee advises the Board regarding professional guidance, including the the assessment of the annual report and annual requirements on the rotation of audit financial statements, whether the documents are partners; accurate, balanced, and comprehensive, and provide monitors the application of the legal all the necessary information for the shareholders’ standards and generally accepted internal evaluation of the financial performance. audit standards; endorses the internal audit reports, the The Committee has the following duties in terms of recommendations made by the internal financial reporting: auditors, and the plans of measures for the examines and monitors the financial implementation of the recommendations; reporting process, the integrity of annual and interim financial statements, at standalone performs any other activities established by the Board and the law; and consolidated levels, or of disclosures regularly reviews the adequacy of the key made by ELSA and its subsidiaries; internal control policies, including fraud reviews press releases announcing financial detection and bribe prevention policies; or operational results related to or derived reviews the operations between affiliated from such financial statements, as well as any parties in accordance with a policy drafted by financial information or earnings guidance, the Committee and approved by the Board; to be provided to financial analysts or rating analyzes the annual report prepared by agencies, by analyzing the fairness and the Internal Audit Department and/or adequacy of the content and presentation of such statements or information; Risk Management, which evaluates the effectiveness of the internal control system regularly reviews the adequacy of the Group’s within the Group. accounting policies; reviews the financial forecast policy of the Company and recommends, to approval, towards Board of Directors. 91 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe Committee has the following responsibilities concerning risk management matters: reviews regularly the main risks facing the The Strategy and Corporate Governance Committee company and the Group, recommending The Committee is composed of three non-executive to the Board adequate policies for risks BoD members, holding the necessary expertise in identification, mapping, management, and performing the committee’s specific duties, two of mitigation; them being independent. monitors the main categories of risks that are recorded annually in the management report in order to reduce them and to evaluate the The Committee has the following duties in terms of strategy: efficiency of the risk management system makes proposals to the Board on the within the Group; development of the medium-term strategic makes recommendations to the Board on plan, makes recommendations on the financing methods, including proposals for strategic direction, priorities, and long term contracting any type of loans and securities objectives of ELSA and its subsidiaries; associated with these loans; reviews management proposals on the makes recommendations to the Board Group’s consolidated annual budget, regarding major economic transactions subsidiaries’ annual budgets, investment within the authority of the General Meeting plans of the Group companies and makes of Shareholders and assesses the associated risks regarding such transactions. The Audit and Risk Committee met 17 times during 2021, among the main aspects on which the activity of the Committee focused, being the following: relevant recommendations to the Board; advises the Board in monitoring and assessing the Group’s performance in relation to the approved strategic plan, budgets, investment plans, industry trends, local and regional market trends, company’s competitiveness Analysis of the financial statements of ELSA and technological advances; at the standalone and consolidated level periodically reviews the overall strategic for the financial year of 2020, as well as planning process, including the process the financial statements of the company’s of developing the medium-term strategic subsidiaries for the financial year of 2020, plan, makes recommendations on the issues together with the financial auditor report that can be improved in strategic planning, and recommendations, issued during the and provides feedback to the executive auditing process; management; ELSA’s budget execution, the consolidated makes recommendations to the Board budget execution, and the quarterly financial regarding the proposed acquisitions, results; divestments, investment projects, joint- Revision of the internal audit plan for 2021 ventures, and collaboration projects, and analysis of its achievement, as well as especially assessing their alignment with the the reports submitted by the Internal Audit Group’s strategy; Department, proposing recommendations; performs any other activities or assumes Monitoring the implementation of the responsibilities regarding strategic matters recommendations made by the internal audit department; Updating the Code of Ethics and Professional which may be delegated periodically to the Committee by the Board. Conduct; Regarding the tasks of the Committee on Endorsement of the Know Your Customers restructuring, they mainly relate to the following: Policy (clients and suppliers) and of the reviews and makes recommendations to Security Policy; the Board with respect to the development and implementation of the Group’s overall The internal audit activity is carried out by a restructuring plans and objectives, including structurally separate organizational unit (the any decision regarding the conduct or internal audit department), within the Company. To ensure the fulfilment of its main functions, it reports efficiency of core businesses; regularly reviews the organizational structure functionally to the BoD through the Audit and Risk and chart of the company, and makes Committee and administratively to the CEO. recommendations to the Board in this regard; 92 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTperforms any other activities or reviews the company’s policy for corporate responsibilities on restructuring matters social responsibility and stakeholder as may be periodically delegated to the engagement, and makes recommendations Committee by the Board. to the Board in this regard; makes recommendations to the Board on Also, the Committee has duties in terms of corporate improving the quality of information flows governance: to the Board, including the improvement oversees and monitors the company’s of reports sent, key performance indicators compliance with legal and contractual presented to them, and guidelines obligations on corporate governance, as well for preparing Board documents and as other applicable corporate governance presentations; principles and makes recommendations to drafts reports or materials related to corporate the Board; governance, upon the Board’s request. regularly reviews the company’s Corporate Governance Code, the Charter of the Board During the year 2021, the Committee met 21 times, of Directors, and the company’s Articles of among the main aspects on which the activity of the Association and makes recommendations Committee focused, being the following: to the Board on relevant amendments to the Analysis of the opportunities and the company’s corporate governance policy and efficiency of investments in different documentation; submits the Group Governance Policy to the renewable production and participation in various competitive processes capacities Board for approval and regularly reviews it in this regard; thereafter; Endorsement of the ELSA branch for the reviews the company’s Delegation of development and operation of electricity Authorities policy and the company’s production capacities; Delegation of Authority standard in order Endorsement of the amendments to the to ensure that the delegation of authorities ELSA’s Articles of Association and those of the to management allows for the effective Articles of Association of the subsidiaries; and efficient decision-making process, and Revision of the Internal Standard Delegation makes recommendations to the Board in this of the Authority and the Regulation of respect; Organization and Functioning of SE Electrica SA; Endorsement of the reorganization process of the Company’s personnel structure. 93 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4.6. ELSA’s Executive management In accordance with ELSA’s Articles of Association, the Board of Directors (BoD) appoints and revokes the CEO, as well as the other executives with mandates and also approves their empowerments. The attributions of the Company’s executive managers (including those of the General Manager) are established by the mandate agreements based on which the directors carry out their activity within ELSA, the internal organization and functioning regulations of ELSA, and the applicable legal provisions. The Board of Directors approved the continuation of the collaboration with Mrs. Livioara Șujdea and her appointment as Chief Distribution Officer (CDO), starting with 1 February 2021, for a 4 years mandate. On 1 May 2021, the mandate agreement of the Chief Corporate Development Officer, Mrs. Anamaria Dana Acristini Georgescu, has terminated, upon the lapse of the mandate duration. During the meeting held on 22 September 2021, ELSA’s Board of Directors decided on the appointment of Mr. Stefan Ionut Pascu as Chief Corporate Development Officer, until 31 December 2021. During the meeting held on 22 December 2021, the mandate agreement of Mr. Stefan Ionut Pascu has been extended until 31 December 2022. On 11 December 2021, the mandate agreement of the Chief Marketing Officer, Mrs. Catalina Popa, has terminated, upon the lapse of the mandate duration. During the meeting held on 15 December 2021, ELSA’s Board of Directors revoked, without cause, Mrs. Bibiana Constantin from the position of Chief Human Resources Officer, starting with 1 January 2022, 31 December 2021, being the last day of exercising the mandate agreement. During the meeting held on 15 December 2021, ELSA’s Board of Directors took note of the expiration on 3 January 2022, of the mandate agreement between the Company and the Chief Financial Officer, Mr. Mihai Darie. Following these changes, during 2021, the ELSA’s executive managers, each appointed by mandate agreements, were: Name Function The Executive Manager’s mandate Chief Executive Officer 1 February 2019 - 31 January 2023 Chief Financial Officer 3 January 2018 – 3 January 2022 Chief Distribution Officer 1 February 2017 – 31 January 2021, the mandate being renewed for a period of 4 years, respectively 1 February 2021 - 31 January 2025 Chief Corporate Development Officer 1 May 2017 – 1 May 2021 Stefan Ionut Pascu Chief Corporate Development Officer 1 October 2021 – 31 December 2021, the mandate was renewed for a period of 12 months, respectively 1 January 2022 – 31 December 2022 94 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTName Function The Executive Manager’s mandate Chief Market Officer 12 December 2017 – 11 December 2021 Chief Human Resources Officer 1 February 2019 - 31 Decembre 2021* Chief IT & C Officer 1 June 2019 - 1 June 2023 Source: Electrica *Termination without cause of the mandate agreement. More details on the in-place executive managers’ biographies can be found on ELSA’s website (www.electrica.ro) in the section Investors > Corporate Governance > Executive Management. We present below the most relevant aspects regarding the professional experience of ELSA’s executive managers: Name Professional experience Ms. Georgeta Corina Popescu is a top executive with impressive experience in the field of electricity and natural gas. Appointed CEO of SDMN, part of Electrica Group, on 1 June 2018, Corina Popescu took over from 1 November 2018 the position of interim CEO of ELSA. Starting with 1 February 2019, Corina Popescu holds the CEO position of ELSA, Georgeta Corina Popescu - for 4 years. Chief Executive Officer Graduate of the Faculty of Power Engineering at the University Politehnica of Bucharest specializing in Power Engineering Systems, Georgeta Corina Popescu started her professional career in Sucursala de Distributie si Furnizare a Energiei Electrice Bucuresti. Since 2007, Georgeta Corina Popescu has worked in the private sector, holding important positions in E.ON Romania Group and OMV Group. Between December 2015 and February 2017, Corina Popescu held the position of State Secretary within the Ministry of Energy, a period during which she was also a member of the BoD of ELSA. Starting with 1 May 2017, she was appointed in Transelectrica’s Directorate, and during the June 2017 – April 2018 period she was Transelectrica’s Directorate President. Mr. Mihai Darie has 22 years of professional experience in finance, acquired in various fields such as energy, infrastructure, financial advisory, banking, investment funds in executive as well as management positions, gained in companies such as Nuclearelectrica SA, Fondul Proprietatea SA, Raiffeisen Bank, and BDO Romania. Mihai Darie is a graduate of the Finance and Banking Faculty within the Academy of Economic Studies Bucharest, he is an expert accountant member of CECCAR, he is a graduate of Asebuss Bucharest EMBA program and he is an ACCA UK member as well as a CFA (Chartered Financial Analyst) certification holder. Mihai Darie - Chief Financial Officer 95 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTNume Experienta profesionala Livioara Șujdea - started her activity as a Design Engineer at ELSA, subsequently Chief Distribution Officer occupying various top management positions, including Deputy With over 22 years of experience in the energy field, Livioara Sujdea CEO and member in the BoD of E.ON Moldova Distributie, E.ON Gas Distributie, E.ON Distributie Romania, Operation and Maintenance Director at Delgaz Grid and Deputy CEO and member in the BoD of E.ON Energie. Livioara Sujdea graduated from the Technical University “Gheorghe Asachi” of Iasi – Faculty of Electrical Engineering and Energy, where she also obtained a master’s degree in Business Management and Commercial Engineering, and she also has an Executive MBA with specialization in General Management at the University of Sheffield UK and a Strategic Management and Leadership Degree from the Chartered Management Institute London, UK. Anamaria Dana Acristini Mrs. Anamaria Acristini has experience of over 14 years in the energy Georgescu - Chief Corporate Development Officer field, in particular from the strategic and financial perspectives; the last position held was as Strategy Director within E.ON Romania. Previously, she held important positions in leading companies, such as Ernst&Young, Mazars, and KPMG. Anamaria Acristini is a graduate of the Bucharest Academy of Economic Studies, has a master’s degree in International Project Management, and holds an Executive MBA from Sheffield University (U.K.). Moreover, she is also an affiliated member of the ACCA UK. The collaboration with Mrs. Anamaria Dana Acristini Georgescu ended on 1 May 2021, upon the lapse of the mandate duration. Mr. Pascu has an experience over 16 years of leadership and entrepreneurship in the energy & utility field of Central and Eastern Europe, telecommunications, management consulting, and non- Ionut Stefan Pascu - Chief profit sectors and has functional expertise in several areas as strategy, Corporate Development Officer marketing & sales, digital transformation, innovation, M&A, post- acquisition integrations, restructuring and cost reduction programs, customer service and organizational excellence. Graduate of the Faculty of International Economic Relations at ASE Bucharest, Mr. Pascu attended the courses of the program equivalent to the Executive MBA (Program for Leadership Development), at Harvard Business School. Prior to joining Electrica Group, Mr. Pascu worked for Deutsche Telekom Group Romania as Digital Director and previously, as a member of the management team for Roland Berger in Romania, Central and Eastern Europe, and the United Kingdom. Interested and directly involved in initiatives with social impact, Ștefan- Ionuț Pascu is a founding member of The Social Incubator Association and Global Dignity Association, two non-governmental organizations in Romania with social and youth activities. 96 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTNume Experienta profesionala Catalina Popa - Chief Market Officer With an experience of more than 29 years in the field of electrical power and natural gases, Catalina Popa started her activity as an engineer within Electrica. Subsequently, she occupied several top management positions within E.ON, among which Sales Management Executive Director, Director of Operations, Financial Director, and Director of Energy Network Performance Management. Catalina Popa is a graduate of the Power Engineering Faculty within the University Politehnica of Bucharest, holding a diploma as well in Management & Business Administration from Codecs-Open University, Great Britain. The collaboration with Mrs. Catalina Popa ended on 11 December 2021, upon the lapse of the mandate duration. Bibiana Constantin – Chief Human Resources Officer University of Timisoara and a master’s degree in Human Resources Management and Communication, as well as of a master’s degree in Graduate of the Faculty of Psychology and Sociology – the West Psychology, Bibiana Constantin has experience in consultancy and HR management for various industries, including the energy field. With more than 10 years of experience in managing company restructuring and executive search projects, at the national and international level, but also with a solid knowledge of the human resources market, Bibiana Constantin has provided, in recent years, specialized consultancy and occupied positions in the top management of large companies in the industry. The collaboration with Mrs. Bibiana Constantin ended on December 31, 2021, by termination without cause of the mandate agreement. Starting with 1 June 2019, Mr. Mircea-Toma Modran has taken over the position of Chief Information Officer within Electrica SA, for 4 years. Mircea Toma Modran - years top management positions for Romanian and foreign, private and Chief IT&C Officer state-owned, listed companies, operating in energy and utilities, oil and With more than 30 years of professional experience, he occupied for 20 gas, chemical, aeronautics, and information technology, fulfilling a wide range of responsibilities, from the classic IT and industrial automation to direct coordination of operational divisions with strategic impact on financial results. Mr. Mircea-Toma Modran graduated from the Faculty of Electrical Engineering, Department of Automation and Computers (currently the Faculty of Automation) of the University of Craiova, with an Electrical Engineer degree, and the York University Schulich School of Business Toronto, with a master’s degree in Business Administration. He also attended postgraduate programs at Humber College and the Niagara Institute in Canada and the Ashridge-Hult and Edinburgh Universities in the UK. Source: Electrica 97 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAccording to the information held by ELSA, there is no contract, understanding, or family relationship between the executive managers of the Company and another person who may have contributed to their appointment as executive managers. According to available information, ELSA’s executive managers mentioned in this chapter have not been involved, in the last five years, in any litigations or administrative proceedings related to their activity within the company and neither to their capacity to fulfil their work-related duties in the Group. 4.7. Remuneration of the Directors and the Executive Managers with mandate agreements The Directive 828/2017 of the Council and the European Parliament, amending Directive 2007/36 / EC as regards the encouragement of long-term involvement of shareholders, was transposed into national legislation by Law no. 24/2017, regarding the exercise of certain rights within the listed companies and aims to ensure the long-term sustainability of the listed companies. On the ELSA’s Ordinary General Meeting of Shareholders (OGMS) held on April 28, 2021, was approved the Remuneration Policy for Directors and Executive Managers, without any changes being made to the previously established remuneration limits. The amendments concern the additions as a result of the new legislative provisions, in order to present transparently the elements of fixed and variable remuneration, including financial and non-financial benefits, in any form, which are granted to Directors and Executive Managers. As well, the elaboration of the Remuneration Policy considered the good practices used at an international and national level for similar companies as ELSA, as they were identified after the ELSA’s listing process. According to ELSA’s Corporate Governance Code, the Nomination and Remuneration Committee (NRC) established within the BoD has the following responsibilities related to remuneration: makes recommendations to the Board on the remuneration, incentive, and severance compensation policies of the Company; makes recommendations to the Board on the regular review of the remuneration policy for Directors and Executive Managers; makes recommendations to the Board on the remuneration of the CEO and other executive managers, including the main remuneration components, annual and long term performance objectives, and the evaluation methodology; makes recommendations to the Board on the remuneration of subsidiaries’ board members and the remuneration policy for the subsidiaries’ executive managers in order to express ELSA’s vote at the subsidiaries’ general meetings of the shareholders; monitors compensation trends within industries relevant to the Group; verifies at least once a year, the number of mandates held by the members of the Board of Directors and by the members of the Executive Management in other companies, in order to evaluate their independence; supervises the annual evaluation process of the activity of the Board of Directors. The Remuneration Policy for Directors and Executive Managers is subject to annual review by the NRC and describes the main pillars of remuneration, as well as the terms, conditions, and non-financial benefits approved by the corporate bodies of ELSA. The Remuneration Policy has the following objectives: to establish clear guidelines and thresholds on remuneration matters; to establish the remuneration structure; to ensure the correlation between the remuneration levels within ELSA. 98 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT The principles governing this policy are: According to best practice, the remuneration structure is defined separately for Directors and Executive Managers. The principles of the Directors’ remuneration structure are the following: 1. Ensuring a level of remuneration adapted both to the labour market level and to the level of dedication, qualification, and responsibility required by these positions; 2. The level of remuneration should be sufficiently motivating, in a manner that would ensure the commitment of directors towards the interests of the company, while not representing an impediment in ensuring their independence. The remuneration principles of the remuneration structure of Executive Managers are the following: 1. Ensuring correlation of remuneration to the achievement of strategic objectives and delivering value to shareholders, a significant part of the remuneration package being related to the achievement of performance objectives (on the short and long term); 2. Ensuring a competitive, fair, and non-discriminatory level of remuneration (irrespective of gender, race, ethnicity, religion, or sexual orientation), in order to attract and retain valuable management staff. In determining the level of remuneration, the following factors are considered: 1. External factors: - the remuneration system includes a fixed component and a variable performance-based component, in line with market practices; in addition, it includes also other non-financial benefits; - the reference values were established considering both data regarding the remuneration practiced in international companies of comparable size active within the Romanian energy sector, but also based on data from other industries (e.g. petroleum industry) and other EEA countries; - the practice of most companies to choose the interval between the middle and upper quartile, from the consideration of being attractive on the competitive market, a range which, however, does not position itself towards the upper limit; - the design and customization of the remuneration packages, at the company level, are realized in order to align and reflect the company’s corporate governance philosophy, ownership structure, level of autonomy, role, and impact of the Board of Directors and Executive Managers. 2. Internal factors - the remuneration policy follows principles similar to those of the employee remuneration and describes the various elements of fixed and variable remuneration, including other financial and non-financial benefits. In establishing these principles, internal equity is maintained, by applying the principle of proportionality regarding the various categories of staff, the level of remuneration is set at the market median for all hierarchical levels; - while carrying out a considerable part of the business in a regulated environment, the remuneration policy induces certain particularities in determining the level of the monthly gross fixed remuneration and of the structure of the remuneration package, as a whole; - the remuneration policy establishes clear, complete, and varied criteria of granting variable remuneration, these being established according to the Company’s strategy and business objectives. A. Board of Directors The BoD members’ remuneration has as main pillars a monthly fixed remuneration and an attendance fee for participating at meetings (Board of Directors and its Committees) as follows: the fixed monthly remuneration is differentiated between the Chair and the Board members, respectively EUR 4,985 gross for the Chair and EUR 3,630 gross for the BoD members; the attendance fee to the Board and its committees’ meetings is differentiated as well between the members and the committees’ Chairs, respectively EUR 1,200 gross for the Board/committees’ members and EUR 1,445 gross for the committees’ chairs. The annual number of meetings to be remunerated is limited to 12 for BoD and 6 for each committee. However, if the BoD composition changes, either as a result of the vacancy of one or more Director positions, or as a result of the cumulative voting method, the Director thus appointed will have the right to collect the remuneration for participation in the Board/Committes meetings 99 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAdditional committee meetings can be organized only in exceptional situations, upon the Chairs’ decision, who are responsible to efficiently organizing the agenda and activity. However, only one such additional meeting shall be remunerated, for each committee. The meeting attendance fee has the specific role to recognize the additional effort required for the contribution made and the support provided during the meetings. Also, the Remuneration Policy provides for a series of financial and non-financial benefits granted to the Directors, as follows: reimbursement of the reasonable expenses related to the execution of the mandate; “Directors & officers liability” (D&O) insurance policy, with an insured value of EUR 10 million / person/ event, according to the market terms, up to a limit of EUR 40 million / company. The policy will also cover a period of a maximum of 5 (five) years from the date of termination of the Mandate Agreement, for events that occurred as a result of the activity carried out by the Directors, during their term of office. The company will bear and pay the cost of the premiums of this insurance; the same package of medical services and/or medical insurance contracted by the Company for the employees; other legal expenses incurred by the Director in defending against a third-party claim made against the Director in relation to the performance of the duties according to the mandate agreement, the Articles of Association, the BoD Charter, or the Legal Framework, shall be borne by the Company, to the extent these are not already covered by the “Directors & Officers liability” (D&O) insurance policy in force at the time; compensation in case of unjustified revocation, detailed at point 5.4; any other equipment/resources, in connection with and necessary for the proper execution of the attributions and obligations provided by the Mandate Agreement (equipment/resources of long-distance communication, travel expenses, etc.) B. The Executive Management B.1. General remuneration limits for ELSA’s CEO The remuneration of ELSA CEO is comprised of: (a) a fixed monthly remuneration, (b) a variable yearly remuneration depending on the achievement of the performance indicators, and (c) a package of options of virtual shares (hereinafter referred to as “OAVT”), as follows: a. the fixed monthly remuneration is between EUR 9,000 and EUR 13,050 gross. This remuneration is established by the BoD within limits approved by the GMS; b. The variable yearly compensation is between 30% and 50% of the fixed annual remuneration. The percentage is established by the BoD, within the limits approved by the GMS. The value of the annual variable remuneration shall be determined depending on the degree of achievement of the KPIs, established for the respective year; c. the OAVT package, granted at the beginning of the mandate, will have a value between 150% and 200% of the annual fixed remuneration (calculated as monthly gross fixed remuneration at the time of signing the mandate agreement x 12), in compliance with the provisions of the Remuneration Policy for Directors and Executive Managers. B.2. General remuneration limits for ELSA’s Executive Managers (mandated by the BoD) The remuneration of the executive managers consists of (a) a fixed monthly remuneration, (b) a variable yearly compensation depending on the achievement of KPIs and (c) a package of options of virtual shares (hereinafter referred to as “OAVT”), as follows: a. the fixed monthly remuneration approved by the GMS will be between EUR 6,980 and EUR 11,700 gross. The remuneration is established by the BoD within the limits approved by the GMS; b. the annual variable remuneration is between 15% and 40% of the annual fixed remuneration. The final percentage is decided by the Board of Directors within the limits approved by the GMS. The value of the annual variable remuneration shall be determined depending on the degree of achievement of the KPIs, established for the respective year; c. to each executive manager (unless mandated on interim or a short-term basis) it is granted at the beginning of the term an OAVT package. The value of the OAVT package will be between 60% and 160% of the annual fixed remuneration (calculated as monthly gross fixed remuneration at the time of signing the mandate agreement x 12), within the limits approved by the GMS 100 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTd. The executive manager is entitled to cash the value of the OAVT package upon the expiration of the Duration of the Mandate Agreement or in the last 6 months remaining until its expiration, in case the mandate agreement terminates during this period, excepting for the resignation or revocation of mandate agreement with just cause. At the beginning of the Executive Manager’s mandate (including the CEO), the BoD will set up the long-term KPIs (for the duration of the mandate). At the end of the term, the Board will review the achievement of the long-term KPIs and will adjust the final value of the OAVT package paid out to the executive manager, including the CEO. The Executive Managers cannot receive more than one remuneration from the Group companies and for those who occupy/exercise other roles/positions within the Group companies, the remuneration can be increased temporarily, only during the exercise of those roles/functions. The total of the monthly fixed and additional remuneration cannot exceed the limit of the monthly fixed remuneration established by the GMS for the position of an executive manager. The limits of the benefits granted to the Executive Managers the Executive Managers benefit from a D&O professional insurance policy, having an insured value amounting to EUR 10 million / person/event, according to market terms, within the limit of EUR 40 million / Company. The policy will cover a period of a maximum of 5 (five) years from the date of termination of the Mandate Agreement, for events that occurred as a result of the activity carried out by the executive managers, during their term of office. The company will bear and pay the cost of premiums of this insurance; the Company provides the specific equipment, as well as other types of necessary support, in order for the executive manager to fulfil the responsibilities, in an adequate and safe manner, including a company car or a car in company’s use, mobile phone, laptop, equipment that will be returned by the executive managers at the termination of the mandate agreement; reimbursement of the reasonable expenses related to the execution of the mandate, based on the supporting documents; same medical services and/or medical insurance package contracted by the Company for the employees; mobility package up to the value of EUR 1,000 gross / month, an amount that will be within the limits of monthly fixed remuneration and which is granted for a maximum period of 12 months from the signing date of the addendum to the mandate agreement, only if the executive manager resides at a distance of more than 100 km from the Company’s headquarters and does not have or did not have resided in the city of the workplace in the last 12 months from the signing date of the addendum to the mandate agreement. For successive mandates, relocation to the same city will be paid only once; maternity leave paid for a maximum period of 6 months during the mandate agreement; maximum 30 working days of holidays per year; B.3. General remuneration limits for the Executive Managers within the Company’s subsidiaries (mandated by the BoD) The remuneration of the executive managers is comprised of: (a) a fixed monthly remuneration, (b) a variable yearly compensation depending on the achievement of KPIs and (c) a long-term gross variable compensation, granted at the conclusion of a full term of four years, as follows: a. The fixed monthly remuneration for the DEER’s CEO is between EUR 6.593 and EUR 11.000 gross; the remuneration for the DEER’s Deputy CEO is between EUR 5,300 and EUR 10.300 gross. The fixed monthly remuneration for EFSA’s CEO is between EUR 6.593 and EUR 10.257 gross. The remuneration for EFSA’s Deputy CEO is between EUR 5.300 and EUR 9.231; The fixed monthly remuneration for SERV’s CEO is between EUR 5.558 EUR and 8.718 EUR gross. The remuneration for SERV’s Deputy CEO is between EUR 5.300 EUR and 7.846 EUR gross. The final remuneration will be established by the BoD within the limits presented above, approved by the GMS of each subsidiary. b. The fixed monthly remuneration for a DEERs Executive Manager is between EUR 5,128 EUR and EUR 9.231 gross. The fixed monthly remuneration for an EFSA and SERVs Executive Manager is between EUR 5.128 and 6.837 gross. The final remuneration will be established by the BoD within the limits presented above, approved by the GMS of each subsidiary. c. The variable yearly remuneration of an executive manager is between 15% and 40% of the fixed yearly remuneration. The final percentage is established by BoD within the limits presented above, approved by 101 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTthe GMS of each subsidiary. Granting the variable yearly compensation (partially or in full) depends on the achievement of the KPIs set for the respective year. d. The long-term gross variable remuneration, granted at the conclusion of a full term of four years is between 60% and 120% of the fixed yearly remuneration (limits approved by the GMS of each subsidiary). At the beginning of the executive managers’ mandate (including the CEO), the BoD will set up the long-term KPIs (for the duration of the mandate). At the end of the term, the Board will review the long-term KPIs’ achievement and will grant accordingly the final value of the the long-term gross variable compensation. In order to perform more efficiently their duties and obligations, in a proper and safe manner, the mandate agreements of the executive managers (including the CEO and deputy CEO), approved by the BoD stipulate the specific equipment that the company makes available (e.g.: company car, mobile phone, laptop), the rules to use it, as well as other kinds of related benefits (e.g.: reimbursement of reasonable expenses related to the execution of the mandate, a “directors & officers’ liability” insurance policy, mobility package). 4.8. Corporate Governance in ELSA’s subsidiaries The Board of Directors of ELSA’s subsidiaries During 2021 and until the date of this report, all the Boards of Directors of ELSA’s subsidiaries were composed of non-executive directors, which are executive managers or employees of ELSA, and, according to ELSA’s policy, do not receive any remuneration from the subsidiaries for the quality of member of their Board of Directors. During 2021 and until the date of this report, the composition of the Boards of Directors of ELSA’s subsidiaries was as follows: The distribution subsidiary DEER – 1 January 2021 – date of the report Georgeta Corina Popescu – Chair Livioara Sujdea – Chair starting with 8 February 2021 Livioara Sujdea – Chair Livioara Sujdea – Chair Stefan Alexandru Frangulea Stefan Alexandru Frangulea Stefan Alexandru Frangulea Stefan Alexandru Frangulea Mirela Dimbean Creta Mircea Toma Modran Mirela Dimbean Creta Mirela Dimbean Creta Maria Cristina Manda Mirela Dimbean Creta Geanina Dumitru - - Maria Cristina Manda - - - Livioara Sujdea Stefan Alexandru Frangulea Mircea Toma Modran Mirela Dimbean Creta Source: Electrica Stefan Alexandru Frangulea Mirela Dimbean Creta Maria Cristina Manda Ligia Costin Stefan Valeriu Ivan - Chair starting with 31.01.2022 102 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe end date of the mandates of DEER’s directors at the date of this report is 31 January 2025 in the case of Mrs. Maria Cristina Manda, Mrs. Mirela Dimbean Creta, and Mr. Stefan Alexandru Frangulea, and respectively 30 June 2022 in the case of the other two directors, Mrs. Ligia Costin and Mr. Stefan Valeriu Ivan. The supply subsidiary EFSA – 1 January 2021 – date of the report 1 January – 1 February 2021 2 February – 26 April 2021 27 April – 7 September 2021 8 September – 11 December 2021 12 December – 29 December 2021 30 December – 31 December 2021 Mihai Darie – Chair Georgeta Corina Popescu – Chair starting with 9 February 2021 Georgeta Corina Popescu – Chair Georgeta Corina Popescu – Chair Georgeta Corina Popescu – Chair Georgeta Corina Popescu – Chair Bibiana Constantin Maria Cristina Manda Mihai Darie Mihai Darie Mihai Darie Mihai Darie Mihai Darie Bibiana Constantin Bibiana Constantin Bibiana Constantin Bibiana Constantin Bibiana Constantin Laura Mihaela Nastasescu Maria Cristina Manda Maria Cristina Manda Catalina Popa - Laura Mihaela Nas- tasescu Catalina Popa - Source: Electrica - - Stefan Ionut Pascu Razvan Tudor 1 January 2022 – 3 January 2022 4 January 2022 – 3 February 2022 3 February 202 – date of the report Georgeta Corina Popescu – Chair Georgeta Corina Popescu – Chair Stefan Ionut Pascu – President starting from 8 Februay 2022 Mihai Darie Stefan Ionut Pascu Razvan Tudor Stefan Ionut Pascu Razvan Tudor Mihai Ioanitescu Razvan Tudor Mircea Toma Modran Mircea Toma Modran Mihai Ioanitescu Source: Electrica - - 103 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe end date of the mandates of EFSA’s directors at the date of this report is 30 June 2022 The energy services subsidiary SERV – January 2021 – date of the report Through the Decision of SERV GMS from 30 December 2021, the articles of association of SERV was amended in the sense of reducing to 3 the number of members of the Board of Directors of SERV. 1 January – 17 January 2021 18 January – 14 February 2021 15 February – 29 April 2021 30 April – 24 June 2021 Stefan Valeriu Ivan- Chair Mihai Darie – Chair starting with 16 Popescu - Chair Georgeta Corina Popescu Georgeta Corina February 2021 Mihai Darie Bibiana Constantin Mihai Darie Mihai Darie Bibiana Constantin Anamaria-Dana Bibiana Constantin Bibiana Constantin Anamaria-Dana Acristini-Georgescu Acristini-Georgescu Irina Clima Anamaria-Dana Acristini-Georgescu Irina Clima Irina Clima - Irina Clima - Source: Electrica 25 June – 7 September 2021 8 September – 31 December 2021 1 January 2022 – 3 January 2022 4 January 2022 – date of the report Georgeta Corina Popescu - Chair Georgeta Corina Popescu - Chair Georgeta Corina Popescu - Chair Georgeta Corina Popescu - Chair Mihai Darie Mihai Darie Mihai Darie Irina Clima Bibiana Constantin Bibiana Constantin – in- terim between 12 Decem- ber – 31 December 2021 Irina Clima Stefan Ionut Pascu Irina Clima – interim Irina Clima between 12 December Stefan Ionut Pascu 2021 – 3 January 2022 Maria Cristina Manda Source: Electrica 104 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT The electricity production subsidiary EPE – 3 September 2021 (date of the establishment of the subsidiary) – date of the report Through the Decision of EPE GMS from 3 January 2022, the articles of association of EPE were amended in the sense of reducing to 3 the number of members of the Board of Directors of EPE. Source: Electrica The end date of the mandates of EPE’s directors at the date of this report is 3 September 2023 in the case of Mrs. Georgeta Corina Popescu, and respectively 30 June 2022 in the case of the other two directors, Mr. Mihai Ioanitescu and Mr. Razvan Tudor. Executive management of ELSA’s subsidiaries The tables below show the subsidiaries’ executive managers with delegated management duties by the Board of Directors of ELSA subsidiaries in 2021, as well as until the date of this report, as follows: The distribution subsidiary DEER– 1 January 2021 – date of the report 1 January 2021 – 30 June 2021 General Manager - 105 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT27 September 2021 - present General Manager 26 March 2022 1 January 2021 - present Integration Division Manager 30 June 2022 1 January 2021 - present Business Support Division Manager 31 March 2023 1 January 2021 – 8 July 2021 Financial Division Manager 9 July 2021 – 31 January 2022 Financial Division Manager - - 1 February 2022 – present Interim Financial Division Manager Executes and takes over the functions of Integrati- on Division Manager 30 April 2022 or until the appointment of Financial Division Manager if the appointment is before 30 April 2022 1 January 2021 - present Procurement Operations Manager 31 July 2022 1 January 2021 - present Energy Management Division Manager 14 October 2022 1 January 2021 - present Asset Management Division Manager 24 September 2022 1 January 2021 – 31 December 2021 Innovation Engineering Manager - 1 January 2021 – present Network Development Division Manager 31 December 2024 106 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT1 January 2021 - present TN Power Construction Unit Manager 1 September 2022 1 January 2021 - present TS Power Construction Unit Manager 30 June 2023 1 January 2021 - present MN Power Construction Unit Manager 1 September 2022 1 January 2021 - present Network Operations Division Manager 31 January 2023 1 January 2021 – 31 December 2021 TN Network Operations Unit Manager 1 January 2021 – 15 June 2021 TS Network Operations Unit Manager - - 1 January 2021 - present MN Network Operations Unit Manager 1 September 2022 Source: Electrica The supply subsidiary EFSA – until the date of the report 1 October 2019 - present General Manager 30 September 2023 10 March 2020 – present Interim Deputy General Manager 31 March 2022 13 April 2020 - present Sales Division Manager 12 April 2024 16 October 2019 - present Portfoliu Management Manager 15 October 2023 15 December 2020 – present Financial Division Manager 23 februarie 2022 1 March 2020 – present Interim Marketing Division Manager 31 March 2022 6 October 2021 – present (vacancy position until 5 October 2021) Operations Division Manager 31 December 2022 Source: Electrica 107 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe energy services subsidiary SERV – until the date of the report 15 December 2020 - 15 January 2021 General Manager 16 January 2021 – 16 July 2021 General Manager * with delegated attributions - - 17 July 2021 - 15 December 2022 6 May 2020 – 31 December 2021 1 December 2017 - 16 December 2023 1 June 2018 - 31 March 2021 Starting with 1 April 2021 based on an individual labor agreement General Manager 15 December 2022 Deputy General Manager - Property Management and Product Development Manager Technical Manager 16 December 2023 - - - 15 December 2020 – 15 January 2021 Financial Manager 20 January 2021- 31 August 2021 1 September 2021- 30 June 2022 Financial Manager *with delegated attributi- on based on an individual labor agreement Financial Manager 30 June 2022 Source: Electrica The electricity production subsidiary EPE – 3 September 2021 (date of the establishment of the subsidiary) – date of the report The Board of Directors did not appoint executive managers within the subsidiary during the period from the establishment until the date of the report. Number of shares owned by the managers of Electrica Group The table below shows the situation of ELSA shares held by the executive managers of the companies in the Group which were mentioned in this chapter, a situation valid both on 31 December 2021, as well as on 16 February 2022 (last update): Item no. Name Number of shares Weight in the share capital (%) Source: Depozitarul Central, Electrica Niculae Havrilet 108 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAccording to information held by ELSA, there is no contract, understanding, or family relationship between the executive managers of the Group companies mentioned in this chapter and another person who may have contributed to their appointment as executive managers. According to available information, the members of the BoD and the executive managers of the Group companies mentioned in this chapter have not been involved, in the last five years, in any litigations or administrative procedures related to their activity within the Group and to their capacity to fulfil their work-related duties within the Group. General Meetings of Shareholders of ELSA subsidiaries Corporate approvals at the GMS/BoD level in the case of ELSA’s subsidiaries are regulated through their articles of association, as well as through the implemented corporate policies. ELSA, as majority shareholder of its subsidiaries, voted in their GMS in 2021 on various topics, amongst which the most important are related to: revenue and expenses budgets, financial statements, the financial part of the individual annual investment plan, profit appropriation; contracting a term loan from the EIB and a term loan from the EBRD to finance the investment plan for the period 2021-2023 by DEER, guaranteed by ELSA; contracting a multi-product credit line (cash/overdraft and non-cash / letters of bank guarantee) and a line of credit for issuing letters of guarantee (non-cash) from commercial banks to finance the current activity by EFSA, with a guarantee by ELSA; general debt limit in case of EFSA; amendments/improvements of the articles of association of the subsidiaries; increases in the share capital with land plots in the case of DEER and EFSA (initiations of the increases in the share capital in case of DEER and EFSA and completion of the increase in the share capital initiated in 2020 in case of EFSA); introduction of the second shareholder within DEER and SERV; SERV participation, together with ELSA, in the establishment of a new legal entity, ELSA subsidiary for electricity production, Electrica Productie Energie S.A., in the case of SERV; SERV participation, together with ELSA, in the establishment of the Electrica Foundation; changing the name of DEER subsidiaries; extension of the mandate of the financial auditor Deloitte Audit SRL for a period of two years, in case of DEER, EFSA, SERV; the acquisition of printing services, the services for folding up the electricity / natural gas bills and other documents, as well as the opportunity to purchase postal services for the distribution of correspondence, parcels, and computer archiving services of documents resulting from the distribution of disconnection notices, in case of EFSA; appointment of the directors in the Board of Directors of the subsidiaries; amending the articles of association of SERV and EPE in the sense of reducing to 3 the number of members of the Boards of Directors of SERV and EPE. Starting with the end of 2019/beginning of 2020, a unitary policy was implemented within the Group’s subsidiaries, regarding the organization and conduct of the General Meetings of Shareholders of the Electrica Group companies, whose objectives are for each company to obtain the corporate approvals in the competence of the GMS in a timely manner, in order to carry out in good conditions the operational activity, in compliance with all legal and statutory provisions, implementation of a unitary system of convening, organizing, carrying out the GMS meetings in Electrica Group, as well as better tracking of the implementation of GMS resolutions. 109 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4.9. Statement regarding the corporate governance “Comply or Explain” The present Statement reflects ELSA’s status of compliance with the new BSE Corporate Governance Code as of 28 February 2022. Note: considering the fact that there are no mentions for “Reason for non-compliance”, the corresponding column has been removed from the table below. The company had elaborated ever since February 2015 ELSA’s Corporate (ELSA’s CGC) that Governance Code included the Articles of Association of the Company, the rules of the organization, and the functioning of the BoD and its committees. All these documents mentioned above contain the terms of reference/the responsibility of BoD, as well as those of the key management functions of the company. In 2016, the Board carried out an extensive project to review the Articles of Association and the above-mentioned regulations A.1. All companies must have an internal in order to detail the responsibilities of Board regulation which includes the terms of the Board, of its committees, and the reference/responsibilities of the Board and the YES management team, taking into account key management functions of the company, and the recommendations made in the which applies, among other things, the General Evaluation Report of the Board’s activity Principles of this Section. in the previous year. In recent years, these documents have undergone successive revisions to align with domestic and international best practices. The most recent versions of the Articles of Associations, ELSA’s CGC, and the Charter of the BoD and its Committees are available on the company’s website in the section “Investors -> Corporate Governance”. Such provisions are mentioned in ELSA’s A.2. Provisions for the management of conflict YES CGC, in the Articles of Association, in of interest should be included in the Board the Code of Ethics and Professional regulation. Conduct, and the BoD organization and functioning regulation. 110 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT A.3. The Board of Directors must consist of at least ELSA’s BoD consists of seven members five members. YES since 14 December 2015. A.4. The majority of the members of the Board of Directors must have no executive function. In the case of Premium Companies no less than two non-executive members of the Board of Directors should be independent. Each independent member of the Board of Directors should submit a declaration at the time of its nomination for election or re-election as well as when any change in its status occurs, indicating the elements on the basis of which it is considered independent in terms of its character and judgement and according to the following criteria: A.4.1. is not the General Manager/Executive Director of the company or a company controlled by it and has not held such a position for the past five (5) years; All the members of ELSA’s BoD are non- A.4.2. is not an employee of the company or a executives. According to the Articles of company controlled by it and has not held such Association, at least four out of seven a position for the past five (5) years; A.4.3. does members must be independent. The not and did not receive additional remuneration independence criteria stipulated in or other advantages from the company or a YES the Articles of Association are similar company controlled by it, other than those and even more restrictive than those in corresponding to the quality of a non-executive the BSE’s Corporate Governance Code. director; A.4.4. is not or has not been an employee Currently, four out of seven members are or has not had a contractual relationship, during independent. All independent members the previous year, with a significant shareholder submitted a declaration of independence, of the company, shareholder who controls more at the time of their appointment by the than 10% of voting rights or with a company OGMS. controlled by him; A.4.5. does not have and did not have in the previous year a business or professional relationship with the company or with a company controlled by it, either directly or as a customer, partner, shareholder, member of the Board/Administrator, General Manager/ Executive Director or employee of a company if, by its substantial nature, this report may affect its objectivity; A.4.6. is not and has not been for the last three years the external or internal auditor or partner or associate employee of the current external financial or internal auditor of the company or a company controlled by it; A.4.7. is not the general manager/executive director of another company where another general manager/executive director of the company is a non-executive director; A.4.8. has not been a non- executive director of the company for more than twelve years; A.4.9. has no family ties to a person in the situations mentioned in points A.4.1. and A.4.4. 111 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTA.5. Other relatively permanent professional commitments and obligations of a Board member, including executive and non-executive The professional background of the proposed candidates, as well as of the current Board members are available on ELSA’s website in the Investors > General Meeting of Shareholders section. Their biographies contain all the relevant Board positions in companies and not-for-profit information requested by this provision institutions, must be disclosed to shareholders YES of the Code. The updated biographies of and potential investors before the appointment each member of the Board are presented and during his/her term of office. annually in the Directors’ Report and on the company’s website in the section Investors> Corporate Governance> Board of Directors. When a Board member has entered A.6. Any member of the Board should submit to into a relationship with a shareholder the Board information on any relationship with who directly or indirectly holds shares a shareholder who holds, directly or indirectly, YES representing more than 5% of all voting shares representing more than 5% of all voting rights, he/she promptly informed the rights. entire Board. A.7. The company should appoint a Board The company has established the General secretary responsible for supporting the Board’s YES Secretary Department, which is directly work. subordinated to the Board of Directors. A.8. The corporate governance statement will assessment process of its activity with inform whether an evaluation of the Board the support of an external consultant has taken place under the leadership of the (in 2015, 2017, and 2020), or using a self- chair or the nomination committee and if so, YES assessment questionnaire (in 2016, 2018, will summarize the key measures and changes 2019, and 2021) This provision was applied starting with 2015, the BoD carrying out an annual resulting from it. The company should have a policy/guide regarding the evaluation of the Board including the purpose, criteria, and frequency of the evaluation process. More details are provided in the 2015-2017 Annual Reports in chapters 6.1 and 6.2, for 2018 and 2019, 2020 and 2021 in chapter 4.5. A.9. The corporate governance statement must Details regarding the compliance with contain information on the number of meetings this provision are presented in the Annual of the Board and committees during the last year, directors’ attendance (in person or absent), and YES a report of the Board and committees on their activities. Report, chapter. For 2021, please see chapter 4.5. in the Corporate governance 112 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTA.10. The corporate governance statement must in the Annual Report. More details are contain information on the exact number of independent members of the Board of Directors. YES provided in the Annual Reports for 2021 in chapter 4.4. Four out of seven members of the BoD are independent and this is specified On ELSA’s website, in the section Investors > Corporate Governance > Board of Directors, it is specified exactly which members are independent. The Articles of Association and ELSA’s CGC highlight the existence of this committee Remuneration and (Nomination Committee - NRC), its members, and its A.11. The Board of Premium Companies must set responsibilities. The NRC composition is up a nomination committee of non-executive reviewed annually, in accordance with members that will lead the procedure of the NRC organization and functioning nomination of new members to the Board and regulation (Charter) and at the beginning will make recommendations to the Board on YES of each new mandate of the BoD. In May the appointment and the revocation of the Chief 2021, its structure was revised according Executive Officer and the management team. to the changes that occurred in the The majority of the members of the nomination board structure. According to the NRC’s committee must be independent. Section B Risk management and internal control system Charter, in December 2021 the current structure of the NRC was established, two of the members being independent. Details regarding the NRC structure are presented in chapter 4.4. The Articles of Association and ELSA’s CGC B.1. The Board must set up an audit committee highlight the existence of this committee in which at least one member must be an independent non-executive director. A majority (Audit and Risk Committee - ARC), its structure, and responsibilities. of members, including the chairman, must The ARC structure is reviewed annually, have proven that they are adequately qualified according to ARC Charter and at the relevant to the functions and responsibilities of beginning of each new mandate of the the committee. At least one member YES BoD. of the audit committee must have proven and In May 2021, its structure was revised appropriate audit or accounting experience. according to changes in the BoD structure. In the case of Premium Companies, the audit In accordance with the ARC Charter, the committee must consist of at least three members, current composition of the ARC was voted and the majority of the audit committee must be independent. in December 2021, in which two of the members are independent. Details of this are presented in chapter 4.4. 113 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSection B Risk management and internal control system B.2. The chairman of the audit committee must YES Florescu, an independent non-executive On 6 May 2021 and subsequently, on 15 December 2021, Mr. Radu Mircea be an independent non-executive member. B.3. Among its responsibilities, the audit YES board member was elected and respectively re-elected as Chairman of the Audit and Risk Committee. According to the organization and functioning regulation, the Audit and Risk Committee (ARC) has the following responsibilities on internal control issues: (i) regularly review the adequacy and implementation of key internal control fraud detection policies, including committee must carry out an annual assessment and bribery prevention policies; (ii) of the internal control system. reviewing related parties transactions in accordance with a policy developed by the Committee and approved by the Board; (iii) analysis of the annual report prepared by the Internal Audit Department and/or Risk Management Department assessing the effectiveness of the internal control system within the Group. B.4. The assessment must consider the effectiveness and purpose of the internal audit Such reports are annually presented. function, the adequacy of risk management The assessment report for 2021 specified and internal control reports submitted to the in the CGC was presented and discussed audit committee of the Board, the promptness YES by the Audit and Risk Committee in the and effectiveness with which the executive meeting on 24 February 2022. management solves the deficiencies or weaknesses identified as a result of the internal control and the submission of relevant reports to the Board’s attention. B.5. The audit committee must assess conflicts The assessment is carried out annually. of interest in connection with the transactions The assessment report for 2021 specified of the company and its subsidiaries with related YES in the CGC was presented and discussed parties. by the Audit and Risk Committee during its meeting on 24 February 2022. 114 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSection B Risk management and internal control system The ARC has at least the following responsibilities on risk management issues: (i) regularly review of the main risks to which the company and the Group are exposed, recommending to the Board appropriate policies for identifying, mapping, management, and risk B.6. The audit committee must assess the reduction; effectiveness of the internal control system and YES (ii) annual analysis of a management risk management system. report that assesses the effectiveness of the risk management system within the Group. Based on the ARC Charter’s provisions, the evaluation report for the year 2021 was presented and discussed by the Audit and Risk Committee at its meeting on 24 February 2022. Details regarding the ARC activity for the year 2021 are presented in chapter 4.5 of the Annual Report. The ARC has the following responsibilities on internal audit issues: (i) approval of an annual audit plan at Group level, based on an annual risk assessment, as well as any significant changes to the plan and receipt of periodic reports on activities, key B.7. The audit committee must monitor the findings and follow up of internal audit application of legal standards and generally reports; accepted internal audit standards. The audit (ii) advising the Board on the committee must receive and assess the reports YES appointment, revocation, and of the internal audit team. remuneration of the Head of Internal Audit Department; (iii) monitoring the adequacy, effectiveness, and independence of the internal audit function. Details regarding the ARC activity are presented in chapter 4.5 of the Annual Report. B.8. Whenever the Code mentions reports or analysis initiated by the Audit Committee, these must be followed by regular (at least annual) YES or ad-hoc reports to be submitted to the Board afterward. 115 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTB.9. No shareholder may be granted preferential Provisions on this matter are included treatment over other shareholders with regards YES in ELSA’s CGC and the Policy on to transactions and agreements concluded by Transactions with Related Parties. the company with shareholders and their related parties. B.10. The Board must adopt a policy to ensure that any transaction of the company with any of the companies with which it has close relations whose value is equal to or more than 5% of the net assets of the company (according to the The Policy regarding the transactions latest financial report), is approved by the Board YES with Related Parties, has been updated following a mandatory opinion of the Board’s audit committee and fairly disclosed to shareholders and potential investors, to the extent that these transactions fall under the category of events subject to reporting requirements. in July 2020 and covers all the required aspects. B.11. Internal audits must be carried out by The internal audit is carried out by the a separate structural division (internal audit YES Internal Audit Department, a structurally department) within the company or by hiring an separate entity. independent third-party entity. B.12. In order to ensure the performance of the main functions of the internal audit department, it must report functionally to the Board through Departamentul de audit intern the audit committee. For administrative purposes YES raporteaza din punct de vedere and within the framework of management’s functional catre CA prin intermediul CAR obligations to monitor and reduce risks it must si administrativ directorului general. report directly to the chief executive officer. Section C Fair rewards and motivation C.1. The company must publish on its website the In accordance with Law 24/2017, remuneration policy and include in its annual as amended and subsequently report a statement of the remuneration policy supplemented by Law no. 158/2020 during the annual period under review. The (Art.92 ^ 1), on 28 April 2021, ELSA GMS remuneration policy must be formulated in such approved the updated Remuneration a way as to allow shareholders to understand Policy for Directors and Executive the principles and arguments underlying the Managers, in which all the aspects remuneration of the members of the Board stipulated by this statement are detailed. and the CEO, as well as the members of the The Remuneration Policy for Directors Management Board in two-tier board systems. It should describe how the process is managed YES and decision-making on remuneration, detail the components of executive management remuneration (such as salaries, annual bonus, long term incentives related to the value of and Executive Managers is available on the ELSA website, under Investors > Corporate Governance > Corporate Policies and other documents. 116 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSection C Fair rewards and motivation shares, benefits in kind, pensions, and others), In previous years, issues related to the and describe the purpose, principles, and implementation of the Remuneration assumptions underlying each component Policy were presented in the annual (including general performance criteria for any report. For the year 2021, ELSA has form of variable remuneration). In addition, the prepared an independent report on the remuneration policy must specify the duration remuneration of the administrators and of the executive manager’s contract and the executive directors to be submitted to notice period provided for in the contract as well the consultative vote of the ELSA GMS, as any compensation for revocation without just according to the applicable legislative cause. The remuneration report must present the provisions. implementation of the remuneration policy for the persons identified in the remuneration policy during the annual period under review. Any essential change in the remuneration policy must be published in a timely manner on the company’s website. Section D Building value through investors’ relations D.1. The company must have an Investor Relations function – indicating to the public the person(s) responsible or the organizational unit. In addition to the information required by legal provisions, the company must include on its website a section dedicated to Investor Relations, both in Romanian and English, with all relevant information of interest to investors, including: D.1.1. Main corporate regulations: the articles of association, the procedures regarding the general meetings of shareholders. D.1.2. Professional CVs of members of the The company has both an Investor company’s management bodies, other Relations department and a section professional commitments of the board dedicated to Investor Relations on its including executive and non- members, executive positions on board of directors of YES companies or non-profit institutions website (in both Romanian and English). All relevant information for investors is published under the Investors section D.1.3. Current and periodic reports (quarterly, on ELSA’s website. semi-annual and annual reports); D.1.4. Information related to general meetings of shareholders; D.1.5. Information on corporate events; D.1.6. The name and contact details of a person who should be able to provide relevant information upon request; D.1.7. Corporate presentations (e.g. investors presentations, quarterly results presentations, etc.), financial statements (quarterly, semi-annual, annual), audit reports, and annual reports. 117 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSection D Building value through investors’ relations D.2. The company will have a policy on the annual distribution of dividends or other benefits The BoD last revised the Dividends to shareholders, proposed by the CEO or the Policy at its meeting on 14 February Management Board and adopted by the Board, in the form of a set of guidelines that the company YES intends to follow regarding the distribution of net 2018. It is published on ELSA’s website, in the Investors > Corporate Governance > Corporate Policies and other documents profit. The principles of the annual distribution section. policy to shareholders will be published on the company’s website. D.3. The company will adopt a policy regarding the forecasts, whether they are made public or not. The forecasts refer to quantified conclusions of studies aimed at determining the overall impact of a number of factors for a future period (so-called assumptions): by its nature, this projection has a high level of uncertainty, the YES actual results may differ significantly from the forecasts initially presented. The forecast policy The BoD last revised the Forecasts Policy in its meeting on 14 February 2018. It is published on the ELSA website, in the Investors > Corporate Governance > Corporate Policies and other documents will determine the frequency, period envisaged, section. and content of the forecasts. Forecasts, if published, may only be part of annual, semi- annual, or quarterly reports. The forecast policy should be published on the company’s website. ELSA rules and procedures that establish the framework for the organization and conduct of general meetings of shareholders are part of ELSA’s Policy on organizing and running the General D.4. The rules of general meetings of shareholders Meetings of Shareholders, available from should not limit the participation of shareholders the beginning of 2020 and in updated in general meetings and the exercise of their form from August 2020, in electronic rights. Changes to the rules will take effect at the earliest, starting with the next general meeting of shareholders YES form on ELSA website in the section Investors > Corporate Governance > Corporate Policies and other documents. Also, the rules of general meetings of shareholders are mentioned in each convening notice, published in accordance with the legal and statutory requirements approximately 45 days before each meeting. D.5. The external auditors should attend the External auditors attend each OGMS general meetings of shareholders when their reports are presented. YES in which the financial situations and annual reports are approved. 118 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSection D Building value through investors’ relations D.6. The Board will present to the annual general The directors’ annual report, presented to the annual general meeting of shareholders together with financial statements, contains the the meeting of shareholders a brief assessment of BoD’s assessments on the systems of the systems of internal control and significant YES internal controls and significant risk risks management, as well as opinions on issues management. subject to the decision of the general meeting. As a practice, all the documents subject to the GSM approval are endorsed by the BoD; this is clearly stated in the documents presented to the shareholders. D.7. Any professional, consultant, expert, or financial analyst may attend the shareholders’ In this respect, the agreement of the meeting on the basis of a prior invitation from the shareholders present at the General Board. Accredited journalists may also attend the YES Meetings was requested each time it general meeting of shareholders unless the Chair was the case. of the Board decides otherwise. D.8. The quarterly and semi-annual financial reports will include information in both Romanian The quarterly and half-yearly financial and English on key factors influencing changes in reports can be consulted on the sales levels, operating profit, net profit, and other YES relevant financial indicators, both from quarter to company’s website Results Investors> in and the section Reports> quarter as well as from one year to another. Financial results D.9. A company will hold at least two meetings/ ELSA organizes quarterly teleconferences teleconferences with analysts and investors with analysts and investors and each year. The information presented on these publishes presentations and audio occasions will be published in the investor YES recordings of the teleconference on the relations section of the company’s website at the ELSA website, in the section Investors > date of the meetings/teleconferences. Results and Reports > Presentations and other information. Information regarding the CSR activities D.10. If a company supports different forms of can be found online on the company’s artistic and cultural expression, sports activities, website, in the CSR section. The Grants educational or scientific activities, and considers Program is annually reviewed and their impact on the innovative character and approved by the BoD. competitiveness of the company part of its YES The projects and activities supported mission and development strategy, it will publish each year are presented in ELSA’s annual the policy regarding its activity in this area. Sustainability Reports, available on the ELSA website, in the CSR section > Non- financial Reporting. 119 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4.10. Implementing action plans undertaken by signing the framework agreement with EBRD The company’s initial public offering and dual listing process involved the signing of a framework agreement with the European Bank for Reconstruction and Development (EBRD), which includes action plans aiming at key dimensions for the company’s transformation: developing a culture of integrity and compliance, adopting best practices regarding corporate governance and incorporating the sustainability principles at Group level. As for the development of a culture of integrity and compliance at the Electrica Group level, in line with the EBRD standards, the year 2021 meant maintaining the compliance framework from an ethical perspective and updating it in accordance with the evolutions of the social and legal context in which the organization operates, through concerted actions on four main directions: maintaining the organizational structures dedicated to ethics and compliance and increasing their awareness of their role within the organization; updating the compliance framework - The Code of Ethics and Profesional Conduct, as well as, adopting The Policy of preventing, combating, and sanctioning any form of harassment in the workplace; informing, through the information channel available to all employees, about updating the compliance framework – The Code of Ethics and Professional Conduct, as well as, about implementing, promoting, and disseminating these documents at the level of all employees from the organization; monitoring the compliance in relation to the framework defined by the Code of Ethics and Professional Conduct and subsequent policies and procedures. Having mainly a preventive role in relation to the risks to which the organization is exposed, compliance adds value to each business, but, in order to be effective, the compliance framework must be adapted to the organization transformations and to be aligned permanently with legislative changes, external environment trends and business ethics’ best practices. The information and awareness activities regarding the provisions of the compliance framework from the ethical perspective of the organization’s staff were carried out exclusively through the online environment, due to the restrictions generated by the existing health situation. Regarding the organizational structures dedicated to ethics and compliance, these exist at each company level from the Group. Regarding the donations, in 2021 Electrica Group focused on donations in the health field in order to support the situation created by the COVID-19 pandemic. The action plan regarding corporate governance The implementation of the Corporate Governance Action Plan, assumed as part of the Framework Agreement with EBRD, has been considered since the IPO and the company’s listing. The standards and measures it envisaged have been implemented, maintained, and continuously monitored. Selection of independent directors The EBRD guidelines were included in ELSA’s Articles of Association adopted on 4 July 2014, being maintained in the context of increasing the total number of directors from five to seven, by adopting the Extraordinary General Meeting of Shareholders decision from 10 November 2015; out of the seven directors, four must meet the independence criteria. For details about ELSA’s Board of Directors, its members, and the election of its members, please see chapter 4.4. Nomination and Remuneration Policies ELSA uses nomination and remuneration principles in accordance with best practices for the appointment and remuneration of directors, executive management, and other members of its staff. In this respect, the Profile of the Board of Directors and the Policy for the nomination of the executive managers were elaborated. The Nomination and Remuneration Committee periodically reviews The Remuneration Policy for ELSA’s Directors and Executive Management which describes the main pillars of remuneration, as well as the terms, conditions, and non-financial benefits approved by ELSA’s corporate governance bodies. 120 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAs a result of the change of the European and Articles of Association adopted since the listing of national legal framework, according to the European Directive no. 828/2017, transposed into national the company is available on its website in the section The group > About > Articles of Association. legislation by Law no. 24/2017, as it was subsequently amended and supplemented by Law no. 158/2020 (Art.92 ^ 1), in 2021 the Remuneration Policy for the Administrators and Executive Directors of ELSA was Clear lines responsibility of competence and submitted for the approval of the GMS. To define the reporting system and to set responsibilities and competencies at the level of the Remuneration Policy approved by HAGOA no. group and its’ companies, ELSA, and its subsidiaries 1 of 28 April 2021, does not change the limits of carried out projects for processes’ mapping both remuneration established by HAGOA no. 2 of 9 July in distribution and in supply areas, benefiting from 2015, HAGOA no. 1 of 31 March 2016, and HAGOA 1 / external consultancy in this regard. In the context 9 February 2018, but, based on the new legislative of the 2018 – 2020 organizational transformation, provisions, transparently presents the elements of the applicable procedural framework, and the fixed and variable remuneration, including financial documentation of the Quality – Environment - OHS and non-financial benefits, in any form, that may be Integrated Management Systems implemented at granted to Directors and ELSA Executive Directors. each Group company level have been fully revised, For details regarding the remuneration of the Board members and the executive management of ELSA, please see chapter 4.7. maintaining their certifications in accordance with ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 following the audit performed during 2020 by the SRAC CERT certification body, IQNet affiliate. Advisory Committees of the Board of Directors Code of Conduct EBRD requirements are covered by the Code of Ethics In order to increase the effectiveness of its activity, and Professional Conduct, which has been updated ELSA’s Board of Directors has established the in accordance with the new Strategy adopted by following committees with an advisory role: the the Electrica Group. Regarding the Whistleblowing Nomination and Remuneration Committee, the Policy, it has been updated and is available on the Audit and Risk Committee, and the Strategy and company’s website. Corporate Governance Committee. For details, please see chapter 4.5. In 2021, follow-up actions were carried out in relation to the provisions of the Code at the group level, after it was disseminated and implemented in its new Internal Control and Audit Framework version within the Group. In 2021, the documentation governing the internal audit activity at the Electrica Group level approved in November 2019 was maintained and applied. This Compliance with BSE Governance Code Corporate documentation was approved in its first version by On 4 January 2016, the new BSE Corporate the BoD at the beginning of 2015 and includes the Governance Code entered into force and, on this Internal Audit Charter, the Audit Manual, and the Auditor’s Code of Ethics, its last update dating from occasion, ELSA published on 8 January 2016 the „Corporate Governance Code Apply or Explain” 2019. The documents are available on ELSA’s website statement according to the new provisions. ELSA in the section The group > Internal Audit. For details about the internal audit please see chapter 4.11. and for more details on the internal control, please see chapter 6.8. ELSA’s Articles of Association publishes the updated statement yearly and reports promptly to the capital market any update of its compliance. In its turn, ELSA adopted its own Corporate Governance Code since the beginning of 2015, its last update being approved by the BoD on 23 June 2020. This version, as well as the policies and other EBRD guidelines were included in the Articles of Association of ELSA adopted on 4 July 2014. corporate documents referred to by the Corporate Governance Code of ELSA, are available on the In 2021, ELSA’s Articles of Association were updated company’s website in the Investors > Corporate according to ELSA Board of Directors’ decisions Governance section (https://www.electrica.ro/en/ from 11 August 2021, following the increase of the company’s share capital. All versions of the ELSA investors/corporate-governance/). For details, please consider chapters 4.9 and 4.1. 121 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTElectrica Group continues to have a Market Abuse installations (including cutting of protected tree Policy adopted by all companies within the Group. species), these must be developed to EU standards. The Environmental and Social Action Plan (ESAP) Inform EBRD if any EIAs are carried out by sharing the link on the DEER website. Include a summary of the EIAs undertaken in the annual Electrica Sustainability Report, also referring to the NTS’ In 2021 the Environmental and Social Action Plan published on their website. Inform EBRD if CAPEX- was updated by SAP as part of the Loan Agreement related work would be carried out in Natura 2000 signed by DEER with EBRD and guaranteed by Electrica S.A. for financing DEER’s CAPEX Plan 2021 sites and protected areas. No environmental Impact studies were required for – 2023. The revised ESAP includes the following developing electrical distribution networks included actions, their status of implementation being also in CAPEX Plan, yet, according to law no. 292/2018 mentioned in the following section Organogram of EHS management structure and update certification Annex 5E. Permits DEER to ensure needed permits are acquired Develop an organogram presenting the EHS from the Ministry of Culture, according to Building management structure from Group-level Planning Permit, if works affect protected buildings, management, implementation within DEER. Make this accessible on the Group to County-level and obtain the environmental authorisations according to the Building Planning Permit (including intranet portal, alongside the existing E&S Policy, cutting of protected trees, if needed) from Local under their management systems page and shared with all staff. Organogram presenting the EHS management Authorities. All necessary permits were acquired for investment projects included in CAPEX Plan according to structure in course of elaboration due to delays in Building Planning Permit DEER transformation project; responsible persons were appointed at the level of ELSA/DEER Cascading of E&S requirement DEER to gain ISO14001 certifications. Integrate the management systems of the previous DSOs and Construction Environmental Management Plans gain certification as a single Company. ISO 14001 Certificate for DEER was obtained in April 2021. Project-Specific Risk Assessments (CEMPs) should be developed by contractors before they begin works, in line with Electrica risk assessments and instructions. These CEMPs shall then be cascaded to any sub-contractors engaged. The CEMP shall include a measure to control noise and dust emissions and wastewater during the Develop and implement a standardized new H&S, environment, and social risk assessments instrument construction period. The projects (technical execution documentation) (methodology) and apply the methodology for with E&S and H&S risks and mitigation measures works categories/works included in the 2021-2023 included are part of the contract signed with the CAPEX Plan, prior to construction commencement, contractors mandatory to be respected. if not launched. E&S and H&S risks and mitigation measures are included in all DEER projects (technical execution Worker accommodation documentation) for investment works; the Review accommodation provided for workers not methodology is being developed for ensuring a able to return home daily (where relevant), ensuring unified approach for all projects EIA Screening it is of suitable quality and in line with EBRD/IFC Guidance Note7. Accommodation for own personnel is reviewed and controlled; DEER is reviewing its H&S Continue environmental screening of projects Control Procedure in order to include reviewing under the CAPEX Plan. If DEER must develop and implement national EIAs for certain unforeseen accommodation during its controls for contracted work. 7 https://www.ebrd.com/downloads/about/sustainability/Workers_accomodation.pdf 122 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTGender-Based Violence and Harassment (GBVH) Policy with ISO 50001 and gain certification by the end of 2024. The energy management system implementation Update Code of Ethics and Professional Conduct to is planned for DEER after the post-merger include a GBVH Policy in line with international best organizational transformation project in order to practice. The Policy for preventing combating and sanctioning gain certification during 2024. any form of harassment at work was adopted by PCBs ELSA and DEER and it is in process of approval for the other companies within Electrica Group. Code Electrica DSO is currently in the process of of Ethics and Professional Conduct was reviewed in eliminating PCBs from electrical installations in order to include references to this policy. operation. DEER to continue the process to meet the Retrenchment 2028 deadline and report annually to EBRD. The process of PCB - polychlorinated biphenyls - elimination from operating electrical installations The Company will develop and maintain corporate continued in 2021. However, the number of operating retrenchment provisions within Collective Bargaining electrical equipment containing PCBs is relatively Agreement and plan retrenchment initiatives in line low for two of the DEER regions, and the rate of with EBRD retrenchment guidelines to minimise decrease for the third region is accelerated, which the social and economic impact of staff reductions if such is required. This will be developed in line with ensures the comfort of the company in implementing the national program of elimination within the term best practices and will comply with relevant national 2028, according to the GD 1497/2008. The process requirements. The Company will inform the Bank of is monitored based on annual reports and the any major retrenchment (over 500 staff) and submit information is published in the Group’s Sustainability a specific mitigation plan at least one month before Report. employees are actually terminated. Retrenchment programmes affecting over 100 staff but less than Health and Safety System and Policy 500 will be reported in the annual report. The provisions regarding the reorganization/ DEER to maintain ISO 45001:2018 certification. restructuring activities inside the Group are part of Revise the integrated HSE Policy to capture the the Collective Bargaining Agreement signed with the trade unions which is renegotiated every 2 years. DSOs merger DEER obtained ISO 45001:2018 certification in April There is no major retrenchment programme 2021 and revised its Declaration of policy in order to implemented yet, and the retrenchment capture the DSOs merger during the first quarter of programmes affecting staff during 2022 will be 2021. reported in the 2022 Annual Report. Asbestos Greenhouse gas emissions analysis Conduct an Asbestos-containing Materials (ACM) Prepare a study on the greenhouse gas (GHG) survey at the proposed substations and develop emissions of Electrica Group operations and an Asbestos Management Plan (AMP) for the sites identify areas to cut emissions, with the results to be published in the 2021 Sustainability Report. included in the CAPEX Plan. In order to facilitate a investigation, DEER should also comprehensive Yearly update on implementation and continuous ensure that all electrical equipment is isolated and improvement in the Sustainability Report. The project for calculating greenhouse gas (GHG) made safe for the surveys. The construction waste management procedures within the CEMP for this emissions of Electrica Group operations and Project should incorporate preventive measures/ identifying areas to cut emissions was elaborated approaches if asbestos is identified during the works by Electrica and its implementation will start early and should follow the AMP. Maintain a corporate in 2022. The results will be published in the Group’s Sustainability Report. Energy management Electrica Group and DEER to implement an integrated approach to energy management in line asbestos risk assessment and elimination plan. The majority of sites included in the CAPEX Plan are Asbestos-free, but DEER is analysing all the sites in order to develop an Asbestos Management Plan (AMP), where necessary. 123 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCommunity Health & Safety in emergencies; maintenance of fire protection facilities and fire-fighting equipment and devices for Following the CAPEX implementation, inspect each location, with authorized companies; maintain local distribution infrastructure and ensure that free access to evacuation routes; supplementary equipment is suitably installed and protects the measures for fire prevention during the hot and the community from harm (e.g. trips and electrocution), cold seasons. as part of the infrastructure maintenance plan. Any unprotected equipment that could cause harm Noise monitoring to the local community should be reported and repaired. During maintenance plan implementation DEER Monitor noise levels at highly sensitive receptor areas that complain of ongoing noise from their teams are constantly inspecting local distribution equipment (such as densely populated areas, infrastructure and ensure that equipment is suitably hospitals, and schools) and develop and implement installed and protects the community from harm. noise-canceling solutions if the monitoring shows Any identified unprotected equipment that could some exceedances (or other noise control measures cause harm to the local community is instantly such as the restriction of drilling during certain hours repaired. Working at Height and Lockout/ Grounding Instruction if the exceedance is related to construction works). The new instruction for environment controls that includes monitoring noise levels activities was elaborated and approved by DEER. Ensure H&S instruction for deactivating and properly Electromagnetic Fields grounding live power distribution lines complies with national regulations. Finalise the new Working Continue monitoring potential impacts from at Height /Grounding instruction. HSW instruction for deactivating and properly electromagnetic fields (EMF) from transformer stations and transmission lines. Ensure compliance grounding live power distribution lines and for working at height is in place and complies with with National legislation concerning EMF. There are studies regarding DEER’s distribution national regulations. Visual Impacts infrastructure (grids and power plants) electromagnetic fields indicating complies with the National legislation concerning EMF. DEER is analysing options for including new project EMF Assess the potential visual impacts of the new measurements in the commissioning procedure and lines and develop mitigation measures e.g. moving for independent future studies. the lines underground, altering the proposed line alignment, taking into account local communities’ Land Acquisition Framework sensitivities to their construction (through the SEP) according to national legislation provisions. During the designing phase, DEER adopts technical If there is a need to acquire some land within the CAPEX Plan, develop a Land Acquisition solutions considering the visual impact of its future Framework (LAF), presenting Electrica’s policy of fair installations (replacing overhead power lines with compensation and the acquisition process in line subterrane power lines) according to national legislation provisions. with national legislation and PR5. Ensure the CAPEX Plan installations follow this Framework. No new land acquisition was required for electrical Emergency Preparedness and Response distribution infrastructures included in CAPEX Plan, yet. Survey all offices and substations for their fire extinguishers and emergency plans, ensuring that Bird death monitoring all are up to date, according to the legislation in force. For all premises owned by DEER, there are Fire Develop and implement a bird mortality monitoring Safety Plans defined. Prevention measures were system according to the relevant EU legislation that implemented, consisting in control of compliance with legal requirements by own authorized provides yearly estimations of bird deaths. DEER developed a bird mortality monitoring personnel; periodic training for all categories of instruction that is in the process of approval, based staff, according to the approved training programs; on SCADA systems alerts and local ground search performing intervention and evacuation exercises surveys with carcass detection. 124 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAvoiding and mitigating against bird deaths Stakeholder Engagement for the 2021- 2023 CAPEX Plan Continue to install new lines with electrical insulating Develop a CAPEX Plan-specific stakeholder sheaths in areas of significant bird activity defined by engagement plan (for the overall CAPEX program) to relevant NGOs and environmental authorities. DEER ensure that all the necessary engagement activities to continue to install special brackets (nests) on the will be undertaken during the implementation of pillars of the low and medium-voltage overhead lines. Conduct biodiversity sensitivity mapping. the upcoming works being financed by EBRD. DEER has a Stakeholders Engagement Plan and Where necessary, implement bird markers and the section regarding the CAPEX program will be reduce the risk of electrification of birds with the published on the DEER website. appropriate design of electric insulators. Ensure any new lines or modernized lines include bird-friendly designs. During the designing phase DEER adopts technical Integrate the public grievance processes into one mechanism solutions for biodiversity protection and considers Develop and implement an IT system for logging, replacing overhead power lines with subterrane tracking, and solving grievances and revise the power lines, replacing uninsulated conductors response time according to regulations in force with insulated conductors, mounting electrically (ANRE). Complaints lodged with DEER directly to be insulated sheaths for its new/modernise power lines. A document regarding technical guidelines that acknowledged and solved according to regulations in force (ANRE) (15 days to 30 days to respond will insure a unitary approach for designing power lines is to be elaborated at the DEER level including depending on the nature of the complaint). The grievance mechanism is published on the DEER standard protection measures for birds. website and is in line with regulation in force. Records Chance Find Procedure of complaints are maintained and presented to the regulator (ANRE) by request or during inspections. Set up a Chance Find Protocol to effectively Community H&S Guide identify and manage any culturally significant findings encountered unexpectedly during project Develop a community guide for H&S around power implementation. Such provisions shall include lines and distribution. This guide should include an internal communication chain, notification of other information for communities served by DEER, relevant competent bodies of found objects or including details of DEER emergency procedure for sites, alerting project personnel to the possibility of safe re-erection of fallen telegraph poles; details of chance finds being discovered, and fencing off the stakeholder engagement activities and the grievance area of finds to avoid any further disturbance and mechanism; information on H&S concerning destruction, where needed. This Protocol will be in substations and transformers, and underground line with the methodological norm for application of cables; information on electromagnetic fields and Law #50 dated 1991 regarding the authorisation of health impacts; and information on risk related to construction works. Chance Finds Protocol has included all contracts/ electricity theft. In addition, consider other options to implement community awareness programs agreements provisions as a distinct chapter/clause. The contract/agreement section will be published on the DEER website by the end of the first quarter of 2022. Update Stakeholder Engagement Policy (SEP) regarding energy use and electricity safety (through “Energy Saving” the European Commission (“Economie la energie”) programme for instance). The community guide included in DEER is Communication Strategy and Plan and is intended to be launched by the end of the first quarter of 2022. Ensure disclosure and reporting in line with the EU Non-Financial Disclosure Directive with relevant Update the engagement methods used in the SEP information on climate impacts in line with the to align with what is currently being carried out and EU guidance line July 20198. From 2022 include update the whistleblowing and grievance section. Considering the unbundling context, DEER is working to finalise its own Stakeholder Engagement Policy information on EU Green and Social Taxonomy in annual ESG/Sustainability reporting. Electrica Group yearly publishes its Sustainability with all its relevant departments. The policy will be Report in line with the EU Non-Financial Disclosure published on the DEER website after obtaining all Directive and will include information on EU Green corporate approvals needed. and Social Taxonomy starting with 2022. 8 https://ec.europa.eu/finance/docs/policy/190618-climate-related-information-reporting-guidelines_en.pdf 125 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4.11. Internal audit activity report for 2021 The Internal Audit Department is responsible for conducting risk-based audit missions at Group companies’ level. The Internal Audit Department performs its activity based on an audit plan, which is endorsed by the Audit and Risk Committee, and subsequently approved by the Board of Directors. The 2021 Audit Plan included assurance missions, operational, as well as ad-hoc audit missions, started after their validation by the Audit and Risk Committee. The audit plan is aligned with the risk register at the Group level and prioritizes the main risks identified for the major business areas. During 2021, assurance audit missions were carried out, as well as various ad-hoc missions on the most important business activities. The audit missions were performed on major projects or events within the Group, but also human resources activity, fixed assets, occupational safety, and health & integrated system management, and other areas. The Audit and Risk Committee together with the Board of Directors analyzed the audit reports regarding the findings identified, as well as the action plans established to remedy them. Throughout 2021, the internal audit department team consisted of four internal auditors, out of which one has a management role and another 2 people with part-time work. Among the most important audit missions carried out in 2021 are: 1. Evaluation and audit of the activity of the human resource at ELSA and SERV. Two audit reports were prepared, containing 18 findings regarding the activity of the human resource, of which 4 with high impact; 2. Evaluation and audit of fixed assets management areas carried out at ELSA and SERV. Two audit reports were prepared to contain 10 findings, of which 2 with high impact; 3. Evaluation and audit of the activity regarding the physical security and integrated system management at ELSA. An audit report was prepared to contain 3 findings, of which 0 with high impact; 4. Three “follow-up’’ missions were carried out at the Group level, which aimed to identify and monitor the implementation degree of the audit recommendations related to the issued reports; 5. Based on the procedure for analysing integrity warnings, 51 warnings were received through the “whistle- blower” system. Out of the total number of warnings received during the year 2021, ELSA Internal Audit Department analysed 7 warnings received in 2021, and the other 7 warnings received at the end of 2020. The audit reports are submitted to and agreed upon by the audited companies’ management and further submitted to the Audit and Risk Committee of ELSA, as well as to the Board of Directors. Following the conclusion of the audit engagements and after agreeing to the audit recommendations with the responsible persons, the Internal Audit Department works together with the audited structures in order to draw up the action plans aimed to reduce or eliminate the identified risks. 126 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT 5. Operating activity of Electrica in 2021 5.1. Operating segments The operations of each reportable segment are summarized below. Segments Operations Electricity and gas supply Purchasing and supplying electricity and gas to end consumers (EFSA, including the trading and representation activity on the Balancing Market as Balance Responsible Party – BRP) Electricity distribution Electricity distribution service (include DEER and activity performed by SERV within distribution segment) Electricity generation Production of electricity from renewable sources (photovoltaic panels) External electricity network services Repairs, maintenance, and other services for electricity networks owned by other distributors (includes Electrica SERV SA activity without the one menti- oned above for the distribution segment) Headquarters Source: Electrica Includes corporate services at the parent level The figure below shows the areas covered by the Group subsidiaries and the number of customers/users they serve. Figure 21: The geographical coverage of the companies in the Electrica Group in 2021 Network area of Transilvania North 1.32 mn users Network area of Muntenia North 1.32 mn users Network area of Transilvania South 1.18 mn users Electrica Furnizare (EF) 3.5 mn consumption places Source: Electrica Note: The figure refers to the company’s number of consumption places/users on 31 December 2021 128 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDISTRIBUTION SEGMENT on the principle of remunerating in tariffs the justifiable costs recorded by the distribution system Electrica Group’s distribution segment, starting with operator, the main source of profit of the distribution 1 January 2021 refers to the activity of DEER (with company is the rate of return of capital invested in the following network areas: Transylvania North, the distribution activity. Transylvania South and Muntenia North) and SERV. The tariffs are adjusted annually, taking into The electricity distribution segment is a regulated account the operational performance achieved, the area of activity, in which operations are conducted in quantities of electricity distributed, the quantities a geographically limited area in accordance with the and the purchase price of electricity needed to cover concession agreement, the nature of the services network losses (NL), controllable and noncontrollable provided, and the specific obligations are stipulated costs, the change in reactive energy revenues from in the license conditions of the concessionaire forecasted values, the depreciation and carrying out operator. Thus, the electricity distribution subsidiary expected capitalizable expenses, the changes in of Electrica Group is the energy distribution operator actual gross profit from other activities compared in Transylvania North (Cluj, Maramures, Satu to the forecasted one, as well as the corrections Mare, Salaj, Bihor and Bistrita-Nasaud counties), in previous periods, carried out according to the Transylvania South (Brasov, Alba, Sibiu, Mures, methodology. Harghita and Covasna counties) and Muntenia North (Prahova, Buzau, Dambovita, Braila, Galati and As of 31 December 2021, the Group is in an estimated Vrancea counties), operating electrical installation with voltages between 0.4 kV and 110 kV. under-recovery position of approximately (RON 273 mn (representing corrections related to the year 2021)), which will be recovered from the distribution DEER holds the exclusive electricity distribution tariffs of the following years. license in these regions of network areas valid for the next seven years with an extension clause for The current regulatory period (the fourth regulatory another 25 years. Within its service for distribution period – RP4) began on 1 January 2019 and will activity, SERV provides maintenance, repair, and end on 31 December 2023. the rules on RAB and various services to group companies (car rental, distribution tariffs determination are expected to rental of buildings, etc.) as well as repairs and other remain unchanged until the end of 2023. ANRE sets related services to third parties. the annual level of distribution tariffs in RON per MWh for each distribution company, respectively The specific distribution tariffs are determined on each network area in case of a merged DSO and and approved by ANRE based on the “tariff basket for each voltage level (high, medium, and low). The cap” method as set out in ANRE Order no. 169/18 invoiced tariffs are summed up according to the September 2018 regarding the approval of the tariff related voltage level (e.g., the medium voltage tariff setting methodology for the electricity distribution includes the high voltage tariff, and the low voltage service (applicable in the fourth regulatory period tariff includes the high voltage and medium voltage 2019 - 2023), with subsequent amendments, and tariff). respectively GEO no. 1/15 January 2020 and ANRE Order no. 75/6 May 2020 regarding the establishment ANRE determines the regulated annual income of RRR applied to the approval of tariffs for the required for each year of the regulatory period based electricity distribution service. on projections submitted by distribution operators in accordance with the methodology requirements, The regulatory method “tariff basket cap” aims to at the beginning of the regulatory period. avoid significant fluctuations in the tariffs applied to the users for electricity distribution. The model The electricity distribution tariffs approved by ANRE for determining the regulated income is based for 2022 are as follows (RON/MWh): Tariff (RON/MWh) ANRE Order no. MN TN TS Source: ANRE 119/25 November 2021 Applicable starting with 1 January 2022 High Voltage 21.02 21.79 22.34 Medium Voltage 43.54 48.13 45.49 Low Voltage 140.68 122.78 127.04 129 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSUPPLY SEGMENT BRP Electrica - Balance Responsible Party Electrica Group operates on the electricity supply segment through its subsidiary, EFSA, both on the The activity of representation in the Balancing regulated electricity market (as SoLR in the territorial Market as the Balance Responsible Party (BRP) took areas where the Group’s distribution subsidiaries place within EFSA. operate), and on the competitive market, at a national level. EFSA holds an electricity supply license that Starting with 1 April 2018, the client portfolio is covers the entire Romanian territory, valid until 2021, diversified, consisting of producers (hydro, thermal, with the possibility of extension. Additionally, holds wind, photovoltaic, biogas, biomass), suppliers, a license for supplying natural gas, valid until 2022. and distribution operators, ensuring the balancing service of over 24% of total electricity consumption The electricity market is split between the regulated from Romania. market (through suppliers of last resort) and the competitive market. On both markets, electricity can The distribution companies within Electrica Group be sold/purchased wholesale or retail. have delegated their responsibility to BRP EFSA. Last resort suppliers market Currently, EFSA is a supplier of last resort for 1.9mn approximately customers with 2mn consumption places. Competitive market The Balancing Market, a component of the wholesale energy market, is a market for which each licensee must either assume the balancing responsibility or transfer the balancing responsibility to a BRP. By transferring the responsibility to a balance responsible party, there is the advantage of aggregating imbalances, in the sense of reducing costs on the Balancing Market compared to the In 2021, the trading on the wholesale competitive situation where the producer/supplier/distributor market is transparent, public, centralized, and non- would be itself a Balance Responsible Party. discriminatory and takes place on OPCOM platforms; prices can be freely negotiated by the parties on ENERGY SERVICES SEGMENT the competitive retail market. The participants on the wholesale market can trade electricity based The Group’s portfolio also includes the energy on bilateral contracts concluded on the markets services segment (equipment maintenance, repairs, managed by OPCOM or on the spot markets also and other additional services related to the network), managed by OPCOM. performed almost entirely for the distribution companies outside the Group. Until 30 November 2020, the segment was represented by SEM, and after the merger by absorption between SERV and SEM, the segment includes the energy services activity within SERV. 130 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT5.2. Fixed assets The number of users and volume of installations as of 31 December 2021 at the level of the three distribution regions (North Transylvania area - TN area, South Transylvania area - TS area, and North Muntenia area - MN area) and total DEER (Romania Electrical Energy Distribution) are quantified as follows: Geographical coverage The number of users, of which: high voltage (HV – 110 Kv) medium voltage (MV) low voltage (LV) Overhead power lines length, out of which: high voltage (HV – 110 Kv) medium voltage (MV) low voltage (LV) out of which connections Underground power lines length, out of which: high voltage (HV – 110 Kv) medium voltage (MV) low voltage (LV) out of which connections Cumulative power of transformers/power AT in power stations (HV/MV + MV/MV), out of which: in HV/MV power stations in MV/MV power stations Switching stations/ Transformer stations No. of substations, out of which: HV/MT power stations MT/MT power stations Number of switching stations and transformer stations Source: Electrica UM km² no. no. no. no. km km km km km km km km km km MVA MVA MVA MVA MVA pcs pcs pcs pcs TN MN TS 34,162 28,962 1,325,828 1,324,324 34 4,363 40 4,387 34,072 1,177,039 46 2,984 Total 97,196 3,827,191 120 11,734 1,321,431 1,319,897 1,174,009 3,815,337 53,146 59,548 45,850 158,544 2,196 11,906 39,044 18,280 17,505 30 4,234 13,241 7,772 6,269 3,760 3,712 48 2,509 121 92 29 2,146 12,647 44,754 24,340 12,297 17 3,537 8,743 2,329 8,810 5,770 5,421 349 3,040 213 125 88 3,149 10,502 32,200 17,455 12,736 63 3,636 9,037 2,921 6,819 4,143 4,075 69 2,676 105 101 4 7,491 35,055 115,999 60,075 42,538 110 11,407 31,021 13,023 21,898 13,673 13,208 466 8,226 439 318 121 9,280 10,710 9,548 29,538 Most of the distribution installations currently in the patrimony of the electricity distribution company (detailed by geographical areas) within Electrica Group, about 80% of the total volume, was built in the period 1960-1990, in the successive stages of development of the National Energy System. This has led to a wide variety of equipment currently in operation. These represent installations made with Romanian technology in the period 1960 - 2000, where there is a high degree of physical and moral wear and tear. It should be noted that the installations put into operation between 1980 - 2000 (approximately 10%) gradually exceed the normal operating time. 131 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTA relatively small category, representing about 20% of the total installations, is represented by the new installations, put into operation after 2000 and which are made to technical standards that meet the current requirements. Depending on the voltage level, categories of installations, the year of commissioning, and the specific operating conditions, the degree of wear and tear of the installations can be assessed as follows: High voltage power lines (110 kV) Medium voltage power lines Low voltage power lines Underground power lines Overhead power lines Underground power lines Overhead power lines Underground power lines Overhead power lines Substations Transformers Source: Electrica Investments Pole - mounted Concrete enclosure Pad - mounted Underground Concrete base TN 25% 74% 48% 57% 52% 57% 69% 44% 50% 69% 15% 10% MN 45% 64% 63% 58% 69% 63% 73% 48% 65% 75% 95% 8% TS 50% 75% 65% 60% 75% 68% 60% 50% 75% 20% 85% 12% The investments at the Electrica Group level have been prioritized considering especially the distribution company’s assets degree of wear, and with a particular focus on the improvement of the distribution service quality, the safety in operations, as well as the increase in efficiency. The Group will continue to modernize and to develop the smart distribution network by installing smart network infrastructure systems, such as SCADA, SAD, electricity measurement systems, etc., in order to improve the energy and operational efficiency, to improve the network flexibility, the distribution service quality and to ensure the continuity in the electricity supply and the networks’ safety. In the investments’ program implementation, the Group’s strategy and in particular the following criteria are ensured: tracking the inclusion of regulated investments in the RAB; non-regulated investments of the Group must provide an internal rate of return higher than the weighted average cost of capital; the proposed investment program must follow the Group’s financial strategy of maintaining a solid capital structure. Thus, those categories of capital expenses that contribute to the development of profitable and sustainable distribution activity, as well as to the creation of the conditions of access to the electricity distribution network for the consumers and electricity producers, in accordance with market requirements, are prioritized, based in particular on: distribution automation by integrating the installation in SCADA, SAD, DMS, etc.; modernizing the equipment from the transformer substations and the medium voltage network; introducing equipment with reduced technological losses, higher operating efficiencies and environmentally friendly; modernizing of the medium and low voltage distribution network and the connections; expansion of modern systems for measuring electricity consumption and transmitting consumption data. At the same time, the Group is considering investments in the upgrade of IT infrastructure and IT systems, considering both the legal requirements regarding data protection and the positive effect on the quality of the services provided. 132 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe following table presents the investment program approved by ANRE for the distribution area within Electrica Group for the period 2019 - 2023 (in 2018 real terms): Commissioning program approved by ANRE for the period 2019 - 2023 (RON mn) SDTN SDTS SDMN Total Source: ANRE 2019 2020 2021 2022 2023 Total 190 200 200 590 175 190 190 555 170 170 160 500 160 170 160 490 160 160 165 485 855 890 875 2.620 In 2021, Electrica Group companies realized the following investments, compared to the planned values: Electrica Group subsidiary (RON mn) Planned 2021 Achieved 2021 DEER, TN area DEER, TS area DEER, MN area EFSA SERV SEM ELSA Total Source: Electrica 214.7 222 202.2 51.2 11.6 - 10.7 712.4 182.1 158.2 160.0 9.4 1.5 - 4.5 515.9 At Electrica Group level, in 2021, the consolidated CAPEX plan was achieved at a rate of 72.4% compared to the plan approved by the Board of Directors of ELSA in February 2021, and for the distribution subsidiary DEER, the average degree of achievement is 96.9% compared to the approved plan. The synthetic structure of investments achieved (CAPEX) by the distribution subsidiary in 2021 is presented in the table below (for details of the most important investments see Appendix 2): Category of works (RON mn) Efficiency, out of which: Energy efficiency/NL Operational efficiency Quality of distribution service, out of which: Continuity of supply Energy quality Legal obligations (network extention/reinforcement, new connection) Other categories, out of which: Endowment, Independent equipment (including vehicles & IT) Studies and projects for the coming years Total* Sursa: Electrica * Does not include additional CAPEX for connection Total 195 132 63 212 89 69 53 77 65 12 484 The main investments of the Electrica Group were focused in 2021 on improving the quality of the distribution service, as well as on increasing the energy and operational efficiency. 133 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTFigure 22: The structure of CAPEX achievements for distribution operator within the Group, in 2021 (RON mn) Studies and projects for the coming years 12 mil. 3% Endowment, independent equipment (incl. vehicles & IT) 65 mil. 14% Legal obligations (network ext./ reinforcement, new connections) 53 mil. 11% Energy quality 69 mil. 14% Energy efficiency/NL 132 mil. 27% Operational efficiency 63 mil. 13% Source: Electrica * Does not include additional CAPEX for connection Continuity of supply 89 mil. 18% The approved plan of investments to be commissioned for 2021 was in the total amount of RON 662.5 mn (RON 558.6 mn without connections), this value also includes investments carried forward, for the year 2020 (RON 9.4 mn). From the investment plan for 2021 the distribution company of Electrica group – DEER, carried out and commissioned investments of RON 533.3 mn, and from the RON 9.4 mn of deferred investments related to 2020, carried out and commissioned RON 8.2 mn. Thus, the total value of the investments carried out and commissioned in 2021 is RON 541.1 mn, representing an average percentage of 82% compared to the total planned value of RON 662.5 mn. DEER (RON mn) Total 2021 plan Total achieved 2021 Total percentage of achievement % MN area TS area TN area Total DEER Source: Electrica 212.0 227.6 222.9 662.6 171.0 183.1 187.3 541.1 81% 80% 84% 82% 134 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAs a result of investments made during 2014-2021, the value of the Regulated Assets Base of the Group’s distribution operators has progressively changed, with an increasing evolution, and is as follows: RAB (RON mn) 20147 2015 1.331 1.333 1.486 1.420 1.377 1.543 2016 1.519 1.388 1.581 2017 1.624 1.475 1.679 2018 20198 20209 202110 1.728 1.856 1.521 1.769 1.691 1.913 1.952 1.778 2.022 1.847 2.035 2.098 Total 4.150 4.340 4.488 4.779 5.019 5.460 5.764 5.967 SDTN SDTS SDMN Source: Electrica 5.3. Procurement The procurement activity is carried out in accordance with the legal provisions in force, as well as in accordance with own procedures and regulations, as appropriate, aiming to cover the needs of goods, services, and works, in order to carry out in good conditions the Group’s activities. In some cases, purchases are carried out centralized, by delegating the purchase coordination to a Group company, with the primary goal of reducing costs, optimizing the procurement, and ensuring a unified policy within the Group. 5.4. Sales activity Electrica Group’s revenues are influenced mainly by the distribution and supply segments. The contribution of the distribution segment to the total revenues was 22.9% in 2020 (2019: 24.2%), while the contribution of the supply segment was 76.6% in 2020 (2019: 75.4%). The Group’s distribution operators (one operator from 1 January 2021) are natural monopolies in their respective markets and as such, they hold a dominant position. In addition, the Group’s distribution operators have a legal monopoly in their relevant regions; hence, other entities cannot set up a competing electricity distribution business. The following figure shows the national market share (based on the quantities of distributed electricity) held by the Group’s subsidiaries in the electricity distribution segment, according to the 2019 ANRE report for performance indicators’ monitoring. Figure 23: Market share of distribution segment in 2020 12.51% 14.02% 13.10% 60.37% DEER TN DEER TS DEER MN Others Source: ANRE Report for performance indicators’ monitoring 2020 7 In 2018, ANRE communicated the final value of the investments recognised for 2014, due to this reason starting with 2014 the RAB values have been modified. 8 The values estimated as of 31 December 2019 may suffer corrections/changes, following ANRE’s analysis process. 9 The values estimated as of 31 December 2020 may suffer corrections/changes following ANRE’s analysis process. 135 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTRegarding the supply segment, although it holds a strong position in the electricity supply market, EFSA is facing growing competition in its market. The figures below show Electrica market shares for the supply activity as of 30 November 2021 (based on the quantities supplied): Figure 24: Last Resort suppliers market, 2021 Figure 25: Competitive Market, 2021s E.ON Energie Romania 14.84% TINMAR 11.78% CEZ Vanzare 12.69% E.ON Energie Romania 7.80% Getica 95 ROM 8.13% ENEL 18.03% ENEL 30.02% CEZ Vanzare 7.04% Tinmar Energy 8.15% Engie Romania 4.07% Electrica Furnizare 12.58% Electrica Furnizare 30.67% Others 34.20% Source: ANRE monthly report (November 2021) Source: ANRE monthly report, November 2021 Note: ʺOthersʺ category includes suppliers whose individual market shares are below 4% Figure 26: Volume of electricity supplied on the retail Figure 27: Evolution in the number of customers market (TWh) (thousand) Competitive market Regulated market Competitive market Regulated market 10.6 5.4 9.2 4.2 8.5 3.7 9.2 4.4 9.3 4.2 5.2 5.1 4.9 4.9 5.1 9.4 5.6 3.8 3,601 131 3,577 215 3,541 253 3,553 269 3,583 314 3,470 3,362 3,288 3,284 3,269 3,510 1,556 1,953 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 Source: Electrica Source: Electrica Figure 28: Customers by electricity supplied volume, Figure 29: Customers by revenues, 2021 2021 Households - Universal Service 35.57% Households - Universal Service 39.21% Non-Household - Competitive Market 41.63% Non-Households - Competitive Market 36.15% Non-Households - Universal Service 4.71% Household - Competitive Market 18.10% Non-Households - Universal Service 6.20% Households - Competitive Market 18.44% Source: Electrica Source: Electrica 136 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTMajor customers exposure EFSA does not have a significant exposure/concentration to a particular customer or group of customers that could have a major influence on its business. The leader position provides an inherent advantage to have a very large portfolio of customers and to obtain the dispersion of risk, and as such, there is no risk concentration. This advantage has been confirmed during the pandemic period, proving that the economic sectors impacted by the pandemic, despite they generating significant exposures, cannot represent systemic dangers to the entire company’s portfolio. However, certain consumers, such as hospitals, ambulance stations, schools, kindergarten and nurseries, air and maritime traffic services are considered to have special importance and they cannot be disconnected by the electricity suppliers. Customers who fall under the insolvency law can benefit from its protection against its creditors, and therefore possibly also from electricity suppliers for the electricity supply contracts in force at the date of initiation of insolvency procedures. BRP Electrica - Balance Responsible Party The representation activity as Balance Responsible Party (“BPR”) on the Balancing Market was performed within EFSA. In 2021, all market participants (approx. 920) were established as Balance Responsible Parties at Transelectrica S.A., out of which 68 participants assumed the responsibility of balancing in their own name as well as for other licensees. Starting with 1 April 2018, the client portfolio is diversified, consisting of producers (hydro, thermal, wind, photovoltaic, biogas, biomass), suppliers, and distribution operators, ensuring the balancing service of over 24% of total electricity consumption from Romania. The distribution companies from Electrica Group, respectively respective SDEE Muntenia Nord SA, SDEE Transilvania Sud SA, and SDEE Transilvania Nord SA, which gave delegated the responsibility to BRP EFSA, have merged starting with 1st of January 2021, under the name of Distributie Energie Electrica Romania SA. At the end of 2021, about 96 licensed participants have delegated their responsibility to EFSA, out of which: 8 suppliers, representing 8.33% out of total BRP; 6 distribution operators, representing 4.17% out of total BRP, and 84 producers, representing 87.5% out of total BRP; compared to the end of 2020, when about 98 licensed participants were registered. In 2021, the average number of customers was about 97, equal to the average of 2020, and an average number of over 300 bilateral contracts, respectively exchanges with OPCOM, were notified. Starting with February 2021, the settlement in EM is performed at an interval of 15 minutes using the methodology of unique price in accordance with the ANRE Order no. 213/2020. These intervals with unique prices do not allow compensations, and those with dual prices are reduced. In the period February – December 2021, out of 32,064 intervals, a dual price was applied to 3,739 intervals (11.66%), resulting in a compensation degree between positive and negative imbalances of approximately 47%. In 2021, as a result of internal compensations of imbalances, within BRP EFSA, it resulted in an improvement of surplus and deficit prices by 41.67 RON/Mwh compared to the imbalance prices calculated by OTS/OPCOM. The year 2021 OPCOM Average surplus price PRE EFSA Average surplus price 426.17 467.67 OPCOM Average deficit price PRE EFSA Average deficit price 622.87 581.20 137 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTElectrica Furnizare SA, through BRP service, has been acting on the Intraday market starting with February 2021 in order to buy/sell electricity quantity not transacted on DAM (Day-Ahead Market). For the period February – December 2021, the results for the trades in IM (Intraday Market) are the followings: - - Buy – quantity of 56,468.07 MWh at an average price of 651.50 RON/MWh; Sell - quantity of 51,924.38 MWh at an average price of 562.20 RON/MWh. Out of total traded of 107,523.52 MWh (at an average price of 585.17 RON/MWh) on Buy in IM-OPCOM, EFSA traded a quantity of 56.468,07 MWh, representing approx. 53%, and out of the total traded of 115,262.22 MWh (at an average price of 481.22 RON/MWh) on Sell in IM-OPCOM, EFSA traded a quantity of 51.924,38 MW, representing approx. 45%. In accordance with EU Regulation 943/2019 REGULATION (EU) 2019/943 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 5 June 2019 on the internal electricity market, ANRE approved many orders detailed in the sub-chapter 1.2. 5.5. Personnel On 31 December 2021, Electrica Group had 8,013 employees. The table below provides an overview of the employment in the Group, by business segments, at the end of the specified years. Starting with 2020, the figures include also the mandate contracts. Electricity distribution segment - DEER DEER - MN DEER - TN DEER - TS Services segment - SERV Supply segment – EFSA Services related to other distribution networks – SEM (included in SERV starting December 2020) Headquarters – ELSA Total 2021* 6,454 2,156 2,259 2,039 612 838 0 109 8,013 2020* 7,213 2,184 2,248 2,087 694 793 0 120 8,126 2019 6,972 2,191 2,233 2,085 463 896 296 128 8,292 Source: Electrica *According to the modified reporting methodology to INS, the employees number from 31 December 2021 also includes 23 persons who worked based on a mandate agreement. In addition to the traditional areas of interest, new ones appeared, such as the development of new activities, based on innovative technology, the development of a closer relationship with customers, based on the development of competencies, but also on an offer of products and services aligned with their needs, which led to an increase in the number of employees within the Group. Also, ensuring the necessary human resources (from internal resources or through specific recruitment) for key business areas and training staff and capitalizing on its potential, expertise, and skills, in order to increase labor productivity and individual performance, are treated as priority topics. As of 31 December 2021, approximately 52% of the Group’s employees represent directly productive staff, and 48% represent indirectly productive staff, including technical, economic, social, and administrative personnel. 138 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe table below presents the Group’s employment by age, as follows: Age category under 18 18-30 31-40 41-50 51-60 over 60 years old Total Source: Electrica 31 December 2021 31 December 2010 0.00% 4.76% 16.06% 34.96% 41.44% 2.85% 100% 0.01% 4.60% 16.32% 36.99% 39.26% 2.82% 100% As of 31 December 2021, about 98.5% of the The Group is involved in the life of the communities Group’s employees are union members and their in which it operates, supporting children of families employment conditions are governed by the with modest material possibilities to remain in the Collective Labor Agreement, which will expire on 3 education system, and at the same time, forming April 2022 for ELSA and has expired on 31 December a solid base of young electricians who will be able 2021 for the Group’s subsidiaries. According to in the future to join the distribution company, the legislative provisions, the negotiations for the elaboration of a new CLA for DEER, FISE, and EFSA depending on the workforce need. have started; as well, the negotiations were extended Both ELSA and its subsidiaries prepared and updated in 2022. policies, procedures, and internal regulations that Electrica Group did not face union action in 2021. contain provisions regarding employment, non- discrimination, occupational health and safety, In the same context of transformations, in 2021, employer and employees’ rights and obligations, the Group’s subsidiaries did not run a voluntary leave procedure for solving the employees’ complaints, the program with compensatory payments, these labor discipline, disciplinary sanctions and deviations, continuing the processes of identifying the personnel rules regarding the disciplinary procedure, criteria with expertise in order to ensure the performance and procedures for the professional evaluation of and efficiency of the activities at the level required employees, succession and final provisions. by the regulatory authorities and the energy market. Achieving the best possible correlation between the future needs of the organization and the In alignment with the Group strategic objectives, competencies, experience, and career aspirations of one of the objectives that resulted from the Human its members, led to the definition of the guidelines Resources Strategy, is „Education and training to of the succession in the company concept. ensure the need for quality human resources”. Thus, it was considered of major importance the Also, the improvement and continuous organization and operation of a formalized internal development of the performance management model, at the level of the Group, of professional system contributes to the achievement of Electrica and extra-professional training. One of the projects related to the strategy was the creation of a team of internal trainers for the companies within the Electrica Group. The „Training of Trainers” courses lasted 180 hours. Group’s key objectives, set for the 2019-2023 period (Improving operational performance to continuously increase the quality of customer service, Increasing performance, and strengthening the sustainability of economic results). By adopting the human resources strategy, the Group aims to ensure the qualified One of the strategic objectives is the education and resources necessary to support the initiatives for training to ensure the necessary quality human the next period, in the conditions of an accentuated resources, with the expected result of creating a dynamics of the labor market. professional internal training system, that addresses the main skills needed by the employees, to Another desideratum, established by the strategic enhance and maintain organizational and support the performance. Throughout 2021, it continued objective regarding modernization, is the increase of the employees’ trust in the employer and the creation the training program in the dual education system, of a suitable working environment for collaboration within the distribution branch, targeting classes in and obtaining the envisaged performances. Thus, high schools with an energy profile. in order to improve the interactions of the Electrica Group employees with the human resources 139 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTdepartments, to increase employee retention, and to The training programs carried out at the Electrica improve the perception of the organizational culture. Group level took into account both the constant Also, in order to improve the employer’s image and evolution and the improvement of the Group the continuation of the pandemic context during employees’ skills. 2021, the „work from home” system continued The company’s management supports the principle within the Electrica Group, following the authorities’ of development through continuous training recommendations in the state of prolonging the by involving employees in these programs, thus alert context and complying with the internally supporting them to effectively address their defined processes, regarding workplace safety and professional challenges. human resources activity management. The organizational culture modernization, having HEALTH AND SAFETY AT WORK as central elements „excellence” and „safety”, is one The Integrated Quality-Environment-OSH of the strategic objectives, and one of the projects Management System, implemented, certified, and in this area is represented by the program „Change supervised at the level of each company within the agents” in the distribution regions, with the role of Electrica Group by the SRAC Cert certification body, supporting organizational change that occurred ensures the companies’ compliance with the legal following the merger of the distribution companies. requirements for occupational safety and health and This program aims to promote openness to new those of the SR ISO reference standard 45001: 2018, challenges and to encourage employees to propose solutions to solve the problems they face at work. and enhances the providing of professional services and safely conducting the business processes Change agents are employees who not only accept for the organization and contractor staff, but also the change but seek solutions and support its customers. implementation. Another objective of major interest is performance management, as a coherent system that evaluates as objectively as possible the activity of the The work accidents situation and specific indicators at the Electrica Group level employees, in close correlation with the system of In 2021 there were no fatal work accidents at the compensations and benefits and the professional Electrica Group level. development one. The total number of work accidents at the group level decreased by 20% compared with the previous year, Thus, the Group’s Key Performance Indicators with 4 work accidents being recorded compared to Catalogue was elaborated, as a tool that ensures the 5 accidents recorded in 2020. objective and professional evaluation of Electrica’s The complex of complementary causes and strategic objectives achievement on each main area favourable factors that determined the occurrence of activity. Additionally, a framework methodology of each of these accidents was analysed by legally for the application of the KPIs Catalogue and constituted commissions at the company level and performance management according to best the investigation files include prevention measures practices has been developed, which is to be adapted that need to be implemented by the company. Two of to each company. The project also included a series the work accidents registered at the group level were of applied workshops, training sessions on setting and evaluating performance indicators, as well as generated by the mechanical risk that materialised during traffic accidents, one was caused by physical other discussions aimed at transferring knowledge aggression of a third party and another by stumbling for methodological alignment at all hierarchical and falling from the same level. levels and expressing expectations to strengthen An OSH event produced because of preexistent internal teams. health condition of the staff, without being classified as a work accident according to the Additionally, it was continued the methodological DEER communication, took place in August 2021 and conceptual framework for the application and resulted in the death of a DEER employee. of international best practices was developed in The investigation of the event is carried out by the order to increase the maturity of the performance management system within Electrica, which competent authorities (ITM Galați) and depending on the results of the research, the event could be considers the continuous improvement of the reclassified as a work accident. employee evaluation process and the development of the necessary tools to build a solid performance- based system. 140 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe frequency index (FI), expressed as the number of injured people returning to 1000 employees is for 2021 at Electrica Group level 0.63 ‰, increasing compared to 2020 based on the sensible decrease of headcount in 2020 at the Group level. 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2.12 1.06 0.72 2018 2.53 0.95 0.5 2019 1.84 0.66 0.4 2020 1.93 0.75 0.63 2021 Electrica Group National Industry IF is a statistical indicator recommended by the International Labor Organization (ILO) through The Resolution on Accidents at Work adopted in October 1998, as it correlates the number of accidents with the number of workers, increasing the comparability of HSW organizations’ performance and eliminating distortions generated by the size of these organizations (the number of staff in each organization). Starting with 2018 and continued in the following years, the FI for the Electrica Group was constantly below the national value of the indicator and well below the level registered for the industry in which it operates. Aspects regarding the employees’ health No occupational diseases were registered at the Electrica Group level, neither in the reference year nor in the previous years. Prevention, monitoring, and health security at the workplace were performed by doctors specialized in occupational medicine based on dedicated service agreements and was watched by ELSA, for portfolio companies, through half- yearly reports. Actions to improve safety and health of employees at work place A sustained effort by the HSW teams of each group’ company, coordinated by ELSA’s IMS&HSW Department was needed throughout 2021 for ensuring the prevention and monitoring of SARS-CoV-2 infections in the context of the COVID-19 pandemic, the main actions defined and managed by HSW professionals consisted in: defining and constantly reviewing the regulatory framework necessary to prevent the new coronavirus spread at the level of group companies (rules for collaboration and use of common areas, rules for sanitation of equipment and work devices, rules for travel in the interest of service, intervention protocols in self- isolation locations or quarantine, disease management protocols, direct/indirect contact, return from risk areas, etc.); internal communication of relevant aspects in the context of developments in the external and internal environment; ensuring staff awareness and training in order to reduce the risk of contamination at work (hygiene rules, legal obligations, use of medical devices dedicated to the prevention, new regulations, teleworking system, etc.); ensuring the equipment and services necessary for the personnel protection (hygienic-sanitary materials and services, medical devices, markings and signals, testing services and kits, etc.). In 2021 the total number of HSW training hours performed increased by 1%, reaching 315,295 hours from 312,100 HSW-ES training hours in 2020. 141 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTGiven the context of the COVID-19 pandemic, to avoid possible transmission of the virus from one area to another because of differentiated developments at the regional level, for 2021 the HSW dropped the cross-control concept, regardless of its proven effectiveness. The aforementioned causes have limited the total number of HSW inspections to 2,085 performed at Electrica Group level by its staff, in order to identify deficiencies that could generate health and safety risks for employees, these inspections being followed by the immediate treatment of irregularities found. Although during the reference period there were numerous inspections performed by the Territorial Labor Inspectorates and Inspectorates for Emergency Situations, some of them concerning the implementation and compliance degree with the new legal regulations intended to limit the COVID-19 spread, in 2021 no sanctions were imposed for any of the Group companies. The year 2021 meant the alignment of safety and health activities and practices at work place between regions for the distribution area, following the merger of the three operators, by unitary review and adoption of more than 100 HSW instructions, since the high-level alignment of the processes and subprocesses in the previous years. During the year, all companies from Electrica Group have performed external audits carried out by the certification body, either for the supervision or for the certification of the Integrated Quality - Environmental - OSH Management System implemented in accordance with the new standard ISO 45001:2018, all companies obtained or maintained their certification. 5.6. Environmental considerations In 2021, Electrica Group invested in the field of environmental protection over RON 14.899 mn11, the value recording an increase of almost 4% compared to the 2020 level of RON 14.36 mn. The consolidated non-financial statement is included in the Group’s Sustainability Report, which is published within a maximum of 6 months from the date of the Directors’ Report. Continuing the practice of previous years in identifying and evaluating all real and potential environmental aspects with positive and negative effects, associated with specific processes, both in normal operating conditions, as well as in abnormal operating conditions and emergency situations at the level of each company, Electrica Group has defined and promoted its main concerns in order to increase environmental performance, as follows: reducing or limiting the impact of services and infrastructure on the environment; responsible waste management with safe disposal of generated waste, especially of those the highly polluting ones; conservation of biodiversity and resources. Figure 30: PCB capacitors in operation at the end of 2021 1,756 1,876 1,179 1,215 2021 2020 Total MN area TS area TN area Source: Electrica 475 475 102 186 11 considering estimated value for December 2021 142 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSubsumed to the concern for reducing or limiting the impact of services and infrastructure on the environment, at the Group’ distribution operator – DEER – level the program for PCBs (polychlorinated biphenyls) elimination of from the operating electrical distribution infrastructure was continued in 2021, with results represented in the left chart. The implementation pace ensures the comfort of finalizing the elimination program within the national legislated term of 2028, according to GD no. 1497/2008, for the company. For responsible waste management and the safe disposal of the generated waste, especially highly polluting waste, a unified process has been defined and implemented at the level of Electrica Group, governed by the principles of selective collection and recycling – when its requirements are met - or destruction with authorised operators. Figura 31: Waste processing 1,649.8 2,356.8 237.0 Source: Electrica Recycling Incineration Final storage Temporary storage 14,288.5 In this regard, all Group’s companies agreed on contracts with authorized providers for processing/storage of all categories of generated waste, the transport being carried out by these respective contractors as part of the contracted services. Based on these contracts, at Electrica Group level was selected and managed in 2021 a total amount of 18532,1812 tons of waste, most of them, over 77%, being recycled. During 2021 there were no incidents with environmental impact, but there was a non-compliance with the provisions of Law 211/2011 on waste regime caused by exceeding the perimeter of controlled waste storage properly organized at the regional structure Sibiu in the South Transylvania area of DEER. This was reported to the National Environmental Guard, which carried out two successive inspections. On the date of the first inspection carried out on 18 February 2021, the findings indicated that the steps to release the unorganized space from the mixed waste stored were started and the second inspection carried out on 22 February 2021 concluded that DEER - SR Sibiu released and sanitized the perimeter notified for uncontrolled storage of mixt waste, proceeding also to waste disposal or recycling with an authorized economic operator. As a result, no fines were applied by the authorities. The measures implemented have ensured the fast and complete elimination of the effects of non-compliance. Protecting biodiversity and decreasing the effects of the Group’s activities and assets on flora and fauna has also been maintained as a priority direction of action for 2021, the amount allocated by Electrica Group in this regard increasing to RON 8,846 mn. Thus, during 2021, at the Electrica Group level continued the implementation of practices and solutions harmonized with the environmental protection norms and the principles of sustainable development. For distribution and supply activities no environmental authorisations are required, and the energy services company within Electrica Group, have the environmental authorisations needed for the operation of more than 85% of the locations and in the case of three locations (15%) for which the authorisation had expired by the end of 2021, the documentation for re-authorization was already submitted, in accordance with the legislation in force. Following external certification/ supervisory audits carried out by the certification body SRAC Cert, companies within Electrica Group obtained or maintained in 2021 the certifications for their Integrated Management Systems Quality – Environment – OHS through which the environmental aspects specific to the performed activities are managed in a responsible and efficient manner, in accordance with the provisions of the international standard ISO 14001:2015. 12 considering estimated values for December 2021 143 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT5.7. Research and development activities Electrica Group is promoting technological innovation by participating in research and development projects financed/co-financed through European funds, having the possibility to test new technologies to manage and optimize energy efficiency. Also, the electricity distribution networks integrate a high level of distributed generation sources. By participating in these research, development, and innovation projects with financing/co-financing through non-reimbursable funds, Electrica Group has the following benefits: having access to cutting-edge technologies in the field of optimizing the operating regimes of the electricity distribution network (EDN) in terms of network connection of renewable electricity production sources (distributed or concentrated); the improvement of the safety and reliability of isolated electrical systems, of the quality of electricity supplied by providing quick and low-cost reserves through flexible loads; the possibility of identifying certain criteria to promote smart grids and smart metering solutions in terms of the requirements of the new data protection measurement code and encryption methods; the use of opportunities to develop the self-financing business portfolio of group companies; developing new competencies through the transfer of know-how; compliance with the best practices of similar companies in Europe; creating new opportunities for the group companies to participate in projects funded by the European Union. Thus, Electrica participated in the European inteGRIDY project „integrated Smart GRID Cross-Functional Solutions for Optimized Synergetic Energy Distribution, Utilization Storage Technologies”, carried out within the research and innovation program of the European Union „Horizon 2020”, which was successfully completed in the year 2021. The inteGRIDy project aimed to integrate cutting-edge technologies, solutions, and mechanisms in a scalable Cross- Functional Platform connecting energy networks with diverse stakeholders, facilitating the optimal and dynamic operation of the Distribution Grid (DG), fostering the stability and coordination of distributed energy resources, and enabling collaborative storage schemes within an increasing share of renewables. The proposed solutions were tested in 10 demonstration sites across Europe (Lisboa, Xanthi, Ploiesti, Thessaloniki, Isle of Wight, Terni, San Severino Marche, Barcelona, St-Jean, Nicosia). Electrica’s participation was achieved through the Ploiești Pilot, where a demand response (DR) solution was implemented in an EIIS system (Energy Integrated Information System) where building energy management and control systems operate based on critical peak pricing and intelligent DR programs/algorithms. By deploying the Ploiesti pilot, four major objectives of the project were achieved: a) DR solution based on intelligent algorithms and programs (focused on the residential area); b) c) Smart grid readiness; Energy management; d) For the consumer, educating and increasing awareness about energy consumption and energy behaviour. Another important endeavor of Electrica Group in promoting technological innovation is to disseminate the solutions of electricity networks’ modernization using the smart grid concept. The communications take place at the international conferences/symposiums where Electrica Group participates or organizes internally to align development plans with available new technologies. 144 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT6. Electrica financial reporting for 2021 6. Electrica financial reporting for 2021 Prezentarea informatiilor financiare consolidate ale Grupului este bazata pe situatiile financiare consolidate intocmite in conformitate cu Standardele Internationale de Raportare Financiara („IFRS”) adoptate de Uniunea Europeana („IFRS-EU”). Aceste situatii financiare consolidate sunt prezentate in RON, aceasta fiind si moneda functionala a tuturor companiilor din cadrul Grupului. 6.1. Consolidated statement of the financial position The following table presents the consolidated statement of the financial position (amounts in RON mn): 31 December 2021 31 December 2020 Variation ASSETS Non-current assets Intangible assets related to concession agreements 5,514.6 5,455.2 Other intangible assets Property, plant and equipment Investments in associates Deferred tax assets Other non-current assets Right of use assets 9.0 505.4 25.8 83,5 1.7 20.9 7.2 508.1 - 19.7 1.2 27.1 Total non-current assets 6,160.9 6,018.5 1.1% 25.0% -0.5% - 323.9% 41.7% -22.9% 2.4% 30.6% 49.5% -61.1% -100.0% 4.1% 78.6% 1,222.2% -65.2% -15.7% 1,344.6 48.6 221.8 - 73.0 5.0 23.8 5.4 1,029.8 32.5 570.9 320.0 70.1 2.8 1.8 15.5 1,722.2 2,043.4 7,883.1 8,061.8 -2.2% 3,464.4 3,464.4 103.0 (75.4) 102.8 408.4 950.2 103.0 (75.4) 116.4 392.3 1.759.5 - - - -11.7% 4.1% -46.0% Current assets Trade receivables Other receivables Cash and cash equivalents Restricted cash Inventories Prepayments Current income tax receivable Assets held for sale Total current assets Total assets EQUITY AND LIABILITIES Equity Share capital Share premium Treasury shares reserves Revaluation reserve Legal reserves Retained earnings 146 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTTotal equity attributable to shareholders of the Company Total equity attributable to shareholders of the Company Liabilities Non-current liabilities Lease liability – long term Deferred tax liabilities Employee benefits Other liabilities Long-term bank borrowings Total non-current liabilities Current liabilities Lease liability – short term Bank overdrafts Trade payables Other payables Deferred revenue Employee benefits Provisions Current income tax liability Current portion of long-term bank borrowings Total current liabilities 31 decembrie 2021 31 decembrie 2020 Variatie 2021/2020 4,953.6 5,760.3 -14.0% 4,953.6 5,760.3 -14.0% 12.1 161.9 149.2 32.7 452.3 808.3 9.4 627.4 891.3 271.3 9.7 101.1 34.9 - 176.1 2,121.3 16.9 177.8 143.9 33.9 400.3 772.7 10.7 165.0 607.2 240.9 5.6 92.3 19.2 9.2 378.6 1,528.8 -28.3% -8.9% 3.7% -3.4% 13.0% 4.6% -12.1% 280.3% 46.8% 12.6% 73.2% 9.5% 81.5% - -53.5% 38.8% Total liabilities 2,929.6 2,301.5 27.3% Total equity and liabilities 7,883.1 8,061.8 -2.2% Source: Consolidated financial statements of Electrica Group as of 31 December 2021 Non-current assets The non-current assets increased with RON 142.4 mn in 2021, or 2.4%, from RON 6,018.5 mn as of 31 December 2020, to RON 6,160.9 mn at 31 December 2021, this variation is the cumulated effect of: - Increase with RON 59.4 mn of network investments made by distribution subsidiaries (most relevant values of investments and put into function are presented in Annex 2); - Increase of financial assets with RON 25.8 mn thanks to new investments in associate entities, which develop renewable energy production capacities (Crucea Power Park S.R.L., Sunwind Energy S.R.L., New Trend Energy S.R.L., Foton Power Energy S.R.L.) – see details in Chapter 1.2 Key events of this report. - Increase of deferred tax by RON 63.8 mil. in 2021, or 323.9% from RON 19.7 mil as of 31 December 2020, effect generated in principal by fiscal position for 2021. Current assets In 2021, current assets decreased by RON 321,2 mn compared to 2020, or 15.7%, from RON 2,043.3 mn to RON 1,722.2 mn, this evolution being mainly the net effect of - Value of collateral deposits of RON 320 mn has decreased because the long term loan from BRD – Group Societe Generale has been reimbursed; 147 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT- Value of cash and cash equivalents decreased with RON 349.1 mn due to reduction of short term deposits and cash at banks, both of them representing the impact of the increase of electricity prices as well as of investments in associates and the cash pooling structure (liquidities are used in cash pooling system); - trade receivables have increased by RON 314.8 mn in 2021, mainly due to the supply segment correlated with the increase in sales. Trade receivables Trade receivables increased by RON 314.8 mn during 2021, or 30.6%, to RON 1,344.6 mn, from RON 1,029.8 mn as of 31 December 2020. This variation is generated by the increase of sales, especially in the supply segment to which the impact of COVID-19 on the receivables collection is added. Cash and cash equivalents Cash and cash equivalents include cash balances, call deposits, and bank accounts. Their value decreased by RON 349.1 mn in 2021, or 61%, reaching RON 221.8 mn, from RON 571 mn in 2020, due to the reduction of short term deposits and cash at banks, both of them representing the impact of the increase of electricity prices as well as of investments in associates and the cash pooling structure (liquidities are used in cash (RON mn) 31 December 2021 31 December 2020 pooling system). Bank current accounts Call deposits Cash in hand Total cash and cash equivalents in the consolidated statement of financial position Overdrafts used for cash management purposes Total cash and cash equivalents in the consolidated statement of cash flows Source: Consolidated financial statements of Electrica Group as of 31 December 2021 Restricted cash 167.8 53.9 0.1 221.8 (627.4) (405.6) 179.4 391.5 0.1 571.0 (165.0) 406.0 As of 31 December 2021, the restricted cash balance previously presented as long-term, representing a guarantee for the loan from BRD, reclassified in the category of current assets has a nil balance, as the loan was repaid in Q4 2021. Share capital and share premium The issued share capital in nominal terms consists of 346,443,597 ordinary shares on 31 December 2021 and 2020 with a nominal value of RON 10 per share. The company recognizes the changes in its share capital only after their approval in the General Meeting of Shareholders and their registration with the Trade Register. Contributions made by the shareholder, which are not registered with the Trade Register at the end of the year, are recognized as “Pre-paid capital contributions in kind from shareholders”. There were no changes in the number of shares in 2021. Number of shares at 1 January Shares issued during the year Number of ordinary shares 2021 2020 346,443,597 346,443,597 - - Number of shares at 31 December 346,443,597 346,443,597 Source: Electrica 148 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTRevaluation reserves The reconciliation between the opening balance and the closing balance of the revaluation reserve is presented below: (RON mn) Balance at 1 January Revaluation surplus of land, land improvements, and buildings Release of revaluation reserve to retained earnings corresponding to depreciation and disposals of property, plant, and equipment Deferred tax liability arising on revaluation of land, land improvements, and buildings Balance at 31 December Source: Consolidated financial statements of Electrica Group as of 31 December 2021 Legal reserves 2021 116.4 - (13.5) - 102.8 2020 87.7 43.8 (7.2) (7.9) 116.4 The legal reserves are established as 5% of the profit before tax according to the individual statutory financial statements of companies within the Group, until the total legal reserves reach 20% of the paid-up share capital of each company, according to legal provisions. These reserves are deductible for income tax purposes and are not distributable. (RON mn) Legal reserves Balance at 1 January 2020 Set-up of legal reserves Balance at 31 December 2020 Set-up of legal reserves Balance at 31 December 2021 371.8 20.4 392.3 16.1 408.4 Source: Consolidated financial statements of Electrica Group as of 31 December 2021 Non-current liabilities The non-current liabilities have considerably increased from RON 772.7 mn as of 31 December 2020 to the value of RON 808.3 mn as of 31 December 2021. This evolution is a net effect of the main non-current liabilities categories variation, of which the most significant relates to long-term borrowings, which increased due to withdraws performed in 2021 (RON 30.0 mn from BRD/2020 loan, RON 40.0 mn from BRD/2021 loan and RON 83 mn from BCR/2020 loan), mainly to finance the investments in the distribution network on one hand, partially compensated with the decrease of leasing debts following the reimbursement. Current liabilities In 2021, the current liabilities increased by RON 592.5 mn, to RON 2,121.3 mn, from RON 1,528.8 mn at the end of 2020, mainly as a result of the changes in the categories listed below. Current portion of long-term bank borrowings The current portion of long-term bank borrowings decreased by RON 202.5 mn, following the reimbursement of long-term loans, reclassified as such at the end of 2021. Overdrafts The overdrafts considerably increased in 2021 by RON 462.4 mn, reaching RON 627.4 mn, from RON 165.0 mn at the end of 2020, as the Group has adapted its financing methods for working capital, including the implementation of a cash pooling structure, according to operational activity priorities and emergencies. Trade payables As of 31 December 2021, the trade payables increased by approx. RON 284.1 mn, to RON 891.3 mn, from RON 607.2 mn on 31 December 2020, mainly due to an increase of suppliers’ balances following the changes in the electricity market. 149 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT6.2. Consolidated statement of profit or loss The following table presents the consolidated statement of profit or loss of Electrica Group for 2021 and 2020 (amounts in RON mn): Revenue Other income 2021 7,178.9 195.8 2020 Variation 2021/2020 6,501.1 165.4 Electricity and natural gas purchased (5,694.7) (3,905.7) Construction costs related to concession arrangements Employee benefits Repairs, maintenance and materials Depreciation and amortization Reversal of impairment/(Impairment) for trade and other receivables, net Other operating expenses Operating profit Gain from bargain purchase of subsidiaries* Finance income Finance costs Net finance cost Profit before tax Income tax expense Profit for the year Earnings per share (485.8) (802.7) (102.4) (480.8) (70.6) (343.2) (605.5) - 2.6 (29.5) (26.9) (632.4) 79.5 (552.9) (676.0) (774.5) (104.6) (490.9) 62.2 (325.1) 451.9 7.5 9.7 (26.7) (17.1) 442.3 (54.8) 387.5 Basic and diluted earnings per share (RON) (1.63) 1.14 Source: Consolidated financial statements of Electrica Group as of 31 December 2021 *the value is included in EBIT, is separated only for disclosure purposes Key financial indicators for 2021 and their y-o-y evolution: Revenues: RON 7.2 bn, an increase of RON 677.8 mn, or 10.4%; EBITDA: loss RON 128.0 mn, a RON 1,081.1 mn decrease;s EBIT: loss RON 605.5 mn, lower by RON 1,064.9 mn; EBT: loss RON 632.4 mn, a decrease of RON 1,074.7 mn; Net result: loss of RON 552.9 mn, lower with RON 940.4 mn. 10.4% 18.4% 45.8% -28.1% 3.6% -2.1% -2.1% - 5.6% - - -73.1% 10.4% 57.3% - - - - Revenues and other income In 2021, Electrica recorded total revenues (including other income) of RON 7,374.6 mn, increasing by RON 708.2 mn or 10.6%, from RON 6,666.5 mn in 2020; the variation is generated mainly by the revenues’ evolution, the other operating income recording only a slight increase of RON 30.4 mn. 150 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTRevenues Figure 32: Revenue for 2021/Q4 2021 and comparative information (RON mn) 4,2 6,501 557 5,944 1,725 148 1,577 7,179 585 6,594 Revenues (ex- Green Certificates) Revenues from Green Certificates 2,161 127 2,034 Source: Electrica 2020 T4 2020 2021 T4 2021 The revenues increased by RON 677.8 mn, or 10.4%, being the net effect of the following main factors: increase of RON 757.2 mn on the supply segment; RON 20 mn decrease of the distribution segment’s revenues; Increase with RON 137.8 mn of revenues from energy services, mainly due to presence of SERV revenues in this segment starting with 2021, following the merger of SEM and SERV. Electricity and natural gas purchased In 2021, the expense for electricity purchased increased by RON 1,789.0 mn, or 45.8%, to RON 5,694.7 mn, from RON 3,905.7 mn in the comparative period. This variation is mainly generated by the increase of electricity costs and natural gas needed for the supply activity and to cover NL, as well as of green certificates cost (pass-through cost). The table below presents the structure of the electricity purchased expenses for the indicated periods: (RON mn) Electricity purchased to cover network losses Electricity and natural gas purchased for supply Transmission and system services related to supply activities Green certificates 2021 1.087,1 3.750,0 275,9 581,7 2020 694,0 2.377,2 277,3 557,2 Total electricity and natural gas purchased 5.694,7 3.905,7 VAR % 56,6% 57,8% -0,5% 4,1% 45,8% Sursa: Electrica Construction costs In 2021, the network construction costs related to concession arrangements decreased by RON 190.2, mn or 28.1%, to RON 485.8 mn, from RON 676.0 mn recorded in 2020, being correlated with the evolution of the investments recognizable in RAB realized in 2021, which were at a lower level compared to 2020. Employee benefits The expenses for salaries and employee benefits increased by RON 28.2 mn, or 3.6%, reaching RON 802.7 mn in 2021, from RON 774.5 mn in the same period of the previous year. Repairs, maintenance, and materials In 2021, the expenses with repairs, maintenance, and materials recorded only a slight decrease of RON 2.2 mn, or 2.1%, reaching RON 102.4 mn from RON 104.6 mn. 151 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTReversal of impairment/(Impairment) for trade and other receivables, net In 2021, the impairment adjustments for the depreciation of trade receivables had a net negative effect of RON 70.6 mn, reaching the value of RON 132.8 mn, from RON a positive impact of 62.2 mn, in 2020. This evolution is generated mainly by: - impairment adjustments for the depreciation of trade receivables, with a negative impact of approx. RON 18 mn, recognized as a result of the receivables’ recoverability assessment for the supply and distribution segments; - the positive impact of approx. RON 105 mn booked in 2020, following the reversal of the impairment adjustments for uncollected VAT related to the uncertain receivables from Oltchim for which there is no correspondent amount in 2021. Other operating expenses The other operating expenses increased in 2021 by RON 18.1 mn, or 5.6%, to RON 343.2 mn, from RON 325.1 mn in 2020, mainly from the unfavourable impact of changes in net provisions, of about RON 16 mn, big impact representing the provision recognized for the supply subsidiary’ obligations - compensations following the application of Performance Standard for energy supply according to ANRE Order no. 6/2017, following the complete market liberalization started at 1 January 2021, to which a slight increase of provisions for the distribution segment is added. EBITDA and EBITDA margin Figure 33: EBITDA and EBITDA margin for 2021/Q4 2021 and comparative information (RON mn and %) 15% 953 7% 124 -1.8% (128) 2020 T4 2020 2021 Source: Electrica -28% (603) T4 2021 Operating profit The Group EBIT decreased by approx. RON 1,064.9 mn y-o-y, adding to the EBITDA evolution mainly the favorable impact of the depreciation and amortization, e.g., its decrease of RON 10.1 mn, or 2.1%. Figure 34: EBIT and EBIT margin for 2021/Q4 2021 and comparative information (RON mn and %) 459 7% 0% 2 2020 Source: Electrica T4 2020 -8.5% (606) 2021 -33% (721) T4 2021 152 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTNet finance cost The net finance cost at the group level increased by RON 9.8 mn in 2021 compared to 2020, as a result of the increase in external financing, but also from the reduction in finance income, following the deposits’ decrease. Profit before tax The Group has registered a gross loss of RON 632.4 mn in 2021, compared with the gross profit of RON 442.3 mn in 2020, following the factors mentioned above. Income tax expense The income tax was revenue of RON 79.5 mn in 2021, generated by the incurred gross loss. The net result for the year As a result of the above-described factors, in 2021, the net result is a loss of RON 552.9 mn, representing a decrease of RON 940.4s mn compared to RON 387.5 mn in 2020. Figure 35: Net profit and Net profit margin for 2021/Q4 2021 and comparative information (RON mn and %) 6% 388 0% (9) 2020 T4 2020 -7% (553) 2021 -29% (625) T4 2021 Source: Electrica Profit net Group Profit Net margin 153 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSEGMENT REPORTING - DISTRIBUTION Key indicators - The distribution segment Figure 36: Revenues w/o conso adjustments Figure 37: EBITDA w/o conso adjustments (RON mn) (RON mn) 2,741 2,751 2,731 607 624 372 2019 2020 2021 2019 2020 2021 Source: Electrica Source: Electrica Figure 38: Net result - w/o consolidated adjustments Figure 39: Net debt/(cash) (RON mn) (RON mn) 106 77 2019 2020 (148) 2021 657 781 706 Source: Electrica Source: Electrica 2019 2020 2021 The following table presents elements from the reporting of the statement of profit or loss of the Group’s distribution segment, for the period 2021 – 2020: External revenues Inter-segment revenue Segment revenue Segment profit/(loss) before tax Net finance (cost)/income Depreciation, amortization and impairment, net EBITDA Net profit/(loss) of the segment Source: Consolidated financial statements of Electrica Group as of 31 December 2021 2021 1,389.4 1,341.5 2,730.8 (153.0) (73.5) (451.9) 372.4 (139.0) 2020 1,486.6 1,264.2 2,750.8 95.1 (65.1) (465.8) 624.0 77.1 154 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTRevenues In 2021, the revenues from the electricity distribution segment decreased by approx. RON 20.0 mn, or 0.7%, to RON 2,730.8 mn, from RON 2,750.8 mn in 2020, as a result of the following factors: - the favorable impact of approx. RON 197.7 mn, from the increase of distribution tariffs, compared to 2020, and of the quantity of distributed electricity by approx. 5.7%; - the negative impact from the evolution of revenues from the construction of assets recognized in accordance with IFRIC 12, since the revenues from the electricity distribution segment are influenced by the recognition of investments into the network under concession agreements, these revenues decreasing in 2021 by RON 195.9 mn, compared to 2020; - the negative impact from presenting SERV’s activity in the energy services segment, compared with 2020 when it was presented under distribution segment. Electricity purchased In 2021, the cost of the electricity purchased to cover network losses increased by RON 393.1 mn, or 56.7%, to RON 1,087.1 mn, from RON 694.0 mn, the evolution being mainly generated by the increase in the electricity purchase prices (negative effect of RON 386.3 mn), as well as by the increase in the quantity of electricity needed to cover network losses (positive impact of RON 6.9 mn). Employee benefits The expenses with employee benefits slightly increased by RON 10.2 mn, or 1.7%, to RON 622.5 mn in 2021, from RON 612.3 mn in 2020. Other operating expenses The operating expenses on the distribution segment increased by RON 19.0 mn or 10% to RON 213.9 mn in 2021, from RON 194.1 mn in 2020, being the cumulated effect of a slight increase of provisions for the distribution segment of RON 9.6 mn and other operating expenses of RON 9.4 mn. EBITDA The increased expenses and especially the favorable variation of the operating expenses were the main elements that negatively influenced EBITDA with a decrease of RON 251.6 mn or 40.3%. Net finance cost The net finance cost recorded an increase in 2021 of approx. RON 8.4 mn compared to the previous year, the main factor being the growth of the external financing through loans at the level of the three distribution companies, mainly for the investment works realized in 2021. Net profit of the segment The net profit is supplementarily influenced by the adjustments for the depreciation of tangible and intangible assets, which generates a decrease of RON 216.1 mn. 155 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSEGMENT REPORTING – SUPPLY Key indicators - the supply segment Figure 40: Revenues – supply segment (RON mn) Figure 41: EBITDA - supply segment (RON mn) 4,768 518 4.250 5,015 557 4.458 5,772 582 5.190 265 5.3% 139 2.9% 2019 2020 2021 Revenues (w/o green certificates) Revenues from green certificates 2019 2020 -7.6% (440) 2021 EBITDA EBITDA margin Source: Electrica Source: Electrica Figure 42: Net profit – supply segment (RON mn) Figure 43: Net debt/(cash) – supply segment (RON mn) 214 4.3% 104 2.2% 242 (183) (257) 2019 2020 -6.8% (390) 2021 2019 2020 2021 Net profit Net profit margin Net debt / (cash) Source: Electrica Source: Electrica The following table presents the elements from the reporting of the statement of profit or loss of the Group`s supply segment for 2021 and 2020: (RON mn) External revenues Inter-segment revenues Segment revenue Segment profit/(loss) before tax Net finance (cost)/income Depreciation, amortization and impairment, net EBITDA Net Profit/(loss) of the segment Source: Consolidated financial statements of Electrica Group as of 31 December 2021 2021 5,741.5 30.9 5,772.4 453.6 0.3 (14.2) (439.7) (389.7) 2020 4,980.6 34.5 5,015.1 255.9 4.2 (12.8) 265.5 214.2 156 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTRevenues The revenues from the electricity and natural gas supply activity increased in 2021 by approx. RON 757.2 mn, or 15.1%, to RON 5,772.8 mn, from RON 5,015.1 mn in 2020. The variation of the supply segment revenue is mainly driven by the increase of the retail sale prices by 12.5% and of the volume of electricity supplied on the retail market by 1%. The green certificate value included in the final consumer invoice, set by ANRE, increased from RON 62.88/MWh in 2020 to RON 63.96/MWh in 2021. Electricity and natural gas purchased The cost of electricity and natural gas purchased for the supply segment increased by RON 1,451.4 mn, or 36.8%, to RON 5,397.7 mn in 2021, from RON 3,946.3 mn recorded in 2020. The evolution is mainly determined by the increase of the cost of the electricity purchased for supply (including transmission and system services) both on the free market but also as a last instance supplier, which in 2020 was a regulated segment, and it was impacted by the recovery (positive corrections) of some of the losses from previous years, when the ANRE tariffs were under the actual purchase prices, an effect which did not exist in 2021. There was also a decrease of 5.9% of the purchased quantity of electricity from the market, compared with the previous period. Green certificates’ (GC) cost is recognized in the statement of profit and loss based on the quantitative quota set by the regulatory authority and influenced by GC amount that the Group has to purchase for the current year and GC purchase price on the centralized market. The green certificates cost is a pass-through cost. In 2021, the cost of GC increased by RON 24.5 mn, or 4.4%, to RON 581.7 mn, from RON 557.2 mn in 2020. The increase was mainly influenced by: higher supplied volumes, for which there is an obligation to purchase green certificates, by 3.3% (negative impact of RON 18.5 mn); 2.0% increase in the GC average purchase price from RON 139.5/GC in 2020 to RON 142.2/GC in 2021, (negative impact of RON 9.9 mn); the regularization impact – positive variance of RON 4.8 mn, reflected in both revenue and expenses. Impairment losses on trade and other receivables The net impairment adjustments for trade receivables recorded a negative variation at the end of 2021 compared with 2020, of RON 27.8 mn, being mainly the effect of the receivables’ recoverability. EBITDA The above-presented factors led to an EBITDA decrease of RON 705.2 mn in 2021 compared with the previous period. Segment net profit The net profit decreased by RON 603.8 mn compared to 2020, the evolution of EBITDA being mainly influenced by the decrease of the corporate income tax by approx. RON 30 mn. 157 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT6.3. Consolidated cash flow statement The following table presents the consolidated statement of cash flows of Electrica Group, for 2021 and 2020 (amounts in RON mn): 2021 2020 Variation (552.9) 387.5 - 21.1 459.7 Cash flows from operating activities Profit for the year Adjustments for: Depreciation Amortization Impairment of property, plant, and equipment and intangible assets, net (3.9) Gain on disposal of property, plant and equipment, and intangible assets 2.7 Evaluation of fixed assets recognized in profit, net (Reversal of impairment)/Impairment of trade and other receivables, net (Reversal of impairment)/Impairment of assets held for sale Change in provisions, net Net finance cost Changes in employee benefits obligations Gain from bargain acquisition of subsidiaries Corporate income tax expense - 70.6 0.6 15.7 26.9 5.1 - (79.5) 27.9 463.1 0.6 (0.3) 2.4 (62.2) (0.2) (0.3) 17.1 - (7.5) 54.8 (33.9) 882.9 Changes in: Trade receivables Other receivables Prepayments Inventories Trade payables Other payables Employee benefits Deferred revenue Cash generated from operating activities Interest paid Income tax paid Net cash from operating activities Cash flows from investing activities (391.4) (22.9) (2.2) (2.9) 274.8 32.5 3.2 4.0 (138.9) (24.1) (31.4) (194.4) Payments for purchases of property, plant, and equipment (10.5) Payments for network construction related to concession agreements (483.8) Payments for purchase of other intangible assets Proceeds from the sale of property, plant, and equipment (6.3) 1.5 158 | 2021 ANNUAL REPORT ELECTRICA S.A. (87.2) 3.8 0.6 4.3 (76.0) (2.3) 14.7 (1.3) 739.5 (20.0) (51.7) 667.9 (6.7) (638.0) (2.2) 5.0 -24.2% -0.7% - - - - - - 57.3% - - - - 348.6% - - - - - -78.5% - - 20.8% -39.3% - 55.9% -24.2% 183.3% -70.7% ELECTRICA S.A. - 2021 DIRECTOR’S REPORTProceeds from deposits with a maturity of 3 months or longer Interest received Restricted cash Net cash effect from the gain of control over the acquired subsidiary Payment for acquisition of associated Payment for acquisition of subsidiaries Net cash used in investing activities Proceeds from long term bank borrowings Repayment of long term bank loans Payment of lease liabilities Dividends paid Net cash from/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Source: Consolidated financial statements of Electrica Group as of 31 December 2021 2021 - 1.8 320.0 - (25.8) - (203.2) 234.7 (385.9) (15.2) (247.6) (414.0) (811.5) 406.0 (405.6) 2020 66.4 9.0 - 5.6 - (8.0) (568.9) 354.3 (29.1) (29.3) (245.8) 50.1 149.1 256.9 406.0 Variation - -80.3% - - - - -64.3% -33.8% 1,224.6% -48.1% -0.7% - - 58.0% - In 2021, the net decrease in cash and cash equivalents amounted to RON 811.5 mn. The net cash generated by the operating activity was a loss of RON (138.9) mn. The net loss of the period was RON (522.9) mn; the main net profit’s adjustments for non-monetary elements were: adding the depreciation and amortization of RON 480.8 mn, eliminating the impact of the impairment of trade receivables of RON 70.6 mn, adding the income tax of RON 79.5 mn and the net finance cost of RON 26.9 mn. Changes in working capital had a negative effect, of RON 138.9 mn, the most significant impact being generated by the negative change in trade and other receivables, in the amount of RON 414.3 mn, and in trade and other payables of RON 314.5 mn (out of which, the change in employee benefits of RON 3.2 mn, having a positive impact). Income tax paid and interest paid amounted to RON 55.5 mn. For the investment activity, the cash used was of RON 203.2 mn, the most significant values being related to the payments for the network construction in connection with the concession agreements of RON 483.9 mn, these being reduced y-o-y, but also to the investments in associates of RON 25.8 mn. The financing activity generated a decrease in cash and cash equivalents of RON 203.2 mn, the main factors being the proceeds from long-term bank borrowings of RON 234.7 mn, reimbursement of loans of RON 385.9 mn, and the dividends paid to the shareholders, of RON 247.6 mn. In 2020, the net increase in cash and cash equivalents amounted to RON 149.1 mn. The net cash generated by the operating activity was RON 667.9 mn. The net profit of the period was RON 387.5 mn; the main net profit’s adjustments for non-monetary elements were: adding the depreciation and amortization of RON 490.9 mn, adding the income tax of RON 54.8 mn, and deducting the impact of the change in employee benefits obligations of RON 54.8 mn. 159 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTChanges in working capital had a favorable effect, of RON 143.4 mn, the most significant impact being generated by the change in trade and other receivables, having a negative impact, in the amount of RON 83.4 mn, and the positive change in trade and other payables of RON 64.3 mn (out of which, the change in employee benefits of RON 14.7 mn). Income tax paid and interest paid amounted to RON 71.6 mn. For the investment activity, the cash used was of RON 568.9 mn, the most significant values being related to the payments for the network construction in connection with the concession agreements, of RON 638.0 mn; these have recorded a slight increase y-o-y. The financing activity generated an increase in cash and cash equivalents of RON 50.1 mn, the main factors being the dividends paid to the shareholders, of RON 245.8 mn, withdraws from loans of RON 354.4 mn, and the payments related to leasing contracts, as a result of IFRS 16 application. 6.4. The separate statement of the financial position Financial information selected from the company’s separate statement of financial position (amounts in RON mn): 31 December 2021 31 December 2020 Variation 2021/2020 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Investments in associates Loans granted to subsidiaries – long term Right of use assets Total non-current assets Current assets Cash and cash equivalents Deposits with a maturity date more than three months Restricted cash Trade receivables Other receivables Inventories Prepayments Assets held for sale Loans granted to subsidiaries – short term Total current assets 100.1 0.1 2,285.2 25.8 1,276.3 0.5 96.9 0.3 2,284.9 - 1,030.0 1.4 3,688.0 3,413.5 5.8 - - 0.9 584.8 - 0.8 0.3 30.0 622.5 193.5 - 320.0 0.4 180.8 - 0.4 - - 3.3% -66.7% 0.0% - 23.9% -65.9% 8.0% -97.0% - - 124.8% 223.5% - 79.0% - - 695.1 -10.4% TOTAL ASSETS 4,310.5 4,108.6 4.9% 160 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT EQUITY AND LIABILITIES Share capital Share premium Treasury shares reserve Revaluation reserves Legal reserves Other reserves Retained earnings Total equity Liabilities Non-current liabilities Lease liability – long term Employee benefits Total non-current liabilities Current liabilities Credit lines Lease liability – short term Trade payables Other payables Deferred revenue Employee benefits Provisions Total current liabilities 31 December 2021 31 December 2020 Variation 2021/2020 3,464.4 3,464.4 103.1 (75.4) 12.4 228.2 71.2 319.6 103.1 (75.4) 12.6 212.0 35.6 297.0 4,123.5 4,049.3 0.1 1.1 1.2 120.5 0.4 4.0 44.0 0.4 12.2 4.2 185.8 0.5 1.5 2.0 - 1.0 7.1 36.0 0.2 7.1 5.8 57.3 - - - -1.6% 7.6% - 7.6% 1.8% -80.0% -27.7% -39.7% - -59.2% -43.9% 22.2% 100.0% 69.6% -27.2% 223.9% Total liabilities 186.9 59.3 215.4% Total equity and liabilities 4,310.5 4,108.6 4.9% Source: Separate financial statements of ELSA as of 31 December 2021 Non-current assets On 31 December 2021, as compared to 31 December 2020, fixed assets increased with RON 274.4 mn or 8.0%, from RON 3,413.5 mn to RON 3,688.0 mn. At the end of 2021, the land and buildings situation is similar to the previous period. They include the administrative headquarter of the company and the corresponding land, the plots of land over which the company has obtained title deeds, and the land and buildings acquired in 2020 from the subsidiary SEM. The increase registered in 2021 in the amount of 3.1 mil. RON is due to the modernizations and renovations made to the administrative headquarters. Investments in associates On 28 July 2021 and 7 December 2021, Electrica SA has concluded four contracts for sale – purchase of shares in four project-based companies, having as main object the production of electricity from renewable resources. The sale – purchases agreements mention that at the first stage, the Group received 30% from the share capital of the four companies, following which, it will obtain the 70% difference after certain conditions mentioned in the contracts are met. 161 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe cost of investment, at the acquisition date, the total value of RON 25.8 mn are detailed below: Acquisition date 31.07.2021 31.07.2021 31.07.2021 31.12.2021 Crucea Power Park S.R.L. New Trend Energy S.R.L. Sunwind Energy S.R.L. Foton Power Energy S.R.L. The percentage at the acquisition date Net value at the acquisition date Percentage of the Group from net (30%) Goodwill Investment cost at acquisition date Other receivables 30% (242) (73) 12.6 12.5 30% (5) (2) 4.8 4.8 30% (5) (2) 2.2 2.2 30% (7) (2) 6.3 6.3 Cash-pooling receivables comprise the receivable of Electrica SA as of 31 December 2021 as cash pool leader in the two cash-pooling systems set up at the Group level. The increase in 2021 is due to liquidity requirements of subsidiaries included in the cash pooling scheme by the Company (correlate with the decrease of cash equivalent) Trade receivables As of 31 December 2021, the company’s trade receivables increased by RON 0.5 mn, or 124,8%, to RON 0.9 mn, from RON 0.4 mn on 31 December 2020, mainly because of the revenues from AMR services are no longer obtained. Cash, restricted cash, and short-term investments As of 31 December 2021, the cash and cash equivalents decreased by RON 187.7 mn or 97.0%, to RON 5.7 mn from RON 193.5 mn on 31 December 2020. (RON mn) 31 December 2021 31 December 2020 Bank current accounts Call deposits Total cash and cash equivalents in the separate statement of financial position and in the separate statement of cash flow Source: Separate financial statements of ELSA as of 31 December 2021 3 2.7 5.7 18.4 175.1 193.5 Value of cash and cash equivalents decreased by RON 187.7 mn due to the decrease of short-term deposits and cask at banks, both coming from investment acquisitions in associates and the cash pooling structure (liquidities used for cash pooling). Loans granted to subsidiaries (RON mn) 31 December 2021 31 December 2020 DEER (long term loan granted) * EFSA Total loans granted to subsidiaries 1,276 30 1,306 1,030 - 1,030 Source: Separate financial statements of ELSA as of 31 December 2021 (*)Starting with 31 December 2020 the three distribution companies merged into one single distribution company named Distributie Energie Electrica Romania S.A. („DEER”) The closing balance of the loans granted to subsidiaries are related to intragroup loans granted in 2017 and 2018 as follows: Intragroup loan agreement concluded with SDMN in April 2018. The main provisions are the maximum amount of the loan: RON 230 mn; the purpose of the loan: financing the investment program of 2018; interest rate: 4.7% per year; maturity: 84 months; period allowed for disbursements: 12 months; full repayment at maturity; reimbursement in advance allowed, but not earlier than the 12 months of the period of use. As of 31 December 2021, the loan balance is RON 230 mn (31 December 2020: RON 230 mn); 162 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTIntragroup loan agreement concluded with SDTN in April 2018. The main provisions are the maximum amount of the loan: RON 160 mn; the purpose of the loan: financing the investment program of 2018; interest rate: 4.7% per year; maturity: 84 months; period allowed for disbursements: 12 months; full repayment at maturity; reimbursement in advance allowed, but not earlier than the 12 months of the period of use. As of 31 December 2021, the loan balance is RON 160 mn (31 December 2020: RON 160 mn); Intragroup loan agreement concluded with SDTS in April 2018. The main provisions are the maximum amount of the loan: RON 130 mn; the purpose of the loan: financing the investment program of 2018; interest rate: 4.7% per year; maturity: 84 months; period allowed for disbursements: 12 months; full repayment at maturity; reimbursement in advance allowed, but not earlier than the 12 months of the period of use. As of 31 December 2021, the loan balance is RON 130 mn (31 December 2020: RON 130 mn); Intragroup loan agreement with SDMN concluded in November 2017. The main provisions are the maximum loan amount: RON 150 mn; the purpose of the loan: financing the investment program of 2017, Interest rate: 2.79% per year, maturity: 84 months, period allowed for disbursements: 12 months. Repayment in full at maturity; reimbursement in advance allowed, but not earlier than the 12 months of the period of use. As of 31 December 2021, the outstanding balance is RON 150 mn (31 December 2020: RON 150 mn); Intragroup loan agreement with SDTN concluded in November 2017. The main provisions are the maximum loan amount: RON 200 mn; the purpose of the loan: financing the investment program of 2017, interest rate: 2.79% per year, maturity: 84 months; period allowed for disbursements: 12 months. Full repayment at maturity; reimbursement in advance allowed, but not earlier than the 12 months of the period of use. As of 31 December 2021, the outstanding balance is RON 200 mn (31 December 2020: RON 200 mn); Intragroup loan agreement with SDTS concluded in November 2017. The main provisions are the maximum loan amount: RON 160 mn. Purpose of the loan: financing the investment program of 2017; interest rate: 2.79% per year, maturity: 84 months, period allowed for disbursements: 12 months. Repayment in full at maturity; reimbursement in advance allowed, but not earlier than the 12 months of the period of use. As of 31 December 2021, the outstanding balance is RON 160 mn (31 December 2020: RON 160 mn); Intragroup loan agreement on short term concluded with ELSA in December 2021 for financing the current activity in the amount of RON 90.0 mn, out of which RON 60.0 mn have been reimbursed. As of 31 December 2021, the outstanding balance is RON 30.0 mn. Interest rate: 3,51% per year. Multi-borrower credit agreements On 1 April 2019, between Banca Comerciala Romana, as lender and ELSA, as guarantor and borrower, together with its distribution subsidiaries (SDMN, SDTN, and SDTS, currently DEER SA), as borrowers, was concluded a contract for a multi-product revolving facility, as follows: maximum loan amount: RON 125 mn; the purpose of the loan: financing the current activity; interest rate: 0.77% + ROBOR 1M p.a.; initial maturity: 16 March 2020, prolonged for one year up to 16 March 2021, under the same terms. Repayment: in full, at maturity. As of 31 December 2020, the outstanding balance of the facility for the Company is nil. On 16 April 2019, between BNP PARIBAS, as the lender, and ELSA, as guarantor and borrower, together with its subsidiaries, EFSA and SERV, as borrowers, was concluded a contract for a credit facility in the form of a credit line from the current accounts opened by the borrowers to the lender, as follows: maximum loan amount: RON 160 mn. Purpose of the loan: financing the current activity; interest rate: 0.60% + ROBOR 1M p.a.; initial maturity: 16 March 2020, prolonged for one year up to 16 March 2021, under the same terms. Repayment: in full, at maturity. As of 31 December 2020, the outstanding balance of the facility for the Company is nil. Intragroup loan contract with DEER SA was concluded on October 2021. Main provisions: loan amount: RON 246.3 mn; the purpose of the loan: to reimburse the loans from BRD obtained in 2016 for financing the investment plan from 2016, which were due in 2021; interest rate: 3.51% p.a.; initial maturity: 96 months up to 12 October 2029. Withdraws: 12 months. Repayment: in full, at maturity; advance reimbursement is allowed but no sooner than 12 months from utilization date. As of 31 December 2021, the outstanding balance of the loan is RON 246.3 mn. Cash pooling system at Group level On 20 December 2019, between ING Bank N.V., ELSA, and its subsidiaries were concluded two agreements for the implementation of two cash pooling schemes, as follows: a first system involving ELSA, as cash pool leader, and its distribution subsidiaries (SDMN, SDTN, and SDTS), as participants. The credit facility offered by the pool leader to each participant is up to the amount of RON 180 mn, and the credit facility offered by each participant to the pool leader is up to the amount of RON 50 mn. The interest rate is ROBOR 1M + 0.07% p.a. However, if the amounts drawn by the participants are covered both by the 163 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTinternal liquidity of ELSA and by drawing from the credit line granted to ELSA, the amount of interest due by the participants to ELSA will be calculated using a weighted interest rate, calculated based on the ROBOR internal rate 1M +0.07% p.a. and the ROBOR bank rate 1M + 0.8% p.a. The initial due date was 20 December 2020, the convention is automatically extended for a period of 1 year. a second system involving ELSA, as cash pool leader and its subsidiaries, EFSA, SERV, and SEM, as participants. The credit facility offered by the participants to the pool leader is up to the amount of RON 180 mn for EFSA, RON 50 mn for SERV, and RON 2 mn for SEM. The credit facility offered by the pool leader to the participants is up to the amount of RON 30 mn in the case of EFSA, RON 10 mn in the case of SERV, and RON 2 mn in the case of SEM. The interest rate is ROBOR 1M + 0.07% p.a. However, if the amounts drawn by the participants are covered both by the internal liquidity of ELSA and by drawing from the credit line granted to ELSA, the amount of interest due by the participants to ELSA will be calculated using a weighted interest rate, calculated based on the ROBOR internal rate 1M +0.07% p.a. and the ROBOR bank rate 1M + 0.8% p.a. The initial due date was 20 December 2020, the convention is automatically extended for a period of 1 year. Through these systems, the bank will automatically transfer all available amounts existing at the end of each day in the current bank accounts of the participants to the master bank account of ELSA. In case the current bank accounts of the participants have a negative balance at the end of the day, the bank will transfer the necessary amounts from the master bank account of ELSA to the current bank accounts of the participants so that at the end of each day the balance of the current bank accounts of the participants is nil. In case the balance of the master bank account of ELSA is not sufficient to cover the negative balance of the current bank accounts of the participants, the bank will make available the necessary funds from the overdraft facility that will be signed between the bank and ELSA. On 30 December 2020, Electrica Energie Verde 1 (EEV1), entered the second cash pooling system. The credit facility that can be borrowed by EEV1 under the agreement is up to RON 15 mn and the amount that can be borrowed by ELSA under the convention is up to RON 10 mn. The interest rate is ROBOR 1M + 0.07% p.a. However, if the amounts drawn by EEV1 are covered both by the internal liquidity of ELSA and by drawing from the credit line granted to ELSA, the amount of interest due to ELSA will be calculated using a weighted interest rate, calculated based on the ROBOR internal rate 1M +0.07% p.a. and the ROBOR bank rate 1M + 0.8% p.a. The agreement has as due date 28 January 2022, with the option of automatic renewal for successive periods of 1 (one) year. Share Capital The issued share capital in nominal terms consists of 346,443,597 ordinary shares as of 31 December 2021 (346,443,597 ordinary shares as of 31 December 2020) with a nominal value of RON 10 per share. Ordinary shares offer the right to dividends and the right to one vote per share in the company’s shareholder meetings, except for the 6,890,593 shares redeemed by the Company in July 2014, for the purpose of prices stabilization. All shares confer equal rights in the company’s net assets, except for the 6,890,593 shares redeemed by the company, in July 2014. ELSA recognizes changes in share capital only after their approval in the General Shareholders Meeting and their registration in the Trade Register. Dividends The company may distribute dividends from the statutory profit, according to the audited individual financial statements prepared in accordance with Romanian accounting regulations. The dividends distributed by the Company in the years 2021 and 2020 (from previous years’ profits) were as follows: Dividends distributed (RON mn) Source: Separate financial statements of ELSA as of 31 December 2021 2021 247.8 2020 246.1 164 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTOn 28 April 2021, the General Meeting of Shareholders of ELSA approved the distribution of dividends in the amount of RON 247.8 mn, legal reserves in the amount of RON 14.9 mn, and other reserves in the amount of RON 35.6 mn. The value of dividends per share distributed to the shareholders of the Company were: RON 0.7248 per share (2020: RON 0.7248 per share). Out of the dividends distributed by the Company of RON 247.8 mn (2020: RON 246.1 mn) the dividends paid were RON 246.6 mn (2020: RON 245.8 mn), the difference representing dividends uncollected by the shareholders. Provisions (RON mn) Litigations and other risks Balance at 1 January 2021 Provisions made Provisions utilised Provisions reversed Balance at 31 December 2021 5.8 0.08 (1.1) (0.5) 4.2 Source: Separate financial statements of ELSA as of 31 December 2021 The provisions in the amount of RON 4.2 mn as of 31 December 2021 (31 December 2020: RON 5.8 mn) refer mainly to the benefits granted upon the termination of executive managers’ contracts. 6.5. The separate statement of profit or loss Financial information selected from the company’s separate statement of profit or loss (RON mn): Revenues Other income Employee benefits Depreciation and amortization Reversal of impairment of trade and other receivables, net Impairment of property, plant and equipment, net Impairment of assets held for sale Change in provisions for legal cases and non-compete clauses, net Other operating expenses Profit/(loss) before financing result Finance income Finance costs Share of results of associates Net finance income Profit before tax Income tax benefit/(expense) Profit for the year 2021 - 0.8 (39.2) (2.3) - 3.8 (0.5) 1.6 (19.9) (55.6) 377.7 (0.3) - 377.4 321.8 - 321.8 2020 3.3 14.5 (31.8) (13.1) 98.6 (10) - (2.5) (23.9) 35.1 260.3 (0.1) - 260.2 295.3 3.1 298.4 Variation 2021/2020 - -94.4%% 23.3% -826% - - - - -16.6% - 45.1% 111.8% 0% 45.1% 9.0% -98.6% 7.9% Earnings per share 0.95 0.88 7.7% Source: Separate financial statements of ELSA as of 31 December 2021 165 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTRevenues transforming business structures with specialized During the year 2021, ELSA has no longer recorded staff. revenues compared with 2020 when it recorded revenues of RON 3.3 mn. The revenues obtained Impairment of trade receivables and other by the Company are represented by revenues from receivables service agreements related to the AMR system Impairment adjustments for other receivables concluded with the distribution subsidiaries recognized during 2020 are in the amount of RON that include automatic meter reading services, 98.6 mn and mainly represent the reversal of the communications, and monitoring of the quality impairment adjustments for uncollected VAT parameters of electricity services. Starting with 1 July related to the uncertain receivables from Oltchim; 2020, the company no longer registered this type of in the previous years, ELSA recognized impairment revenue, as a result of the AMR system assets transfer adjustments for the total amount of receivables from to the distribution subsidiaries by contribution to Oltchim, and based on the sentence opening for the their share capital. Other income bankruptcy proceedings and the provisions of the Fiscal Code, reversed the impairment adjustments related to uncollected VAT, simultaneously with the During the financial year ended 31 December 2021, VAT adjustment. the other income mainly includes income from compensations/refunds of certain amounts as a Impairment of property, plant, and equipment result of favorable court sentences, to which rent revenue and proceeds from the disposal of assets Impairment adjustments recorded during 2021 for property, plant, and equipment are in the amount are added. of RON 3.8 mn, compared to the amount of RON Revenues from compensations consist mainly of the 10.0 mn in 2020. These mainly refer to impairment amount of RON 12.8 mn collected in 2020 by ELSA adjustment reversal recorded following the AMR from the National Agency for Fiscal Administration system assets reclassified as non-current assets held (“NAFA”) as a result of the final civil sentence for sale. obtained in Court, which ordered the cancellation of certain enforceable titles as well as fiscal decisions. Other operating expenses Depreciation and amortization of tangible and in the amount of RON 19.9 mn, compared to the intangible assets amount of RON 23.9 mn in 2020. The evolution was The depreciation and amortization expense is RON mainly determined by the increase of consulting 2.3 mn in 2021, compared to RON 13.1 mn in 2020, services expenses related to the projects carried out In 2021, ELSA recorded other operating expenses as a result of the assets related to the AMR system at the company level. transfer to the distribution subsidiaries in June 2020, representing the assets for which it was recorded the Profit/(loss) before financing result most significant part of the depreciation expense at As a result of the above-mentioned factors, ELSA the company level. Employee benefits recorded in 2021 a loss before financing result in the amount of RON 55.6 mn, while in 2020 it recorded a profit amounting to RON 35.1 mn. In 2021, employee benefits increased by RON 7.4 mn to RON 39.2 mn from RON 31.8 mn in 2020. The variation is the result of several factors, mainly Net finance income ELSA’s main financial income is provided by the changes in the structure of benefits granted to dividends distributed by its subsidiaries. employees, as a result of the provisions of the During the financial year ended 31 December 2021, Collective Labor Agreement entered into force on ELSA recorded dividend income from its subsidiaries 1 April 2020, the payments related to the project in the amount of RON 329.5 mn (2020: RON 215.0 to streamline the staff structure of the company, mn), structured as follows: the plan to change the organizational structure by 166 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT(RON mn) SDMN SDTS SDTN EFSA SERV Total 2021 33.3 10.2 52.7 233.3 - 329.5 2020 2.7 6.9 54.1 124.0 27.3 215.0 Source: Separate financial statements of ELSA as of 31 December 2021 Another category of financial income related to its subsidiaries is represented by interest income related to the loans granted, which slightly increased to RON 41.2 mn in 2021 compared to RON 39.4 mn in 2020, according to the (RON mn) detail: SDMN SDTN SDTS SEM Total 2021 15.7 11.5 14.0 - 41.2 2020 15.2 13.3 10.8 0.1 39.4 Source: Separate financial statements of ELSA as of 31 December 2021 In 2020 the liquidity concentration structure (cash pooling) was implemented within the Electrica Group, which ensures that the current liquidity needs of the Group’s subsidiaries are covered. By implementing the cash pooling scheme, the following financial revenues and expenses were recorded by ELSA: (RON mn) SDMN SDTS SDTN EFSA SERV Total 2021 - 1.4 2.0 1.2 (0.6) 4.0 2020 0.6 2.1 1.3 (1.3) (0.7) 2.0 Source: Separate financial statements of ELSA as of 31 December 2021 Profit before tax In 2021, profit before tax increased by RON 26.5 mn or 9.0% to RON 321.8 mn from RON 295.3 mn in 2020. Income tax benefit/(expense) In 2021, the company recorded insignificant income tax benefit (2020: the expense of RON 3.1 mn), mainly due to the registration of deferred income tax revenues. Net profit for the year As a result of the factors presented above, the 2021 net profit recorded an increase of 7.9% compared to 2020, to RON 321.8 mn from RON 298.4 mn. 167 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT6.6. Separate cash flow statement Financial information selected from the cash flow statement of the company (RON mn): Indicator 2021 2020 Variation 2021/2020 Cash flows from operating activities Profit for the year Adjustments for: Depreciation Amortization Impairment of property, plant and equipment, net Loss/(Gain) from the disposal of tangible assets Reversal of impairment of trade and other receivables, net 321.8 298.4 7.9% 1.1 1.2 (3.8) 3.1 (0.1) 11.2 1.9 10.0 0.6 -90.0% -39.5% - 393.1% (98.6) - Net finance income (377.4) (260.2) 45.1% Changes in employee benefits obligations Changes in provisions, net Changes in: Changes in: Trade receivables Other receivables Trade payables Other payables Employee benefits Cash generated/(used in) from operating activities Interest paid Net cash from/(used in) operating activities Cash flows from investing activities 5.1 (1.6) - (50.2) (0.4) 3.0 (2.9) 0.3 (0.3) (50.5) (0.2) (50.7) Payments for purchases of property, plant, and equipment (4.8) Proceeds from the sale of property, plant and equipment Proceeds from deposits with a maturity of 3 months or longer Cash pooling net position Loans granted to subsidiaries Proceeds from loans given to subsidiaries Payments for shares in associates Payments for acquisition of subsidiaries Restricted cash Interest earned 0 0 (393.6) (336.3) 60.0 (25.8) (0.1) 320.0 42.2 (0.4) 2.5 (3.1) (37.7) 103.2 4.3 1.8 (0.4) 1.9 73.1 - 73.1 (4) 0.2 66.4 (132.2) - 0.0 0 0 - 41.4 -1,394.9% - - 33.1% - -26.5% - - -169.1% - -169.4% 20.0% -89.0 -83.5% 197.8% - 100% - - - 1.9% 168 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTIndicator Dividends received Net cash from investing activities Cash flows from financing activities Proceeds from issue of share capital, net Dividends paid Payment of lease liabilities Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 2021 329.5 - (247.6) (1.0) (248.6) (308.3) 193.5 (114.8) 2020 215 - (245.8) (0.9) (246.7) 13.2 180.5 193.5 Variation 2021/2020 53.3% - 0.8% 9.5% 0.8% - 7.3% - Source: Separate financial statements of ELSA as of 31 December 2021 In 2021, the net decrease in cash and cash equivalents amounted to RON 308.3 mn. The net cash generated by the operating activity was of RON (50.5) mn. The net profit of the period was RON 321.8 mn; the main non-monetary elements adjustments for the net profit were: adding the amortization and depreciation of tangible and intangible assets in the amount of RON 2.3 mn, adding the impact of tangible assets disposal in the net amount of RON 0.7 mn, reducing the variation of the change in provisions of RON 1.6 mn, eliminating the impact of the impairment of trade receivables and deduction of the income tax benefit which were immaterial. The net financial result of RON 377.4 mn was deducted. Changes in working capital had a favorable effect, of RON 320.8 mn, the most significant impact being generated by the restricted cash of RON 320.0 mn, positive change in trade and other receivables, in the amount of RON 2.7 mn, and in trade and other payables of RON 2.7 mn (out of which, a RON 0.3 mn positive impact from the change in employee benefits). For the investment activity, the cash used was RON 329.1 mn, the most significant values being related to the dividends received in the amount of RON 329.5 mn, to the loans granted to affiliates in the amount of RON 336.3 mn, to interest received in the amount of RON 41.4 mn, but also to the payments for purchases of shares in subsidiaries in amount of RON 25.8 mn, but also cash received from loans given to subsidiaries in amount of RON 60.0 mn and the amounts paid within the cash pooling scheme, implemented at the Group level, amounting to RON 393.6 mn. The financing activity generated a decrease in cash and cash equivalents of RON 248.6 mn, mainly from the dividends paid to the shareholders - RON 247.6 mn. In 2020, the net increase in cash and cash equivalents amounted to RON 13.2 mn. The net cash generated by the operating activity was of RON 73.0 mn. The net profit of the period was RON 298.4 mn; the main non-monetary elements adjustments for the net profit were: adding the amortization and depreciation of tangible and intangible assets in the amount of RON 13.0 mn, impairment adjustments for tangible assets of RON 10.0 mil. RON, eliminating the impact of the impairment of trade and other receivables of RON 99.0 mn and deduction of a net financial result of RON 260.2 mn. Changes in working capital had a favorable effect, of RON 110.0 mn, the most significant impact being generated by the positive change in trade and other receivables, in the amount of RON 107.0 mn, positive effect reduced by the change on payable and other payables with a negative effect of RON 3.2 mn (out of which, a RON 1.9 mn from the change in employee benefits). Interest paid was RON 0.2 mn. The investment activity generated a decrease of cash and cash equivalents of RON 246.7 mn, the main factor being the payment of dividends to the shareholders in the amount of RON 245.8 mn. 169 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT6.7. Risk management For the Electrica Group, the year 2021, from a risk DEER risk management team and were intended to management perspective was one of consolidation prepare, in two iterations, the evaluations, and the of the previous year’s initiatives and new projects, Energy Sector Risk Preparation Plan in accordance initiated based on internal needs or at the request with (EU) 2019/941 Regulation of the European of third parties. This year also marks an important Parliament and the Council. The methodology of milestone for the risk management competence the entire project was based on several scenarios throughout the Electrica Group in that the first developed and described by ENTSOE, with an impact consultancy project in this area to be implemented scale and the specific probabilities of transport and outside the Group has been concluded. distribution activities. The same category included Thus, regarding consolidation, the Risk Management the risk evaluation initiative regarding relevant Procedure was implemented throughout the infrastructure ownership risks for the safety of electric Group, which allowed, for the first time to have power supply, based on (EU) 2019/941 Regulation homogeneous aggregate reporting, from the point of the European Parliament and the Council, upon of view of exposures at the Group level. Instructions the request of the Competent Authority of Electric and specific documentation were prepared for each Power Supply under the Ministry of Energy. branch office, the largest effort being allocated to the risks to be managed in sales, receivables, and The year 2021 also meant significant communication efforts due to pandemic work conditions, as well as treasury-related risks for supply activities. significant internal training and consulting efforts, Regarding internal needs, combined with applicable legal requirements, the Policy on Knowing Your (clients and suppliers) was Business Partners prepared and implemented for the most part. at the group level There were numerous risk management challenges in 2021, in that the materialisation of certain risks, such as market risk (electricity and natural gas The purpose of this initiative is to fulfil the legal prices, in particular), regulatory risk (regarding requirements in cases where the Group companies client invoicing), operational risk (IT systems, electric are designated as reporting entities under Law no power theft), had multiple causes and sometimes 129/2019 and also to help the natural and necessary unpredictable effects. development of the counterparty default risk For the next year, we aim to increase agility and, where assessment in an aggregate manner, based on possible, to automate the risk management system, knowledge of the partners. to transform this Group level competence into a Under the same internal needs, a large project was point of best practice, and to align and implement implemented at Electrica Furnizare, moderated by the necessary instruments of risk management with the risk management team, with the principal aim of and into the strategic and operational goals of the analysing the causes and circumstances of market Group. risk exposure for several key processes, as well as the controls that could be implemented. The project FINANCIAL RISK MANAGEMENT identified additional previously unrecorded risks and a large number of actions to be analysed and The Group is exposed to the following risks resulting implemented by the relevant business lines. In line with the needs that the market risk has raised from the use of financial instruments: credit risk, liquidity risk, and market risk. throughout 2021, an initiative to evaluate the impact of market risk upon the internal technological consumption recorded under DEER was also Credit risk implemented. This was a multi-disciplinary project at Credit risk is the risk that the Group will register a the Group level, which produced risk management financial loss if a customer or counterparty to a observations and recommendations for dealing financial instrument fails to meet its contractual with risks in drafting the procurement/purchasing obligations and arises principally from the Group’s strategy. Another internal project was implemented under DEER, whereby team facilitated the Resilience Plan Update, resulting in the final document “The Resilience Plan in the risk management the receivables from customers, cash, and cash equivalents, restricted cash, and bank deposits. The Group’s exposure to credit risk is mainly influenced by the individual characteristics of each customer. In the past, the Group had a high credit Context of COVID 19 Outbreak and DEER Expansion”. risk mainly from State-owned companies. The projects implemented upon the request of third Cash and bank deposits are placed in financial parties were implemented with the assistance of the institutions that are considered to have to have a low risk of default. 170 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTThe carrying amount of financial assets represents the electricity supply contracts include termination the maximum credit exposure. clauses in certain circumstances. Trade receivables The Group establishes an allowance for impairment that represents the number of expected credit The Group’s credit risk in respect of receivables was losses, calculated based on the expected loss rates. concentrated in the past around state-controlled companies and in recent years refers to clients that Impairment are facing financial difficulties in their industries The following table provides information on the due to specific changes in circumstances in their exposure to credit risk and expected credit losses for industry sector. The Group has set up a policy trade receivables as of 31 December 2021: regarding risk management and it has taken into account the insurance of the trade receivables. Also, (RON mn) Expected credit loss rates (“ECL”) Gross value Lifetime ECL Net trade receivables Credit impaired 31 December 2021 Neither past due nor impaired Past due 1-30 days Past due 31-60 days Past due 61-90 days Past due more than 90 days Total 2% 5% 15% 38% 98% 1,080.1 228.5 36.7 15.4 964.7 2,325.4 (16.6) (10.6) (5.3) (5.9) (942.4) (980.8) 1,063.5 217.9 31.4 9.5 22.3 1,344.6 Nu Nu Nu Nu Da Source: Consolidated financial statements of Electrica Group as of 31 December 2021 The following table provides information on the exposure to credit risk and expected credit losses for trade receivables as of 31 December 2020: creante la 31 decembrie 2020: (RON mn) Expected credit loss rates (“ECL”) Gross value Lifetime ECL Net trade receivables Credit impaired 31 December 2021 Neither past due nor impaired Past due 1-30 days Past due 31-60 days Past due 61-90 days Past due more than 90 days Total 2% 1% 12% 33% 99% 812.9 163.4 49.0 17.5 936.6 1,979.4 (13.1) (2.3) (5.8) (5.7) (922.7) (949.6) 799.8 161.1 43.2 11.8 13.9 1,029.8 Nu Nu Nu Nu Da Source: Consolidated financial statements of Electrica Group as of 31 December 2020 171 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT Liquidity risk Liquidity risk is the risk that the Group will encounter difficulties in meeting the obligations associated with its financial liabilities that are settled by transferring cash or another financial asset. The Group’s liquidity management policy is to maintain, as far as possible, sufficient liquidity to meet its obligations when they are due, under both normal and stressed conditions, to avoid unacceptable losses. The Group aims to maintain the level of its cash and cash equivalents at an amount over expected cash outflows on financial liabilities. The Group also monitors the level of expected cash inflows on trade receivables together with expected cash outflows on trade and other payables. In addition, the Group maintains overdrafts facilities. Exposure to liquidity risk The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted and include estimated interest payments. (RON mn) Contractual cash flows Financial liabilities Carrying amount Total less than 1 year 1-2 years 2-5 years More than 5 years 31 December 2021 Bank overdrafts Lease liability Long term bank borrowings Trade payables Total 31 December 2020 Bank overdrafts Lease liability Long term bank borrowings Trade payables Total 627.4 21.5 628,5 922.3 627.4 21.5 628,5 922.3 627.4 9.4 176,2 891.3 2,168.7 2,168.7 1,704.3 165.0 27.6 778.9 607.2 165.0 27.6 778.9 607.2 165.0 10.7 378.6 607.2 1,578.7 1,578.7 1,161.5 - 4.9 92,9 - 97.8 - 6.8 70.8 - 77.6 - 5.1 278,8 - 283.9 - 10.0 212.5 - 222.5 - 2.1 80,6 - 82.7 - 0.1 117.0 - 117.1 Source: Consolidated financial statements of Electrica Group as of 31 December 2021 Market risk Market risk is the risk that changes in market prices – foreign exchange rates and interest rates – will affect the Group’s income or the value of its financial instruments held. The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return. Currency risk The Group has exposure to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases, and borrowings are denominated and the functional currency of the Group. The functional currency of all entities belonging to the Group is the Romanian Leu (RON). The currency in which these transactions are primarily denominated is RON. Certain liabilities are denominated in foreign currency (EUR). The Group also holds deposits and bank accounts denominated in foreign currency (EUR). The Group’s policy is to use the local currency in its transactions as far as practically possible. The Group does not use derivative or hedging instruments. 172 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTExposure to currency risk The summary of quantitative information on the Group’s exposure to currency risk is given below: 31 December 2021 EUR 31 December 2020 EUR Cash and cash equivalents Lease liability Net statement of financial position exposure Source: Consolidated financial statements of Electrica Group as of 31 December 2021 0.8 (19.1) (18.3) The following significant exchange rates have been applied during the year: Average rate Year-end spot rate EUR/RON 2021 4.9204 2020 4.8371 2021 4.9481 Source: Consolidated financial statements of Electrica Group as of 31 December 2021 3.3 (24.4) (21.1) 2020 4.8694 Sensitivity analysis A reasonably possible strengthening (weakening) of the EUR against RON on 31 December would have affected the measurement of financial instruments denominated in a foreign currency and profit before tax by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. (RON mn) Effect Profit before tax Strengthening Weakening 31 December 2020 EUR (5% movement) 31 December 2020 EUR (5% movement) (0.9) (1.1) 0.9 (1.1) Source: Consolidated financial statements of Electrica Group as of 31 December 2021 Exposure to interest rate risk The interest rate profile of the Group’s interest-bearing financial instruments is as follows: (RON mn) 31 December 2021 31 December 2020 Fixed-rate instruments Financial assets Call deposits Deposits with a maturity date more than three months Financial liabilities Financing for network construction related to concession agreements Long-term bank borrowings Lease liability Total Variable-rate instruments Financial liabilities Lease liability Long-term bank borrowings Bank overdrafts Total Source: Consolidated financial statements of Electrica Group as of 31 December 2021 53.9 391.5 - - (418.9) (8.3) (373.3) (13.3) (209.6) (627.4) (850.3) - - (728.9) (9.1) (346.5) (18.6) (49.9) (165.0) (233.5) 173 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTFair value sensitivity analysis for fixed-rate instruments The Group does not account for any fixed-rate financial assets or financial liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable-rate instruments A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased (decreased) profit before tax by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. (RON mn) Profit before tax 50 bp increase 50 bp decrease 31 December 2021 Variable-rate instruments 31 December 2020 Variable-rate instruments Source: Consolidated financial statements of Electrica Group as of 31 December 2021 (4.3) (1.2) 4.3 1.2 6.8. Description of the main features of internal control and risk management systems concerning the financial reporting process The internal control represents all measures, that are required. procedures, and policies adopted by ELSA The internal control and the risk management management and their implementation by the systems have the following main goals: employees, regarding the organizational structure, protecting organizational resources against applied procedures, methods, techniques, and losses due to waste, negligence, abuses, instruments, for the implementation of company fraud, etc.; strategy and objectives. The internal control includes compliance with the applicable legislation all control forms performed at the company level, and the internal regulations; such as preventive financial control, internal and the reliability of financial reporting (accuracy, managerial control, compliance control. completeness, and correctness of the information); The internal control activity represents a way of ensuring an environment based on analysis of ELSA activities, of adopting and applying the internal management, also associated with the identifying, understanding, and controlling risks, environment which will contribute to knowledge activity, which allows the Company’s achieving the organizational goals; management to coordinate the activities within the efficient and effective business operations organization in an efficient manner. and use of resources; applying the BoD and executive management In this respect, through the internal control, the resolutions and follow-up. monitoring and verification are carried out, in accordance with the legislation in force and the The achievement of these goals was performed in specific procedures, in compliance with the legal 2021 as follows: framework that regulates the activities carried out in the checked entities, according to the approved control objectives and themes. in order to ensure internally the compliance with the competition and state aid rules, there were held several training sessions and Through internal control, the Company’s practical verification; management ascertains the deviations resulting clear definition and responsibilities from the established objectives, analyzes the causes, segregation for each person involved in and orders the corrective or preventive measures the organizational process; segregation 174 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT of duties regarding the carrying out the out regarding major or critical risks, related operations among the personnel, so that the to particular activities for stimulating internal approval, control, and registration duties are control methods; adequately assigned to different persons (as per the Company’s organizational chart); elaboration, update, and implementation of Control activities meant to reduce the risks – Control activities have different forms (managerial control, general control, regulations, policies, procedures, forms, etc; preventive financial control, etc.) and they the existence of a Guide for Accounting are implemented and carried out with the Policies, elaborated in accordance with the purpose of reducing significant operational requirements of the legislation in force, and compliance risks; approved by the Board of Directors; the existence of a schedule and a well- Information Information helps all other components of the communication and – defined process regarding the elaboration internal control system by communicating of accounting and financial information in to employees their responsibilities for accordance with the reporting requirements controlling and providing information in (financial reports, including financial an adequate and timely manner, so that all statements, annual and interim reports, employees may be able to fulfill their duties. budget, etc) and their appropriate verification Internal communication occurs by means of and approval by the Board of Directors, for disseminating information to all levels, while the purpose of endorsing and release for publication. The framework of ELSA’s internal control system consists of the following elements: Control environment – The existence of a control environment represents the basis of an the external one implies the dissemination of information to external parties, in accordance with the requirements and expectations; Monitoring activities – the Audit and Risk Committee together with the Internal Audit Department assess the efficiency and the effective implementation of the internal efficient internal control system. It consists of control system. the commitment towards integrity and ethical values (for this purpose, a series of policies on The Company’s management monitors the zero tolerance towards corruption, anti-fraud functioning of internal controls using periodical and anti-money-laundering, avoidance and analyzes; for instance, the execution of the budget, fighting against conflicts of interest, gifts the monitoring of security incidents, internal and policy, protocol expenses, and forbidding external audit reports, and internal control reports. facilitating payments, transparency, and the involvement of stakeholders), as well Deficiencies in the implementation or functioning as organizational measures (policies on the of internal controls are documented in the internal delegation of authority and responsibilities); Evaluation of risks – Generally, all processes are within the scope of the internal control control reports, respectively in internal audit reports and briefing notes, and they are presented to the management, with the purpose of issuing the system. An identification process is carried corrective actions. 175 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTAppendix 1 Litigations Electrica Group litigations in 2021: 1. Disputes with ANRE Crt. no. Parties/Case file number Subject matter Court Case status 1 2 3 4 5 6 7 Plaintiff: ELSA Defendant: ANRE 192/2/2015 Plaintiff: ELSA; Defendant: ANRE; 361/2/2015 Plaintiff: ELSA; Defendant: ANRE; 360/2/2015 Plaintiff: ELSA; Defendant: ANRE; 340/2/2016 Plaintiff: ELSA; Defendant: ANRE; 342/2/2016 Plaintiff: ELSA; DEER Defendant: ANRE; 7614/2/2018 Plaintiff: ELSA; DEER Defendant: ANRE 7591/2/2018 Order regarding Cancellation of ANRE’s President no. the 146/2014 establishment of the re- gulated rate of return con- sidered to the approval of the tariffs for the electri- city distribution service provided by concessionary DSOs starting with 1st Ja- nuary 2015 and the abro- gation of Art. 122 of the Ta- riff Setting Methodology for Electricity Distribution Service, approved by the ANRE Order no. 72/2013. Cancellation of ANRE Or- der no. 155/2014 regarding the approval of the speci- fic tariffs for the electricity distribution service and the price for the reactive energy for DEER (former SDTN). Cancellation of ANRE Or- der no. 156/2014 regarding the approval of the speci- fic tariffs for the electricity distribution service and the price for the reactive energy for DEER (former. SDTS). Action for partial annul- ment (regarding the spe- cial tariffs) of the adminis- trative act – ANRE Order 171/2015. Action for partial annul- ment (regarding the spe- cial tariffs) of the adminis- trative act – ANRE Order. No. 172/2015. Action for partial annul- ment of ANRE Order no. 169/2018 the approval of the Tariff Set- ting Methodology for the Distribution Electricity regarding Service. Action for the annulment of the ANRE Order no. 168/2018 regarding the re- gulatory rate of return and obliging ANRE to issue a new order. High Court of Cassation and Justice Appeal – a reinstatement request was filed – term: 30.03.2022. High Court of Cassation and Justice Suspended until the settlement of the case file no. 192/2/2015. High Court of Cassation and Justice Suspended until the settlement of the case file no. 192/2/2015. High Court of Cassation and Justice Appeal - Suspended the until settlement of the case file no. 192/2/2015. High Court of Cassation and Justice Appeal - Suspended un- til the settlement of the case file no. 192/2/2015. Bucharest Court of Appeal In course of settlement. Bucharest Court of Appeal Suspended until de fi- nal settlement of case no. 541/36/2018 of the of Bucharest Court Appeal. 178 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status Plaintiff: Fondul Proprietatea Defendant: ANRE Intervenient: ELSA; DEER 4804/2/2020 (former 7341/2/2014) Plaintiff: ELSA, DEER Defendant: ANRE 434/2/2019 Plaintiff: ELSA, DEER Defendant: ANRE 435/2/2019 Plaintiff: ELSA, DEER Defendant: ANRE 436/2/2019 Plaintiff: DEER Defendant: ANRE 184/2/2015 Plaintiff: DEER Defendant: ANRE 309/2/2020 8 9 10 11 12 13 Legal action for the partial annulment of ANRE Order no. 112/2014 regarding the amendment and comple- tion of the tariff setting methodology for the elec- tricity distribution service, approved by the ANRE Order no. 72/2013. regarding Legal action for annul- ment of ANRE Order 197/2018 the approval of the specific tariffs for the electricity distribution service and the price for the reactive electric energy for DEER (former DMN). regarding Legal action for annul- ment of ANRE Order 199/2018 the approval of the specific ta- riffs for the electricity dis- tribution service and the price for the reactive ener- gy for DEER former SDTS). regarding Legal action for annul- ment of ANRE Order 198/2018 the approval of the specific ta- riffs for the electricity dis- tribution service and the price for the reactive ener- gy for DEER former SDTN). regarding Contentious administra- tive litigation – Cancella- tion of ANRE Order no. 146/2014 the setting of the regulated rate of return applied at the approval of the tariffs for the electricity distribu- tion service provided by the DSOs starting with 1st January 2015 and the ab- rogation of art. 122 of the tariff setting methodology for the electricity distri- bution service, approved by the ANRE order no. 72/2013. Judicial action on the can- cellation of documents is- sued by regulatory autho- rities – Order no. 227/2019 regarding the approval of the tariffs for the electri- city distribution service and the price for the reac- tive energy for DEER (for- mer. SDMN). Bucharest Court of Appeal Retrial – the action was dismissed as unfoun- ded. The decision is de- finitive by non-appleal by the plaintiff. Bucharest Court of Appeal In course of settlement. High Court of Cassation and Justice On 9 June 2020, the co- urt rejected the action as unfounded. An appe- al was filed, term on 09.03.2023. Bucharest Court of Appeal In course of settlement. High Court of Cassation and Justice A reinstatement requ- est was filed - term 15.02.2022. Bucharest Court of Appeal In course of settlement. 179 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status Cancellation of ANRE Or- der no. 146/2014 regarding the establishment of the regulated rate of return applied to the approval of the tariffs for the elec- tricity distribution servi- ce provided by the DSOs from 1st January 2015 and the abrogation of Art. 122 of the Tariff Setting Methodology for Electri- city Distribution Service, approved by the ANRE Or- der no. 72/2013. Action for the cancellation of ANRE’s President Order no. 228/2019 regarding the approval of the specific ta- riffs for the electricity dis- tribution service and the price for the reactive ener- gy for DEER (formerSDTN). regarding Cancellation of the AN- RE’s President Order no. 156/2014 the approval of the specific tariffs for the electricity distribution service and the price for the reactive energy for DEER (former SDTS). regarding Cancellation of the AN- RE’s President Order no. 146/2014 the establishment of the regu- lated rate of return applied to the approval of the tari- ffs for the electricity dis- tribution service provided by DSOs from 1st January 2015 and the abrogation of Art. 122 of the Tariff Pricing Methodology for Electri- city Distribution Service, approved by the ANRE Or- der no. 72/2013. regarding Cancellation of the AN- RE’s President Order no. 229/2019 the approval of the specific tariffs for the electricity distribution service and the price for the reactive energy for DEER (former. SDTS). High Court of Cassation and Justice –a Appeal reinstate- ment request was filed - term 24.02.2022. Bucharest Court of Appeal Action dismissed on merits, appealable within 15 days from its communication. Bucharest Court of Appeal Suspended until the se- ttlement of the case file no. 208/2/2015. Bucharest Court of Appeal A reinstatement requ- est was filed. Bucharest Court of Appeal In course of settlement. 14 15 16 17 Plaintiff: DEER Defendant: ANRE 213/2/2015 Plaintiff: DEER Defendant: ANRE 305/2/2020 Plaintiff: DEER Defendant: ANRE 371/2/2015 Plaintiff: DEER Defendant: ANRE 208/2/2015 18 Plaintiff: DEER Defendant: ANRE 303/2/2020 Source: Electrica 180 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT2. Fiscal matter disputes Crt. no. Parties/Case file number Subject matter Court Case status 1 2 3 Plaintiff: ELSA Defendant: NAFA 17237/299/2017 Plaintiff: ELSA Defendant: NAFA 9131/2/2017 Plaintiff: ELSA Defendant: NAFA 6043/2/2018 4 Plaintiff: ELSA Defendant: NAFA - DGAMC 25091/299/2018 1. Suspension of forced execu- tion initiated by NAFA-DGAMC in the enforcement file no. 13267221 under the enforceable order no. 13725/3rd May 2017 and of the no. 13739/3rd May 2017; order the en- 2. Cancellation of forcement no. 13725/3rd May 2017, of the no. 61/90/1/2017/263129 (which also bears the No. 13739/3rd May 2017) issued by NAFA-DGAMC for the amount of RON 39,248,818 and all subsequent execution orders issued in con- nection with the forced exe- cution of the amount of RON 39,248,818 in the execution file no. 13267221. Annulment of the tax decisi- ons issued by NAFA and com- municated to the company by address no. 665/17 March 2017, new accessories amounting to RON 39,053,522. 1. Obligation of NAFA to correct the evidence of tax receivables, so that it reflects the decisi- ons given by the courts in the disputes between the parties, through decisions that have come into the power of the judicial work. 2. In particular, in order to adjust the financial statement in the sense indica- ted in paragraph 1, the NAFA shall be obliged to draw up those corrective administrative acts or operations which: a) to reflect in the fiscal file the extinguishment by prescrip- tion of the amount of RON 16,915,950 representing the pro- fit tax registered in Decision no. 3/2008 (the „Main Claim”) and the removal from its tax recor- ds, ‘ b) to reflect in the fiscal file the corresponding extinction of all the accessories calcula- ted by NAFA in the Main Claim (extinguished by prescription) and the removal from their tax records (including the amount of RON 30,777,354 included in Decision no. 357/2008). District 1 Court Suspended until the final settlement of case no. 9131/2/2017. High Court of Cassati- on and Justice Action admitted on merits. NAFA filed an appeal, in course of se- ttlement. High Court of Cassati- on and Justice In the first instance, Electrica’s action was admitted. NAFA filed an appeal, dismissed it as unfounded. to execution and Appeal forced exe- suspension of cution - the cancellation of the enforcement order no. 13566/22 June 2018 and the notice 13567/22 June 2018, is- sued in the execution file no. 13267221/61/90/1/2018/278530, amounting to RON 10,024,825 (representing the partial fine from the Competition Council). District 1 Court Suspended until the settlement of case no. 3889/2/2018. 181 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT Crt. no. Parties/Case file number Subject matter Court Case status 5 Plaintiff: ELSA Defendant: NAFA - DGAMC 2444/2/2021 1. Obligation of NAFA to correct the evi- dence of tax receivables, held according to art. 153 FPC so that it reflects the deci- sions given by the courts in the disputes between the parties, through decisions that have come into the power of the ju- dicial work, respectively by a) Decision no. 1078/17.04.2015 issued by the Bucharest Court of Appeal in case no. 5433/2/2013; b) Decision no. 5154/26.06.2017 issu- ed by Bucharest District 1 Court in case no. 51817/299/2016*; c) Decision no. 624/06.03.2015 issued by the Bucharest Court of Appeal in case no. 7614/2/2013; Obligation of NAFA to draw up those acts or administrative correction operations which: - to reflect Electrica’s right to the reimbursement of RON 5,860,080 repre- senting fiscal obligation unlawfully rein- stated in the fiscal evidence; - to reflect Electrica’s right to the reimbursement of RON 817,521 which was not objected of the reimbursement made by NAFA on 22 Sep- tember 2020, arising from the annulment of the fiscal decision in case mentioned in item 1 above, let. a); 2. The obligation of NAFA to pay the legal interests related to the period 12.12.2016 – 21.09.2020, calcula- ted in a percentage of 0.02%/day of delay for the debt amount of RON 18,687,515 reimbursed on 22.09.2020, in the total amount of RON 5,161,491.64; 3. Establishing a 15 days term from the decision so that NAFA-DGAMC to settle the fiscal file as in- dicated above, imposing late penalties of RON 1,000/day of delay for exceeding this term, due to Electrica by DGAMC. Bucharest Co- urt of Appeal In course of settlement. The court of first instan- ce rejected the action as unfounded. The plaintiff filed an appeal, admit- ted by the court, which quashes the contested decisions and, re-jud- ging partially admits the action. Partially an- nuls Decision no. 462 / 23.11.2015 issued by A.N.A.F –DGSC, regar- ding point 3. Obliges the defendant A.N.A.F –DGSC to settle on the merits of the claim re- garding the amount of RON 10,091,323. It sends for retrial to the same court the request re- garding the other fiscal obligations retained by the fiscal body, amoun- ting to RON 13,886,492. Final (file no. 1018/2/2016 *). In the retrial, case no. 1018/2/2016* was registe- red with a new number, 359/2/2021 - in course of settlement. DGAMG - ANAF rejec- ted by Solution Decisi- on no. 154 / 02.07.2020, the appeal regarding the amount of RON 10,091,323 (Point 3 of Decision no. 462/2015) reason for which an ac- tion for annulment was filed on 22.12.2020 (file no. 641/42 / 2020). 6 Plaintiff: DEER Defendant: NAFA - DGAMC 359/2/2021 (former 1018/2/2016*) Cancellation of administrative act – Deci- sion no. 462/23 November 2015, litigation amount of RON 7,731,693 (RON 4,689,686 income tax + RON 3,042,007 VAT) and for the amount of RON 6,154,799 (RON 3,991,503 interests/penalties and late fees related to income tax + RON 2,163,296 in- terests/penalties and delay fees related to the VAT). Bucharest Co- urt of Appeal - retrial 182 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status 7 8 Plaintiff: DEER Defendant: DGAMC – NAFA 641/42/2020 641/42/2020 Annulment of the administrative act of the SettlementDecision 154/02.07.2020 for the amount of RON 10,091,323 (point 3 of the Decision no. 462 / 23.11.2015) Plaintiff: DEER Defendant: Galati City Hall - DITVL Galati 263/42/2020 Cancellation of administrative documents issued by the fiscal bodies within the Ga- lati City Hall - DITVL Galati, respectively Fiscal inspection report, taxation decision, and decision to resolve the appeal. Accor- ding to the Fiscal Inspection Report, the control team determined an additional tax on buildings, together with the rela- ted accessories, in a total amount of RON 24,831,293, for the 2012-2015 period. Ploiesti Court of Appeal In course of settlement. Ploiesti Court of Appeal In course of settlement. Plaintiff: EL SERV Defendant: NAFA 9 5786/2/2018 Cancellation of administrative act NAFA RIF 2017 and decision no. 305/30 May 2017, amounting to RON 46,260,952, the amount by which the financial loss of the Company was diminished; RON 7,563,561 was established as additional VAT for pay- ment by the refusal to deduct the VAT + related accessories. High Court of Cassation and Justice regarding By decision 2145/2019 dated 03.07.2019, the co- urt admits the request. Partially annuls Decisi- on no. 22 / 18.01.2018 re- garding the settlement of the appeal, Taxation Decision no. F-MC 305 / 30.05.2017, The pro- the vision measures established by the fiscal inspecti- on bodies no. 115046 / 30.05.2017 and RIF no. F-MC 177 / 30.05.2017, regarding the amount of RON 7,264,463 VAT with the related ac- cessories, illegally retai- ned as non-deductible, respectively regarding the amount of RON 37,083,657 with which the financial loss was illegally diminished. In the case, an appeal was filed by both parties, in course of settlement. Plaintiff: EL SERV Defendant: NAFA 31945/3/2018 Cancellation of the administrative decisi- on no. 221/19 July 2017 - the cancellation of penalties related to decision no. 305/2017 from above, RON 118,215. Bucharest Court Suspended until the fi- nal settlement of case no. 5786/2/2018. Plaintiff: DEER Defendant: MFP- NAFA – DGRFP Cluj – AJFP Maramures 371/33/2017 The appeal of tax decision no. F-MM- 180/2016 regarding additional tax and VAT, as well as interest/late payment increases and late payment penalties. Preliminary administrative procedures were conduc- ted in 2017, prior to the case filing. Amount: RON 32,295,033. Plaintiff: EFSA Defendant: NAFA – DGAMC 8709/2/2018 Cancellation of: • DGSC Decision no. 325/26 June 2018 • Decision F-MC 678/28 December 2017 • Report F-MC 385/28 December 2017 • Decision no. 511/24 October 2018 • Decision no. 21095/24 July 2018 Value: RON 11,483,652 High Court of Cassation and Justice Appeal – in course of se- ttlement. Bucharest Co- urt of Appeal In course of settlement. 10 11 12 Source: Electrica 183 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT3. Other significant litigations (with a value higher than EUR 500 thousand) Crt. no. Parties/Case file number Subject matter Court Case status 1 2 3 4 Plaintiff: SPEEH Hidroelectrica S.A. Defendant: ELSA 13268/3/2015* The obligation of Electrica to pay to SPEEH Hidroelectrica SA the amount of RON 5,444,761 (the loss suffered by selling energy at an average price per MWh un- der the production cost of 1 MWh); partial obligation to pay the unrealized benefit of Hidroelectrica by selling the total amount of 398,300 MWh, calculated according to the ANRE regulations (RON 9,646,826, ac- cording to the written instructions dated 5 May 2015/RON 5,444,761 according to the applicant’s conclusions mentioned in the Conclusion of 15 March 2017); ordering the defendant to pay the legal interest from the date of the decision until the effective payment, court costs. Bucharest Court of Appeal The court of the first in- stance rejects the excep- tion of the prescription of the material right to the action as unreasonable and the action as unfoun- ded. Both parties have appe- aled, dismissed it as un- founded. Both parties filed an appeal. Hidroelectrica’s appeal was rejected. The ELSA appeal was admitted, the case being sent for re- trial to the Bucharest Court of Appeal. In the retrial, the court admits ELSA appe- al, changes the appealed sentence in the sense that it admits the exception of the prescription of the material right to action, and rejects the action as prescribed. With appeal within 30 days from the communication. Creditor: ELSA Debtor: Petprod S.A. 47478/3/2012/a1 Creditor: ELSA Debtor: CET Braila S.A. 2712/113/2013 Insolvency proceedings, registering to the list of creditors for the amount of RON 2,591,163 Bucharest Court Ongoing procedure. Bankruptcy, registering to the list of creditors in the amount of RON 3,826,035. Braila Court Ongoing procedure. Creditor: ELSA, AAAS, BCR SA, and others Debtor: Oltchim S.A. 887/90/2013 Bankruptcy, remaining amount to be re- covered – RON 671,018,210. Valcea Court Ongoing procedure. On 15.12.2021, the Court of the European Union ruled on the appeal filed by the de- btor Oltchim S.A. against the Decision of the Eu- ropean Commission of 17.12.2018 by which it was established that Oltchim S.A. benefited from ille- gal state aid from several Romanian companies, in- cluding ELECTRICA S.A. By its decision, the Court of First Instance of the Eu- ropean Union cancelled Articles 1 letter a and c of the Decision of the Euro- pean Commission, as well as articles 3-6 and art. 7 paragraph 2 of the same Decision. Thus, the con- sequence for ELSA is the cancellation of the ELSA claim representing state aid, in the amount of RON 498,065,828.38 and the interest calculated on the principal until the date of bankruptcy, in the amount of RON 56,893,843.59. The decision is not final, it can be challenged by the Eu- ropean Commission. The term of appeal expires, according to the informa- tion of the liquidators, on 01.03.2022. 184 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status 5 6 7 8 9 Creditor: ELSA Debtor: Romener- gy Industry SRL 2088/107/2016 Bankruptcy, registering to the list of credi- tors in the amount of RON 2,917,266. Alba Court Ongoing procedure. Creditor: ELSA Debtor: Transener- go Com S.A. 1372/3/2017 Insolvency proceedings. Amount RON 37,088,830. Bucharest Court Ongoing reorganization procedure. On 03.02.2021, the Debtor’s reorganiza- tion plan was confirmed, according to which unse- cured receivables do not participate in distributi- ons. ELSA’s appeal again- st the sentence confir- ming the reorganization plan was definitively dis- missed. Creditor: ELSA Debtor: Electra Management & Supply SRL 41095/3/2016 Creditor: ELSA Debtor: Fidelis Energy SRL 3052/99/2017 Bankruptcy. Amount: RON 6,027,537. Bucharest Court Ongoing procedure Insolvency proceedings. Amount: RON 11,354,912. Iasi Court Ongoing procedure Plaintiff: EL SERV Defendant: ELSA 5930/3/2016* Obligation to increase the share capital of SEM, with the value of the lands located in Dobroiesti, 71, Zorilor Street Ilfov Coun- ty („Deposits land and Fundeni thermal power station”), with an area of 6,480 sqm, CADP M03 no. 10982/2008, respectively from Bucharest, 104, Timisoara Boulevard., district 6 („Land for energy equipment repair shop”, with an area of 8,745 sqm, CADP M03 no. 12917/2014 – amounting to RON 7,344,390. Bucharest Court of Appeal Retrial: By the decision of 20.10.2020, the court dismissed SEM appeal, as unfounded, so that the sentence on merits was maintained by whi- ch the exception of pre- scription was admitted. With appeal within 30 days from the commu- nication. Considering the EGMS SEM Decision no. 9 / 07.11.2019 by which the share capital of SEM was increased with these 2 lands, the request will re- main without an object. Decision no. 1369/2020 pronounced 21.10.2020 by the CAB by which the appeal formulated by SEM was rejected, the decision remained final by not exercising the appeal, considering the lack of interest of SEM (the share capital was in- creased with the 2 lands). 10 Plaintiff: ELSA Defendant: Com- petition Council 3889/2/2018 Administrative litigation - annulment of Competition Council Decision no. 77/20 December 2017, by which an ELSA char- ge is set through a fine of RON 10,800,984 and, in the subsidiary, the reduction of the fine set up to the legal minimum of 0.5% of ELSA’s turnover, by re-individualizing the alleged anticompetitive facts, with the retention and full use of all mitigating circumstances applicable to ELSA. High Court of Cassation and Justice The court dismissed ELSA’s action as unfoun- ded; ELSA filed an appeal – in course of settlement. 185 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status Plaintiff: ELSA Defendant: EL SERV 39968/3/2018 Plaintiff: ELSA Defendant: Elite In- surance Company 44380/3/2018 Plaintiff: ELSA Transenergo Com S.A. Defendant: Zurich Broker de Asigura- re Reasigurare SRL 3310/3/2020 Plaintiff: ELSA Defendant: former directors and administrators of ELSA 35729/3/2019 Plaintiff: VIR Com- pany International S.R.L. Defendant: DEER 7507/105/2017 Action for damages - request payment of penalty interest in the amount of RON 6,782,891, related to the amount of RON 10,327,442. High Court of Cassation and Justice The first court partly ad- mitted the action and the payment ordered of the legal interest cal- culated for the period 20.11.2015-22.05.2018. EL SERV filed an appeal, dis- missed as unfunded. EL SERV filled a recourse, in course of settlement. Claims - request for the equivalent value of the insurance policy issued to guarantee the obligations of Transenergo Com S.A., in the amount of RON 4,000,000. Bucharest Court Suspended based on art. 307 Civil Procedure Code. Claims – RON 4,000,000 (ELSA) and RON 97,350 and the bearing of any damage related to the non-fulfilment of its obliga- tion (Transenergo Com) – regarding the insurance policy issued to guarantee the payment obligations of Trasenergo Com Bucharest Court The court rejected the request as unfoun- ded, and Transenergo Com’s request as di- rected against a per- son without passive procedural capacity. With appeal within 30 from communi- days cation. To this file was case no. connected 3474/299/2020. Claims - claim for damages calculated as a result of the control of the Court of Ac- counts, amounting to RON 322,835,121. Bucharest Court Suspended until the final settlement of case 2229/2/2017. Claims - the amount requested by VIR Company International SRL consists of: - EUR 5,000,000, damage caused by de- layed issuance of the connection certifi- cate for the photovoltaic plant located in Valea Calugareasca commune, Darvari village; - EUR 155,000, equivalent of the amount of electricity produced by the plant during the technological tests period; - EUR 145,000, green certificates related to the amount of energy produced by the photovoltaic plant during the technologi- cal tests period. In addition, it requires DEER to pay the penalty interest of 5.75%/year for all the amounts of money claimed and court costs. Prahova Court In course of settlement. Creditor: DEER Debtor: Transener- go Com S.A. 1372/3/2017 Insolvency proceedings. Amount: RON 9,274,831. Bucharest Court Ongoing proceedings. On 3 February 2021, the Debtor’s reorganizati- on plan was confirmed, to which according receivables unsecured do not participate in distributions. The Debit represents the accumu- lated receivables as a result of the distribution subsidiaries’ merger. Plaintiff: DEER Debtor: ELSA (18976/3/2020) 33763/3/2019 Claims, according to the Court of Accounts Decision, representing payments not owed of RON 20,350,189 made by DEER (former SDMN). Bucharest Court Suspended until the final settlement of case no. 1677/105/2017. 11 12 13 14 15 16 17 186 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT18 19 20 21 22 23 Crt. no. Parties/Case file number Subject matter Court Case status Claims - the equivalent value of land re- lated to the Galati Center Transformation Station – RON 2,500,000. Galati Court In course of settlement. Plaintiff: Tutu Daniel and Tudori Ionel Defendant: DEER 180/233/2020 Plaintiff: Sinaia City Hall Defendant: DEER 3719/105/2020 Plaintiff: DEER Defendant: Rome- nergy Industry S.A. 2088/107/2016 Action in „Obligation to do” administrative litigation. Sinaia City Hall requests: -mainly: obliging MN to comply with LCD 113/2015 in the sense of executing the wor- ks regarding the underground location of the technical-municipal networks for the project „Energy efficiency and lighting ex- tension of the historic area - Sinaia” - in the alternative: in case MN will not exe- cute the works in due time and the City Hall will execute the works in our name and on our behalf, MN will be obliged to pay RON 7,659,402.72 + VAT (RON 9,101,192); - updating the amount requested in the subsidiary with the inflation rate and legal interest. Bankruptcy - amount: RON 9,224,595.51. Plaintiff: Asirom Vienna Insurance Group S.A. Defendant: DEER 439/111/2017 Recourse claims – for RON 2,842,347, re- presenting the compensation paid by the plaintiff to the insured company SC Cioco- rom SRL following a fire that occurred on 7 March 2013. DEER (former SDTN) fault is invoked for the overvoltage after a power outage. Prahova Court In course of settlement. Alba Court Ongoing proceedings. The debit represents the accu- mulated receivables as a result of the distribution subsidiaries’ merger. Bihor Court In course of settlement. Plaintiff: Energo Proiect SRL Defendant: DEER 374/1285/2018 Claims of RON 2,387,357. High Court of Cassation and Justice Plaintiff: DEER Defendant: Rome- nergy Industry S.A. 3086/62/2016 Payment ordinance - amount: RON 2,806,318. Brasov Court In first court, the case was dismissed. In the appeal, the court admitted the plaintiff’s appeal, partially the sentence annulling on the merits by rejecting the exception of the lack of capacity to use the Ora- dea Branch and retrying, rejecting the exception of illegality of ANRE De- cision no. 1285/05.09.2017 invoked by the defendant DEER. Dismisses as un- founded the request for a lawsuit filed by the plain- tiff in contradiction with DEER and the Oradea Branch. The plaintiff filed an appeal, which is in the filter procedure. Ceased under art. 75 para. 1 final thesis from Law no. 85/2014 (as a result of the finality of the decision to open the bankruptcy procedure of Romener- gy Industry S.A. (file no. 2088/107/2016). 187 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status 24 25 26 27 28 29 30 31 32 33 Plaintiff: DEER Defendant: ELSA 4469/62/2018 Claims according to the Courts of Account findings – RON 8,951,811 Brasov Court First instance. The High Court of Cassation and Justice solved the nega- tive competence conflict between Brasov Court and Bucharest Court, the case being in course of se- ttlement at Brasov Court. Plaintiff: DEER Defendant: direc- tors and managers 342/62/2020* Claims against the former general ma- nagers of the company, as a result of the non-fulfillment of some measures ordered by the Court of Accounts for the amount of RON 8,951,812. Brasov Court Suspended until the fi- nal settlement of case no. 4469/62/2018. Plaintiff: EL SERV Defendant: Best Recuperare Crean- te SRL 2253/3/2011 (former 58348/3/2010) Plaintiff: EL SERV Defendant: Nati- onal Leasing IFN S.A. 18711/3/2010 Plaintiff: EL SERV Defendant: Servicii Energetice Banat S.A. 8776/30/2013 (joint with 2982/30/2014) Plaintiff: EL SERV Defendant: SEO 2570/63/2014 Plaintiff: EL SERV Defendant: SED 8785/118/2014 Plaintiff: EL SERV Defendant: SE Moldova 4435/110/2015 Plaintiff: EL SERV Defendant: New Koppel Romania 20376/3/2016 Plaintiff: Integrator S.A. Defendant: EL SERV, SAP Romania 34479/3/2016** Insolvency – amount to be recovered: RON 3,938,811. Bucharest Court Procedure closed. It was ordered the deregistra- tion of the debtor from ORC Bucharest. Bankruptcy – amount admitted to the list of creditors: RON 21,663,983.27 (guarante- ed RON 17,580,203.48 and unsecured RON 4,083,779.79). Bucharest Court Ongoing proceedings. Bankruptcy - amount admitted to the list of creditors RON 72,180,439.68. Timis Court Ongoing proceedings. Bankruptcy - amount admitted to the list of creditors RON 26,533,446. Dolj Court Ongoing proceedings. Bankruptcy - amount admitted to the list of creditors: RON 15,130,315.27. Constanta Court Ongoing proceedings. Bankruptcy – amount: admitted to the list of creditors RON 73,708,082.90. Bacau Court Ongoing proceedings. Claims – EUR 655,164, equivalent of RON 3,210,305.75. Bucharest Court Ongoing proceedings. Claims – EUR 1.277.435,25 EUR license + 2.650.855,68 EUR maintenance – RON equivalent 19,321,005.11 Bucharest Co- urt of Appeal The case was suspen- ded on 12.06.2019 un- til the jurisdiction was established in case 3O 266/2017 registered with the Karlsruhe Court and declined in favor of the Mannheim Court. 188 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status Plaintiff: EL SERV Defendant: SED 8785/118/2014/a1 Bankruptcy – opposition to the prelimi- nary table - debt RON 3,025,622. Constanta Court Plaintiff: EL SERV Defendant: direc- tors and adminis- trators 2013-2014 35815/3/2019 Action in attracting the liability of direc- tors and administrators - measure II.7 of Decision no. 13/27.12.2016 issued by the Ro- manian Court of Accounts– RON 7,165,549 + legal interest of RON 4,485,340.29. Bucharest Co- urt of Appeal Plaintiff: EL SERV Defendant: direc- tors and adminis- trators 2010-2014 35828/3/2019 Action in attracting the liability of direc- tors and administrators - measure II.8 of Decision no.13/27.12.2016 issued by the Ro- manian Court of Accounts for the amount of RON 19,611,812 + Legal penalties of RON 14,475,832.43. Bucharest Court admitted Appeal in part, the court ordering the registration of the appellant in the preli- minary table of the de- btor’s obligations with the amount of RON 18,807.37, representing leasing rates and main- tenance services. Defi- nitively settled. The court dismissed the action as prescribed, ordering the plaintiff to pay the judicial costs. The appeal in course of settlement. The court dismissed the action as it has been modified and specified, as prescribed. Orders the plaintiff to pay the judicial costs. An appeal was filed, no term was established. Creditor: EFSA Debtor: Apaterm S.A. Galati 4783/121/2011* Creditor: EFSA Debtor: Vegetal Trading SRL Braila 1653/113/2014 Creditor: EFSA Debtor: Ariesmin S.A. Branch 7375/107/2008 Creditor: EFSA Debtor: Zlatmin S.A. Branch 6/107/2003 Creditor: EFSA Debtor: Hidrome- canica S.A. 3836/62/2009 Creditor: EFSA Debtor: Nitramo- nia S.A. 1183/62/2004 Bankruptcy – registering to the list of cre- ditors for the amount of RON 2,547,551. Galati Court Ongoing proceedings. Insolvency proceedings - registering to the list of creditors for the amount of RON 1,851,392. Braila Court Ongoing proceedings. Bankruptcy - registering to the list of cre- ditors for the amount of RON 20,711,588. Alba Court Ongoing proceedings. Bankruptcy - registering to the list of cre- ditors for the amount of RON 9,314,176. Alba Court Ongoing proceedings. Bankruptcy - registering to the list of cre- ditors for the amount of RON 4,792,026. Brasov Court Ongoing proceedings. Bankruptcy - registering to the list of creditors for the amount of RON 2,321,847 Brasov Court Ongoing proceedings. Creditor: EFSA Debtor: Remin S.A. Insolvency proceedings - registering to the list of creditors for the amount of RON 71,443,402. Timisoara Court Ongoing proceedings. 32/100/2009 Creditor: EFSA Debtor: Oltchim S.A. 887/90/2013 Bankruptcy - registering to the list of cre- ditors for the amount of RON 56,533,826. Valcea Court Ongoing proceedings. 34 35 36 37 38 39 40 41 42 43 44 189 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status 45 46 47 48 49 50 51 52 Creditor: EFSA Debtor: Energon Power and Gas S.R.L. 53/1285/2017 Creditor: EFSA Debtor: CUG S.A. 2145/1285/2005 Plaintiff: EFSA Defendant: ELSA 6665/3/2019 Plaintiff: EFSA Defendant: natural persons Called in guaran- tee: ELSA 35647/3/2019 Plaintiff: EL SERV Defendant: ENEL DISTRIBUTIE MUNTENIA S.A. 4233/2/2020 (former no. 24088/3/2015) Plaintiff: IVAN LAURA IONELA IVAN COR- NEL IONUT IVAN VLADIMIR MIHAI Defendant: EL SERV 34705/3/2015 Insolvency proceedings - registering to the list of creditors for the amount of RON 2,421,236. Cluj Specialized Court Ongoing proceedings. Bankruptcy - registering to the list of creditors for the amount of RON 7,880,857. Cluj Specialized Court Ongoing proceedings. Claims: request of payment regarding the invoices paid without supporting docu- ments, as it has been stated by the Court of Account – RON 7,025,632. Bucharest Court Claims according to art. 155 of Companies Law no. 31/1990 for the amount of RON 7,128,509. Bucharest Court of Appeal The First Instance Court dismissed the claim of EFSA. The Decision can be appealed within 30 days of its communication. Dismisses as prescribed the action filed by the pla- intiff EFSA. and dismisses as objectless the warran- ty claims issued by the defendants, two former directors, and one former general manager, again- st ELSA. The amount for which ELSA was called as collateral is around RON 6,232,398, representing the main debit, to which are added interest and payment of any other amounts that the court may charge. EFSA filed an appeal, dismissed it as un- founded. The decision can be appealed (recourse) within 30 days of its com- munication. Claims. Late payment penalties regarding the litigation with Autocourier S.R.L. in the amount of RON 3,068,929.67 according to the Agreement no. 1055/2002 as well as delay penalties for the main debt of RON 5,605,351.26 calculated after 30.06.2015 un- til the entire payment of the main debt. High Court of Cassation and Justice. Case admitted in a retri- al on merits. The appeal filed by Enel against the decision favorable to SEM was dismissed. E-Distri- butie filed an appeal. Civil liability - work accident resulting in employee death (amount of compensati- on claims – EUR 3 million). Bucharest Court Case suspended accor- ding to art. 413 alin. 1 par. 1 Civil Procedure Code. (cri- minal case ongoing). Plaintiff: CAZACU MARIA Defendant: DEER 7212/200/2020 Liability of the principal for the act of the defendant- work accident resulting in the death of an AISE employee (amount of compensation claimed: EUR 510,000) Buzau Court In course of settlement. Plaintiff: PRICOPIE STEFAN Defendant: DEER 12807/231/2019 Faulty killing (art.192 NCP) - third party electric shock (amount of damages clai- med: EUR 500,000) Focsani Court In course of settlement. Decision on merits on 11.02.2022. 190 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status Plaintiff: DEER – Defendant: COS Targoviste 1906/120/2013 Insolvency – bankruptcy – total amount: RON 5,589,482.51 out of which RON 1,357,789.92 – amount at the list of credi- tors and RON 4,231,692.59 - current recei- vables. Dambovita Court 53 54 54 55 56 57 Source: Electrica Plaintiff: DEER Defendant: Prutul SA 4798/121/2019** Reclamant DEER Parat: Prutul SA 4798/121/2019** Plaintiff: Verta Tel SRL Defendant: DEER 4106/3/2021 Plaintiff: DEER Defendant: Getica 95 SRL 1666/114/2021 Plaintiff: DEER Defendant: AEM S.A. 1347/119/2021 Ongoing procedure. From the total receiva- bles, the amount of RON 3,255,350.39 represents the current receivables, for which a payment request was formulated which is the object of the file 2478/120/2021, admitted on merits; the decision is not final. La fond, instanta a ad- mis exceptia inadmi- sibilitatii. Solutia a fost mentinuta in apel. In cauza a fost declarat re- curs. On the merits, the court admitted the exception of inadmissibility. The solution was confirmed in the appeal. A recour- se was filed. Case dismissed on merits. The decision is appealable. Claims: RON 4,343,437 Pretentii: 4.343.437 RON Inalta Curte de Casatie si Justitie High Court of Cassation and Justice Claims – contractual 2,009,233 liability: RON Bucharest Tribunal Insolvency – registration at the list of cre- ditors for the amount of RON 26,283,220.67 Buzau Tribunal Ongoing proceedings. Claims – contractual liability – RON 2,851,297.30 Covasna Court In course of settlement. 191 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT4. Litigations against the Romanian Court of Accounts Crt. no. Parties/Case file number Subject matter Court Case status Plaintiff: ELSA Defendant: Ro- manian Court of Accounts 2268/2/2014* Suspension and cancellation of the admi- nistrative act: Decision no. 3/14 January 2014 and Resolution no. 23/17 March 2014. High Court of Cassation and Justice First court: the claim is partly admitted, parti- ally cancels Resolution no. 23 of 17 March 2014 items 1 and regarding 5 and Decision no. 3/14 January 2014 regarding items 4 and 8. Dismisses, as ungrounded the claim regarding items 2, 3, and 4 in Resolution no. 23/17 March 2014 and items 5, 6, and 7 in the Decision no 3/14 January 2014. Rejects the request to suspend the execution of Decisi- on no. 3/14 January 2014, as unfounded. ELSA and CCR filed an appeal, both being admitted. The court partly admitsELSA’s requ- est and sent the case for retrial to the first instance, regarding the annulment of point 5 of Decision no. 23/17 March 2014, related to point 8 of Decision no. 3/14 January 2014. Retrial phase: In the first instan- ce, the court rejected the plaintiff’s request for an- nulment of point 5 of Re- solution no. 23/17.03.2014, with a correspondent in point 8 of Decision no. 3/14.01.2014 issued by the defendant. With appe- al within 15 days from its communication. ELSA has appealed the case, with a term on 25.03.2022. Plaintiff: ELSA Defendant: Ro- manian Court of Accounts 2229/2/2017 Partial annulment of Decision no. 12/27 December 2016, issued by the director of the 2nd Direction from the IVth Depart- ment of the Romanian Court of Accounts, regarding the faults from point 1 to 8, with the consequence of dismissing the acti- ons from point 1, 3 to 9 inclusive, imposed to ELSA by the disputed Decision; the par- tial annulment of the conclusion no. 12/27 February 2017 of the Romanian Court of Accounts, rejecting the objection raised by ELSA against Decision no. 12, regarding the faults and orders mentioned above. In subsidiary, the extension of the deadlines for carrying out all the measures ordered by ELSA through Decision no. 12/27 De- cember 2016 with at least 12 months; the suspension of the enforceability of Decisi- on no. 12 until final settlement of the pre- sent dispute. Bucharest Court of Appeal In course of settlement. Plaintiff: ELSA Defendant: Ro- manian Court of Accounts 7780/2/2018 Administrative litigation for annulment of Decision no. 38/9 October 2018, the an- nulment of the conclusion by which the appeal imposed by Decision no. 12/1 of 27 December 2016 was dismissed, the revoca- tion of the Decision no. 12/1, and the cessa- tion of any CCR control act. High Court of Cassation and Justice The court of first instan- ce dismissed the action as inadmissible. ELSA fi- led an appeal, with term on 26.05.2022. 1 2 3 192 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status 4 5 6 Plaintiff: EFSA Defendant: Ro- manian Court of Accounts 2213/2/2017 Plaintiff: EL SERV Defendant: Ro- manian Court of Accounts 2098/2/2017 Plaintiff: DEER Defendant: Ro- manian Court of Accounts Intervenient: SERV 1677/105/2017 Disputes with the Romanian Court of Ac- counts (Law no. 94/1992), action for the annulment of Decision no. 11/2016, of De- cision no. 23/2017, and the Control Report no. 5799/2016. High Court of Cassation and Justice The court definitively dismissed the request filed by EFSA. Litigations with the Romanian Court of Accounts for the annulment of the admi- nistrative act – Decision no. 11/27 February 2017. Bucharest Court of Appeal In course of settlement. Suspension and annulment of the mea- sures imposed by the Decision of Prahova Court of Accounts no. 45/2016, following the Control Report of the Prahova Court of Accounts no. 6618/11 November 2016. Prahova Court In course of settlement. Source: Electrica 5. Other litigations with significant impact Crt. no. Parties/Case file number Subject matter Court Case status Plaintiff: Niculescu Vladimir Defendant: DEER, City Hall Valenii de Munte 1580/105/2008** Claim under Law no. 10/2001 – for a land of 1,558 sqm and a built area of 202 sqm, located in Valenii de Munte, 129, N. Iorga street and being used by the Exploitation Center Valeni. Prahova Court Plaintiff: DEER Defendant: Local Council of Oradea City, RCS&RDS 3340/111/2015 Cancellation of Oradea LCD no. 108/17 Fe- bruary 2014 regarding the organization of the public auction for the concession of the 100,000 sqm land area, in order to re- alize underground sewerage for the place- ment of electronic and electrical commu- nications networks. Bihor Court Plaintiff: Delalina S.R.L. Defendant: DEER 910/111/2016 The obligation to issue a technical permit for connection in the favour of SC Delalina SRL. Bihor Court 1 2 3 In the first instance, the plaintiff’s action was partly admitted, it is ac- knowledged the right to reparative measures by equivalent for the land of 1,402 sqm located in Valenii de Munte, 129, Boulevard. Nicolae Iorga (currently no. 131), Pra- hova County. The Plaintiff and Valenii de Munte Town Hall fi- led an appeal. The Plain- tiff’s appeal was admit- ted and the case was sent for retrial to the fir- st instance. In the retrial, the first instance court admitted the right of the plaintiff to compen- satory measures under the law regarding some measures for comple- ting the restitution pro- cess of the buildings taken over abusively, for the land with an area of 1,402 sqm. With appeal within 15 days from the communication. At the request of RCS-R- DS, the case was sus- pended until the case file 2414/2/2016 was se- ttled with Delalina SRL, a file that is in the role of the Bucharest Court of Appeal. The case file was sus- pended until the se- ttlement of case file no. 2414/2/2016 with Delali- na SRL, case file on the lawsuit of the Bucharest Court of Appeal. 193 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status Plaintiff: Carei City and others Defendant: DEER 15600/211/2016* Claims - it is requested to grant compensation in the form of material and moral dama- ges, caused, by interrupting the supply of electricity to the consumers, in the Carei mu- nicipality, during 31.12.2014- 02.01.2015. Cluj Specialized Court On 21.04.2021, the court rejects the ac- tion of a plaintiff as a result of admit- ting the exception of lack of capacity to use, rejects the exception of lack of active procedural quality of plaintiffs, invoked by defendants, rejects the ex- ception of lack of passive procedural quality of defendant DEER, rejects the exception of lack of procedural quality liabilities of the defendant Electrica Furnizare SA and admits in part the action in contradiction with the de- fendant ELECTRICA FURNIZARE SA. Dismisses as unfounded the request for formal proceedings by the appli- cants in the preceding paragraph in contradiction with DEER. Obliges the defendant ELECTRICA FURNIZARE S.A., to pay the moral damages in fa- vor of the plaintiffs in a differentiated way, in the amount of 500 RON for some of the plaintiffs, 750 RON and 1000 RON for other plaintiffs, rejecting at the same time the moral damages for other plaintiffs. Appeal filed by Electrica Furnizare – in course of se- ttlement. The first court has rejected the excep- tions and the action filed by the pla- intiffs, which have initiated an appeal; On 22.03.2021, the court ruled in favor of the company, stating that DEER’s (former SDTN) incident appeal was invalid and rejected as unfounded the main appeal filed by Foto Distributie SRL si Delalina SRL. The court rejec- ted as unfounded the appeals filed by E-Distributie Muntenia SA (former Enel Distributie Muntenia), E-Distri- butie Banat SA (former Enel Distri- butie Banat) si E-Distributie Dobrogea SA (former Enel Distributie Dobro- gea). Dismisses, as unfounded, the cross-appeal brought by the appellant - defendant Ministry of Economy, En- trepreneurship, and Tourism (Ministry of Economy) and the cross-appeal fi- led by the Ministry of Energy against the same sentence. Final. Cancellation of administrative acts (Order 73/2014, Concessi- on agreements). High Court of Cassation and Justice The cancellation of the ANRE decision on refusal to give li- censes for electricity distribu- tion. Court of Appeal Bucharest In course of settlement. 4 5 6 Plaintiff: Delalina S.R.L., Foto Distri- butie S.R.L. Defendant: DEER, ANRE, Romanian Government, Mi- nistry of Economy, Commerce, and Relationships with the Business Environment, Ministry of Energy, Banat Enel Distri- bution, Muntenia Enel Distribution, Dobrogea Enel Distribution 2414/2/2016 Plaintiff: Delalina S.R.L., Foto Distri- butie S.R.L. Defendant: ANRE Intervener: DEER 4013/2/2016 194 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status Plaintiff: ELSA Defendant: E – Dis- tributie Banat S.A. 30399/325/2018* Obligation to do - Mainly obli- ging the defendant to hand over the documentation for the land in Bocsa. In subsidi- ary, the obligation to draw up the CADP documentation and payment of damages. Timisoara Court of Appeal Plaintiff: ELSA Defendant: Baile Herculane City 4572/208/2018* Claim for land Lot 1-NC 32024 (area of 259 sqm) and lot 2 NC 31944 (with a surface of 1,394 sqm), both located in Baile Herculane, 1, Uzinei street and FC rectification. Caras Severin Court Case rejected by the first and second courts. ELSA filed an appeal, admit- ted by the court. The appeal court quashes the contested decision and, re-judging admits the appeal, parti- ally changes the sentence of the first instance in the sense that it partially admits the action and obliges the defendant to fulfill the formalities imposed by H.G. 834/1991 in order to obtain the Certificate of Attestation of the Property Right and to hand over the documentation for obtaining the certificate. Maintains the sentence re- garding the rejection of the principal claim regarding the obligation of the defendant to hand over the prepared documentation, as well as regarding the obligation of the defendant to pay the comminatory damages. Dismisses the defendant’s cross-appeal against the same judgment. Definitive. The first court admits the exception of the lack of active procedural qua- lity of ELSA and dismisses the action. ELSA filed an appeal, dismissed it as unfounded. ELSA filed an appeal, ad- mitted by the court, which sends the case for retrial to Caras Severin Court. Retrial – in course of settlement. (i) ELSA’s compliance with the obligation of not to do regar- ding the share capital and the AoA of the EDB and the termi- nation of abusive actions con- sisting of the requests addres- sed to the ONRC to change the structure of the share capital and the articles of association of the EDB by increasing the share capital with the value of the land in the Certificates of attestation of the property ri- ght held by ELSA on the land used by EDB in order to carry out the activity; (ii) Stating the fact that Electrica does not hold the quality of public authority involved in the pri- vatization process and, con- sequently, acknowledging the absence of the right of ELSA to request ONRC to modify the constitutive act of the EDB by increasing the share capital with the value of the land ow- ned by ELSA based on CADP on the used land from EDB; (iii) As against to the abusive acti- ons taken in the EDB’s opinion, ELSA’s obligation to pay the damages whose existence and amount will be proved by the deadline provided by law. for the annulment Action of Shareholders resolution 5/06.12.2018 (share capital in- crease for SAPE). Bucharest Court In course of settlement. Timis Court In course of settlement. At this case was connected the case no. 988/30/2019. Complaint against the resoluti- on of the ORC director. Timisoara Court of Appeal The request was rejected definitively. E-Distributie Banat filed an appeal for annulment (case. 793/59/2021), rejec- ted. E-Distributie Banat filed a request for review (case. 880/59/2021), dismis- sed by the court. 195 | 2021 ANNUAL REPORT ELECTRICA S.A. Plaintiff: E-Distri- butie Banat Defendant: ELSA 12857/3/2019 Plaintiff: ELSA, SAPE Defendant: E-Dis- tributie Banat 949/39/2019 Plaintiff: E-Distri- butie Banat Defendant: ELSA 1994/30/2019/a1 7 8 9 10 11 ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status 12 Plaintiff: ELSA Defendant: UAT Targu Neamt 122/321/2020 13 Plaintiff: ELSA Defendant: UAT Bicaz 91/188/2020 1. obliging the defendant to leave us in full ownership and possession of the land with an area of 3,389 sqm, located in Targu Neamt, 2. rectification of the entries from the land book no. 55409 of the City of Targu Neamt, in the sense of elimination of the inappropriate registrations made in it, in order to agree to the tabular status with the real legal situation of the building, respectively the cancellation of the property right of the ta- bular owner Targu Neamt City and the registration of the pro- perty right of the Energy Com- pany Electrica SA 3. Order the defendant to pay the court costs. 1. obliging the defendant to leave us in full ownership and possession of the land in the area of 10,524 sqm (from docu- ments 22,265 sqm), located in Bicaz, Neamt county. 2. rectification of the entries from the land book no. 52954 of Bicaz City, in the sense of elimination of inappropriate entries made in it, in order to agree on the tabular status with the real legal situation of the building, respectively the cancellation of the property ri- ght of the tabular owner Bicaz City and the registration of the property right of Societatea Energetice Electrice Electrica S.A. 3. Order the defendant to pay the court costs. 1. obliging the defendants to leave us in full ownership and possession of the land surfaces that overlap with the land loca- ted in 1, Aleea FRE street, Vide- le, Teleorman county, for which we hold CADP. 2. the delimitation of the abo- ve-mentioned properties, by establishing the boundary line according to the property dee- ds of the parties; 3. rectification of the entries in the land book and registration of the property right of the pla- intiff ELSA on this area of land Bacau Court of Appeal The action was dismissed on merits. ELSA filed an appeal, dismissed it as unfounded. The decision was appea- led. The court of the first instance parti- ally annuls the Decision of the Local Council of Bicaz no. 94 / 25.08.2016, respectively regarding the surface of 10,524 sqm of urban land 3, Bicaz, Energiei street (former Plant), loca- ted at the last position of the table in the Annex to HCL no. 94 / 25.08.2016, following the admission of the excep- tion of illegality, invoked by the plain- tiff. Dismisses the action brought by ELSA as unfounded. Admits in part the action in the rectification of the land book. It orders the rectification of the Land Book no. 52954 of the City of Bicaz, regarding the land with an area of 10,524 sqm, located in Bicaz, 3, Ener- giei street, Neamț County (former Uzi- nei), in the sense of deleting the pro- perty right of the defendant Bicaz city, as a result of the partial annulment of HCL no. 94 / 25.08.2016, regarding this land. Rejects as unfounded the appli- cant’s request to order the rectificati- on of the Land Book no. 52954 of the City of Bicaz, regarding the land with an area of 10,524 sqm, located in Bicaz, 3, Energiei street, Neamț County (for- mer Uzinei), in the sense of registering the ELSA property right over the abo- ve-mentioned land. ELSA appealed. Admits in part the request for sum- mons and consequently: establishes the landline boundary of the plaintiff’s property (ELSA) on the current boun- dary lines, outlined on the situation plan related to the completion of the expert report, with the coordinates indicated by the expert, land delimi- ted points 1-2-3-4-5-6-7-8-9-10-11-12-13- 14-15-16-17-18-19-20-21-22-23. It orders the rectification of the land book no. 23176 by repositioning, in order to eli- minate any virtual overlap between the land belonging to the plaintiff, with the boundary line as previously established, and the land registered in this land book. Dismisses the action as unfounded. Neamt Tribunal Videle Court Plaintiff: DEER Defendant: ANARC (ANCOM) andTe- lekom Romania Communications SA 7407/2/2020 Appeal against Decision no. 1177 / 13.11.2020 of the ANARC President. It was requested the partial annulment of the ANCOM decision and the com- plete rejection of the Telekom Romania request. Bucharest Court of Appeal In course of settlement. Plaintiff: ELSA Defendant: Videle City, through Mayor 948/335/2020 14 15 196 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status 16 17 18 19 Plaintiff: Valenii de Munte City Hall Defendant: DEER 2848/105/2020 Valenii de Munte City Hall requests the obligation of DEER (Ploiesti) to take over public lighting installations and to pay their equivalent value of RON 466,880. Prahova Court In course of settlement. Plaintiff: ELSA and the subsidiaries Defendant: Roma- nian Government 3781/2/2020 Annulment of the administrative act: Government Decision 1041/2003 on some measures to regulate the fa- cilities granted to pensioners in the electricity sector. High Court of Cassation and Justice Case dismissed on merits; it was filed an appeal, term on 23.02.2023. Plaintiff: Grup 4 Instalatii Defendant: DEER 375/1285/2021 Plaintiff: ELSA Defendant: Kau- fland Romania SCS, Deva City, through the Mayor and Deva City Council 156/221/2021 The obligation of DEER is to recog- nize, to respect the property right of G4Installatii regarding the buildings located in Cluj Napoca, 28A, Ilie Ma- celaru Street. and 2, Uzinei Electri- ce Street. , registered in land book 297841 Cluj Napoca with no. 297841, consisting of land with an area of 10720 sqm and constructions: con- struction registered in land book with no. 297841-C1, construction of administrative headquarters with an area of 1560 sqm; body A, construc- tion no. 297841- C2 - 512 sqm, buil- ding B, construction no. 297841 - C3 - 171 sqm, building C, construction no. 297841 - C4 - 338 sqm, building D, construction no.. 297841-C6 - 348 sqm - 110/10 kW Transformation Sta- tion. It is requested the handing over of the above buildings and the rec- tification of the land book registrati- ons in the sense of the annulment of the tabulation conclusions by which the DEER property right was regis- tered, the deregistration of the land book property right, the registration of the property right in favor of G4I. 1. obliging the defendants to leave us in full ownership and possession of the land surfaces that overlap with the ELSA land located in Deva muni- cipality, 1, Dorobanți street, Hunedoa- ra county, as follows: (a) Kaufland Ro- mania SCS - land areas of 15 sqm and 50 sqm (part of the Kaufland Deva parking lot), identified by IE 68452, which overlap to the N-W with the land owned by Electrica; (b) Deva Municipality, through the Mayor and the Local Council of Deva Municipa- lity - land areas: (i) 2 sqm (part of the “Playground for children”), identified by IE 71851, which overlaps to the NE with the land in the ownership of Electrica and (ii) of 23 sqm (part of “Calea Zarandului”), identified by IE 75973, which overlaps to the SW with the land owned by Electrica; 2. the delimitation of the above-mentioned properties, by establishing the boun- dary line according to the property deeds of the parties; 3. rectification of the entries in the land book regar- ding the above-mentioned land are- as, in the sense of eliminating the in- appropriate entries made, in order to reconcile the tabular status with the real legal situation of the real estate, respectively of the cancellation of the property right tabular owners and the registration of the property right of the applicant ELSA over the- se land areas. Cluj Tribunal The court admits the exception of the material incompetence of the Cluj Specialized Tribunal, an exception invoked ex offi- cio, and consequently declines the competence to resolve the request for summons in favor of the Cluj Tribunal-Civil Secti- on. Pending settlement in this court. Deva Court In course of settlement. 197 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTCrt. no. Parties/Case file number Subject matter Court Case status 1. obliging the defendant to leave us in full ownership and possessi- on of the land with an area of 529 sqm identified with Cadastral no. 306526, registered in the land book no. 306526 Of Chisineu Cris,. Coun- ty Arad, located in Chișineu Criș, 63, Înfrățirii street. , Arad county, as well as the land with an area of 121 sqm, identified with Cadastral no. 306527, registered in the lank booj no. 306527 of Chisineu Cris,. County Arad, lo- cated in Chișineu Criș, 63, Înfrățirii street. , Arad County. 2. rectification of the entries in the land books no. 306526 and 306527 of the City of Chisinau Cris, in the sense of eliminating the inappropriate en- tries made, in order to reconcile the tabular status with the real legal si- tuation of the buildings, respectively the cancellation of the property right of the tabular owner Chisinau Cris City and registration of the property right of ELSA 3. Order the defendant to pay the costs. 1. Obligation of the defendant to pay to the plaintiff the amount of 166,738 lei, representing the percen- tage of 55% of the OAVT package, in accordance with the provisions of Annex 3 to the mandate contract no. 42/10.08.2015. 2. Obligation of the defendant to pay the plaintiff dama- ges for non-execution of the obliga- tion to pay the percentage of 55% of the OAVT package. 3. Obligation of the defendant to pay the amount of 11,973 lei, representing the annu- al variable remuneration for 2018. 4. Obligation of the defendant to pay the amount of 24,756 lei, represen- ting the annual variable remunera- tion related to 2019. 5. Updating the amounts provided in the preceding items, with penalizing legal interest. The asked damages should be cal- culated as the legal penalty interest plus 8% payable per each day of de- lay as of the date of the registration of the claim until the payment of the 55% of OAVT package by the defen- dant. 6. The obligation of the defen- dant to pay the expenses incurred by the request for arbitration. 20 Plaintiff: ELSA Defendant: UAT Chisineu Cris 2143/210/2020 21 Plaintiff: Alexandra Borislavschi Defendant: ELSA ARB - 5670 Source: Electrica Arad Tribunal Case dismissed on merits. It was filed an appeal – in course of settlement. Vienna I n t e r n a t i o n a l Arbitral Centre No term was settled. 198 | 2021 ANNUAL REPORT ELECTRICA S.A. Appendix 2 – Details of the main investments of Electrica Group during 2020 In 2021 the most significant investments of Electrica Group are the following: Description (RON mn) MUNTENIA NORD Modernization and SCADA system integration of 110/20 kV Ianca Substation Modernization of pole mounted transformer substation, LV OHL equipment and LV connections in Cobia commune, localities: Gherghitesti, Frasin Vale, Frasin Deal, Manastirea, Mislea, Capsuna, Craciunesti, Closcani, Blidari Voltage level improvements in Tudor Vladimirescu locality, Galati County Upgrading of 110kV protection system and SCADA system integration for Ploiesti Sud Substation Voltage level improvements for consumers in Mogosani commune, localities Mogosani, Meri, Chirca, Cojocaru, Zavoiu Modernization of electricity distribution installations belonging to Buzau branch, at blocks of flats in Brosteni neighborhood, Buzau County Extension and modernization of 110/20/6 kV Tecuci Substation, Galati County Modernization of 20kV OHL by replacing the insulation and conductors (20kV OHL Urleasca - SR Ramnicelu, 20kV OHL Lacu Sarat - SRPD 1-4, 20kV OHL Romanu - T. Vladimirescu and 20kV OHL Gropeni – Tichilesti) Modernization and SCADA system integration of 110/20 kV Magura Substation Extension of SMART Metering System (SMS) in Vrancea county, localities Marasesti, Gologanu, Slobozia Ciorasti, Jiliste, Balta Ratei, Liesti, Gura Calitei, Cocosari, Groapa Tufei, Rasca, Sotarcari, Rachitosu, Bicestii de Jos, Vulturu, Popesti, Tamboiesti, nanesti, Vitanesti de sub Magura, Urechesti, Sarbi, Biliesti, Mircestii NOi, Dragosloveni, Budesti, Valea Cotesti, Hangulesti, Ciorasti, Codresti, Spatareasa, Ciuslea, Bordesti, Bordestii de Jos, Bordestii de Sus, Chiojdeni, Maracini, Seciu, Lojnita, Martinesti, Jitia, Candesti, Candesti Deal, Candesti Vale, Precistanu, Poiana Cristei, Mihalceni, Armeni, Belciugele, Coroteni, Balesti, Faurei, Bordeasca Veche Modernization of distribution networks in the area of pole mounted transformer substations: 7087 no. 1, 7083 no. 2, 7084 no. 4, 7085 no. 5, 7088 no. 6, 7188 nr. 7 and 7082 SMA from Chiraftei locality, Mastacani commune, Galati County Modernization of distribution networks in Voetin, Sihlea, Vrancea County Increasing the supply reliability of 20 kV OHL Petresti-Irigatii 2, from 110/20 kV Crovu Substation, Arges river crossing Modernization of LV OHL and LV connections for consumers of Stefan cel Mare Street, Braila city Modernization of transformer substations powered from 20 kV Independenta underground cable line, Unirii, 24 Ianuarie, Substatia Obor, Patinoar, in Buzau city Modernization of 20 kV OHL by replacing insulation and conductors 20 kV OHL Pisc - SPP 4, 20kV OHL Cuza Voda - Tufesti, 20kV OHL Maxeni Scortaru, 20kV OHL Romanu - Traianu Modernization and integration in SCADA of 110/20/6 kV Buzau Est substation Modernization of distribution Network in Gugesti locality, Vrancea county Upgrading to 20kV the Transformer substation in Galati municipality - Cartier Traian Nord area, Galati county; Execution of coexistence conditions with the existing electrical networks necessary to obtain the location permit for Traian Vuia street, H. Coanda street, G. Cosbuc boulevard, 1 Decembrie 1918 Street, and Al. Butcher mun. Galati Integration in SCADA of the Berceni 110/20 kV substation Modernization of Transformer substation PTZ 0065 and 0.4 kV OHL in the related area, Campina city Modernization pole mounted transformer substations (PTA), LV OHL, and connections in Morteni commune, localities, Neajlov, Morteni, Florica. Voltage level improvement for consumers in Dambovita county, commune Uliesti, localities Uliesti, Croitori, Jugureni, Olteni, Manastioara, Stravapolia. Voltage level improvement for consumers in commune Petresti – localities Coada Izvorului, Greci, Puntea de Greci, Gherghesti, Ionesti, Potlogeni Deal Voltage level improvement for consumers in commune Ciocanesti, localities Ciocanesti, Cretu, Vizuresti Voltage level improvement for consumers in Costesti Vale, Tomsani localities, Costesti Vale commune, Dambovita county. 2.61 1.89 2.09 3.98 2.85 4.03 1.65 3.51 1.19 1.27 1.15 2.17 0.95 1.01 0.89 1.73 3.40 3.90 1.37 4.41 1.54 1.00 1.47 2.46 2.40 1.96 2.18 200 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDescription (RON mn) Voltage level improvement for consumers in localities Dragodana, Straosti, Burduca, Cuparu, commune Dragodana, Dambovita county Voltage level improvement for consumers in villages Contesti, Savesti, Crangasi, Mereni, Calugareni, Boteni TRANSILVANIA SUD Integration of substations from Alba 110 kV Operations Centre into the SCADA DMS system of SDTS Modernization of transformer substations by replacing MV cells, TDRIs (indoor network distri- bution board for transformer stations), integration in SAD, and repairing buildings related to transformer stations in Sacele municipality, Brasov County Voltage level improvements and modernization of LV OHL and LV electrical connections in Sancraiu de Mures and Nazna, Mures county Modernization of LV OHL Marsa locality, Sibiu County Modernization of LV OHL Hipodrom 1, 2, 3 area, Sibiu municipality, Sibiu County Modernization of distribution network 20/0,4 kV, LV connection securing, locality Feldioara, Brasov County - Stage 1 area related to transformer substations no.11 and 30 Modernization of LV OHL Bistra, Bistra commune, Alba County Modernization of MV network and LV OHL, voltage level improvements and security and syste- matization of LV connections - Doamna Stanca street and related streets, Fagaras municipality, Brasov County Works at 110 kV OHL South Sibiu - Ucea 1 + 2, Sibiu County Voltage level improvements and modernization of electrical distribution network, LV OHL and LV connections of Stejerisului, Cibinului, Calea Poienii streets, Brasov locality, Brasov County Modernization of distribution networks on Dozsa Gyorgy, Belchiei, Pescarilor, Rozelor streets, Gheorgheni municipality, Harghita County Backup power 20 kV busbars - Sanpaul Station, Mures County Modernization of distribution network 20kV Sovata - Oras 2, Sovata locality, Mures county Modernization of the protection system, in order to reduce the number of consumers affected in case of defects with grounding on the 20 kV distributors of (pole mounted transformer sub- stations) PAs that supply electricity to users from Sibiu municipality, Sibiu County Modernization of OHL 0,4 kV Blaj, str. Eroilor (partial), Fabricii, Locomotivei, Fochistilor, Ceferisti- lor, Dr. V. Suciu, I.M. Klein, Gh. Sincai and A. Muresanu, Blaj municipality, Alba County – stage 3 Modernization of OHL 0,4 kV Blaj, streets. Eroilor Fabricii, Locomotivei, Fochistilor, Ceferistilor, Dr. V. Suciu, I.M. Klein, Gh. Sincai si A. Muresanu, Blaj municipality, Alba county- stages 1,2 si 4 Modernization of electricity supply installations in Medias City – Vitrometan neighbourhood, Sibiu County Voltage level improvement and modernization of OHL 0.4 kV. streets. Avram Iancu and Motilor, Aiud locality, Alba County Decentralization of the MV network, voltage level improvement and conductors replacement in LV network, modernization, and security of connections to Zarand, Cetinii, General Traian Mosoiu streets, Brasov locality, Brasov County Voltage level improving and modernization of OHL LV Parau, Brasov county Voltage level improving area PTA 9 Harman, neighborhood Domnitorilor, Brasov County Voltage level improving and securing connections Vatava locality, Mures county Increasing safety of supply and voltage level in 20kV network Regin, Mures county Voltage level improving and modernization of connections in Saulia de Campie, Mures county Voltage level improving and modernization of LV OHL and connections Deda locality, Mures County Implementation of Smart Metering System Brasov branch area 1.59 1.75 13.30 7.32 4.74 2.78 4.55 2.85 2.56 2.03 1.40 1.87 2.46 1.30 1.50 1.10 1.20 2.30 5.44 2.30 1.90 1.08 1.80 1.32 1.65 1.97 2.59 4.94 201 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDescription (RON mn) TRANSILVANIA NORD Integrated security, monitoring, and intervention System for the substations of SDTN Construction of new MV underground cable line to increase the security of electricity supply in the area of Cihei locality, Sanmartin commune Modernization of transformer substations belonging to Cluj-Napoca branch, Cluj County - Vol.2 - Gherla area Modernization of 110/20 kV Nistru Substation Reservation of 20kV busbar for Satu Mare 2 Substation from Carpati Substation, Satu Mare municipality Modernization of 110/20/10 kV Baciu Substation Modernization of Satu Mare 2 110 kV Substation and introduction of 20kV busbar Modernization of the electrical distribution networks in the Municipality of Cluj-Napoca, 21 Decembrie 1989 boulevard area and the adjacent streets, Cluj County Modernization of neutral treatment groups in Carei 1 Substation Modernization OHL 20KV Pump between S.S. 6350 and FBT transformer substation - reconstruction of pole mounted transformer station Moara Jibou and voltage level normalization on Campului street, Jibou locality Network decentralization and power injection in the area of Spicului street, Cluj Napoca municipality, Cluj county Modernization of pole mounted transformer substations (PTA) Oradea branch Modernization of 20 kV OHL Palota - Cheresig Power injection Bufet Expres area, Madach Imre street, Oradea locality, Bihor county Increasing the safety of electricity supply in Coada Lacului area - Stana de Vale Modernization of substation 110/20 kV SASAR Modernization of substation 110/20/6 kV Prundu Bargaului Modernization of OHL 110kV Nasaud- Rodna poles 79-128 Bistrita Nasaud county Modernization of substation 110/20 KV Sarmasag 6.14 2.70 1.98 3.39 1.95 2.20 2.24 2.65 1.47 1.46 1.85 1.12 1.11 2.02 1.74 1.16 3.41 1.22 2.51 In anul 2021, cele mai mari transferuri din imobilizari corporale in curs la imobilizari corporale reprezentand, in principal, punerea in functiune a obiectivelor de investitii, sunt urmatoarele: Description (RON mn) MUNTENIA NORD Extension and modernization of 110/20/6 kV Tecuci Substation, Galati County Upgrading of 110kV protection system and SCADA system integration for Ploiesti Sud Substation Modernization of transformer station equipment, LV OHL equipment, and LV connections in Cobia commune, localities: Gherghitesti, Frasin Vale, Frasin Deal, Manastirea, Mislea, Capsuna, Craciunesti, Closcani, Blidari Increasing the network voltage from 6 kV to 20 kV in Tecuci city, stage III – neighbourhoods N.Balcescu, Gh.Petrascu and Criviteni, Galati county Increasing the supply reliability of 20 kV OHL Petresti-Irigatii 2, from 110/20 kV Crovu Substation, Arges river crossing Upgrading protections of 110 kV and 6 kV cells, installation of the second neutral earthing group by the resistor at 20 kV, and SCADA system integration in 110/27,5/20/6 kV Ploiesti Nord Substation Modernization and SCADA system integration of 110/20 kV Mizil Substation Modernization and SCADA system integration of Magura Substation 3.68 7.12 1.95 1.90 1.83 2.68 2.39 1.41 202 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDescription (RON mn) Modernization of electrical distribution networks in the area of pole mounted transformer sub- stations: 7087 no. 1, 7083 no. 2, 7084 no. 4, 7085 no. 5, 7088 no. 6, 7188 nr. 7 and 7082 SMA from Chiraftei locality, Mastacani commune, Galati County Modernization of electricity distribution installations belonging to Buzau branch, at blocks of flats in Brosteni neighborhood, Buzau County Extension of SMART Metering System (SMS) in Vrancea county, localities Marasesti, Gologanu, Slobozia Ciorasti, Jiliste, Balta Ratei, Liesti, Gura Calitei, Cocosari, Groapa Tufei, Rasca, Sotar- cari, Rachitosu, Bicestii de Jos, Vulturu, Popesti, Tamboiesti, nanesti, Vitanesti de sub Magura, Urechesti, Sarbi, Biliesti, Mircestii NOi, Dragosloveni, Budesti, Valea Cotesti, Hangulesti, Ciorasti, Codresti, Spatareasa, Ciuslea, Bordesti, Bordestii de Jos, Bordestii de Sus, Chiojdeni, Maracini, Seciu, Lojnita, Martinesti, Jitia, Candesti, Candesti Deal, Candesti Vale, Precistanu, Poiana Cris- tei, Mihalceni, Armeni, Belciugele, Coroteni, Balesti, Faurei, Bordeasca Veche Modernization and SCADA system integration of 110/20 kV Ianca Substation Modernization of 20kV OHL by replacing the insulation and conductors (20kV OHL Urleasca - SR Ramnicelu, 20kV OHL Lacu Sarat - SRPD 1-4, 20kV OHL Romanu - T. Vladimirescu and 20kV OHL Gropeni – Tichilesti) Modernization of LV OHL and LV connections for consumers of Stefan cel Mare Street, Braila city Modernization of transformer substations powered from 20 kV Independenta underground cable line, Unirii, 24 Ianuarie, Substatia Obor, Patinoar, in Buzau city Modernization and integration in SCADA of 110/20/6 kV Buzau Est substation Modernization of distribution networks in Voetin, Sihlea, Vrancea County Modernization of distribution network in Gugesti locality, Vrancea county Voltage level improvements in Tudor Vladimirescu locality, Galati County Upgrading to 20kV the Transformer substation in Galati municipality - Cartier Traian Nord area, Galati county Realization of coexistence conditions with the existing electrical networks necessary to obtain the location permit for Traian Vuia street, H. Coanda street, G. Cosbuc boulevard, 1 Decembrie 1918 Street, and Al. Macelaru street, Galati municipality Modernization and SCADA integration substation 110/20 kV Valea Larga Integration in SCADA of the Berceni 110/20 kV substation Modernization pole mounted transformer substations (PTA), LV OHL, and connections in Morteni commune, localities, Neajlov, Morteni, Florica. Voltage level improvement for consumers in Dambovita county, commune Uliesti, localities Uliesti, Croitori, Jugureni, Olteni, Manastioara, Stravapolia. Voltage level improvement for consumers in commune Petresti – localities Coada Izvorului, Greci, Puntea de Greci, Gherghesti, Ionesti, Potlogeni Deal Voltage level improvement for consumers in commune Ciocanesti, localities Ciocanesti, Cretu, Vizuresti Voltage level improvements for consumers in Mogosani commune, localities Mogosani, Meri, Chirca, Cojocaru, Zavoiu Voltage level improvement for consumers in Costesti Vale, Tomsani localities, Costesti Vale commune, Dambovita county. Voltage level improvement for consumers in localities Dragodana, Straosti, Burduca, Cuparu, commune Dragodana, Dambovita county Voltage level improvement for consumers in localities Contesti, Savesti, Crangasi, Mereni, Calugareni, Boteni, commune Contesti Modernization of 20 kV OHL by replacing insulation and conductors 20 kV OHL Pisc - SPP 4, 20kV OHL Cuza Voda - Tufesti, 20kV OHL Maxeni Scortaru, 20kV OHL Romanu - Traianu TRANSILVANIA SUD Integration of substations from Alba 110 kV Operations Centre into the SCADA DMS system of SDTS Works at 110 kV OHL South Sibiu - Ucea 1 + 2, Sibiu County Modernization of LV OHL Bistra, Bistra commune, Alba County 1.32 3.83 1.39 3.51 3.97 1.60 1.31 2.95 2.44 4.24 2.40 1.45 4.40 1.47 2.71 1.48 2.36 2.86 2.03 2.95 2.31 1.96 1.54 2.61 21.52 1.54 2.55 203 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDescription (RON mn) Modernization of transformer substations by replacing MV cells, TDRIs (indoor network distri- bution board for transformer stations), integration in SAD, and repairing buildings related to transformer stations in Sacele municipality, Brasov County Voltage level improvements and modernization of LV OHL and LV electrical connections in Sancraiu de Mures and Nazna, Mures county Increasing the security of electricity supply 20 kV OHL Gabud, by integration with the 20 kV derivation Gheja, Mures county Backup power 20 kV busbars - Sanpaul Station, Mures County Modernization of distribution network 20kV Sovata - Oras 2, Sovata locality, Mures county Modernization of OHL 0.4 kV and connections, Teius city, Alba county Modernization of OHL 0.4 kV Blaj, streets. Eroilor Fabricii, Locomotivei, Fochistilor, Ceferistilor, Dr. V. Suciu, I.M. Klein, Gh. Sincai si A. Muresanu, Blaj municipality, Alba county- stage 3 Modernization of OHL 0,4 kV Blaj, streets. Eroilor Fabricii, Locomotivei, Fochistilor, Ceferistilor, Dr. V. Suciu, I.M. Klein, Gh. Sincai si A. Muresanu, Blaj municipality, Alba county- stages 1,2 end 4 Voltage level improvements and modernization of electrical distribution network, LV OHL and LV connections of Stejerisului, Cibinului, Calea Poienii streets, Brasov locality, Brasov County Modernization of MV network and LV OHL, voltage level improvements and security and syste- matization of LV connections - Doamna Stanca street and related streets, Fagaras municipality, Brasov County Modernization of distribution network 20/0,4 kV, LV connection securing, locality Feldioara, Brasov County - Stage 1 area related to transformer substations PT 11 and PT 30 Modernization of distribution network in Mediascity – Vitrometan neighbourhood, Sibiu county Modernization of LV OHL Hipodrom 1, 2, 3 area, Sibiu municipality, Sibiu County Modernization of LV OHL Marsa locality, Sibiu County Voltage level improvement and modernization of OHL 0.4 kV Avram Iancu end Motilor streets, Aiud locality, Alba county Decentralization of the MV network, voltage level improvement and conductors replacement in LV network, modernization, and security of connections to Zarand, Cetinii, General Traian Mosoiu streets, Brasov locality, Brasov County Voltage level improving and modernization of OHL LV Parau, Brasov county Voltage level improving area PTA 27 Stupinii Harmanului - Salcamilor neighborhood, Izvor, Tarlungeni locality, Brasov county Modernization of 0.4 kV network Fundata, PTA 6 area, Brasov county Modernization of distribution networks on Dozsa Gyorgy, Belchiei, Pescarilor, Rozelor streets, Gheorgheni municipality, Harghita County Voltage level improving and securing connections Vatava locality, Mures county Voltage level and security of supply improving in 20 kV network Reghin, Mures county Voltage level improving and modernization of connections in Saulia de Campie locality, Mures county Voltage level improving and modernization of LV OHL and connections Deda locality, Mures County Increasing distribution capacity and safety in the developing area, adjacent to the future objec- tive Clinical Hospital BV: Construction of a 110/20 kV substation in the 110 kV OHL axis Barto- lomeu-FS Rasnov joint circuit with 110 kV OHL ICA Ghimbav-Ghimbav in area poles no.54-56, Brasov county Implementation of Smart Metering System Brasov branch area Backup infrastructure upgrade (Disk backup system) Integration in SCADA-DMS of the transformer stations provided with preparation for UCMT installation TRANSILVANIA NORD Regulating 110 kV OHL of Oradea metropolitan area Modernization of 110/20/10 kV Baciu Substation 8.97 4.99 1.27 1.46 1.43 1.48 1.40 2.50 3.24 3.80 4.60 5.40 4.00 3.20 2.64 1.99 1.40 1.38 1.19 2.70 1.44 1.72 2.00 2.50 14.47 3.00 1.60 1.80 7.11 8.08 204 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTDescription (RON mn) Increasing the quality of the distribution service vol.2A - modernization of 32 wall cabin transformation substations from Baia Mare, Somcuta Mare, Targu Lapus, Ulmeni localities, Maramures county Integrated security, monitoring, and intervention System for the substations of SDTN Increasing the degree of security in the electricity supply, the Stana de Vale area Modernization of transformer substations belonging to Cluj-Napoca branch, Cluj County - Vol.2 - Gherla area Modernization of Satu Mare 2 110 kV Substation and introduction of 20kV busbar Modernization of transformer substations belonging to Bistrita branch Modernization of 110/20/6 kV Prundu Bargaului Substation Modernization of pole mounted transformer substations Ciresoaia 1, Ciresoaia 3, Ciresoaia CAP as well as modernization of LV OHL and LV connections in the area Ciresoaia PMTS 1,3, CAP, Ciresoaia locality, Bistrita County Construction of new MV underground cable line to increase safety in electricity supply, for the area related to MV distributors - Dej1, Dej2, Dej3 powered from Dej Cuzdrioara Substation, Dej locality, Cluj County Modernization of pole mounted transformer substations belonging to Cluj-Napoca branch, Cluj County - Vol.2 - Gherla area Modernization of transformer substations in metal construction Sarmasag, Sarmasg Mine Colony, LV OHL regulation, and LV connections in the Coloniei Minei area Modernization of LV OHL and LV connection in Finteusu Mic locality, pole mounted transformer substation no.1 and 2 area Modernization of pole mounted transformer substations belonging to Oradea branch Increasing the safety in the supply of electricity to consumers from S-axis Pericei, moderniza- tion of pole mounted transformer substation no. 4, and power injection in Pericei locality, Salaj county Development of the SAP IT system to implement the regulations regarding the change of the settlement interval of the load curves from 60 min to 15 min. Integration in SCADA of the installations within the Oradea branch Conductor replacements of OHL 0,4 kV and power injection OHL 0,4 kV in Viseul de Jos locality – pole mounted transformer substation PTA 6 area Modernization of 20 kV OHL Tg. Lapus – Lapusul Romanesc vol.I Modernization of the electrical distribution networks in the Municipality of Cluj-Napoca, 21 Decembrie 1989 boulevard area and the adjacent streets, Cluj County Modernization of transformation substations PTA1, PTA2, PTA3 Burzuc, LV network, and connections Burzuc locality, Bihor county Power injection and LV network modernization Rosia locality, area Curatura, Bihor county Power injection Bufet Expres area, Madach Imre street, Oradea locality, Bihor county Modernization of 110/20 kV Nistru Substation Modernization of substation 110/20 kV SASAR Modernization of neutral treatment groups in Carei 1 Substation Reservation of 20kV busbar for Satu Mare 2 Substation from Carpati Substation, Satu Mare municipality Modernization of OHL 110kV Nasaud- Rodna poles 79-128 Bistrita Nasaud county Power injection in LV OHL streets Compozitorilor, Enescu and Dinu Lipati, Bistrita locality, Bistrita Nasaud county Modernization OHL 20KV Pump between S.S. 6350 and FBT transformer substation - recon- struction of pole mounted transformer station Moara Jibou and voltage level normalization on Campului street, Jibou locality 3.98 7.15 2.62 2.35 6.07 1.66 4.08 1.36 1.35 1.31 1.29 1.25 1.40 1.21 1.16 1.14 1.13 1.01 1.79 1.67 1.35 3.60 2.01 4.2 1.57 3.28 1.55 1.05 1.48 205 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORTSeparate Financial Statements as at and for the year ended 31 December 2021 prepared in accordance with Ministry of Public Finance Order no. 2844/2016 for the approval of the Accounting Regulations in accordance with International Financial Reporting Standards Free translation from Romanian, which is the official and binding version CONTENTS Separate statement of financial position Separate statement of profit or loss Separate statement of comprehensive income Separate statement of changes in equity Separate statement of cash flows Notes to the separate financial statements Basis of preparation 1. Reporting entity and general information 2. Basis of accounting 3. Functional and presentation currency 4. Use of judgments and estimates Accounting policies 5. Basis of measurement 6. Significant accounting policies 7. Adoption of new and revised standards Performance for the year 8. Revenue 9. Other income and operating expenses 10. Net finance income 11. Earnings per share Employee benefits 12. Short-term employee benefits 13. Post-employment and other long-term employee benefits 14. Employee benefit expenses Income tax 15. Income tax Assets 218 222 222 222 223 223 231 232 232 233 234 234 235 239 239 16. Trade receivables 17. Other receivables 18. Cash and cash equivalents 19. Property, plant and equipment 20. Intangible assets 21. Investments in subsidiaries 22. Investments in associates 23. Loans granted to subsidiaries 241 242 243 244 248 249 252 254 208 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021PREPARED IN ACCORDANCE WITH THE ORDER OF THE MINISTRY OF PUBLIC FINANCE NO. 2844/2016 Equity and liabilities 24. Capital and reserves 25. Trade payables 26. Other payables 27. Provisions Financial instruments 256 258 258 259 28. Financial instruments - fair values and risk management 259 Other information 29. Related parties 30. Contingencies 31. Commitments 32. Subsequent events 263 269 270 271 209 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021PREPARED IN ACCORDANCE WITH THE ORDER OF THE MINISTRY OF PUBLIC FINANCE NO. 2844/2016 SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021 (All amounts are in RON, if not otherwise stated) Note 31 December 2021 31 December 2020 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Investments in associates Loans granted to subsidiaries – long term Right of use assets Total non-current assets Current assets Cash and cash equivalents Restricted cash Trade receivables Other receivables Prepayments 19 20 21 22 23 18 18 16 17 100,057,480 96,943,295 53,676 272,880 2,285,224,715 2,284,881,698 25,809,696 - 1,276,325,000 1,030,000,000 488,370 1,433,070 3,687,958,937 3,413,530,943 5,757,972 193,484,820 - 320,000,000 925,873 411,954 584,765,644 180,761,447 765,483 427,549 Loans granted to subsidiaries – short term 23 30,000,000 - Assets held for sale Total current assets Total assets EQUITY AND LIABILITIES Equity Share capital Share premium Treasury shares reserve Pre-paid capital contributions in kind from shareholders 210 | 2021 ANNUAL REPORT ELECTRICA S.A. 279,655 - 622,494,627 695,085,770 4,310,453,564 4,108,616,713 24 24 24 24 3,464,435,970 3,464,435,970 103,049,177 103,049,177 (75,372,435) (75,372,435) 7,366 7,366 SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021 (All amounts are in RON, if not otherwise stated) Note 31 December 2021 31 December 2020 24 24 24 12,397,647 12,605,266 228,156,226 212,027,639 71,213,362 35,644,469 319,621,087 296,938,104 4,123,508,400 4,049,335,556 Note 31 December 2021 31 December 2020 Revaluation reserves Legal reserves Other reserves Retained earnings Total equity Liabilities Non-current liabilities Lease liability – long term 118,456 485,741 Employee benefits 13 1,050,299 1,453,187 Total non-current liabilities 1,168,755 1,938,928 Current liabilities Bank overdrafts 18 120,541,354 - Lease liability – short term 394,818 968,556 Trade payables Other payables Deferred revenue 25 26 4,034,356 7,199,932 44,022,468 36,034,414 384,578 152,559 Employee benefits 12,13 12,160,721 7,168,505 Provisions 27 4,238,114 5,818,263 Total current liabilities 185,776,409 57,342,229 Total liabilities 186,945,164 59,281,157 Total equity and liabilities 4,310,453,564 4,108,616,713 The accompanying notes are an integral part of these separate financial statements. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 211 | 2021 ANNUAL REPORT ELECTRICA S.A. Revenues Other income Employee benefits Note 2021 2020 8 9 14 - 3,250,787 808,081 14,516,325 (39,239,650) (31,818,555) Depreciation and amortization 19,20 (2,274,344) (13,050,255) Reversal of impairment of trade and other receivables, 16,17 70,195 98,583,335 net Reversal of impairment/(Impairment) of property, 19 3,804,893 (9,979,491) plant and equipment, net Impairment of assets held for sale (492,336) - Change in provisions for legal cases and non-compete 27 1,580,149 (2,510,794) clauses, net Other operating expenses 9 (19,897,208) (23,870,825) (Loss)/Profit before finance result (55,640,220) 35,120,527 Finance income Finance costs 10 10 377,682,973 260,305,358 (262,543) (123,963) Net finance income 377,420,430 260,181,395 Share of results of associates 22 (3,498) - Profit before tax 321,776,712 295,301,922 Income tax benefit 15 43,172 3,076,614 Profit for the year Earnings per share 321,819,884 298,378,536 Basic and diluted earnings per share (RON) 11 0.95 0.88 The accompanying notes are an integral part of these separate financial statements. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 212 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE STATEMENT OF PROFIT OR LOSSFOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in RON, if not otherwise stated) Profit for the year 321,819,884 298,378,536 Note 2021 2020 Other comprehensive income Items that will not be reclassified to profit or loss Revaluation of property, plant and equipment 24 Tax related to revaluation of property, plant and equipment 15 - - 11,901,253 (3,059,897) Re-measurements of the defined benefit liability 13 269,825 104,482 Tax related to re-measurements of the defined benefit 15 (43,172) (16,717) liability Other comprehensive income, net of tax 226,653 8,929,121 Total comprehensive income 322,046,537 307,307,657 The accompanying notes are an integral part of these separate financial statements. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 213 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in RON, if not otherwise stated) , 6 5 5 5 3 3 9 4 0 4 , , 4 0 1 , 8 3 9 6 9 2 , , 9 6 4 4 4 6 5 3 , , 9 3 6 7 2 0 2 1 2 , , 6 6 2 5 0 6 2 1 , y t i u q e l a t o T i d e n a t e R i s g n n r a e r e h t O s e v r e s e r l a g e L s e v r e s e r n o i t a u a v e R l s n o i t u b i r t n o c s e v r e s e r m o r f d n k n i i l s r e d o h e r a h s l a t i p a C y r u s a e r T s e r a h s e v r e s e r e r a h S i m u m e r p d n a d e b i r c s b u S e r a h s n i i d a p l a t i p a c , 4 8 8 9 1 8 , 1 2 3 , 4 8 8 9 1 8 , 1 2 3 , 3 5 6 6 2 2 , 3 5 6 6 2 2 , 7 3 5 6 4 0 2 2 3 , , 7 3 5 6 4 0 2 2 3 , - - - - , ) 3 9 6 3 7 8 7 4 2 ( , , ) 3 9 6 3 7 8 7 4 2 ( , - - - , ) 3 9 6 3 7 8 7 4 2 ( , , ) 3 9 6 3 7 8 7 4 2 ( , - - - - - - - - - - - - - - - - - - - , 0 0 4 8 0 5 3 2 1 , 4 , 7 8 0 , 1 2 6 9 1 3 , , 2 6 3 3 1 2 , 1 7 , 6 2 2 6 5 1 , 8 2 2 , 7 4 6 7 9 3 2 1 , - , 9 1 6 7 0 2 - , ) 3 9 8 8 6 5 5 3 ( , , 3 9 8 8 6 5 5 3 , , ) 7 8 5 8 2 1 , 6 1 ( , 7 8 5 8 2 1 , 6 1 - - , ) 9 1 6 7 0 2 ( - - - - - - - - - - 6 6 3 7 , - - - - - - - - - - - 6 6 3 7 , , ) 5 3 4 2 7 3 5 7 ( , - - - - - - - - - - - , ) 5 3 4 2 7 3 5 7 ( , 7 7 1 , 9 4 0 3 0 1 , - - - - - - - - - - - 7 7 1 , 9 4 0 3 0 1 , , 0 7 9 5 3 4 4 6 4 3 , , - - - - - - - - - - - , 0 7 9 5 3 4 4 6 4 3 , , y r a u n a J 1 t a e c n a a B l 1 2 0 2 e v i s n e h e r p m o C e m o c n i r a e y e h t r o f t fi o r P e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i h t i w s n o i t c a s n a r T e h t f o s r e n w o y n a p m o C d n a s n o i t u b i r t n o C s n o i t u b i r t s i d 214 | 2021 ANNUAL REPORT ELECTRICA S.A. 4 2 e h t f o s r e n w o y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r t l a t o T y n a p m o C 4 2 4 2 n i s e g n a h c r e h t O y t i u q e r e h t o o t r e f s n a r T s e v r e s e r l a g e l f o p u t e S s e v r e s e r n o i t a u a v e r l f o r e f s n a r T i d e n a t e r o t e v r e s e r d n a n o i t a c e r p e d i o t e u d s g n n r a e i , y t r e p o r p f o s l a s o p s i d e h t o t s d n e d v D i i i t n e m p u q e d n a t n a p l 1 2 0 2 r e b m e c e D 1 3 t a e c n a a B l SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in RON, if not otherwise stated) - , 1 0 6 3 6 9 , ) 1 0 6 3 6 9 ( - , ) 7 1 0 8 0 1 , 6 4 2 ( - ) 8 1 9 , 1 2 2 , 1 ( ) 2 1 1 , 5 8 8 4 4 2 ( , ) 7 8 9 ( , ) 7 1 0 8 0 1 , 6 4 2 ( , 1 0 6 3 6 9 , ) 9 1 5 5 8 1 , 2 ( ) 2 1 1 , 5 8 8 4 4 2 ( , ) 7 8 9 ( y t i u q e l a t o T s e s s o L g n i r r e f e r e r a h s o t e u s s i i s n a G g n i r r e f e r e r a h s o t e u s s i i d e n a t e R i s g n n r a e r e h t O s e v r e s e r l a g e L s e v r e s e r n o i t a u a v e R l s n o i t u b i r t n o c s e v r e s e r m o r f d n k n i i l s r e d o h e r a h s l a t i p a C y r u s a e r T s e r a h s e v r e s e r , 6 5 5 5 3 3 9 4 0 4 , , - - - - - - - - - - - , ) 0 5 9 5 3 9 4 1 ( , , 9 1 9 7 8 0 2 , 4 0 1 , 8 3 9 6 9 2 , - , 9 6 4 4 4 6 5 3 , - - - , 0 5 9 5 3 9 4 1 , , 9 3 6 7 2 0 2 1 2 , - - , ) 9 1 9 7 8 0 2 ( , - , 6 6 2 5 0 6 2 1 , - - - - 6 6 3 7 , , ) 5 3 4 2 7 3 5 7 ( , y t i u q e l a t o T , 6 1 9 5 3 1 , 8 8 9 3 , , 6 3 5 8 7 3 8 9 2 , 1 2 1 , 9 2 9 8 , , 7 5 6 7 0 3 7 0 3 , s e s s o L g n i r r e f e r e r a h s o t e u s s i i s n a G g n i r r e f e r e r a h s o t e u s s i , ) 1 0 6 3 6 9 ( , 9 1 5 5 8 1 , 2 - - - - - - , 6 3 5 8 7 3 8 9 2 , , 1 0 3 6 6 4 8 9 2 , 5 6 7 7 8 , , 6 4 9 4 0 2 6 5 2 , , 6 5 4 5 4 6 5 3 , , ) 5 3 4 2 7 3 5 7 ( , i d e n a t e R i s g n n r a e r e h t O s e v r e s e r l a g e L s e v r e s e r n o i t a u a v e R l s n o i t u b i r t n o c s e v r e s e r m o r f d n k n i i l s r e d o h e r a h s l a t i p a C y r u s a e r T s e r a h s e v r e s e r e r a h S i m u m e r p d e b i r c s b u S n i i d a p d n a l a t i p a c e r a h s - - - 9 8 6 , 1 9 0 7 9 1 , 9 2 8 , 1 5 8 5 , 6 6 3 7 , - - - - - - 6 5 3 , 1 4 8 8 , 6 5 3 , 1 4 8 8 , - - - - - - - - - - - - - - - - - - - 7 7 1 , 9 4 0 3 0 1 , - - - - - - - - - e r a h S i m u m e r p 7 7 1 , 9 4 0 3 0 1 , , 0 7 9 5 3 4 4 6 4 3 , , - - - - - - - - - d e b i r c s b u S n i i d a p d n a l a t i p a c e r a h s , 0 7 9 5 3 4 4 6 4 3 , , e m o c n i e v i s n e h e r p m o C y r a u n a J 1 t a e c n a a B l 0 2 0 2 e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i r a e y e h t r o f t fi o r P y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r T i s e r a h s y r a n d r o f o e u s s I d n a s n o i t u b i r t n o C s n o i t u b i r t s i d 4 2 y n a p m o C e h t f o y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r t l a t o T 4 2 s e v r e s e r l a g e l f o p u t e S y t i u q e n i s e g n a h c r e h t O s e v r e s e r r e h t o f o p u t e S n o i t a u a v e r l f o r e f s n a r T i d e n a t e r o t e v r e s e r d n a n o i t a c e r p e d i o t e u d s g n n r a e i , y t r e p o r p f o s l a s o p s i d s r e n w o e h t o t s d n e d v D i i i t n e m p u q e d n a t n a p l r e b m e c e D 1 3 t a e c n a a B l 0 2 0 2 215 | 2021 ANNUAL REPORT ELECTRICA S.A. r e c fi f O l i a i c n a n F f e h C i l a e u g n a r F u r d n a x e A n a f e t S l . s t n e m e t a t s l i a c n a n fi e t a r a p e s e s e h t f o t r a p l a r g e t n i i n a e r a s e t o n g n y n a p m o c c a e h T r e c fi f O e v i t u c e x E f e h C i u c s e p o P a n i r o C a t e g r o e G 2 2 0 2 y r a u r b e F 8 2 SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in RON, if not otherwise stated) Note 2021 2020 Cash flows from operating activities Profit for the year Adjustments for: Depreciation Amortisation 321,819,884 298,378,536 19 20 1,114,306 11,133,444 1,160,038 1,916,811 (Reversal of impairment)/Impairment of 19 (3,804,893) 9,979,491 property, plant and equipment, net Loss from the disposal of tangible assets Loss from investments in subsidiaries 19 21 3,104,047 629,452 73 - Reversal of impairment of trade and other 16,17 (70,195) (98,583,335) receivables, net Impairment of assets held for sale 492,336 - Net finance income Share of loss of associates 10 22 (377,420,430) (260,181,395) 3,498 - Changes in employee benefits obligations 13 5,054,128 (390,301) Changes in provisions, net Income tax benefit 27 15 Changes in: Trade receivables Other receivables Trade payables Other payables (1,580,149) 2,510,794 (43,172) (3,076,614) (50,170,529) (37,683,117) (443,724) 103,223,222 2,972,994 4,329,592 (2,874,463) 1,755,495 259,359 (419,871) Employee benefits (286,961) 1,888,495 Cash flow (used in)/ generated from (50,543,324) 73,093,816 operating activities Interest paid (179,011) (1,983) Net cash (used in)/from operating (50,722,335) 73,091,833 activities 216 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in RON, if not otherwise stated) Note 2021 2020 Cash flows from investing activities Payments for purchases of property, plant and equipment (4,829,850) (4,024,333) Payments for purchase of intangible assets - (29,175) Payments for purchase of interests in subsidiaries, net (124,990) Proceeds from sales of investments in subsidiaries 20 - - Proceeds from the sale of property, plant and equipment 21,001 191,996 Proceeds from loans granted to subsidiaries 60,000,000 Payment for acquisition of investment in associate (25,813,194) - - Proceeds from deposits with maturity of 3 months or - 66,471,188 longer Loans granted to subsidiaries (336,325,000) - Cash used by subsidiaries under the cash pooling facility 23,29 (393,576,820) (132,171,404) Interest received Dividends received Restricted cash 42,172,401 41,385,917 10 329,543,644 214,969,717 320,000,000 - Net cash (used in)/from investing activities (8,932,788) 186,793,906 Cash flows from financing activities Dividends paid 24 (247,626,657) (245,779,724) Payment of lease liabilities (986,422) (900,576) Net cash used in financing activities (248,613,079) (246,680,300) Net increase in cash and cash equivalents (308,268,202) 13,205,439 Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 18 18 193,484,820 180,279,381 (114,783,382) 193,484,820 The accompanying notes are an integral part of these separate financial statements. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 217 | 2021 ANNUAL REPORT ELECTRICA S.A. 1 Reporting entity and general information These financial statements are the separate financial statements of Societatea Energetica Electrica S.A. (“Company” or “Electrica SA”) as at and for the year ended 31 December 2021. Electrica was originally incorporated as a company in 1998 by Government Decision no. 365/1998, following the restructuring of the former National Electricity Company (RENEL). On 1 August 2000, following the restructuring of the former National Electricity Company (CONEL) under the Government Decision no. 627/2000, the Company was allocated a new tax registration number. The registered office of the Company is no 9, Grigore Alexandrescu Street, District 1, Bucharest, Romania. The Company has sole registration code 13267221 and Trade Register number J40/7425/2000. As at 31 December 2021 and 31 December 2020, the major shareholder of Societatea Energetica Electrica S.A. is the Romanian State, represented by the Ministry of Energy with a share of ownership of 48.79% from the share capital. The Company’s shares are listed on the Bucharest Stock Exchange and the global depository receipts (“GDRs”) are listed on the London Stock Exchange. The shares traded on the London Stock Exchange are the global depositary receipts, one global depositary receipt representing four shares. The Bank of New York Mellon is the depositary bank for these securities. As at 31 December 2021 and 31 December 2020, the Company’s subsidiaries are the following: Subsidiary Activity registration Head Office at 31 December as at 31 December Sole % shareholding as % shareholding code 2021 2020 Electricity distribution in Distributie geographical Energie Electrica areas Transilvania 14476722 Cluj-Napoca 99.99999929% 100% Romania S.A. Nord, (“DEER”) Transilvania Sud and Muntenia Nord Electrica Electricity and Furnizare S.A. natural gas 28909028 Bucuresti 99.9998415011992% 99.9998409513906% 17329505 Bucuresti 99.99998095% 100% 44854129 Bucuresti 99.9920% - 29389861 Craiova 100% 100% supply Services in the Electrica Serv energy sector S.A. Electrica Productie Energie S.A (maintenance, repairs, construction) Electricity generation Servicii Services in the Energetice energy sector Oltenia S.A. (in bankruptcy) (maintenance, repairs, construction) 218 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Subsidiary Activity registration Head Office at 31 December as at 31 December Sole % shareholding as % shareholding code 2021 2020 Servicii Services in the Energetice energy sector Moldova S.A. (maintenance, 29386768 Bacau 100% 100% (in bankruptcy) repairs, construction) Servicii Services in the Energetice energy sector Banat S.A. (in (maintenance, 29388211 Timisoara 100% 100% bankruptcy) repairs, construction) Servicii Services in the Energetice energy sector Dobrogea S.A. (maintenance, 29388378 Constanta 100% 100% (in bankruptcy) repairs, construction) As at 31 December 2021, the Company’s associates are the following: Associate Activity Sole registration code Head Office % shareholding as at 31 December 2021 Crucea Power Electricity 25242042 Constanta 30% Park SRL generation Sunwind Energy Electricity 42910478 Constanta 30% SRL generation New Trend Energy SRL Electricity generation Foton Power Energy S.R.L. Electricity generation 42921590 Constanta 30% 43652555 Constanta 30% As of 31 December 2020, the Company had no investments in associates. The Company’s main activities Currently, the core business of the Company, according to the Statute is “Activities of business and management consulting”, also performing corporate activities at parent company level for its subsidiaries. Electrica SA is the parent company of one electricity distribution company (set up from merger of three electricity distribution companies), one electricity and natural gas supplier and five companies providing services in the energy sector (out of which four are currently in bankruptcy), two energy production company from renewable sources (Electrica Energie Verde 1 SRL in which Electrica SA has an indirect shareholding of 100% being acquired on 31 August 2020 by the subsidiary Electrica Furnizare S.A.. and Electrica Productie Energie a new set up Company). On 6 September 2021, is set up a new legal entity, Electrica Productie Energie S.A., organized as a joint stock company, in which Electrica SA holds a percentage of 99.9920% of the share capital and Electrica Serv S.A. holds a percentage of 0.0080% of the share capital. The object of activity is the production of electricity from renewable sources through the acquisition and development of projects, respectively the operation of electricity generation parks from renewable sources, cumulated with the development and operation of independent storage solutions that it intends to develop in the near future. 219 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)On 28 July 2021, Electrica SA signed, as buyer, with Mr. Emanuel Muntmark and with Mr. Catalin Mrejeru, as sellers, three shares sales and purchase agreements (“SPAs”) in three project companies having as main activity the production of energy from renewable sources, as follows: i. A SPA regarding the acquisition of 100% of the shares held by the sellers in Crucea Power Park SRL for an estimated total price of EUR 8,470,000. The final price will be determined by adjusting the total estimated price depending on the production capacity, respectively the authorized storage, based on a contractually established calculation formula. Crucea Power Park SRL develops the eolian project “Crucea Est”, with a designed installed capacity of 121 MW and a projected electricity storage capacity of 60 MWh (15 MW x 4h), located outside the Crucea commune, Constanta county. ii. A SPA regarding the acquisition of 100% of the shares held by the sellers in Sunwind Energy SRL for a total estimated price of EUR 1,485,000. The final price will be determined by adjusting the total estimated price according to the authorized production capacity, based on a contractually established calculation formula. Sunwind Energy SRL is developing the photovoltaic project “Satu Mare 2” with a designed installed capacity of 27 MW, located near Satu Mare. iii. A SPA regarding the acquisition of 100% of the shares held by the sellers in New Trend Energy SRL for a total estimated price of EUR 3,245,000. The final price will be determined by adjusting the total estimated price according to the authorized production capacity, based on a contractually established calculation formula. New Trend Energy SRL develops the photovoltaic project “Satu Mare 3”, with a designed capacity of 59 MW, located near Satu Mare. The total estimated value of the transaction is EUR 13,200 thousand. The sale purchase agreements concluded as of 28 July 2021 stipulate that at the initial stage, the Company acquires 30% of the share capital of the three Companies, and in the subsequent stages the remaining 70% of the share capital provided that certain conditions stipulated in the sale purchase agreements are met. On 7 December 2021, Electrica SA, signed, as buyer, with Mr. Emanuel Muntmark and with Mr. Catalin Mrejeru, as sellers, a shares sales and purchase agreement (“SPAs”) in one project company having as main object of activity the production of energy from renewable sources. The SPA concerns the acquisition of 100% of the shares of Foton Power Energy S.R.L, wholly owned by the sellers, for an estimated total price of EUR 4,262,500. The final price will be determined by adjusting the total estimated price depending on the production capacity, respectively the authorized storage, based on a contractually established calculation formula. Foton Power Energy S.R.L. develops the photovoltaic project “Bihor 1”, with a designed installed capacity of 77.5 MW, located near Oradea city. The SPAs stipulate the acquisition by Electrica SA of company’s shares and the payment of the corresponding price in four stages, structured according to the development stage of the project and the fulfillment of certain conditions precedent. As of 31 December 2021, with a 30% shareholding, the Company has a significant influence over the four companies, which are presented as investments in associates. The acquisition value of the 30% shares is RON 25,813,194. (for further details please refer to Note 22). The establishment of the new subsidiary together with the investments in the four entities are part of the Electrica Group’s strategy which aims to develop a portfolio of electricity generation capacities from renewable sources (wind and photovoltaic) with a cumulative capacity of 400 MW, in parallel with electricity storage capacities with an installed capacity of up to 100 MW. During 2020, the three distribution subsidiaries, Societatea de Distributie a Energiei Electrice Muntenia Nord S.A., Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. and Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., merged through absorption, the absorbing entity being Societatea de Distributie a Energiei Electrice Transilvania Nord S.A.. On 14 October 2020, the Cluj Specialized Court admitted the requests of SDEE Transilvania Nord S.A., as absorbing company, and the request of SDEE Transilvania Sud S.A. and SDEE Muntenia Nord S.A., as the absorbed companies, approved the merger and ordered the deregistration of the absorbed companies from the Trade Register. 220 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Therefore, the merger produces its effects starting with the effective date, 31 December 2020, when SDEE Transilvania Sud S.A. and SDEE Muntenia Nord S.A. as the absorbed entities ceased to exist, being dissolved without going into liquidation. Consequently, all of their assets and liabilities were transferred through the effect of the merger by absorption to SDEE Transilvania Nord S.A., as the absorbing entity, in exchange of the issuance of new shares in the share capital of SDEE Transilvania Nord S.A. in favour of the shareholder of the absorbed entities, namely Electrica SA. Thus, on 31 December 2020, Distributie Energie Electrica Romania S.A., formed by the merger of the three former electricity distribution companies was recorded on the National Trade Register Office. During 2020, the two energy services subsidiaries, Electrica Serv S.A. and Servicii Energetice Muntenia S.A. merged through absorption, the absorbing entity being Electrica Serv S.A.. On 17 September 2020, the VI Civil Section of the Bucharest Court admitted the request of Electrica Serv S.A., as absorbing company, and the request of Servicii Energetice Muntenia S.A., as the absorbed company, and ascertained the legality of the merger process and approved the registration with the Trade Register of the corresponding merger mentions. Therefore, the merger produces its effects starting with the effective date, 30 November 2020, when Servicii Energetice Muntenia S.A., as the absorbed entity, ceased to exist, being dissolved without going into liquidation. Consequently, all of its assets and liabilities were transferred through the effect of the merger by absorption to Electrica Serv S.A., as the absorbing entity, in exchange of the issuance of new shares in the share capital of Electrica Serv S.A. in favour of the shareholder of the absorbed entity, namely Electrica SA. Thus, starting with 1 December 2020, the merger between the aforementioned companies was finalized and the energy services will be carried out only under the umbrella of Electrica Serv.The registration on the National Trade Register Office took place on 2 December 2020, with effective date 30 November 2020. COVID-19 impact On 11 March 2020 the World Health Organization (hereinafter “WHO”) declared the COVID-19 outbreak a pandemic and on 16 March 2020 Romania entered into a state of emergency. Measures taken by the Romanian Government included restrictions on the cross-border movement of people, entry restrictions on foreign visitors and lock-down of certain industries. Furthermore, significant key players on the market decided to shut down their operations, especially in the automotive and heavy industries, while some smaller businesses decided to curtail or temporarily suspend their operations. Therefore, on a macroeconomic level, the COVID – 19 pandemic generated a downturn of the economy leading to a decrease in the demand for electricity, especially from non- household consumers. The COVID-19 pandemic has persisted in 2021. The resulting impact of the pandemic measures taken such as movement control and safe-distancing have continued to affect the economy. In the fight against the COVID-19 pandemic, the Company has adopted all the necessary measures for the activity to continue to be carried out under normal conditions and issued guidelines aimed at preventing and/ or mitigating the effects of contagion at the workplace. Most important measures included strict adherence to hygiene and social distancing rules as well as working from home where possible. A resilience plan was developed identifying essential activities and critical roles through scenario analysis and ensuring staff backup. Moreover, Electrica SA promptly and transparently communicates any information that is reasonably expected to affect investor’s perception and as further effects of the COVID-19 pandemic over the financial results of the Electrica SA can be established, such information will be included in the future financial statements and will be made available to investors. Increase in Energy price impact Following the total liberalization of the electricity market from 1 January 2021 for all types of consumers, the international context of the energy markets characterized by an imbalance between supply and demand at European level, corroborated with the energy policies developed both at EU and national level, has led to an increase in electricity prices. Moreover, the strong increase in energy prices is both the result of external factors, such as the exponential increase in the price of emission allowances, and of internal factors, such as the high share of energy traded on the spot market (DAM). The entire energy sector was affected by the increased energy price. 221 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)The aforementioned difficult conditions led to an increase in operating expenses, mainly for the acquisition of energy for network losses and for supplying activity, affecting two of the Company’s subsidiaries. For the two subsidiaries the unstable economic environment, led to a decrease in financial performance for 2021, as compared with the previous year but with no significant difficulties in receivables collection and consequently payment of debts being noted. Moreover, the state, through the adoption of Order no. 118/2021 with subsequent amendments approved by Law no. 259/2021 with subsequent amendments and Order no. 226/2021 implemented measures under the form of capping and compensating scheme in order to mitigate the effect of the price increase. The schemes aim in reducing the liquidity risk by reducing difficulties in receivables collection and improve financial performance during the unstable economic environment. The Company actively implements strategies and takes measures in order to reduce any liquidity risk which may appear within the Group among which: securing new overdrafts, prolonging the terms for reimbursments of current overdrafts, increaseing the limits for current overdrafts, securing the prolonging of the cash pooling facility. 2 Basis of accounting These separate financial statements have been prepared in accordance with the Ministry of Public Finance Order no. 2844/2016 for the approval of the Accounting Regulations in accordance with International Financial Reporting Standards (“OMFP no. 2844/2016”). In acceptance of OMFP no. 2844/2016, International Financial Reporting Standards are standards adopted under the procedure provided by the European Commission Regulation no. 1606/2002 of the European Parliament and of the Council of 19 July 2002 regarding the application of the international accounting standards. These separate financial statements were authorized for issue by the Board of Directors on 28 February 2022 and will be submitted for shareholders’ approval in the general meeting scheduled on 20 April 2022. Details of the Company’s accounting policies are included in Note 6. The Company has consistently applied the accounting policies to all periods presented in these separate financial statements. 3 Functional and presentation currency These separate financial statements are presented in Romanian Lei (RON), which is the functional currency of the Company. All amounts are in RON, if not otherwise stated. 4 Use of judgements and estimates In preparing these separate financial statements, the management has made judgements, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are prospectively recognised. Judgements, assumptions and estimation uncertainties Information about judgements made in applying accounting policies and assumptions and estimation uncertainties that have the most significant effects on the amounts recognised in the separate financial statements is included below: • Note 6 h) – estimates regarding the useful lives of property, plant and equipment; • Note 19 – assumptions regarding the revalued amount of property, plant and equipment; • Note 21 – assumptions and estimates regarding the valuation of shareholdings in the subsidiaries; • Note 15 - assumptions regarding the recognition of deferred tax asset; 222 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Measurement of fair values A number of the Company’s accounting policies and disclosures require the measurement of fair values for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorised into different levels in the fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability are categorised into different levels of the fair value hierarchy, then the fair value measurement is entirely categorised on the level of the lowest level input that is significant to the entire measurement. The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions used in measuring fair values is included in • Note 19: Property, plant and equipment. • Note 28: Financial instruments - fair values and risk management. 5 Basis of measurement The separate financial statements have been prepared on the historical cost basis, except for the land and buildings, which are measured based on revaluation model. 6 Significant accounting policies The Company has consistently applied the following accounting policies to all periods presented in these separate financial statements. The new amendments to existing standards that are effective starting with 1 January 2021 do not have a significant impact over the Company separate financial statements. (a) Going Concern The standalone financial statements have been prepared on the going concern basis. In making this judgement management considers current trading performance and access to finance resources. The Company depends upon the trading and cash generation of its subsidiaries, which have been included in the Groups consolidated forecast which includes the following assumptions: • A return to positive operating cash flow from May 2022, following with the assumption that the effects of the law 118/2021 will no longer continue past March 31, 2022. The consequence would be that the price for the end customers will no longer be capped; • The utilisation of confirmed debt facilities up to a limit of RON 2,537 million, including RON 1,830 million total overdraft limits and RON 707 million long term loans; • The utilisation of not yet confirmed facilities amounting to RON 840 million which would be drawn down during the forecast period; • The Group has received the waiver letter from EBRD on 24 February 2022, however this is subject of obtaining the waiver letters also from EIB and BCR for which the Group was non compliant as at 31 December 2021; The management of the Group is of the opinion that based on the discussions with EIB and BCR the waiver letter will be obtained also from these 2 banks; At the present time the projections are based on the latest assumptions that include the ending of the Law no. 118/2021 regarding the compensation and ceiling scheme in March 2022. At the date of issuance of these separate financial statements the regulatory position is under review and there may be further laws enacted which could adversely impact the Groups operating cash flows beyond the 1st of April 2022. Given the current market uncertainties, the Group has outlined a proposal to be approved in the forthcoming annual shareholders meeting regarding the approval of a total ceiling of short-term financing up to RON 1,500,000 thousand. In light of the importance of the Group as the supplier and distributed of electricity on the Romanian market, having 39.6% (according to the latest ANRE report 2020 for the distribution segment) as market share on the electricity distribution and 18.39% (according to the latest ANRE report November 2021 for the supply segment) as market 223 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)share on the electricity supply market and having as main shareholder of Electrica SA the Romanian State, the management believes sufficient financing will be made available to cover any financing requirements arising from this uncertainty and Group will be able to meet its obligations as they fall due. Based upon the above projections and other information, given the measures already implemented and the strategies to reduce the risks which may occur due to the instability of the economic environment, the Board of Directors has, at the time of approving the separate financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the separate financial statements. (b) Revenue The Company recognizes the revenue from contracts with customers in accordance with IFRS 15. Under the standard, revenue is recognized when or as the customer acquires control over the goods or services rendered, at the amount which reflects the price at which the Company is expected to be entitled to receive in exchange of those goods or services. Revenue is recognized at the fair value of the services rendered or goods delivered, net of VAT, excises or other taxes related to the sale. (c) Commissions The Company assesses its revenue arrangements based on specific criteria to determine if it is acting as principal or agent. If the Company acts in the capacity of an agent rather than as the principal in a transaction, then the recognised revenue is the net amount of commission earned by the Company. (d) Finance income and finance costs The Company’s finance income and finance costs include: • interest income; • interest expense; • dividend income; • the foreign currency gain or loss on financial assets and financial liabilities; • impairment losses recognised on financial assets (other than trade receivables). Interest income or expense is recognised using the effective interest method. (e) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency at the exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date, as communicated by the National Bank of Romania. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated to the functional currency. (f) Employee benefits (i) Short-term employee benefits Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company has a present, legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be reliably estimated. (ii) Defined benefit plans The Company’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefits that employees have earned in the current and prior periods, by discounting that amount. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, are recognised immediately in other comprehensive income. The Company determines the net interest expense/(income) on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, considering any changes in the net defined benefit liability during the period as a result of contributions and benefit payments. 224 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Company recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. (iii) Other long-term employee benefits The Company’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. (iv) Termination benefits Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted. (g) Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except for the items recognised directly in equity or in other comprehensive income, in which case it will be recognized directly in equity or in other comprehensive income. (i) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • temporary differences arising from the initial recognition of assets and liabilities resulting from transactions that are not business combinations and that affect neither accounting nor taxable profit or loss; • temporary differences resulting from investments in subsidiaries, associates and jointly controlled entities, to the extent that the Company can exercise control over the reversal period of the temporary differences and it is probable that they will not be reversed in the foreseeable future. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences only to the extent that it is probable that future taxable profits will be available to be used for covering them. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured based on the tax rates that are expected to be applicable to temporary differences when they are reversed, using tax rates enacted or substantively enacted at the reporting date. The measurement of the deferred tax reflects the tax consequences that would follow from the manner in which the Company expects to recover or settle the carrying amount of its assets and liabilities at the reporting date. Deferred tax assets and liabilities are offset only if certain criteria are met. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it is probable that the future taxable profits will be available against which they can be used. (h) Property, plant and equipment (i) Recognition and measurement Property, plant and equipment are initially recognised at cost, which includes purchase price and other costs directly attributable to acquisition and bringing the asset to the location and condition necessary for their intended use. After initial recognition, land and buildings are measured at revalued amounts less any accumulated depreciation and any accumulated impairment losses since the most recent valuation. 225 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)The Company used the fair value as deemed cost for the tangible assets for the opening of the financial position. Revaluations are performed with sufficient regularity to ensure that the carrying amount does not materially differ from the one which would be determined using the fair value at the end of the reporting period. When a building is revalued, the accumulated depreciation is eliminated against the gross carrying amount of that item, and the net amount is restated to the revalued amount of the asset. If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment. Spare parts, stand-by and servicing equipment are classified as property, plant and equipment if they are expected to be used during more than one period or can be used only in connection with an item of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. (ii) Subsequent expenditure Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company. (iii) Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership right by the end of the lease term. Land and other non-current assets in progress are not depreciated. The estimated useful lives of property, plant and equipment are as follows: Category Buildings Equipment Vehicles, furniture and office equipment Useful lives (years) 40-60 4-12 3-10 The depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (i) Intangible assets (i) Recognition and measurement Intangible assets that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. (ii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. (iii) Amortization Amortization is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives, and is recognised in profit or loss. The estimated useful lives of software and licenses are 3-5 years. Amortisation method, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. 226 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)( j) Financial instruments Financial assets and financial liabilities are recognised in the Company’s statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. (i) Financial assets All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. Financial assets are initially measured at fair value and subsequently at amortized cost in accordance with IFRS 9, as they are held in a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition less the principal reimbursements, plus the cumulative amortization using the effective interest method, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting for any loss allowance. Foreign exchange gains and losses The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. Loans and receivables These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. The amortised cost is reduced by impairment losses. Loans and receivables comprise trade receivables, cash and cash equivalents and bank deposits. Trade receivables Trade receivables include mainly invoices issued or to be issued to the subsidiaries for the rendered services. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits and deposits with maturities of three months or less from the transaction date that are subject to an insignificant risk of changes in their fair value, that are used by the Company in the management of its short-term commitments. (ii) Financial liabilities All financial liabilities are measured subsequently at amortised cost using the effective interest method or at fair value through profit or loss. Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held-for-trading, or (iii) designated as at fair value, are measured subsequently at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability. Other financial liabilities include trade payables. 227 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)(iii) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity. Repurchase and reissue of ordinary shares (treasury shares) When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified and presented in the treasury share reserve. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within share premium. (k) Impairment Impairment of financial assets The Company recognises a loss allowance for expected credit losses on investments in debt instruments that are measured at amortised cost or at fair value through other comprehensive income. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Company always recognises lifetime expected credit losses for trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Company’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. (i) Significant increase in credit risk In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Company compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a default occurring on the financial instrument at the date of initial recognition. Irrespective of the above analysis, the Company considers that default has occurred when a financial asset is more than 90 days past due unless the Company has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. (ii) Write-off policy The Company writes off a financial asset when after the finalization of the bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. (iii) Measurement and recognition of expected credit losses The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date. For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive, discounted at the original effective interest rate. Derecognition of financial assets The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. 228 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)(l) Revaluation reserves The difference between the revalued amount and the net carrying amount of property, plant and equipment is recognized as revaluation reserve included in equity. If an asset’s carrying amount is increased as a result of a revaluation, the increase is recognized and accumulated in equity under the heading of revaluation reserve. However, the increase is recognized in profit and loss to the extent that it reverses a revaluation decrease of the same amount of the asset previously recognised in profit and loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised in profit or loss, However, the decrease is recognized in equity in revaluation reserves if there is any credit balance existing in the revaluation reserve in respect of that asset. The revaluation reserve is transferred to retained earnings in an amount corresponding to the use of the asset (as the asset is depreciated) and upon disposal of the asset. (m) Dividends Dividends are recognized as a deduction from equity in the period in which their distribution is approved and recognized as a liability to the extent it is unpaid at the reporting date. Dividends are disclosed in the notes to financial statements when their distribution is proposed after the reporting date and before the date of the issuance of the financial statements. (n) Capital contributions in kind from shareholders These contributions from a shareholder represent pre-paid contributions of land for which the Company obtained title deeds in respect of future issuance of shares. The amounts recorded are based on the fair value of the land. (o) Provisions A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. A provision for restructuring is recognised when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. No provisions are provided for future operating losses. (p) Contingent assets and liabilities A contingent liability is: (a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company; or (b) a present obligation that arises from past events that is not recognised because: i. it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or ii. the amount of the obligation cannot be measured with sufficient reliability. Contingent liabilities are not recognized in the financial statements of the Company. They are presented in case the output of resources incorporating economic benefits is possible and not probable. A contingent asset is a potential asset that appears as a result of previous events and whose existence will be confirmed only by the occurrence or the non-occurrence of one or more uncertain future events, which are not fully controlled by the Company. A contingent asset is not recognized in the financial statements of the Company, but it is shown when an input of economic benefits is likely to arise. 229 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)(q) Leases (i) The Company as lessee The Company assesses whether a contract is or contains a lease, at inception of the contract. The Company recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (with a lease term of 12 months or less) and leases of low value assets (of less than USD 5,000). For these leases, the Company recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the default rate in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. The lease liability is presented as a separate line in the statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: • the lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; • the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); • a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a separate line in the statement of financial position. (ii) Rental income Rental income from property, plant and equipment other than property investment is recognised as Other income. Rental income is recognised on a straight-line basis over the term of the lease. (r) Investment in associates An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5. Under the equity method, an investment in an associate is recognised initially in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Company’s share of the profit or loss and other comprehensive income of the associate. When the Company’s share of losses of an associate exceeds the Company’s interest in that associate (which includes any long-term interests that, in substance, form part of the Company’s net investment in the associate), the Company discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate. 230 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Company’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Company’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. The Company discontinues the use of the equity method from the date when the investment ceases to be an associate. (s) Subsequent events Events occurring after the reporting date 31 December 2021, which provide additional information about conditions prevailing at the reporting date (adjusting events) are reflected in the separate financial statements. Events occurring after the reporting date that provide information on events that occurred after the reporting date (non-adjusting events), when material, are disclosed in the notes to the separate financial statements. When the going concern assumption is no longer appropriate at or after the reporting period, the financial statements are not prepared on a going concern basis. 7 Adoption of new and revised standards and interpretations Initial application of new amendments to the existing standards effective for the current reporting period The following amendments to the existing standards issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective for the current reporting period: • Amendments to IFRS 9 “Financial Instruments”, IAS 39 “Financial Instruments: Recognition and Measurement”, IFRS 7 “Financial Instruments: Disclosures”, IFRS 4 “Insurance Contracts” and IFRS 16 “Leases” - Interest Rate Benchmark Reform — Phase 2 adopted by the EU on 13 January 2021 (effective for annual periods beginning on or after 1 January 2021), • Amendments to IFRS 16 “Leases” - Covid-19-Related Rent Concessions beyond 30 June 2021 adopted by the EU on 30 August 2021 (effective from 1 April 2021 for financial years starting, at the latest, on or after 1 January 2021); The adoption of amendments to the existing standards has not led to any material changes in the Company’s financial statements. Standards and amendments to the existing standards issued by IASB and adopted by the EU but not yet effective At the date of authorization of these consolidated financial statements, the following amendments to the existing standards were issued by IASB and adopted by the EU and which are not yet effective: • Amendments to IAS 16 “Property, Plant and Equipment” - Proceeds before Intended Use adopted by the EU on 28 June 2021 (effective for annual periods beginning on or after 1 January 2022), • Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” - Onerous Contracts - Cost of Fulfilling a Contract adopted by the EU on 28 June 2021 (effective for annual periods beginning on or after 1 January 2022), • Amendments to various standards due to “Improvements to IFRSs (cycle 2018 -2020)” resulting from the annual improvement project of IFRS (IFRS 1, IFRS 9, IFRS 16 and IAS 41) primarily with a view to removing inconsistencies and clarifying wording - adopted by the EU on 28 June 2021 (The amendments to IFRS 1, IFRS 9 and IAS 41 are effective for annual periods beginning on or after 1 January 2022. The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.). 231 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Electrica SA has elected not to adopt the amendments to existing standards in advance of their effective dates. The Company anticipates that the adoption of these amendments to existing standards will have no material impact on the financial statements of the Company in the period of initial application. New standards and amendments to the existing standards issued by IASB but not yet adopted by the EU At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following new standards and amendments to the existing standards, which were not endorsed for use in EU as at the date of publication of these consolidated financial statements (the effective dates stated below is for IFRS as issued by IASB): • Amendments to IAS 1 “Presentation of Financial Statements” - Classification of Liabilities as Current or Non-Current (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 1 “Presentation of Financial Statements” - Disclosure of Accounting Policies (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” - Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 12 “Income Taxes” - Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for annual periods beginning on or after 1 January 2023), Electrica SA anticipates that the adoption of these new standards and amendments to the existing standards will have no material impact on the consolidated financial statements of the Company in the period of initial application. 8 Revenue Revenues from services contracts related to the Automatic Meter Reading System - 3,250,787 2021 2020 In 2020, the revenues earned by the Company are represented by revenues from service contracts related to the AMR system, concluded with the distribution subsidiaries that include services such as automatic meter reading services, communications and monitoring of the quality parameters of electricity. Starting with July 2020, the Company no longer provides services related to the AMR system as the system was transferred as a contribution in kind to the share capital of its distribution subsidiaries (SDEE Transilvania Nord S.A., SDEE Transilvania Sud S.A., SDEE Muntenia Nord S.A currently Distributie Energie Electrica Romania S.A.), these assets being part of the distribution network (Note 19). 9 Other income and operating expenses (a) Other operating income Revenues from indemnities 2021 - 2020 12,827,435 Rental income 282,214 332,589 Other Total 525,867 1,356,301 808,081 14,516,325 In 2020, revenues from indemnities consist of the amount of RON 12,827,435 collected by Electrica SA from the National Agency for Fiscal Administration (“NAFA”) as a result of final civil sentences obtained in Court, which ordered the cancellation of certain enforceable titles as well as fiscal decisions (Note 30). As at 31 December 2020, the amount was entirely collected from the NAFA. 232 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)(b) Other operating expenses 2021 2020 Losses from disposal of assets 3,104,047 629,452 Legal assistance and consulting fees 1,867,407 2,990,741 Insurance premiums 574,058 408,692 Repair and maintenance expenses 487,714 630,721 Other taxes and duties 478,089 885,998 Consumables Travel and transportation expenses Postage and telecommunication Donations and sponsorships 399,128 111,330 95,976 50,000 660,017 115,645 1,043,024 117,305 Other third party services 11,972,370 15,727,097 Other Total 10 Net finance income Dividends income Interest income 757,089 662,133 19,897,208 23,870,825 2021 2020 329,543,644 214,969,717 47,504,909 44,852,139 Other finance income 634,420 483,502 Total finance income 377,682,973 260,305,358 Interest expense (179,011) (1,983) Interest cost for employee benefits (Note 13) (48,814) (80,355) Foreign exchange losses, net (34,718) (41,625) Total finance costs Net finance income (262,543) (123,963) 377,420,430 260,181,395 In 2021, the Company collected the entire amount of the total income of RON 329,543,644 received as dividends from its subsidiaries (2020: RON 214,969,717). 233 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)11 Earnings per share The calculation of basic and diluted earnings per share is based on the following profit attributable to shareholders and weighted-average number of ordinary shares outstanding: Profit attributable to shareholders 2021 2020 Profit for the year attributable to the shareholders of the 321,819,884 298,378,536 Company Profit attributable to the shareholders of the Company 321,819,884 298,378,536 Number of ordinary shares (in number of shares) 2021 2020 Number of ordinary shares at 31 December 339,553,004 339,553,004 For the calculation of basic and diluted earnings per share, the own shares repurchased by the Company (6,890,593 shares) were not treated as outstanding shares and are deducted from the total number of issued ordinary shares. Basic and diluted earnings per share (RON) 12 Short-term employee benefits 2021 0.95 2020 0.88 31 December 2021 31 December 2020 Personnel payables 5,979,013 6,335,832 Current portion of defined benefit liability and other long- 5,150,498 48,477 term employee benefits Social security charges 787,241 620,934 Tax on salaries Total 243,969 163,262 12,160,721 7,168,505 Details related to employee benefit expenses are presented in Note 13. In Romania, all employers and employees, as well as other persons, are contributors to the state social security system. The social security system covers state pensions, child benefit, temporary incapacity for work situations, risks of work accidents and professional diseases and other social assistance services, redundancy payments and incentives granted to employers for creating new jobs. 234 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)13 Post-employment and other long-term employee benefits The Company provides cash benefits to employees depending on seniority in the form of jubilee bonuses and depending on the years of service at retirement in the form of retirement bonuses. The post-employment and other long-term employee benefits are stipulated in the Collective Labour Contract. On 20 December 2021 the Board of Directors of Electrica SA approved the implementation of a reorganization process of the Company’s personnel structure and the initiation of the collective dismissal procedure, formally communicated to all employees on 23 December 2021. On 2 February 2022, the Board of Directors approved the amendment of the Company’s organizational structure effective as of 1 March 2022 and the notification of relevant authorities and of the Trade Union regarding the final decision of the Company to implement the reorganization process and to carry out the collective dismissal of the employees who currently occupy the positions to be cancelled, as well as the sending of all data and information provided by art. 72 of the Labour Code, including the result of the process of information and consultation with the Trade Union. The organizational measures provided in the Reorganization Plan have as objectives the resizing and the redefining of the Company’s personnel structure, as well as of its organization and functioning mode, for the optimal correlation between the number of employees and the functions performed, in accordance with the current activity conditions on the energy market. As a result of this approach, the number of organizational entities within the Company will be significantly reduced - a decrease of 19%, while the number of management / coordination positions will be reduced even more - a decrease of 25%. According to the Collective Labour Contracts, based on seniority, the employees who currently occupy the positions to be cancelled are entitled to receive a number of gross average base salary (Note 13 b)). The estimated termination benefit amounts to RON 5,054 thousand. Starting 1 April 2020, from the Collective Labour Contract of the Company the benefit in kind consisting of free of charge electricity granted to employees who retired was excluded. This benefit was stipulated in the Collective Labour Contract valid until 31 March 2020. In the same time, in order to compensate for the exclusion of the benefit in the form of free of charge electricity, as per the new Collective Labour Contract in force starting 1 April 2020, the retirement bonus increased by 1 gross monthly base salary on all three levels of seniority. Thus, excluding the free of charge electricity benefit to the retired persons from the Collective Labour Contract generated in 2020 a decrease in Employee benefits costs amounting to RON 574,243. In the same time, the increase in the retirement bonus by 1 gross monthly base salary generated an additional expense in amount of RON 183,942. In 2021 and 2020, employee benefit obligations were computed by an independent actuary using the projected unit credit method with benefits calculated proportionally to the period of service. 31 December 2021 31 December 2020 Defined benefit liability 5,599,583 691,940 Other long-term employee benefits 601,214 809,724 Total 6,200,797 1,501,664 - Current portion* 5,150,498 48,477 - Non-current portion 1,050,299 1,453,187 *included in Personnel payables in Note 12 235 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)(i) Movement in the defined benefit liability and other long-term employee benefits The following tables shows a reconciliation between the opening balances and the closing balances of the defined benefit liability and other long-term employee benefits and their components. There are no plan assets. Defined benefit liability 2021 2020 Balance at 1 January 691,940 1,093,812 Included in profit or loss Current service cost 107,066 76,681 Past service cost/(gain) 5,054,128 (390,301) Interest cost 22,832 35,576 5,184,026 (278,044) Included in other comprehensive income Re-measurements gain - Actuarial gain (269,825) (104,482) Other Benefits paid (6,558) (19,346) Balance at 31 December 5,599,583 691,940 Other long-term employee benefits 2021 2020 Balance at 1 January 809,724 1,078,865 Included in profit or loss Current service cost 72,968 112,553 Actuarial gain Interest cost Other Benefits paid Balance at 31 December (268,743) (226,090) 25,982 44,779 (38,717) 601,214 (200,383) 809,724 Defined benefits refer to the retirement bonuses granted according to the seniority within the Company and other long-term benefits refer to the jubilee bonuses granted for seniority. 236 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated) (ii) Actuarial assumptions The following are the main actuarial assumptions at the respective reporting date: (a) Macroeconomic assumptions: • inflation. The actuary used information from the National Commission for Strategy and Prognosis: Year 2021 2022 2023 2024 2025 2026+ Valuation date Valuation date 31 December 2021 31 December 2020 7.5% 5.9% 3.2% 3.0% 2.8% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% • the discount rate used is based on the yield of the Romanian Government bonds at the reporting date, therefore the weighted average discount rate is 5% for the year 2021 (2020: 3.3%); • the mortality rate published by the National Institute of Statistics was adjusted to 90% to approximate the mortality rates by generations; • taxes and social charges are those in force as at the reporting date. (b) Company specific assumptions: • Starting with 2022 the gross salaries’ growth was forecasted at the inflation level; • employees’ turnover: based on historical data; • jubilee and retirement bonuses granted based on seniority as per the collective labour contracts, as follows: Jubilee bonuses based on years of service in the Company Seniority 20 years 30 years 35 years 40 years 45 years No. of gross monthly base salaries 31 December 2021 31 December 2020 1 2 3 4 5 1 2 3 4 5 237 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Retirement bonuses based on years of service in the Company Seniority Between 8 and 10 years Between 10 and 25 years More than 25 years Termination benefits No. of gross monthly base salaries 31 December 2021 31 December 2020 2 3 4 2 2 3 a. Termination benefits for individual lay-offs at the Company’s initiative In accordance with the Collective Labour Contract concluded between the Company and the Union, when individual labour contract is terminated at the Company’s initiative, the Company will pay termination benefits to the employees depending on their period of service, as follows: Seniority 1 - 2 years 2 - 5 years 5 - 10 years 10 - 20 years More than 20 years No. of gross monthly average base salary at Company level 2 3 4 5 8 b. Termination benefits for collective lay-offs at the Company’s initiative For collective lay-offs, per the Collective labour contract, the Company will pay termination benefits to the employees depending on their period of service, as follows: Seniority 1 - 3 years 3 - 5 years 5 - 10 years 10 - 20 years More than 20 years No. of gross monthly average base salary at Company level 3 6 7 11 16 The above-mentioned stipulations do not apply to employees with individual labour contract concluded for a determined period. The above provisions do not apply to employees that obtained other higher cumulative salary compensation rights, provided by legal regulations regarding the Company’s reorganization and restructuring. Employees who are re-employed within the Company after layoff are not entitled to the above- mentioned benefits. 238 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)c. Termination benefits for voluntary redundancies In accordance with the Agreements signed between the Company and the Union and the Addendums to the Collective Labour Contract, in case the individual labour contract is terminated as voluntary redundancy from the employee, the Company pays termination benefits depending on the period to reach the standard retirement age, the period of service in the Company and the seniority. The number of gross monthly base salaries paid in 2020 as termination benefits varied between 9 and 23. In 2021, there was no longer an agreement in place for the voluntary redundancies. 14 Employee benefit expenses Average number of employees Number of employees at 31 December 2021 104 109 2020 107 120 2021 2020 Wages and salaries 31,429,153 29,896,689 Social security contributions 784,372 642,577 Meal tickets 442,500 379,780 Termination benefit for labour/mandate contracts 6,583,625 899,509 Total 39,239,650 31,818,555 The number or employees at 31 December 2021 includes also the 6 employees with mandate agreements. Termination benefits represent compensation payments in case of employees’ voluntary departure (see also Note 13 c) as well as management compensation in case of mandate contracts termination. Management remuneration is presented within Note 29 – Related parties. 15 Income tax In determining the amount of current and deferred tax, the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. The Company considers that the accounting records for taxes due are adequate for all open fiscal years, based on assessment made by management taking into account various factors, including the interpretation of tax legislation and previous experience. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the income tax expense in the period when such a determination is made. (i) Amounts recognised in profit or loss Deferred tax benefit Total benefit related to income tax 2021 (43,172) (43,172) 2020 (3,076,614) (3,076,614) 239 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)(ii) Amounts recognised in other comprehensive income 2021 2020 Before tax Tax benefit Net of tax Before tax Tax benefit Net of tax Revaluation of property, plant and equipment - - - 11,901,253 (3,059,897) 8,841,356 Re-measurement of defined benefit liability 269,825 (43,172) 226,653 104,482 (16,717) 87,765 Total 269,825 (43,172) 226,653 12,005,735 (3,076,614) 8,929,121 (iii) Reconciliation of effective tax rate 2021 2020 Profit before tax 321,776,712 295,301,922 Tax using Company’s domestic tax rate 16% 51,484,274 16% 47,248,308 Non-deductible expenses 3% 9,640,583 2% 5,540,066 Non-taxable income -17% (54,761,824) -13% (38,303,478) Deductible legal reserve -1% (2,574,214) -1% (2,362,415) Recognition of tax effect of previously unrecognised tax losses Other tax effects Total benefit related to income tax -1% 0% 0% (3,831,991) -6% (18,163,352) - 1% 2,964,257 (43,172) -1% (3,076,614) Non-taxable income represents dividend income in amount of RON 329,543,644 (2020: RON 214,969,717). (iv) Movement in deferred tax balances Balance at 31 December 2021 Net balance Recognised in other Deferred at 1 January in profit or comprehensive Deferred tax 2021 2021 loss income Net tax assets liabilities Recognised Property, plant and 3,681,453 58,089 - 3,739,542 - 3,739,542 equipment Employee benefits (1,829,942) (488,804) 43,172 (2,275,574) (2,275,574) (1,851,511) 387,543 - (1,463,968) (1,463,968) - (43,172) 43,172 - (3,739,542) 3,739,542 - - Tax loss carried forward Tax (assets)/ liabilities 240 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated) Balance at 31 December 2020 Net balance Recognised in other Deferred at 1 January in profit or comprehensive Deferred tax 2020 2020 loss income Net tax assets liabilities Recognised Property, plant and 2,188,192 (1,566,636) 3,059,897 3,681,453 - 3,681,453 equipment Employee benefits (1,356,886) (489,773) 16,717 (1,829,942) (1,829,942) - Tax loss carried forward (831,306) (1,020,205) - (1,851,511) (1,851,511) - Tax (assets)/ liabilities - (3,076,614) 3,076,614 - (3,681,453) 3,681,453 (v) Unrecognised deferred tax assets The Company has not recognized deferred tax assets in respect of the entire cumulated tax losses as it is not probable that future taxable profits will be available against which the Company can use the benefits therefrom. Tax losses 356,623,017 371,426,355 2021 2020 16 Trade receivables 31 December 2021 31 December 2020 Trade receivables, gross 582,938,825 582,495,101 Loss allowance (582,012,952) (582,083,147) Total trade receivables, net 925,873 411,954 Receivables from related parties are presented in Note 29. Trade receivables, gross, comprise: 31 December 2021 31 December 2020 Electricity receivables from clients in litigation, 493,474,169 493,018,184 insolvency or bankruptcy (mainly Oltchim, Transenergo) Late payment penalties from clients in litigation, 88,968,313 88,968,313 insolvency or bankruptcy (Oltchim) Other 496,343 508,604 Total trade receivables, gross 582,938,825 582,495,101 241 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated) The reconciliation between the opening balances and the closing balances of the impairment for trade receivables is as follows: Loss allowance 2021 2020 Balance as at 1 January 582,083,147 679,778,904 Loss allowance recognized Loss allowance used Decrease in loss allowance 2,220 - (72,415) 18 (41,527) (97,654,248) Balance as at 31 December 582,012,952 582,083,147 The ageing of trade receivables is presented in Note 28. Oltchim (a state-controlled company) was an important customer of Electrica S.A. until January 2012, when the Company transferred the contract to Electrica Furnizare S.A.. In January 2013, Oltchim entered into insolvency procedures and subsequently in May 2019 started the bankruptcy procedures. Due to the uncertainties regarding the recoverability of the amounts owed by this customer, the Company recognized in prior years a bad debt allowance for the entire amount receivable. During 2020, the Company adjusted the uncollected VAT in amount of RON 95,186,215 related to the doubtful receivables from Oltchim, based on the sentence of starting the bankruptcy procedures and the provisions of art. 287 of the Fiscal Code. Also during 2020, the Company adjusted the uncollected VAT related to the doubtful receivables from two other clients based on the sentences of starting the bankruptcy procedures and the provisions of art. 287 of the Fiscal Code, as follows: the amount of RON 707,624 related to CET Braila and the amount of RON 1,003,559 related to Electra Management & Supply. As the entire amount of RON 96,897,398 was recovered during 2020, by offsetting the VAT positions to be recovered with the payment position at the level of the VAT group to which the companies in the Electrica Group belong, the adjustment for impairment was reversed with the same amount. Loss allowances are determined according to IFRS 9 “Financial instruments” based on “expected credit loss” model. A significant part of the loss allowances refers to clients in litigation, insolvency or bankruptcy procedures, many of them being older than five years. The Company will derecognize these receivables together with the related allowances after the finalization of the bankruptcy process. These receivables were treated separately in computing the allowance according to IFRS 9. 17 Other receivables 31 December 2021 31 December 2020 Cash-pooling receivables 567,621,644 166,281,881 Interest receivable Other receivables 18,319,302 15,380,004 9,870,962 10,145,826 Bad debt allowance (11,046,264) (11,046,264) Total other receivables, net 584,765,644 180,761,447 242 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Cash-pooling receivables comprises the receivable of Electrica SA as at 31 December 2021 as cash pool leader in the two cash-pooling systems set up at Group level (Note 23 and Note 29). Interest receivable represents mainly interest to be received from related parties for the loans granted (Note 29). The reconciliation between the opening balances and the closing balances of the impairment for other receivables is as follows: Loss allowance 2021 2020 Balance as at 1 January 11,046,264 11,975,369 Loss allowance recognized Loss allowance used Decrease in loss allowance - - - - - (929,105) Balance as at 31 December 11,046,264 11,046,264 18 Cash and cash equivalents 31 December 2021 31 December 2020 Bank current accounts 3,042,170 18,418,340 Call deposits 2,715,802 175,066,480 Total cash and cash equivalents in the separate 5,757,972 193,484,820 statement of financial position Overdrafts used for cash management purposes (120,541,354) - Total cash and cash equivalents in the separate statement of cash flow (114,783,382) 193,484,820 Restricted cash – short-term - 320,000,000 On 16 October 2021, it was released the collateral deposits from BRD – Groupe Societe Generale following the repayments of the long term borrowings received from BRD – Groupe Societe Generale by the Company’s distribution subsidiaries (Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. and Societatea de Distributie a Energiei Electrice Muntenia Nord S.A., currently Distributie Energie Electrica Romania S.A.) in amount of RON 320,000,000. As at 31 December 2021, the overdraft amount was drawn from ING Bank N.V. overdraft facility to be used in the cash pooling system. The outstanding balance of the overdraft facility as at 31 December 2021 is of RON 120,541,354 (31 December 2020: Nil). 243 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)19 Property, plant and equipment The reconciliation between the initial balance and the final balance of property, plant and equipment in 2021 and 2020: was as follows: Land and land Vehicles, Construction improvement Buildings Equipment furniture and in progress Total office equipment Gross carrying amount Balance at 1 January 2020 37,164,672 21,118,592 250,959,169 783,366 4,692,392 314,718,191 Additions 32,235,368 1,905,508 285,216 520,751 54,230 35,001,073 Revaluation recognized in other comprehensive income, net Revaluation recognized in profit or loss, net Gross book value netted off against 6,880,612 5,020,641 166,490 - the accumulated - (890,671) depreciation at revaluation - - - - - - - - - 11,901,253 166,490 (890,671) Disposals (6,764,156) (147,779) (224,809,642) (129,119) (2,612,179) (234,462,875) Balance at 31 69,682,986 27,006,291 26,434,743 1,174,998 2,134,443 126,433,461 December 2020 Additions Reclassification to assets held to sale - - Disposals (302,732) - - - 205,413 50,460 4,282,864 4,538,737 (1,913,945) - (7,407,038) (6,244) - - (1,913,945) (7,716,014) Balance at 31 69,380,254 27,006,291 17,319,173 1,219,214 6,417,307 121,342,239 December 2021 Accumulated depreciation and impairment losses Balance at 1 January 2020 Depreciation - - 244 | 2021 ANNUAL REPORT ELECTRICA S.A. 615,437 150,041,093 307,601 2,134,443 153,098,574 299,307 10,714,327 119,810 - 11,133,444 SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Land and land Vehicles, Construction improvement Buildings Equipment furniture and in progress Total office equipment (24,073) (143,843,969) (129,120) 1,905,508 9,435,994 - (1,195,521) (890,671) - - - - - (143,997,162) 11,341,502 (1,195,521) - (890,671) 1,905,508 25,151,924 298,291 2,134,443 29,490,166 371,863 595,392 147,051 - - - (4,366,733) (6,133) (3,804,893) (1,141,954) - - - - - - 1,114,306 (4,372,866) (3,804,893) (1,141,954) 2,277,371 16,433,736 439,209 2,134,443 21,284,759 - - - - - - - - - - Accumulated depreciation of disposals Impairment of property, plant and equipment Reversal of impairment of property, plant and equipment, net Accumulated depreciation netted off against gross book value at revaluation Balance at 31 December 2020 Depreciation Accumulated depreciation of disposals Reversal of impairment of property, plant and equipment Reclassification to assets held for sale Balance at 31 December 2021 Net carrying amounts At 1 January 2020 37,164,672 20,503,155 100,918,076 475,765 2,557,949 161,619,617 At 31 December 2020 69,682,986 25,100,783 1,282,819 876,707 - 96,943,295 At 31 December 2021 69,380,254 24,728,920 885,437 780,005 4,282,864 100,057,480 245 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)As at 31 December 2021, the buildings and land include the administrative headquarter of the Company and the corresponding land, the plots of land over which the Company has obtained title deeds and the land and buildings acquired in 2020 from the subsidiary Servicii Energetice Muntenia S.A.. As at 31 December 2021, additions refer mainly to the refurbishment and modernization of the administrative headquarter of the Company. In 2021, following the return from producers of reading meters, as well as the repair of reading meters that appeared as faulty at the time when the Automatic Meter Reading was contributed in kind by Electrica SA to the share capital of its distribution subsidiaries in June 2020, it resulted a number of 882 reading meters at a net book value of RON 771,991 and fair value of RON 279,655 which the management of Electrica SA is committed to sell in the following period. On 28 May 2020, the Company acquired a plot of land and several buildings from Servicii Energetice Muntenia S.A. in the total amount of RON 33,772,570, of which land in amount of RON 31,867,062 and buildings in amount of RON 1,905,508. An additional amount of RON 368,306 representing taxes paid for the acquisition of the land was capitalized in the value of the land. The plot of land received according to the payment agreement is in surface of 15,844 sqm and the buildings are represented by 22 constructions in various stages of degradation, constructions for which the Company has recognized an impairment amounting to RON 1,905,508. In 2021, disposals from property, plant and equipment in the net amount of RON 302,732 refers to a plot of land which was contributed in kind by Electrica SA to the share capital of its subsidiary Electrica Furnizare S.A. In 2020, disposals from property, plant and equipment in the net amount of RON 90,465,713 refer mainly to the AMR system (Automatic Meter Reading) equipment consisting of electricity measuring equipment and 7 plots of land that were contributed in kind by Electrica SA to the share capital of its subsidiaries (SDEE Transilvania Nord S.A., SDEE Transilvania Sud S.A., SDEE Muntenia Nord S.A. and Electrica SERV S.A.), as follows: Month Subsidiary Assets transferred Net book value (RON) June 20 SDEE Muntenia Nord S.A. AMR equipment 16,521,690 June 20 SDEE Muntenia Nord S.A. 2 plots of land in surface of 28,696.79 sqm 1,497,132 June 20 SDEE Transilvania Nord S.A. AMR equipment 37,014,957 AMR license intangibles (see Note 21) 2,925,303 AMR construction in progress 763,741 June 20 SDEE Transilvania Sud S.A. AMR equipment 27,409,181 AMR construction in progress 1,803,638 May 20 Electrica Serv S.A. 5 plots of land in surface of 23,474.07 sqm 5,103,471 Total 93,039,113 As at 31 December 2021 the Company reversed an impairment loss in amount of RON 3,804,893 (31 December 2020: 1,195,521) for the equipment part of the AMR system which was written off or reclassified to held for sale. As at 31 December 2020, the Company performed the revaluation at fair value of tangible assets consisting of land and buildings. The revaluation was performed by an independent authorized valuer Darian DRS S.A.. Following the revaluation performed, the gain from the increase in value on the land and buildings was charged to Other Comprehensive Income in amount of RON 11,901,253 and in Profit or Loss in amount of RON 166,490. 246 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated) Measurement of fair value The Company’s land and buildings are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value measurements of the Company’s land and buildings as at 31 December 2020 were performed by Darian DRS S.A. an independent valuer not related to the Company. Darian DRS S.A. is member of the National Association of Authorised Romanian Valuers, and has appropriate qualifications and recent experience in the fair value measurement of properties in the relevant locations. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm’s length terms for similar properties, whenever possible and discounted cash-flows method. There has been no change to the valuation technique during the period between the present revaluation performed as at 31 December 2020 and the previous one, performed as at 31 December 2017. The following table shows the valuation techniques used in measuring fair values (Level 3), as well as the significant unobservable inputs used. Category Valuation technique unobservable inputs Significant Inter-relationship between key unobservable inputs and fair value measurement Land Market approach Adjustment for The estimated fair liquidity, location, size. value would increase/ The fair value is estimated based on selling price per square meter of land of similar characteristics (i.e. ownership, legal limitations, financing and selling conditions, location, physical and economical properties, and best use). The market price is mainly based on recent transactions. Buildings Market approach and discounted cash-flows (DCF) method Buildings were evaluated using the following methods, depending on the best use and the availability and credibility of available market information: Market approach The market approach is based on the selling price per square meter for buildings with similar characteristics(i.e. ownership, legal limitations, financing and selling conditions, (decrease) if: Adjustment for liquidity, location or size would be lower/(higher). Adjustment for liquidity, location or size would location, physical and economical Adjustment for be lower/(higher). properties, and best use)., adjusted liquidity, liquidity, location, size. location, size etc. The DCF method Occupancy rates were higher/(lower) The valuation model based on the DCF Occupancy rates (90%) Yield rates were lower/ method estimates the present value of net cash flows to be generated by a building Yield rates (between 9% and 10%) (higher) Annual rent per sqm taking into account occupancy rate and Annual rent per sqm was higher/(lower) annual rent. The discount rate estimation (between 2 and 10 EUR/ considers, inter alia, the quality of a building sqm), depending on and its location. location; 247 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)20 Intangible assets Intangible assets include mainly licenses and costs of implementation of the accounting system SAP and licenses for various software, as follows: Software and licenses Total Gross carrying amount Balance at 1 January 2020 8,886,791 8,886,791 Additions Disposals 29,175 29,175 (5,093,287) (5,093,287) Balance at 31 December 2020 3,822,679 3,822,679 Disposals (1,023,055) (1,023,055) Balance at 31 December 2021 2,799,624 2,799,624 Accumulated depreciation and impairment losses Balance at 1 January 2020 4,655,502 4,655,502 Amortisation 1,062,281 1,062,281 Accumulated amortization of disposals (2,167,984) (2,167,984) Balance at 31 December 2020 3,549,799 3,549,799 Amortisation 219,204 219,204 Accumulated amortization of disposals (1,023,055) (1,023,055) Balance at 31 December 2021 2,745,948 2,745,948 Net carrying amounts At 1 January 2020 4,231,289 4,231,289 At 31 December 2020 At 31 December 2021 272,880 53,676 272,880 53,676 248 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)21 Investments in subsidiaries The investments in subsidiaries are presented as follows: 31 December 2021 31 December 2020 Gross value Impairment Net Gross value Impairment Net Distributie Energie Electrica Romania S.A. 1,741,663,327 Electrica Furnizare S.A. 226,001,553 - - Electrica Serv 1,741,663,327 1,741,663,339 226,001,553 225,783,453 - - 1,741,663,339 225,783,453 S.A. 481,803,770 (164,368,925) 317,434,845 481,803,862 (164,368,956) 317,434,906 Servicii Energetice Oltenia S.A. (in bankruptcy) Servicii Energetice Moldova S.A. 82,033,220 (82,033,220) - 82,033,220 (82,033,220) - (in bankruptcy) 106,162,492 (106,162,492) - 106,162,492 (106,162,492) - Servicii Energetice Banat S.A. (in bankruptcy ) 43,761,094 (43,761,094) - 43,761,094 (43,761,094) - Servicii Energetice Dobrogea S.A. (in bankruptcy) 23,822,124 (23,822,124) - 23,822,124 (23,822,124) - Electrica Energie Productie S.A. 124,990 - 124,990 - - - Total 2,705,372,570 (420,147,855) 2,285,224,715 2,705,029,584 (420,147,886) 2,284,881,698 Changes in Company’s subsidiaries structure in 2021 Establishment of a new Subsidiary On 6 September 2021, is set up a new legal entity, Electrica Productie Energie S.A., organized as a joint stock company, in which Electrica SA holds a percentage of 99.9920% of the share capital and Electrica Serv S.A. holds a percentage of 0.0080% of the share capital. The object of activity is the production of electricity from renewable sources through the acquisition and development of projects, respectively the operation of electricity generation parks from renewable sources, cumulated with the development and operation of independent storage solutions that it intends to develop in the near future. 249 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Changes in Company’s subsidiaries structure in 2020 Merger of the three distribution companies On 27 May 2020, Electrica SA’s Board of Directors approved in principle the merger through absorption between Societatea de Distributie a Energiei Electrice Muntenia Nord S.A., Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. and Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., the absorbing entity being Societatea de Distributie a Energiei Electrice Transilvania Nord S.A.. On 14 October 2020, the Cluj Specialized Court admitted the request of SDEE Transilvania Nord S.A., as absorbing company, and the request of SDEE Transilvania Sud S.A. and SDEE Muntenia Nord S.A., as the absorbed companies, approved the merger and ordered the deregistration of the absorbed companies from the Trade Register. Therefore, the merger produces its effects starting with the effective date, 31 December 2020, when SDEE Transilvania Sud S.A. and SDEE Muntenia Nord S.A. as the absorbed entities ceased to exist, being dissolved without going into liquidation. Consequently, all of their assets and liabilities were transferred through the effect of the merger by absorption to SDEE Transilvania Nord S.A., as the absorbing entity, in exchange of the issuance of new shares in the share capital of SDEE Transilvania Nord S.A. in favour of the shareholder of the absorbed entities, namely Electrica SA. Thus, on 31 December 2020, Distributie Energie Electrica Romania SA, formed by the merger of the three former electricity distribution companies was recorded on the National Trade Register Office. Also, based on the Romanian Energy Regulatory Authority Decision no. 2461 dated 23 December 2020, the electricity distribution licenses granted by the regulator to the absorbed companies for the areas Muntenia Nord and Transilvania Sud were transferred to the absorbing company, Distributie Energie Electrica Romania, starting with 1 January 2021. Merger of the two energy services companies On 27 March 2020, Electrica SA’s Board of Directors approved in principle the merger through absorption between Electrica Serv S.A. and Servicii Energetice Muntenia S.A. and the participation of the companies to the merger, with Electrica Serv S.A. as absorbing company. On 17 September 2020, the VI Civil Section of the Bucharest Court admitted the request of Electrica Serv S.A., as absorbing company, and the request of Servicii Energetice Muntenia S.A., as the absorbed company, and ascertained the legality of the merger process and approved the registration with the Trade Register of the corresponding merger mentions. Therefore, the merger produces its effects starting with the effective date, 30 November 2020, when Servicii Energetice Muntenia S.A., as the absorbed entity, ceased to exist, being dissolved without going into liquidation. Consequently, all of its assets and liabilities were transferred through the effect of the merger by absorption to Electrica Serv S.A., as the absorbing entity, in exchange of the issuance of new shares in the share capital of Electrica Serv S.A. in favour of the shareholder of the absorbed entity, namely Electrica SA. Thus, starting with 1 December 2020, the merger between the aforementioned companies was finalized energy services will be carried out only under the umbrella of Electrica Serv.The registration on the National Trade Register Office took place on 2 December 2020, with effective date 30 November 2020. Both mergers that took place during 2020 consists only in reorganization of the subsidiaries and have no impact on the Company’s ownership, Electrica SA remaining the parent company with the same % of ownership. Movements in investments During 2021, Electrica SA has increased, its investments in Electrica Furnizare S.A. subsidiary, by in kind contribution to its share capital with one plot of land in surface of 335.20 mp for which it held property deeds with the amount of RON 218,100. The value of the assets contributed to the share capital of the subsidiary was established according to evaluation reports drawn up by the appointed valuation experts. 250 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)On 6 September 2021, is set up a new legal entity, Electrica Productie Energie S.A., organized as a joint stock company, in which Electrica SA, holds a number of 12,499 shares in amount of 124,990 RON representing 99.9920% of the share capital of Electrica Productie Energie S.A.. During 2020, Electrica SA has increased, its investments in its subsidiaries (Societatea de Distributie a Energiei Electrice Muntenia Nord S.A., Societatea de Distributie a Energiei Electrice Transilvania Nord S.A., Societatea de Distributie a Energiei Electrice Transilvania Sud S.A. and Electrica SERV S.A.), by in kind contribution to their share capital with plots of land for which it held property deeds and with the AMR system including AMR license, with the amount of RON 92,525,620. The value of the assets contributed to the share capital of the subsidiaries was established according to evaluation reports drawn up by the appointed valuation experts. On 18 December 2019, through decision no. 11 of the General Extraordinary Shareholders Meeting of Servicii Energetice Muntenia S.A., was approved the share capital reduction of Servicii Energetice Muntenia S.A. with the amount of RON 24,873,550 thorugh the reduction in the number of shares from 3,687,355 shares to 1,200,000 shares with a nominal value or RON/share 10 and recording a receivable in the same amount by the shareholder, Electrica S.A.. The share capital reduction was approved by the Bucharest Trade Register Office on 18 May 2020. Following the approval, on 28 May 2020, the receivable of Electrica S.A. was compensated with the debt from the acquisition of a plot of land an related buildings from Servicii Energetice Muntenia S.A.. As regard to Electrica Serv S.A., the Company has recognized an impairment in prior years, based on a valuation report prepared by an independent valuator and having as purpose the assessment of the recoverable value of the investment in Electrica Serv S.A.. As of 31 December 2021, the management has reassessed the recoverability of the net book value of the investment in Electrica Serv S.A. and the consistency of the impairment as compared to 31 December 2020, by taking into account the value of the net assets and the assets owned and concluded that there is no indication that the investment may be additionally impaired or that the impairment should be reversed. Due to the current situation of Electica Furnizare SA, management has assessed the recoverability of the net book value of the investment, by taking into account the cash flow projection and the measures taken to mitigate the risks of liquidity and concluded that there is no indication that the investment may be impaired. The main economic and financial indicators achieved by the Company’s subsidiaries on 31.12.2020 The main economic and financial indicators achieved by the Company’s subsidiaries as at 31 December 2020 (the last financial year for which the statutory financial statements were approved) are as follows: Indicators Share capital Total equity Distributie Energie Electrica Romania S.A. Electrica Serv S.A. Electrica Furnizare S.A. 1,405,204,790 52,495,780 62,873,860 4,917,103,286 382,977,290 363,487,366 Non-current assets 8,979,749,495 324,840,831 97,267,046 Current assets 700,915,480 123,188,247 1,117,019,905 Current liabilities 1,101,696,030 35,367,897 787,966,539 Provisions 148,747,621 11,083,379 28,717,184 Deferred revenue 2,085,457,919 18,827,041 1,967,197 Non-current liabilities 1,430,296,551 - 33,873,216 251 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)22 Investments in associates On 28 July 2021 and on 7 December 2021, Electrica SA concluded four agreements for the sale-purchase of shares in four project companies having as main object of activity the production of electricity from renewable sources. The sale-purchase agreements concluded, mention the fact that in the first stage Electrica SA acquires 30% of the share capital of the four companies, remaining that in the following stages, to acquire the remaining 70% of the share capital after the conditions provided in the sale-purchase agreements will be fulfilled. The four companies are as follows: - Crucea Power Park SRL, develops the wind project “Crucea Est”, with a projected installed capacity of 121 MW and a projected electricity storage capacity of 60 MWh (15 MW x 4h), located outside the Crucea area, Constanta County. The estimated purchase price for the “Crucea Est” wind project is 70 thousand EUR/MW for the aforementioned capacity, totalling the amount of 8,470 thousand EUR. On 28 July 2021, Electrica SA paid the amount of EUR 2,541 thousand representing 30% of the project value, respectively 30% of the shares of Crucea Power Park SRL. - Sunwind Energy SRL, develops the photovoltaic project “Satu Mare 2” with a designed installed capacity of 27 MW, located near Satu Mare city. The estimated purchase price for the photovoltaic project “Satu Mare 2” is 55 thousand EUR/MW for the aforementioned capacity, totalling the amount of 1,485 thousand EUR. On 28 July 2021, Electrica SA paid the amount of EUR 445.5 thousand representing 30% of the project value, respectively 30% of the shares of Sunwind Energy SRL. - New Trend Energy SRL, develops the photovoltaic project “Satu Mare 3”, with a projected capacity of 59 MW, located near Satu Mare city. The estimated purchase price for the photovoltaic project “Satu Mare 3” is 55 thousand EUR/MW for the aforementioned capacity, totalling the amount of 3,245 thousand EUR. On 28 July 2021, Electrica SA paid the amount of EUR 973.5 thousand representing 30% of the project value, respectively 30% of the shares of New Trend Energy SRL. - Foton Power Energy SRL, develops the photovoltaic project “Bihor 1”, with a projected capacity of 77.5 MW, located near Inand city, Bihor County. The estimated purchase price for the photovoltaic project “Bihor 1” is 55 thousand EUR/MW for the aforementioned capacity, totalling the amount of 4,262.5 thousand EUR. On 7 December 2021, Electrica SA paid the amount of EUR 1,279 thousand representing 30% of the project value, respectively 30% of the shares of Foton Power Energy SRL. Considering the holding percentage of 30%, as at 31 December 2021, the four entities are accounted for using the equity method in these separate financial statements as provided in the Company’s accounting policies in note 6. The cost of the investments at acquisition date, totalling the amount of RON 25,813,194 is detailed as follows: Crucea Power New Trend Sunwind Energy Park S.R.L. Energy S.R.L. S.R.L. Foton Power Energy S.R.L. Acquisition date 31.07.2021 31.07.2021 31.07.2021 31.12.2021 Percentage ownership and voting rights at acquisition 30% date Net assets at acquisition 30% 30% 30% date (241,682) (5,023) (5,055) (7,016) Company’s share of net assets Goodwill Cost of investment at (72,505) (1,507) (1,516) (2,105) 12,572,700 4,790,543 2,193,109 6,334,475 acquisition date 12,500,195 4,789,036 2,191,593 6,332,370 252 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Summarised financial information in respect of each of the Company’s associates is set out below: Crucea Power Park S.R.L. Sunwind Foton Power New Trend Energy S.R.L. Energy S.R.L. Energy S.R.L. 31.12.2021 31.12.2021 31.12.2021 31.12.2021 Non-current assets 7,077,834 248,925 160,968 Current assets 944,520 47,490 20,987 141,436 22,890 Non-current liabilities (6,904,114) (302,773) (190,152) (167,773) Current liabilities (1,364,020) (2,433) (650) Net assets (245,780) (8,791) (8,847) Reconciliation to carrying amounts: Opening net assets at acquisition date (241,682) (5,023) (5,055) Loss for the period (4,098) (3,768) (3,792) (3,569) (7,016) - - Closing net assets 31.12.2021 (245,780) (8,791) (8,847) (7,016) Reconciliation of the above summarised financial information to the carrying amount of the interest in associates recognised in the separate financial statements: Crucea Power Park New Trend Sunwind Energy S.R.L. Energy S.R.L. S.R.L. Foton Power Energy S.R.L. Closing net assets of associates 31.12.2021 (245,780) (8,791) (8,847) (7,016) Share in associates % 30% 30% 30% 30% Company’s share of net assets as at 31.12.2021 (73,734) (2,638) (2,654) (2,105) Goodwill 12,572,700 4,790,543 2,193,109 6,334,475 Carrying amount of interest in associate 31.12.2021 12,498,966 4,787,905 2,190,455 6,332,370 The share loss in amount of RON 3,498 for the period was recognized in the separate statement of profit and loss for the year ended as at 31 December 2021. 253 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)23 Loans granted to subsidiaries (i) Loans granted to subsidiaries – long term Loans granted to subsidiaries 31 December 2021 31 December 2020 Distributie Energie Electrica Romania S.A. 1,276,325,000 1,030,000,000 Total loans granted to subsidiaries – long term 1,276,325,000 1,030,000,000 The Company has entered into loan agreements as lender, as follows: • Loans granted in 2017: - Intragroup loan agreement with Societatea de Distributie a Energiei Electrice Muntenia Nord S.A. (currently Distributie Energie Electrica Romania S.A.) concluded in November 2017. Main provisions are: maximum loan amount: RON 150,000,000; Purpose of the loan: to finance the investment program of 2017; Interest rate: 2.79% per annum; Maturity: 84 months; Period allowed for disbursements: 12 months; Repayment in full at maturity; Reimbursement allowed in advance, but not earlier than the 12 months of the period of use. As at 31 December 2021, the outstanding balance is of RON 150,000,000 (31 December 2020: RON 150,000,000); - Intragroup loan agreement with Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. (currently Distributie Energie Electrica Romania S.A.) concluded in November 2017. Main provisions are: maximum loan amount: RON 200,000,000; Purpose of the loan: to finance the investment program of 2017; Interest rate: 2.79% per annum; Maturity: 84 months; Period allowed for disbursements: 12 months; Repayment in full at maturity; Reimbursement allowed in advance, but not earlier than the 12 months of the period of use. As at 31 December 2021, the outstanding balance is of RON 200,000,000 (31 December 2020: 200,000,000); - Intragroup loan agreement with Societatea de Distributie a Energiei Electrice Transilvania Sud S.A. (currently Distributie Energie Electrica Romania S.A.) concluded in November 2017. Main provisions are: maximum loan amount: RON 160,000,000; Purpose of the loan: to finance the investment program of 2017; Interest rate: 2.79% per annum; Maturity: 84 months; Period allowed for disbursements: 12 months; Repayment in full at maturity; Reimbursement allowed in advance, but not earlier than the 12 months of the period of use. As at 31 December 2021, the outstanding balance is of RON 160,000,000 (31 December 2020: RON 160,000,000). • Loans granted in 2018: - Intragroup loan agreement with Societatea de Distributie a Energiei Electrice Muntenia Nord S.A. (currently Distributie Energie Electrica Romania S.A.) concluded in April 2018. Main provisions are: maximum loan amount: RON 230,000,000; Purpose of the loan: to finance the investment program of 2018; Interest rate: 4.7% per annum; Maturity: 84 months; Period allowed for disbursements: 12 months; Repayment in full at maturity; Reimbursement allowed in advance, but not earlier than the 12 months of the period of use. As at 31 December 2021, the outstanding balance is of RON 230,000,000 (31 December 2020: RON 230,000,000); - Intragroup loan agreement with Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. (currently Distributie Energie Electrica Romania S.A.) concluded in April 2018. Main provisions are: maximum loan amount: RON 160,000,000; Purpose of the loan: to finance the investment program of 2018; Interest rate: 4.7% per annum; Maturity: 84 months; Period allowed for disbursements: 12 months; Repayment in full at maturity; Reimbursement allowed in advance, but not earlier than the 12 months of the period of use. As at 31 December 2021, the outstanding balance is of RON 160,000,000 (31 December 2020: RON 160,000,000); - Intragroup loan agreement with Societatea de Distributie a Energiei Electrice Transilvania Sud S.A. (currently Distributie Energie Electrica Romania S.A.) concluded in April 2018. Main provisions are: maximum loan amount: RON 130,000,000, Purpose of the loan: to finance the investment program of 2018, Interest rate: 4.7% per annum, Maturity: 84 months, Period allowed for disbursements: 12 months, Repayment in full at maturity; Reimbursement allowed in advance, but not earlier than the 12 months of the period of use. As at 31 December 2021, the outstanding balance is of RON 130,000,000 (31 December 2020: RON 130,000,000). 254 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)• Loans granted in 2021: - Intragroup loan agreement with Distributie Energie Electrica Romania S.A. concluded in October 2021. Main provisions are: maximum loan amount: RON 246,325,000, The purpose of granting this loan is the partial repayment of loans contracted from BRD in 2016 to finance the investment plan for the year 2016 which reached the maturity in October 2021, Interest rate: 3.51% per annum, Maturity: 96 months until 12.10.2029, Period allowed for disbursements: 12 months, Repayment in full at maturity; Reimbursement allowed in advance, but not earlier than the 12 months of the period of use. As at 31 December 2021, the outstanding balance is of RON 246,325,000. (ii) Loans granted to subsidiaries – short term Loans granted to subsidiaries 31 December 31 December 2021 2020 ELectrica Furnizare S.A. 30,000,000 Total loans granted to subsidiaries – short term 30,000,000 - - On 23.12.2021 was concluded an intragroup loan agreement with Electrica Furnizare S.A.. Main provisions are: maximum loan amount: RON 130,000,000, The purpose of granting this loan represents the financing of the short term working capital needs, Interest rate: ROBOR 1M + 0.23 % per annum, Maturity: 30 days until 23.01.2022 with possibility of extension. The total amount drawn was of RON 90,000,000 out of which on 28.12.2021 it was repaid the amount of RON 60,000,000. As at 31 December 2021, the outstanding balance is of RON 30,000,000. (iii) Multi-borrower credit agreements On 1 April 2019, between Banca Comerciala Romana, as lender and Societatea Energetica Electrica SA, as guarantor and borrower, together with its distribution subsidiaries (SDEE Muntenia Nord S.A., SDEE Transilvania Nord S.A. and SDEE Transilvania Sud S.A., currently Distributie Energie Electrica Romania S.A.) as borrowers, was concluded a contract for a multi-product revolving facility, as follows: Maximum loan amount: RON 125,000,000; Purpose of the loan: financing the current activity; Interest rate: 0.77% + ROBOR 1M p.a.; Initial maturity: 16 March 2020 and was extended with 1 year, until 16 March 2021 under the same terms and conditions. Repayment: in full, at maturity. At the maturity date the revolving facility has not been extended. On 16 April 2019, between BNP PARIBAS, as lender and Societatea Energetica Electrica SA, as guarantor and borrower, together with its subsidiaries, Electrica Furnizare S.A. and Electrica Serv S.A. as borrowers, was concluded a contract for a credit facility in the form of a credit line from the current accounts opened by borrowers to the lender, as follows: Maximum loan amount: RON 160,000,000 (maximum amount for Electrica SA is RON 10.000.000); Purpose of the loan: financing the current activity; Interest rate: 0.60% + ROBOR 1M p.a.; Initial maturity: 16 March 2020 and was extended, until 16 March 2022 under the same terms and conditions. Repayment: in full, at maturity. As at 31 December 2021, the outstanding balance of the facility for the Company is nill. (iv) Cash pooling system at Group level On 20 December 2019, between ING Bank N.V., Electrica SA and its subsidiaries were concluded two agreements for the implementation of two cash pooling schemes, as follows: • a first system involving Electrica SA, as cash pool leader and its distribution subsidiaries (Societatea de Distributie a Energiei Electrice Muntenia Nord S.A., Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. and Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., currently Distributie Energie Electrica Romania S.A.), as participants; The credit facility offered by the pool leader to each participant is up to the amount of RON 180,000,000 RON; The credit facility offered by each participant to the pool leader is up to the amount of RON 50,000,000; Interest rate: ROBOR 1M + 0.07% p.a. However, if the amounts drawn by the participants are covered both by the internal liquidity of Electrica SA, and by drawing from the credit line granted to Electrica SA, the amount of interest due by the participants to Electrica SA will be calculated using a weighted interest rate, calculated on the basis of the ROBOR Internal Rate 1M +0.07% p.a. and the ROBOR Bank Rate 1M + 0.8% p.a. The initial due date was 20.12.2020, the convention being automatically extended at the maturity of the bank facility agreement 28.01.2022; 255 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)• a second system involving Electrica SA, as cash pool leader and its subsidiaries, Electrica Furnizare S.A., Electrica Serv S.A., Servicii Energetice Muntenia S.A (currently absorbed by Electrica Serv S.A.), Electrica Energie Verde 1 SRL (starting with 30 December 2020) as participants; The credit facility offered by the participants to the pool leader is up to the amount of RON 180,000,000 for Electrica Furnizare S.A.; RON 10,000,000 for Electrica Energie Verde 1 SRL; RON 50,000,000 for Electrica Serv S.A.. As at 30 November 2020 was in place the convention in amount to RON 2,000,000 with Servicii Energetice Muntenia S.A. which was absorbed by Electrica Serv S.A. being integrated in the conventions limits applicable for Electrica SERV S.A.. The credit facility offered by the pool leader to the participants is up to the amount of RON 245.000.000 (31 December 2020: 30,000,000 RON) for Electrica Furnizare S.A.; RON 15,000,000 (31 December 2020: RON 15,000,000) for Electrica Energie Verde 1 SRL; RON 12,000,000 (31 December 2020: RON 10,000,000) in the case of Electrica Serv S.A.. As at 30 November 2020 was in place the convention in amount to RON 2,000,000 with Servicii Energetice Muntenia S.A. which was absorbed by Electrica Serv S.A. being integrated in the conventions limits applicable for Electrica SERV S.A. Interest rate: ROBOR 1M + 0.07% p.a. However, if the amounts drawn by the participants are covered both by the internal liquidity of Electrica SA, and by drawing from the credit line granted to Electrica SA, the amount of interest due by the participants to Electrica SA will be calculated using a weighted interest rate, calculated on the basis of the ROBOR Internal Rate 1M +0.07% p.a. and the ROBOR Bank Rate 1M + 0.8% p.a. The initial due date was 20.12.2020, the convention being automatically extended at the maturity of the bank facility agreement 28.01.2022; through which the bank will automatically transfer all available amounts existing at the end of each day in the current bank accounts of the participants to the master bank account of Electrica SA. In case the current bank accounts of the participants have a negative balance at the end of the day, the bank will transfer the necessary amounts from the master bank account of Electrica SA to the current bank accounts of the participants, so as at the end of each day the balance of the current bank accounts of the participants is nil. In case the balance of the master bank account of Electrica SA is not sufficient to cover the negative balance of the current bank accounts of the participants, the bank will make available the necessary funds from the overdraft facility that will be signed between the bank and Electrica SA. As of 31 December 2021, the credit facility has an outstanding balance of RON 120,541,354 (31 December 2020:0 RON). For the amounts drawn/transferred to the cash pooling systems between Electrica SA and the other participants, please refer to Note 29. 24 Capital and reserves (a) Share capital, share premium, gains and losses referring to share issue The issued share capital in nominal terms consists of 346,443,597 ordinary shares as at 31 December 2021 (31 December 2020: 346,443,597) with a nominal value of RON 10 per share. As of 4 July 2014, after the Initial Public Offering (“IPO”), the Company’s shares are listed on the Bucharest Stock Exchange and the Global Depositary Receipts are listed on the London Stock Exchange. The shares owned by the Company’s shareholders that are traded on the London Stock Exchange are the global depositary receipts (GDRs). A global depositary receipt represents four shares. The Bank of New York Mellon is the depositary bank for these securities. The GDRs’ weight in Electrica’s total share capital diminished following the Initial Public Offering, reaching a level of 0.7842% at the end of 2021 as compared to 10.17% at 4 July 2014. The holders of ordinary shares are entitled to receive dividends as declared, and are entitled to one vote per share in the shareholders’ meetings of the Company, except for the 6,890,593 shares purchased by the Company in July 2014 in order to stabilize the price. All shares rank equal and confer equal rights to the net assets of the Company, except for treasury shares. The Company recognizes changes in share capital only after their approval in the General Shareholders Meeting and their registration by the Trade Register. The contributions made by the shareholders which are not yet registered with the Trade Register at year end are recognized as pre-paid capital contributions from shareholders. After IPO privatization, the Company recognized an increase of share capital of RON 1,771,887,440 and a share premium of RON 171,128,062. The transaction costs of RON 68,078,885 were deducted from the share premium. Following the SPO that took place in November 2019, the share capital of Electrica SA was increased by in 256 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)kind and cash contribution, with the amount of RON 5,036,680, from the amount of RON 3,459,399,290 to the amount of RON 3,464,435,970, by issuing a number of 503,668 new nominative and dematerialized shares with a nominal value of 10 RON/share. The costs generated by the secondary public offering are in amount of RON 963,601. Also, the Company recorded gains referring to share issue of RON 2,185,519, resulting from the difference between the contribution value of the plots of land and their value recorded as pre-paid capital contributions in kind from shareholders. (b) Treasury shares reserve In July 2014, the Company purchased 5,206,593 ordinary shares and 421,000 Global Depositary Receipts, equivalent to 1,684,000 shares (totaling 6,890,593 shares). The total amount paid for acquiring the shares and Global Depositary Receipts was RON 75,372,435. (c) Revaluation reserves The reconciliation between opening and closing balance of the revaluation reserve is as follows: 2021 2020 Balance at 1 January 12,605,266 5,851,829 Revaluation of property, plant and equipment Deferred tax liability arising on revaluation of property, plant and equipment - - 11,901,253 (3,059,897) Release of revaluation reserve to retained earnings corresponding to depreciation and disposals of property, plant and equipment (207,619) (2,087,919) Balance at 31 December 12,397,647 12,605,266 (d) Legal reserves The Legal reserves are set up as 5% of the gross profit for the year, until the total legal reserves reach 20% of the paid-up nominal share capital of the Company, according to the legislation. These reserves are deductible for income tax purposes and are not distributable. As at 31 December 2021, the legal reserves were in amount of RON 228,156,226 (31 December 2020: RON 212,027,639). (e) Dividends The dividends distributed by the Company in 2021 and 2020 (from the statutory profits of preceding years) were as follows: Distributed dividends 247,873,693 246,108,017 2021 2020 On 28 April 2021, the General Shareholders Meeting of the Company approved the net distributable profit of 2020 as follows: • Dividends to be distributed to shareholders: RON 247,873,693; • Legal reserve (5% from 2020 pre-tax profit): RON 14,935,950; • Other reserves: RON 35,568,893. 257 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated) On 29 April 2020, the General Shareholders Meeting of the Company approved the distribution of dividends as follows: • Dividends to be distributed to shareholders from the net distributable profit for the financial year ended as of 31 December 2019 (100%): RON 244,885,112; • Dividends to be distributed to shareholders from the net gain obtained from the Secondary Public Offering, after covering the loss associated with the Secondary Public Offering costs: RON 1,221,918; • Dividends to be distributed from “Other reserves”: RON 987. The total amount of dividends to be distributed to shareholders in 2021 was of RON 247,873,693 (2020: RON 246,108,017). The value of dividends per share distributed to the shareholders of the Company were: RON 0.73 per share (2020: RON 0.7248 per share). When calculating the dividend per share, the Company’s repurchased own shares (6,890,593 shares) were not considered as outstanding shares and are deducted from the total number of issued ordinary shares. Out of the dividends declared by the Company of RON 247,873,693 (2020: RON 246,108,017), the dividends paid were RON 247,258,353 (2020: RON 245,779,724), the remaining difference represents dividends uncollected by the shareholders. 25 Trade payables 31 December 2021 31 December 2020 Suppliers of goods and services 3,402,954 7,028,982 Capital expenditure suppliers Suppliers – related parties (Note 29) 464,293 167,109 103,421 67,529 Total 4,034,356 7,199,932 Payables to related parties are detailed in Note 29. 26 Other payables 31 December 2021 31 December 2020 Current Non-current Current Non-current Cash-pooling payables 41,885,081 Dividends payable 1,715,724 VAT under settlement 18,302 Other payables to the state budget Other liabilities 6,659 396,702 Total 44,022,468 - - - - - - 34,110,477 1,705,199 14,391 6,782 197,565 36,034,414 - - - - - - Cash-pooling payables comprises the payable of Electrica as at 31 December 2021 as cash pool leader in the two cash-pooling systems set up at Group level (Note 23 and Note 29). Other liabilities include mainly guarantees and sundry creditors. Dividends payable represent the dividends uncollected by the shareholders. 258 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)In August 2020, the VAT group was established at the Electrica level in accordance with the provisions of Article 269 (9) of the Tax Code and the rules for its application, National Agency for Fiscal Administration (“NAFA”) Order No. 3006/2016 on the approval of the Procedure for the implementation and administration of the single tax group. The members of the VAT group are Electrica SA and its subsidiaries. The representative of the group is Electrica Furnizare S.A., having all the reporting and VAT record obligations stipulated by the legal regulations in force for the whole group. 27 Provisions Balance at 1 January 2021 Provisions recognized Provisions utilized Provisions reversed Balance at 31 December 2021 Litigations and other risks 5,818,263 81,627 (1,126,255) (535,521) 4,238,114 The provisions in amount of RON 2,568,765 as at 31 December 2020 (31 December 2020: RON 4,140,732) refer to the benefits granted upon the termination of executive directors’ and management key personnel contracts in the form of a non-compete clause. 28 Financial instruments - fair values and risk management (a) Accounting classifications and fair values According to IFRS 9, financial assets are measured at amortized cost as they are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. The Company assessed that the carrying amount is a reasonable approximation of the fair value for the financial assets and financial liabilities. (b) Financial risk management The Company has exposure to the following risks arising from financial instruments: • credit risk; • liquidity risk; • market risk. These risks are further explained and detailed. (i) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from the Company’s receivables from customers, cash- pooling debtors, cash and cash equivalents, restricted cash and bank deposits. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. In the past, the Company had a high credit risk mainly from State-owned companies. Until 2012, the Company had a concentration of credit risk with Oltchim, company that went into bankruptcy procedures during 2019 (see Note 16). Cash and bank deposits are placed in financial institutions, which are considered to have good creditworthiness. The carrying amount of financial assets represents the maximum credit exposure. 259 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Trade receivables The Company establishes an allowance for impairment that represents the amount of expected credit losses, calculated based on the expected loss rates. Impairment The following table provides information about the exposure to credit risk and expected credit losses for trade receivables for customers as at 31 December 2021: 31 December 2021 Expected loss rates Net trade Credit (“ECL”) Gross value Lifetime ECL receivables impaired Neither past due nor impaired 0% 843,715 Past due 1-30 days Past due 31-60 days Past due 61-90 days 0% 0% 0% 78,107 - - - - - - 843,715 78,107 - - No No No No Past due more than 90 days 100% 582,017,003 (582,012,952) 4,051 Yes Total 582,938,825 (582,012,952) 925,873 Allowances for impairment are referring mainly to Oltchim in amount of RON 518,938,151 (31 December 2020: RON 518,938,151), Transenergo Com in amount of RON 37,088,264 (31 December 2020: RON 37,088,830) and to Fidelis Energy in amount of RON 11,220,386 (31 December 2020: RON 11,220,386). Please see Note 16. An analysis of trade receivables from the point of view of the credit risk and expected credit losses for trade receivables for customers as at 31 December 2020, is as follows: 31 December 2020 Expected loss Net trade Credit rates (“ECL”) Gross value Lifetime ECL receivables impaired Neither past due nor impaired 0% 411,954 Past due 1-30 days Past due 31-60 days Past due 61-90 days 0% 0% 0% - - - - - - - Past due more than 90 days 100% 582,083,147 (582,083,147) 411,954 - - - - No No No No Yes Total 582,495,101 (582,083,147) 411,954 (ii) Liquidity risk Liquidity risk is the risk that the Company might encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company has significant cash and cash equivalents so that no liquidity risk is experienced. The Company aims to maintain the level of its cash and cash equivalents at an amount in excess of expected cash outflows on financial liabilities. The Company also monitors the level of expected cash inflows on trade receivables together with expected cash outflows on trade and other payables. 260 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Exposure to liquidity risk The following table presents the contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest accrued. Carrying amount Total less than 1 year 1-2 years 2-5 years Contractual cash flows Financial liabilities 31 December 2021 Bank overdrafts 120,541,354 120,541,354 120,541,354 Trade payables 4,034,356 4,034,356 4,034,356 - - - - Lease liability 513,274 513,274 394,818 62,647 55,809 Total 125,088,984 125,088,984 124,970,528 62,647 55,809 31 December 2020 Trade payables 7,199,932 7,199,932 7,199,932 - - Lease liability 1,454,297 1,454,297 968,556 365,389 120,352 Total 8,654,229 8,654,229 8,168,488 365,389 120,352 (iii) Market risk Market risk is the risk that changes in market prices – such as foreign exchange rates, interest rates – will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. Currency risk The Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and the functional currency of the Company. The functional currency of the Company is the Romanian Leu (RON). The currencies in which these transactions are primarily denominated are RON and EUR. The Company also has deposits and bank accounts denominated in foreign currency (EUR). The Company’s policy is to use the local currency in its transactions as far as practically possible. The Company does not use derivative or hedging instruments. Exposure to currency risk The summary of the quantitative data about the Company’s exposure to currency risk is as follows: 31 December 2021 31 December 2020 In RON denominated in EUR denominated in EUR Cash and cash equivalents 262,918 898,585 Lease liability (509,598) (1,454,297) Net statement of financial position exposure (246,680) (555,712) 261 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated) The following significant exchange rates have been applied during the year: RON EUR 1 Sensitivity analysis Average rate Year-end spot rate 2021 4,9204 2020 2021 2020 4,8371 4,9481 4,8694 A reasonable possible appreciation (depreciation) of the EUR against RON at 31 December would have affected the measurement of financial instruments denominated in a foreign currency, the profit before tax and the equity, respectively, by the amounts shown below. The analysis assumes that all other variables, in especially the interest rates, remain constant and ignores the impact of forecasted sales and purchases. Effect 31 December 2021 Profit before tax Appreciation Depreciation EUR (5% movement) (12,334) 12,334 31 December 2020 EUR (5% movement) (27,786) 27,786 Interest rate risk The Company exposures to interest rates on financial assets and financial liabilities are detailed below. The Company is exposed to the interest rate benchmark ROBOR, which is the interest rate on the Romanian interbank market. The Company does not have in place hedging contracts for interest rate. Exposure to interest rate risk The interest rate profile of the Company’s interest-bearing financial instruments is as follows: Fixed-rate instruments Financial assets Call deposits Restricted cash 31 December 2021 31 December 2020 2,715,802 175,066,480 - 320,000,000 2,715,802 495,066,480 262 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated) 31 December 2021 31 December 2020 Variable-rate instruments Financial assets Cash pooling receivables (Note 23, Note 29) 567,621,644 166,281,881 Financial liabilities Cash pooling payables (Note 23, Note 29) (41,885,081) (34,110,477) Bank overdrafts (Note 18) (120,541,354) - Lease liability Total (513,274) (1,454,297) 404,681,935 130,717,107 Fair value sensitivity analysis for fixed-rate instruments The Company does not account for any fixed-rate financial assets or financial liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable-rate instruments A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased (decreased) profit before tax by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. Profit before tax 50 bp increase 50 bp decrease 31 December 2021 Variable-rate instruments 2,023,410 (2,023,410) 31 December 2020 Variable-rate instruments 653,586 (653,586) 29 Related parties (a) Main shareholders As at 31 December 2021 and 31 December 2020, the major shareholder of Societatea Energetica Electrica S.A. is the Romanian State, represented by the Ministry of Energy with a share of ownership of 48.79% from the share capital. (b) Management and administrators’ compensation 2021 2020 Management compensation 6,833,228 6,042,695 Executive management compensation refers to both the managers with mandate contract and those with labour contract, concluded with Electrica SA. This also includes the benefits in the event of the termination of mandate contracts for executive directors. The benefits paid for the termination of mandate contracts in 2021 was in amount of RON 3,136,800 (2020: Nil). 263 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated) Compensations granted to the members of the Board of Directors were as follows: 2021 2020 Members of Board of Directors 3,887,254 2,468,177 Electrica SA’s Board of Directors comprises 7 members. According to the remuneration policy approved by the General Meeting of Shareholders that took place 28 April 2021, the annual number of paid sessions is limited to twelve for Board of Directors meetings and to six for each of the committees. Additional committee meetings can be organized only in exceptional situations, upon the Chairs’ decision, who are responsible to efficiently organize the agenda and activity. However, only one such additional meeting shall be remunerated, for each committee. No loans were granted to managers and administrators in 2021 and 2020. (c) Transactions with the Group companies (i) Balance of receivables and payables from/ to Group companies: Trade Receivables/Trade Payables Receivables from Payables to 31 December 2021 31 December 2020 31 December 2021 31 December 2020 Distributie Energie Electrica Romania S.A. 474,458 449,299 62,709 Electrica Serv S.A. 7,828 Electrica Furnizare S.A. 1,767 29,515 29,790 - 104,400 67,529 - - Total 484,053 508,604 167,109 67,529 As at 31 December 2021 and 31 December 2020, receivables from electricity distribution subsidiaries include mainly other services reinvoiced. Loans granted/interest receivable: Loans granted to Interest receivable from 31 December 2021 31 December 2020 31 December 2021 31 December 2020 Distributie Energie Electrica Romania S.A. 1,276,325,000 1,030,000,000 15,439,712 13,518,378 Electrica Furnizare S.A. 30,000,000 - 30,400 - Total 1,306,325,000 1,030,000,000 15,470,112 13,518,378 264 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Cash-pooling system 31 December 2021: Amount drawn contributed to Amount by participants by participants Net position Interest receivable 31 December 31 December 31 December 31 December 2021 2021 2021 2021 Distributie Energie Electrica Romania S.A. 311,620,794 Electrica Furnizare S.A. 245,000,000 Electrica Energie Verde 1 S.R.L. 11,000,850 - - - 311,620,794 602,305 245,000,000 540,414 11,000,850 24,345 Electrica Serv S.A. - (41,873,420) (41,873,420) (105,541) Total 567,621,644 (41,873,420) 525,748,224 1,061,523 Cash-pooling system 31 December 2020: Amount drawn contributed to Amount by participants by participants Net position Interest receivable/ (payable) 31 December 31 December 31 December 31 December 2020 2020 2020 2020 Distributie Energie Electrica Romania S.A. 151,282,223 - 151,282,223 304,831 Electrica Furnizare S.A. - (200,121) (200,121) (171,143) Electrica Energie Verde 1 S.R.L. 14,999,506 - 14,999,506 862 Electrica Serv S.A. 152 (33,910,356) (33,910,204) (60,591) Total 166,281,881 (34,110,477) 132,171,404 73,959 (ii) Transactions with subsidiaries Sales/Purchases Sales in 2021 Sales in 2020 Purchases Purchases in 2021 in 2020 Distributie Energie Electrica Romania S.A. 740,664 - 131,742 - Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. (**) Societatea de Distributie a Energiei Electrice Transilvania Sud S.A. (**) - - 3,457,185 670,475 - - 27,736 26,494 265 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Sales in 2021 Sales in 2020 Purchases Purchases in 2021 in 2020 Societatea de Distributie a Energiei Electrice Muntenia Nord S.A. (**) - 273,181 - - Electrica Furnizare S.A. 14,471 448,821 434,915 407,020 Electrica Serv S.A. 16,909 264,591 - - Total 772,044 5,114,253 566,657 461,250 Starting with July 2020, the Company no longer provides services related to the AMR system as the system was transferred as a contribution in kind to the share capital of its distribution subsidiaries (SDEE Transilvania Nord S.A., SDEE Transilvania Sud S.A., SDEE Muntenia Nord S.A.). (**) On 31 December 2020, Distributie Energie Electrica Romania SA was formed by the merger of the three former electricity distribution companies (Societatea de Distributie a Energiei Electrice Transilvania Nord S.A.; Societatea de Distributie a Energiei Electrice Transilvania Sud S.A.; Societatea de Distributie a Energiei Electrice Muntenia Nord S.A.). (Note 21) Reimbursements / Borrowings Borrowings Borrowings Reimbursements Reimbursements granted in 2021 granted in 2020 in 2021 in 2020 Distributie Energie Electrica 246,325,000 Romania S.A. Electrica Furnizare S.A. 90,000,000 Servicii Energetice - Muntenia S.A. (*) Total 336,325,000 - - - - - - 60,000,000 - 5,500,000 60,000,000 5,500,000 * Transactions presented are carried out with Servicii Energetice Muntenia S.A. for the period 01.01.2020-30.11.2020, until the effective date of merger by absorption with Electrica Serv S.A.. On 28 May 2020, the Company signed an agreement with Servicii Energetice Muntenia S.A. in which the Company acquired a plot of land in amount of RON 31,867,062 and buildings in amount of RON 1,905,508, the amounts being compensated, among others, with the settlement of the loan granted to subsidiary in amount of RON 5,500,000. Interest income for loans Interest income 2021 Interest income 2020 Distributie Energie Electrica Romania S.A. 41,127,404 - Societatea de Distributie a Energiei Electrice Muntenia Nord S.A. (**) Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. (**) Societatea de Distributie a Energiei Electrice Transilvania Sud S.A. (**) - - - 15,244,917 13,318,333 10,750,233 266 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Interest income 2021 Interest income 2020 Electrica Furnizare S.A. 30,400 - Servicii Energetice Muntenia S.A.(*) - 101,750 Total 41,157,804 39,415,233 (*) Transactions presented are carried out with Servicii Energetice Muntenia S.A. for the period 01.01.2020-30.11.2020, until the effective date of merger by absorption with Electrica Serv S.A.. (**) On 31 December 2020, Distributie Energie Electrica Romania SA was formed by the merger of the three former electricity distribution companies (Societatea de Distributie a Energiei Electrice Transilvania Nord S.A.; Societatea de Distributie a Energiei Electrice Transilvania Sud S.A.; Societatea de Distributie a Energiei Electrice Muntenia Nord S.A.). (Note 21) Dividends income Dividends income Dividends income 2021 2020 Electrica Furnizare S.A. 233,293,563 124,015,481 Distributie Energie Electrica Romania S.A. 96,250,081 - Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. (**) Societatea de Distributie a Energiei Electrice Transilvania Sud S.A. (**) Societatea de Distributie a Energiei Electrice Muntenia Nord S.A. (**) Electrica Serv S.A. Total - - - - 54,065,512 6,935,492 2,705,803 27,247,429 329,543,644 214,969,717 (**) On 31 December 2020, Distributie Energie Electrica Romania SA was formed by the merger of the three former electricity distribution companies (Societatea de Distributie a Energiei Electrice Transilvania Nord S.A.; Societatea de Distributie a Energiei Electrice Transilvania Sud S.A.; Societatea de Distributie a Energiei Electrice Muntenia Nord S.A.). (Note 21) Cash pooling system – interest income/(expense) Interest income/ Interest income/ (expense) (expense) 2021 Distributie Energie Electrica Romania S.A. 3,344,942 Societatea de Distributie a Energiei Electrice Transilvania Sud S.A.(**) Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. (**) - - 2020 - 2,132,479 1,256,996 267 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)Electrica Energie Verde 1 S.R.L. Interest income/ Interest income/ (expense) (expense) 2021 223,675 2020 862 Electrica Serv S.A. (808,125) (673,516) Servicii Energetice Muntenia S.A.(*) - 14 Electrica Furnizare S.A. 1,193,403 (1,282,859) Total 3,953,895 2,002,706 * Transactions presented are carried out with Servicii Energetice Muntenia S.A. for the period 01.01.2020-30.11.2020, until the effective date of merger by absorption with Electrica Serv S.A.. ** On 31 December 2020, Distributie Energie Electrica Romania SA was formed by the merger of the three former electricity distribution companies (Societatea de Distributie a Energiei Electrice Transilvania Nord S.A.; Societatea de Distributie a Energiei Electrice Transilvania Sud S.A.; Societatea de Distributie a Energiei Electrice Muntenia Nord S.A.). (Note 21) (d) Transactions with companies in which the state has control or significant influence The Company had sale and purchase transactions mainly with the following companies: Supplier ANCOM Others Total Client Oltchim CET Braila Total Client Oltchim CET Braila Total Purchases (without VAT) Balance (including VAT) 2021 2020 31 December 2021 31 December 2020 605,644 542,560 139,758 42,062 30,877 910 647,706 573,437 140,668 90,871 860 91,731 Sales Balance, gross Allowance (without VAT) (including VAT) (including VAT) Balance, net 2021 31 December 2021 - - - - - - 518,938,151 (518,938,151) 3,118,411 (3,118,411) 522,056,562 (522,056,562) Sales Balance, gross Allowance (without VAT) (including VAT) (including VAT) 2020 31 December 2020 518,938,151 (518,938,151) 3,118,411 (3,118,411) 522,056,562 (522,056,562) Balance, net - - - - - - 268 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)30 Contingencies (a) Contingent Assets Litigation with National Agency of Fiscal Administration (“NAFA”) In May 2017, after the revision of Electica’s tax record, the tax authorities issued an enforcement order for additional interest and penalties of RON 39,248,818 as a result of certain tax record allocations for prior periods. Electrica SA filed a complaint with the tax authorities against the enforcement order and also filed a legal action to suspend the enforced payment by the resolution of the above mentioned complaint. These additional interest and penalties are related to the prior enforcement orders received by Electrica SA in the prior years of RON 72,460,387. In February 2018, Electrica SA has obtained a favourable Supreme Court ruling in one of the litigations with NAFA, which essentially maintains into force a prior Court of Appeal decision, which is favourable for the Company. Based on this Court ruling and in conjunction with all other litigations with NAFA on the same historical amounts, for taxes including penalties and interest, as well as based on analysis with internal and external lawyers, the management best estimate is that Electrica SA shall be able to obtain favourable Court rulings with the end result of no future cash outflows. Also, in April 2019, Electrica SA obtained another favourable decision pronounced by the Bucharest Court of Appeal in one of the disputes with NAFA, whereby the court obliges NAFA to correct the evidence of the tax receivables so that it reflects the extinction by prescription of the amount of RON 16,915,950 representing income tax as well as all the related accessories. This decision forms the object of the appeal declared by NAFA, with the Court term on 17 November 2021, at the High Court of Cassation and Justice. Morevover, in November 2019, Electrica SA obtained one more favourable decision pronounced by the Bucharest Court of Appeal in one of the disputes with NAFA, whereby the court obliges NAFA to cancel the administrative documents issued regarding the accessory fiscal obligations in the amount of RON 39,248,818 and ordered the refund/ compensation of the amount and the correction of the tax record. Against this decision, NAFA filed an appeal, registered to the High Court of Cassation and Justice, with the Court term on 23 March 2022. Thus, as at 31 December 2019 Company did not recognize a provision in this respect, taking into account that management’s best estimate is that the Company shall be able to obtain a favourable final Court decision in this case. During 2020, the Company recognized revenues from indemnities in the amount of RON 12,827,435 (Note 9) related to the amounts collected during the year by Electrica SA from NAFA as a result of the final civil sentences obtained in Court, which ordered the cancellation of certain enforceable titles as well as fiscal decisions. Moreover, as at 31 December 2020, the Company no longer has a contingent liability of RON 39,248,818 in respect to the additional interest and penalties to be paid by Electrica SA to NAFA, as it applied for the cancellation of ancillary fiscal obligations stipulated by the Government Emergency Ordinance no. 69/2020. Through NAFA’s decision no. 2738/22.12.2020, the cancellation of the ancillary fiscal obligations mentioned above was approved, based in articles IX-XI of the Government Emergency Ordinance no. 69/2020. In April 2021, Electrica SA filed a new action in contradiction with NAFA - file no. 2444/2/2021, pending before the Bucharest Court of Appeal, trail term 16.03.2022, having as object the obligation of NAFA to: correct Electrica SA ‚s tax record in order to reflect the right to a refund for the amount of RON 5,860,080, amount paid by Electrica SA in 2020 for the purpose of applying for the cancellation of ancillary fiscal obligations stipulated by the Government Emergency Ordinance no. 69/2020, of an additional amount of RON 817,521 which was not reflected in the payment made by NAFA in 2020, and payment of legal interest in amount of RON 5,161,492 computed for the amount returned by NAFA in 2020. (b) Contingent Liabilities Other litigations and claims The Company is involved in a series of litigations and claims (ie. with SAPE, ANRE, NAFA, Court of Accounts, claims for damages, claims over land titles, labour related litigations etc.). As summarised in Note 27, the Company set-up provisions for the litigations or claims for which the management assessed as probable the outflow of resources embodying economic benefits due to low chances of favourable outcomes of those litigations or disputes. The Company does not present information in the financial statements 269 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)and did not set-up provisions for items for which the management assessed as remote the possibility of outflow of economic benefits. The Company discloses, if the case, information on the most significant items of litigations or claims for which the Company did not set-up provisions as they relate to possible obligations that arise from past events whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events not wholly within the control of the Company (ie. litigations for which different inconsistent sentences were issued by the Courts, or litigations which are in early stages and no preliminary ruling was issued so far). (c) Fiscal environment Tax audits are frequent in Romania, consisting of detailed verifications of the accounting records of taxpayers. Such audits sometimes take place after months, even years, from the date liabilities are established. Consequently, companies may be found liable for significant taxes and fines. Moreover, tax legislation is subject to frequent changes and the authorities sometimes demonstrate inconsistency in interpretation of the law. Income tax statements may be subject to revision and corrections made by tax authorities, generally for a five- year period after they are filled in. The company was the subject of fiscal inspections until 31 March 2013. The Company may incur expenses related to tax adjustments related to previous years as a result of tax authorities inspections and disputes. The Company’s management considers that adequate reserves were established in the separate financial statements for all the significant fiscal obligations, however a risk that the tax authorities could take different positions still persists. (d) Transfer prices According to the fiscal legislation, the fiscal assessment for a transaction with affiliates is based on the market price concept for that transaction. Based on this concept, the transfer prices must be adjusted in order to reflect the market prices that would have been established between the entities having no affiliation relation and are acting independently, based on “normal market conditions”. Likely, verifications of the transfer prices may be done in the future by the fiscal authorities, in order to establish if these prices are respecting the principle of the “normal market conditions” and that the tax base for Romanian taxpayer is not distorted. 31 Commitments (a) Contractual commitments Contractual commitments as at 31 December 2021 and 31 December 2020 are as follows: 31 December 2021 31 December 2020 Purchase of property, plant and equipment, intangible assets and other maintenance and repairs services 22,568 4,859,511 Purchase of investments 60,484,337 - Total 60,506,905 4,859,511 (b) Investment program The investment program approved for the year 2022 is as follows: Investment program The capital expenditures actually incurred may differ from the ones planned. 2022 10,633,000 270 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)(c) Guarantees and pledges The Company has a facility for issuing bank guarantee letters in the amount of RON 200,000,000 contracted from Unicredit Bank and which is used at Group level, out of which the used amount as of 31 December 2021 is RON 161,394,730 (31 December 2020: RON 171,870,774). The maturity of the facility is on 31 December 2029. Also, the Company issued parenting guarantees for Electrica Furnizare S.A. in total amount of 203,464,672. 32 Subsequent events Overdraft facility granted by ING Bank N.V On 28 January 2022, the credit facility contract signed between Electrica SA and ING Bank N.V. for an overdraft facility of up to RON 210,000,000 thousand for financing the current activity, in the context of the liquidity concentration operations set-up within the Group and having the following characteristics: Interest rate: ROBOR 1M+0.8% p.a., was extended until 27.01.2023. Geopolitical tensions In February 2022 global geopolitical tensions significantly escalated following military interventions in Ukraine by the Russian Federation. As a result of these escalations, economic uncertainties in energy and capital markets have increased with global energy prices expected to be highly volatile for the foreseeable future. As at the date of this report, management is unable to reliably estimate the effects on the Groups financial outlook and cannot exclude adverse consequence on the business, operations, and financial condition. Management believes it is taking all the necessary measures to support the sustainability and growth of the Group’s business in the current circumstances and that the judgements taken in these financial statements remain appropriate. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 271 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE SEPARATE FINANCIAL STATEMENTSAS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in RON, if not otherwise stated)STANDALONE AUDIT REPORT Tower -98 Sector 1, 010735 Tel: +40 21 222 16 61 Fax: +40 21 222 16 60 INDEPENDENT AUDITOR’S REPORT To the Shareholders, SOCIETATEA ENERGETICA ELECTRICA S.A. Report on the Audit of the Separate Financial Statements Opinion 1. 2. 3. t December 31, 2021, and the separate statement of ch Net assets/ Equity RON 4,123,508,400 321,819,884 RON year then ended in accordance with Order 1 Basis for Opinion 4. 5. Accountants’ Code of Ethics for Professional Accountants (IESBA Code), in accordance with ethical requirements relevant for nce we have e Numele . tructurii legale a 274 | 2021 ANNUAL REPORT ELECTRICA S.A. STANDALONE AUDIT REPORT Going Concern How our audit have been prepared on the going concern basis. The key judgement leading to this conclusion are set out in that note. • the subsidiaries of the Company operate in the cedures: challenged the management and the Board of Directors • We considered whether at the date of this report rom the Romanian enacted which could adversely impact the subsidiaries of the capping and ceiling mechanism; ay be further laws forthcoming twelve months the subsidiaries will need to • We have assessed the Group’s subsidiaries and covenant waivers and newly made available. • We considered the Group’s subsidiaries and Company’s The ability of the subsidiaries of the Group to going concer stabilizing of the regulatory regime on • We assessed the adequacy of the disclosure of the basis energy prices as described in note 6, which provides an appropriate margin to support servicing of the subsidiaries of the Group and judgements adopted; - Administrator’s Report 6. the Administrator’s report statements and our auditor’s report thereon, nor the non- report. ng presented in a separate In 1, our responsibility is separate financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. With respect to the Administrator’s report, we read it and report if this has been prepared, in all material respects, in accordance with the provisions of Ministry of Public Finance Order no. 2844/2016, with subsequent amendments, for the 20. With respect to the Remunera – 107. 275 | 2021 ANNUAL REPORT ELECTRICA S.A. STANDALONE AUDIT REPORT a) b) c) have been prepa the administrators’ report has been prepared, in all material respects, in accordance with the provisions of Ministry of Public Finance Order no. 2844/2016, with – 107 ovisions of Law Moreover, based on our knowledge and understanding concerning the Company and its environment gained during the audit material misstatement of this Administrator’s report . We have nothing to report in this regard. 1, we are required t s 7. Financial 8. In preparing the separate f unless management either intends so. 9. 10. Separate Financial Statements material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, 11. As part of an audit in accordance with ISAs, we exercise professional throughout the audit. We also: error, design and perform audit procedures responsive to thos Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose Company's internal control. disclosures made by management. 276 | 2021 ANNUAL REPORT ELECTRICA S.A. STANDALONE AUDIT REPORT such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to a going concern. achieves fair presenta 12. 13. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements audit. to bear on our independence, and where applicable, related safeguards. 14. report because the adverse Report on Other Legal and Regulatory Requirements 15. We have been appointed by the General Assembly of Shareholders on April 28, 2021 4 1. The uninterrupted total mber 31, 2018 and December 31, 2021. have retained our independence from the No non-audit services Razvan Ungureanu, Statutory Auditor For signature, please refer to the original signed Romanian version. Registered in the Electronic Public Register of Financial Auditors and Audit Firms under AF 4866 On behalf of: DELOITTE AUDIT SRL Registered in the Electronic Public Register of Financial Auditors and Audit Firms under FA 25 The Mark Building, 84-98 and 100- Bucharest, Romania March 1, 2022 th Floor, District 1 277 | 2021 ANNUAL REPORT ELECTRICA S.A. STANDALONE AUDIT REPORT Consolidated Financial Statements as at and for the year ended 31 December 2021 prepared in accordance with International Financial Reporting Standards as adopted by the European Union CONTENTS Consolidated statement of financial position Consolidated statement of profit or loss Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Basis of preparation 1. Reporting entity and general information 2. Basis of accounting 3. Functional and presentation currency 4. Use of judgments and estimates Accounting policies 291 300 300 301 302 5. Basis of measurement 6. Significant accounting policies 302 7. Adoption of new and revised standards 314 Performance for the year 8. Operating segments 9. Revenue 10. Electricity and natural gas purchased 11. Other income and expenses 12. Net finance result 13. Earnings per share Employee benefits 14. Short-term employee benefits 15. Post-employment and other long-term employee benefits 16. Employee benefit expenses Income taxes 17. Income taxes Assets 18. Trade receivables 19. Other receivables 20. Cash and cash equivalents 21. Assets held for sale 22. Inventories 23. Property, plant and equipment 24. Intangible assets 25. Investments in associates 316 321 321 322 323 323 324 324 329 329 332 334 334 335 335 336 340 343 280 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION Equity and liabilities 26. Capital and reserves 27. Trade payables 28. Other payables 29. Provisions 30. Long-term bank borrowings Financial instruments 31. Financial instruments - Fair values and risk management Other information 32. Acquisition of subsidiaries 33. Related parties 34. Contingencies 35. Commitments 36. Subsequent events 345 347 347 348 348 352 356 358 361 363 364 281 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION Note 31 December 2021 31 December 2020 ASSETS Non-current assets Intangible assets related to concession arrangements Other intangible assets Property, plant and equipment Investments in associates Deferred tax assets Other non-current assets Right of use assets 24 24 23 25 17 5,514,557 5,455,185 8,983 505,419 25,810 83,531 1,661 20,945 7,213 508,130 - 19,666 1,173 27,091 Total non-current assets 6,160,906 6,018,458 1,344,619 1,029,775 48,600 Current assets Trade receivables 18 Other receivables 19 Inventories Prepayments Cash and cash equivalents 20 221,830 Restricted cash 20 - Current income tax receivable Assets held for sale 21 22 72,958 5,034 23,777 5,412 32,460 570,929 320,000 70,066 2,817 1,837 15,476 Total current assets 1,722,230 2,043,360 Total assets 7,883,136 8,061,818 282 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Note 31 December 2021 31 December 2020 EQUITY AND LIABILITIES Equity Share capital Share premium Treasury shares reserve Pre-paid capital contributions in kind from shareholders Revaluation reserve Legal reserves Retained earnings Total equity attributable to the owners of the Company 26 26 26 26 26 26 3,464,436 3,464,436 103,049 (75,372) 7 102,829 408,405 103,049 (75,372) 7 116,372 392,276 950,228 1,759,506 4,953,582 5,760,274 Total equity 4,953,582 5,760,274 283 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Note 31 December 2021 31 December 2020 Liabilities Non-current liabilities Lease liability – long term Deferred tax liabilities Employee benefits Other payables Long-term bank borrowings 17 15 28 30 12,102 161,926 149,177 32,732 118,756 Total non-current liabilities 474,693 Current liabilities Lease liability – short term Bank overdrafts Trade payables Other payables Deferred revenue Employee benefits Provisions 20 27 28 14,15 29 9,442 627,402 891,335 9,662 101,102 34,922 16,875 177,787 143,876 33,873 400,296 772,707 10,747 164,966 607,195 5,629 92,292 19,238 9,211 271,263 240,946 Current income tax liability - Current portion of long-term bank borrowings 30 509,733 378,613 Total current liabilities 2,454,861 1,528,837 Total liabilities 2,929,554 2,301,544 Total equity and liabilities 7,883,136 8,061,818 The accompanying notes are an integral part of these consolidated financial statements. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 284 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Revenue Other income Note 2021 2020 9 11 7,178,864 6,501,100 195,771 165,422 Electricity and natural gas purchased 10 (5,694,724) (3,905,705) Construction costs related to concession agreements Employee benefits 24 16 (485,813) (675,967) (802,676) (774,501) Repairs, maintenance and materials (102,356) (104,577) Depreciation and amortization 23,24 (480,830) (490,918) (Impairment)/ Reversal of impairment for trade and other receivables, net 18,19 (70,616) 62,167 Other operating expenses 11 (343,147) (325,104) Operating (loss)/ profit (605,527) 451,917 Gain from bargain purchase of subsidiaries 32 - Finance income Finance costs Net finance cost Share of results of associates (Loss)/ Profit before tax Income tax benefit/(expense) 12 12 25 17 7,477 9,651 2,647 (29,528) (26,736) (26,881) (17,085) (3) - (632,411) 442,309 79,529 (54,766) (Loss)/ Profit for the year (552,882) 387,543 (Loss)/ Profit for the year attributable to: - owners of the Company (552,882) 387,543 (Loss)/ Profit for the year (552,882) 387,543 (Loss)/Earnings per share Basic and diluted (loss)/earnings per share (RON) 13 (1.63) 1.14 The accompanying notes are an integral part of these consolidated financial statements. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 285 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF PROFIT OR LOSSFOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in THOUSAND RON, if not otherwise stated) (Loss)/ Profit for the year (552,882) 387,543 Note 2021 2020 Other comprehensive income Items that will not be reclassified to profit or loss Re-measurements of the defined benefit liability 15 (5,891) (7,152) Tax related to re-measurements of the defined benefit liability Revaluation of property, plant and equipment Tax related to revaluation of property, plant and equipment 17 23 17 (45) 572 - - 43,823 (7,931) Other comprehensive (loss)/income, net of tax (5,936) 29,312 Total comprehensive (loss)/income (558,818) 416,855 Total comprehensive (loss)/income attributable to: - owners of the Company (558,818) 416,855 Total comprehensive (loss)/income (558,818) 416,855 The accompanying notes are an integral part of these consolidated financial statements. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 286 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in THOUSAND RON, if not otherwise stated) , 4 7 2 0 6 7 5 , , 6 0 5 9 5 7 , 1 6 7 2 2 9 3 , 2 7 3 6 1 1 , 7 ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 6 3 4 4 6 4 3 , l a t o T y t i u q e i d e n a t e R i s g n n r a e l a g e L s e v r e s e r l a t i p a c d a p - e r P i e v r e s e r m o r f d n k n i i l s r e d o h e r a h s e v r e s e r n o i t a u a v e R l s n o i t u b i r t n o c s e r a h s y r u s a e r T e r a h S i m u m e r p e r a h S l a t i p a c e t o N ) 2 8 8 2 5 5 ( , ) 2 8 8 2 5 5 ( , ) 6 3 9 5 ( , ) 6 3 9 5 ( , , ) 8 1 8 8 5 5 ( , ) 8 1 8 8 5 5 ( ) 4 7 8 7 4 2 ( , ) 4 7 8 7 4 2 ( , ) 4 7 8 7 4 2 ( , ) 4 7 8 7 4 2 ( , - - - - - - - ) 9 2 1 , 6 1 ( 9 2 1 , 6 1 3 4 5 3 1 , - ) 3 4 5 3 1 ( , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6 2 6 2 6 2 , 2 8 5 3 5 9 4 , , 8 2 2 0 5 9 , 5 0 4 8 0 4 9 2 8 2 0 1 , 7 ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 6 3 4 4 6 4 3 , 1 2 0 2 y r a u n a J 1 t a e c n a a B l e m o c n i e v i s n e h e r p m o C r a e y e h t r o f s s o L s s o l e v i s n e h e r p m o c r e h t O s s o l e v i s n e h e r p m o c l a t o T s r e n w o h t i w s n o i t c a s n a r T y n a p m o C e h t f o s n o i t u b i r t s i d d n a s n o i t u b i r t n o C s r e n w o h t i w s n o i t c a s n a r t l a t o T y n a p m o C e h t f o y n a p m o C e h t f o s r e n w o y t i u q e n i s e g n a h c r e h t O s e v r e s e r l a g e l f o p u t e S e v r e s e r n o i t a u a v e r l f o r e f s n a r T o t f o e u d i s g n n r a e i d e n a t e r o t s l a s o p s i d d n a i n o i t a c e r p e d i t n e m p u q e d n a t n a p l , y t r e p o r p 1 2 0 2 r e b m e c e D 1 3 t a e c n a a B l 287 | 2021 ANNUAL REPORT ELECTRICA S.A. e h t o t s d n e d v D i i SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in THOUSAND RON, if not otherwise stated) , 7 2 5 9 8 5 5 , , 9 0 9 7 3 6 , 1 3 3 8 , 1 7 3 5 6 6 7 8 , 7 ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 6 3 4 4 6 4 3 , l a t o T y t i u q e i d e n a t e R i s g n n r a e l a g e L s e v r e s e r l a t i p a c d a p - e r P i e v r e s e r m o r f d n k n i i l s r e d o h e r a h s e v r e s e r n o i t a u a v e R l s n o i t u b i r t n o c s e r a h s y r u s a e r T e r a h S i m u m e r p e r a h S l a t i p a c e t o N 3 4 5 7 8 3 , 3 4 5 7 8 3 , 2 1 3 9 2 , ) 0 8 5 6 ( , 5 5 8 6 1 4 , , 3 6 9 0 8 3 ) 8 0 1 , 6 4 2 ( ) 8 0 1 , 6 4 2 ( ) 8 0 1 , 6 4 2 ( ) 8 0 1 , 6 4 2 ( - - - - - - - ) 3 4 4 0 2 ( , 3 4 4 0 2 , 5 8 1 , 7 - ) 5 8 1 , 7 ( - 2 9 8 5 3 , 2 9 8 5 3 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6 2 6 2 6 2 , 4 7 2 0 6 7 5 , , 6 0 5 9 5 7 , 1 6 7 2 2 9 3 , 2 7 3 6 1 1 , 7 ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 6 3 4 4 6 4 3 , 0 2 0 2 y r a u n a J 1 t a e c n a a B l e m o c n i e v i s n e h e r p m o C r a e y e h t r o f s s o L s s o l e v i s n e h e r p m o c r e h t O s s o l e v i s n e h e r p m o c l a t o T s r e n w o h t i w s n o i t c a s n a r T y n a p m o C e h t f o s n o i t u b i r t s i d d n a s n o i t u b i r t n o C 288 | 2021 ANNUAL REPORT ELECTRICA S.A. s r e n w o h t i w s n o i t c a s n a r t l a t o T y n a p m o C e h t f o y n a p m o C e h t f o s r e n w o y t i u q e n i s e g n a h c r e h t O s e v r e s e r l a g e l f o p u t e S e v r e s e r n o i t a u a v e r l f o r e f s n a r T o t f o e u d i s g n n r a e i d e n a t e r o t s l a s o p s i d d n a i n o i t a c e r p e d e h t o t s d n e d v D i i i t n e m p u q e d n a t n a p l , y t r e p o r p 0 2 0 2 r e b m e c e D 1 3 t a e c n a a B l l a e u g n a r F u r d n a x e A n a f e t S l r e c fi f O l i a i c n a n F f e h C i . s t n e m e t a t s l i a c n a n fi d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i i n a e r a s e t o n g n y n a p m o c c a e h T r e c fi f O e v i t u c e x E f e h C i u c s e p o P a n i r o C a t e g r o e G 2 2 0 2 y r a u r b e F 8 2 SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in THOUSAND RON, if not otherwise stated) Note 2021 2020 Cash flows from operating activities (Loss)/Profit for the year (552,882) 387,543 Adjustments for: Depreciation Amortisation 23 24 21,118 27,850 459,712 463,068 (Reversal of impairment)/Impairment of property, plant and equipment and intangible assets, net 23,24 (3,942) 3,025 Loss/(Gain) on disposal of property, plant and equipment and intangible assets 23,24 2,651 (285) Impairment/(Reversal of impairment) of trade and other receivables, net 18,19 70,616 (62,167) Impairment/(Reversal of impairment) of assets held for sale Change in provisions, net Net finance cost Changes due to employee benefits Gain from bargain acquisition of subsidiaries Share of loss of associates Income tax (benefit)/expense 21 29 12 14 32 25 17 Changes in: Trade receivables Other receivables Prepayments Inventories Trade payables Other payables Employee benefits Deferred revenue 646 15,684 (188) (320) 26,881 17,085 5,054 - - 3 (7,477) - (79,529) 54,766 (33,988) 882,900 (391,401) (87,249) (22,904) 3,837 (2,217) 593 (2,892) 4,307 274,825 (76,010) 32,504 (2,331) 3,166 14,735 4,033 (1,289) Cash (used in)/generated from operating activities (138,874) 739,493 Interest paid Income tax paid Net cash flow (used in)/generated from operating activities (24,110) (19,953) (31,366) (51,672) (194,350) 667,868 289 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 (All amounts are in THOUSAND RON, if not otherwise stated) Cash flows from investing activities Payments for purchases of property, plant and equipment Payments for network construction Note 2021 2020 (10,490) (6,730) related to concession agreements 24 (483,808) (637,996) Payments for purchase of other intangible assets (6,306) (2,226) Proceeds from sale of property, plant and equipment Proceeds from deposits with maturity of 3 months or longer Interest received Net cash effect from gain of control 1,469 5,012 - 66,471 1,765 8,962 over the acquired subsidiary 32 - 5,577 Payment for acquisition of investment in associate 25 (25,813) - Payment for acquisition of subsidiaries Restricted cash Net cash flow used in investing activities Cash flows from financing activities Proceeds from long-term bank borrowings Repayment of long-term bank loans 32 20 30 30 - (8,006) 320,000 - (203,183) (568,936) 234,690 354,383 (385,851) (29,130) Payment of lease liabilities (15,226) (29,324) Dividends paid 26 (247,615) (245,780) Net cash (used in)/ generated from financing activities (414,002) 50,149 Net (decrease)/ increase in cash and cash equivalents (811,535) 149,081 Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 20 20 405,963 256,882 (405,572) 405,963 The accompanying notes are an integral part of these consolidated financial statements. The non-cash transactions are disclosed in Note 20. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 290 | 2021 ANNUAL REPORT ELECTRICA S.A. 1 Reporting entity and general information (a) General information about the Group These financial statements are the consolidated financial statements of Societatea Energetica Electrica S.A. (“the Company” or “Electrica SA”) and its subsidiaries (together “the Group”) as at and for the year ended 31 December 2021. The registered office of the Company is no. 9, Grigore Alexandrescu Street, District 1, Bucharest, Romania. The Company has sole registration code 13267221 and Trade Register registration number J40/7425/2000. As at 31 December 2021 and 31 December 2020, the major shareholder of Societatea Energetica Electrica S.A. is the Romanian State, represented by the Ministry of Energy with a share of ownership of 48.79% from the share capital. The Company’s shares are listed on the Bucharest Stock Exchange and the global depository receipts (“GDRs”) are listed on the London Stock Exchange. The shares traded on the London Stock Exchange are the global depositary receipts, one global depositary receipt representing four shares. The Bank of New York Mellon is the depositary bank for these securities. As at 31 December 2021 and 31 December 2020, the Company’s subsidiaries are the following: Subsidiary Activity registration Sole Head Office % shareholding as % shareholding as at 31 at 31 December December 2020 code 2021 Electricity distribution in geographical Distributie areas Energie Electrica Transilvania 14476722 C l u j - 99.99999929% 100% Romania S.A. Nord, (“DEER”) Transilvania Napoca Sud and Muntenia Nord Electrica Electricity and Furnizare S.A. natural gas 28909028 Bucuresti 99.9998415011992% 99.9998409513906% supply Electrica Serv energy sector Services in the S.A. Electrica Producție Energie S.A Electrica Energie Verde 1 SRL* (“EEV1” – formerly Long Bridge Milenium SRL) 17329505 Bucuresti 99.99998095% 100% (maintenance, repairs, construction) Electricity generation 44854129 Bucuresti 99.9920% - Electricity generation 19157481 Bucuresti 100%* 100%* *indirect shareholding - Electrica Energie Verde 1 SRL is 100% owned by the subsidiary Electrica Furnizare S.A. 291 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)As at 31 December 2021, the Company’s associates are the following: Associate Activity code Head Office at 31 December Sole registration % shareholding as 2021 Crucea Power Park SRL Sunwind Energy SRL New Trend Energy SRL Electricity generation Electricity generation Electricity generation 25242042 Constanta 30% 42910478 Constanta 30% 42921590 Constanta 30% Foton Power Energy S.R.L. Electricity 43652555 Constanta 30% generation As of December 31, 2020, the Company had no investments in associates. Changes in Group structure during 2021 Establishment of a new Group’s subsidiary On 6 September 2021, the Group set up a new legal entity, Electrica Productie Energie S.A., organized as a joint stock company, in which Electrica SA holds a percentage of 99.9920% of the share capital and Electrica Serv S.A. holds a percentage of 0.0080% of the share capital. The Company’s activity is the production of electricity from renewable sources through the acquisition and development of projects, respectively the operation of electricity generation parks from renewable sources, alongside with the development and operation of independent storage solutions that it intends to develop in the near future. Investment in associates On 28 July 2021, Electrica SA signed, as buyer, with Mr. Emanuel Muntmark and with Mr. Catalin Mrejeru, as sellers, three share sale and purchase agreements (“SPAs”) in three project companies having as their main activity the production of energy from renewable sources, as follows: i. A SPA regarding the acquisition of 100% of the shares held by the sellers in Crucea Power Park SRL for an estimated total price of EUR 8,470,000. The final price will be determined by adjusting the total estimated price depending on the production capacity, respectively the authorized storage, based on a contractually established calculation formula. Crucea Power Park SRL develops the wind project “Crucea Est”, with a designed installed capacity of 121 MW and a projected electricity storage capacity of 60 MWh (15 MW x 4h), located outside the Crucea commune, Constanta county. ii. A SPA regarding the acquisition of 100% of the shares held by the sellers in Sunwind Energy SRL for a total estimated price of EUR 1,485,000. The final price will be determined by adjusting the total estimated price according to the authorized production capacity, based on a contractually established calculation formula. Sunwind Energy SRL is developing the photovoltaic project „Satu Mare 2” with a designed installed capacity of 27 MW, located near Satu Mare. iii. A SPA regarding the acquisition of 100% of the shares held by the sellers in New Trend Energy SRL for a total estimated price of EUR 3,245,000. The final price will be determined by adjusting the total estimated price according to the authorized production capacity, based on a contractually established calculation formula. New Trend Energy SRL develops the photovoltaic project „Satu Mare 3”, with a designed capacity of 59 MW, located near Satu Mare The SPAs stipulate the acquisition by Electrica SA of shares in the three companies and the payment of the corresponding price in four stages, structured according to the development stage of the project and the fulfilment of certain conditions precedent. The total estimated value of the transaction is EUR 13,200 thousand. The sale purchase agreements concluded as of 28 July 2021 stipulate that at the initial stage, the Group acquires 30% of the share capital of the three Companies, and in the subsequent stages the remaining 70% of the share capital provided that certain conditions stipulated in the sale purchase agreements are met. 292 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)On 7 December 2021, Electrica SA, signed, as buyer, with Mr. Emanuel Muntmark and with Mr. Catalin Mrejeru, as sellers, a share sales and purchase agreement (“SPAs”) in one project company having as their main activity the production of energy from renewable sources. The SPA concerns the acquisition of 100% of the shares of Foton Power Energy S.R.L, wholly owned by the sellers, for an estimated total price of EUR 4,262,500. The final price will be determined by adjusting the total estimated price depending on the production capacity, respectively the authorized storage, based on a contractually established calculation formula. Foton Power Energy S.R.L. develops the photovoltaic project “Bihor 1”, with a designed installed capacity of 77.5 MW, located near Oradea city. The SPAs stipulate the acquisition by Electrica SA of company’s shares and the payment of the corresponding price in four stages, structured according to the development stage of the project and the fulfilment of certain conditions. As of 31 December 2021, with a 30% shareholding in each company, the Group has a significant influence over the four companies, which are presented as investments in associates. The acquisition value of the 30% shares is RON 25,813 thousand. (for further details please refer to Note 25). The establishment of the new subsidiary together with the investments in the four entities are part of the Electrica Group’s strategy which aims to develop a portfolio of electricity generation capacities from renewable sources (wind and photovoltaic) with a cumulative capacity of 400 MW, in parallel with electricity storage capacities with an installed capacity of up to 100 MW. Changes in Group structure during 2020 Merger of the three distribution companies within the Group On 27 May 2020, Electrica SA’s Board of Directors approved in principle the merger through absorption between Societatea de Distributie a Energiei Electrice Muntenia Nord S.A., Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. and Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., the absorbing entity being Societatea de Distributie a Energiei Electrice Transilvania Nord S.A.. Therefore, the merger produces its effects starting with the effective date, 31 December 2020, when SDEE Transilvania Sud S.A. and SDEE Muntenia Nord S.A. as the absorbed entities ceased to exist, being dissolved without going into liquidation. Consequently, all of their assets and liabilities were transferred through the effect of the merger by absorption to SDEE Transilvania Nord S.A., as the absorbing entity, in exchange of the issuance of new shares in the share capital of SDEE Transilvania Nord S.A. in favour of the shareholder of the absorbed entities, namely Electrica SA. Thus, on 31 December 2020, Distributie Energie Electrica Romania SA, formed by the merger of the three former electricity distribution companies was recorded on the National Trade Register Office. Also, based on the Romanian Energy Regulatory Authority decision no. 2461 dated 23 December 2020, the electricity distribution licenses granted by the regulator to the absorbed companies for the areas Muntenia Nord and Transilvania Sud were transferred to the absorbing company, Distributie Energie Electrica Romania S.A., starting with 1 January 2021. Merger of the two energy services companies within the Group On 27 March 2020, Electrica SA’s Board of Directors approved in principle the merger through absorption between Electrica Serv S.A. and Servicii Energetice Muntenia S.A. and the participation of the companies to the merger, with Electrica Serv S.A. as absorbing company. Therefore, the merger produces its effects starting with the effective date, 30 November 2020, when Servicii Energetice Muntenia S.A., as the absorbed entity, ceased to exist, being dissolved without going into liquidation. Consequently, all of its assets and liabilities were transferred through the effect of the merger by absorption to Electrica Serv S.A., as the absorbing entity, in exchange of the issuance of new shares in the share capital of Electrica Serv S.A. in favour of the shareholder of the absorbed entity, namely Electrica SA. 293 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Thus, starting with 1 December 2020, the merger between the aforementioned companies was finalised and the Group’s energy services will be carried out only under the umbrella of Electrica Serv. The registration on the National Trade Register Office took place on 2 December 2020, with effective date 30 November 2020. Both mergers that took place within the Group during 2020 consist only in reorganization of the subsidiaries and have no impact on the consolidated financial statements, Electrica SA remaining the parent company with the same % of ownership. Acquisition of a photovoltaic park On 23 June 2020, Electrica Furnizare S.A. signed a sale purchase agreement for the acquisition of 100% of the share capital of Long Bridge Milenium SRL, a company that owns a photovoltaic park located in Stanesti, Giurgiu County, with an installed capacity of MW 7.5 (operational power limited at MW 6.8). The photovoltaic park was built between October 2012 and January 2013 and has been delivering electricity into the national grid since February 2013. Closing of the transaction and the transfer of shares’ ownership to Electrica Furnizare S.A. took place on 31 August 2020. On 24 November 2020, the company Long Bridge Milenium SRL changed its name to Electrica Energie Verde 1 SRL. Group’s main activities The main activities of the Group include operation and construction of electricity distribution networks and electricity and natural gas supply to final consumer as well as energy production from renewable sources. The Group is the electricity distribution operator and the main electricity supplier in Muntenia Nord area (Prahova, Buzau, Dambovita, Braila, Galati and Vrancea counties), Transilvania Nord area (Cluj, Maramures, Satu Mare, Salaj, Bihor and BistritaNasaud counties) and Transilvania Sud area (Brasov, Alba, Sibiu, Mures, Harghita and Covasna counties), operating with transformation station and 0.4 kV to 110 kV power lines. The Company’s distribution subsidiary, Distributie Energie Electrica Romania S.A. which resulted from the merger through absorption of the three distribution subsidiaries Societatea de Distributie a Energiei Electrice Transilvania Nord S.A., Societatea de Distributie a Energiei Electrice Muntenia Nord S.A. and Societatea de Distributie a Energiei Electrice Transilvania Sud S.A. now operates electric lines in 18 counties, from three geographical areas of the country, representing 40.7% of the Romanian territory, and serves over 3.8 million users. It invoices the electricity distribution service to electricity suppliers (mainly to Electrica Furnizare S.A. subsidiary) which further invoices the electricity consumption to final consumers. Electrica Furnizare S.A. is active on both the competitive market and as the supplier of last resort for aprox. 3.1 million clients (defined as supplier designated by the regulatory authority to deliver the universal service of electricity supply under specific regulated conditions) in Muntenia Nord, Transilvania Nord and Transilvania Sud areas. According to the regulations issued by the National Authority for Energy Regulation (“ANRE”), the suppliers of last resort have the obligation to ensure electricity supply to final consumers which have not exercised their eligibility right – the right to choose their electricity supplier (hereinafter named captive consumers). Starting from 1 January 2021, as a result of the changes in the regulatory framework, Electrica Furnizare S.A. is designated as supplier of last resort (“SoLR”) at national level, continuing to supply the existing consumers in the universal service regime, but also with the possibility to take over in the supply of last resort regime the consumers who are left without a supplier from any network area on the Romanian territory. At the same time, Electrica Furnizare S.A. is also designated as SoLR for natural gas at national level, but only with the possibility of taking over the consumers left without a supplier. Through the acquisition of the new subsidiary Electrica Energie Verde 1 S.R.L. (formerly Long Bridge Milenium S.R.L.) as of 31 August 2020, establishment of a new legal entity Electrica Productie Energie S.A. and also the four shares sales and purchase agreements in four project companies having as main activity the production of energy from renewable sources the Group entered on the electricity generation segment, in particular from renewable sources. Electrica Energie Verde 1 S.R.L. is a producer of electricity from renewable sources, operating a photovoltaic park in Stanesti, Giurgiu county, with an installed capacity of MW 7.5 (operating capacity limited MW to 6.8). In 2021 the operation of the plant was continuous, with no significant events leading to production shutdowns, 294 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)producing in total MWh 9,767 (2020: MWh 10,131). According to Law no. 220/2008 and based on the accreditation issued by ANRE, Stanesti park receives a number of 6 green certificates (“GC”) for each MWh produced and delivered, of which until 2020, 4 GC were issued for trading and 2 GC were postponed (the amendment is introduced by Law no. 184/2018). The postponed green certificates will be reinserted starting from 1 January 2021, in equal monthly tranches until 31 December 2030. (b) Regulations in the energy sector Regulatory environment The activity in the energy sector is regulated by the Romanian Energy Regulatory Authority. Some of the main responsibilities of ANRE are to approve prices and tariffs and to issue substantiation methodologies used to set regulated prices and tariffs. Electricity distribution Electricity distribution is a monopoly activity. Distribution tariffs are established through a “tariff basket-price cap” mechanism. The methodology for setting the electricity distribution tariffs applicable for the years ended 2020 and 2021 was approved by ANRE Order no. 169/2018 with subsequent amendments (Orders no. 193/2018, no. 60/2019, no. 203/2019, no. 207/2020, no. 3/2021, no. 101/2021). The specific distribution tariffs applicable for the three voltage levels (high, medium and low) by regions, for the years 2020 and 2021, were approved by ANRE orders as follows (RON/MWh, presented cumulatively for medium and low voltage levels): SDEE Transilvania Nord S.A. SDEE Transilvania Sud S.A. SDEE Muntenia Nord S.A. SDEE Transilvania Nord S.A. SDEE Transilvania Sud S.A. SDEE Muntenia Nord S.A. Order 228,229,227/16.12.2019 1 January-15 January 2020 High voltage Medium voltage Low voltage 19.11 20.69 16.97 65.48 62.49 54.09 171.98 169.01 180.15 Order 8,9,7/15.01.2020 16 January-31 December 2020 High voltage Medium voltage Low voltage 18.77 20.31 16.68 64.31 61.34 53.16 168.91 165.90 177.06 295 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Order 220,221,222/09.12.2020 1 January 2021-31 December 2021 High voltage Medium voltage Low voltage 19.23 22.23 18.72 66.35 67.47 56.87 173.93 178.78 184.75 Transilvania Nord Area Transilvania Sud Area Muntenia Nord Area In 2019, a new regulatory period began, governed by the provisions of ANRE Order no. 169/2018 for the approval of the Methodology for establishing the tariffs for the electricity distribution service (IV regulatory period: 2019- 2023). The following items are considered by ANRE when setting the target revenue for one year of the regulatory period: controllable and non-controllable operating and maintenance costs; costs of electricity purchased for own technological consumption (distribution network losses); regulated depreciation charge; the return on the regulated assets base (“RAB”); revenues from reactive energy and revenues from other activities, as well as corrections from previous periods. Starting with 2019, the regulated rate of return (“RRR”) on RAB was 5.66%, according to ANRE Order no. 168/2018. For the investments in the electricity distribution networks commissioned during the period 2019-2023, an incentive of 1 percentage point is granted over the regulated rate of return approved by the ANRE Order no. 168/2018. Subsequently, according to Government Emergency Ordinance no. 19/2019, the approved regulated rate of return was 6.9%. On 9 January 2020 was issued the Government Emergency Ordinance no. 1 which modified: • The Energy Law regarding the cancellation of the article approving the regulated rate of return of 6.9% starting with 30 April 2020; • ANRE functioning law, imposing the establishment of the value of the contribution charged by ANRE (thus by ANRE Order no. 1/2020, the contribution has changed from 2% to 0.2%). ANRE Order no. 75/2020 for establishing the regulated rate of return for the electricity and natural gas distribution and transport tariffs until the end of the fourth regulatory period entered into force on 13 May 2020. Thus, for the year 2020, the regulated rate of return is as follow: • For the period 1 January 2020 – 29 April 2020: 6.9%; • For the period 30 April 2020 – 12 May 2020: 5.66% plus an incentive of 1% for new investments; • For the period 13 May 2020 – 31 December 2020: 6.39% plus an incentive of 1% for new investments. The Methodology for establishing the distribution tariffs approved by ANRE Order no. 169/2018 was modified by ANRE Orders no. 207/2020 and no. 3/2021 as follows: • granting a 2% RRR incentive for investments in the electricity distribution network financed from own funds in projects in which European non-reimbursable funds are also attracted, if the investments are performed and put into function by operators after 1 February 2021; • in cases where, for certain categories of tangible/intangible assets, the regulated legislation establishes other regulated useful lives than those provided by the Methodology or in the Catalogue on the classification and normal operating useful lives of fixed assets, approved by Government decision, the annual regulated depreciation of those assets is calculated on the basis of the regulated useful lives established by the primary legislation. ANRE approved Order no. 101 / 30.09.2021 for changes of the Methodology for establishing the distribution tariffs approved by ANRE Order no. 169/2018 with the date of entry into force 1 October 2021. Regarding the network losses prices, ANRE has the right to correct the projection of distribution tariffs for a regulatory period or for one year, if there have been significant variations in prices on the electricity market, which lead to a significant change in distribution service costs; at the justified request of the Distribution Operator, the adjusted revenue of year t + 1 may include a cost adjustment with the regulated network losses forecast for year t + 1, by changing the reference price, depending on the evolution of prices on the electricity market and the result of the analysis of the evolution of tariffs for the current regulatory period; 296 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Energy law no. 123/2012 was amended by Order no. 143/2021, in force starting with 31 December 2021 stipulating among others the followings: • household connections - In the case of household consumers, upon commissioning of the connection works performed, Distribution Operator will reimburse the applicant the effective value of the connection design and execution works, up to an average value of a connection, established according to a methodology approved by ANRE. The assets resulting from the connection works become the property of the distribution operator from the moment of commissioning, through the effect of this law, to the value reimbursed to the household consumer, being recognized by ANRE as part of the regulated assets base. • non-household connections - In the case of non-household consumer, the value of the connection works, including those for the design of the connection / connection made, is fully borne by the consumers. The assets resulting from the connection works enter the patrimony of the Distribution Operator from the moment of commissioning, through the effect of the present law, without being recognized by ANRE as part of the base of the regulated assets. Starting with 16 March 2021, it was approved, by ANRE Order no. 17/2021, the Connection to the Electrical Distribution Network Procedure regarding the connection of the consumption places belonging to the non- household final consumers through connection installations with lengths up to 2,500 meters and household consumers, through which the distribution operators have the obligation to finance and carry out the design and execution works of the connection installation for household consumers with lengths up to 2,500 meters. By referring to the Connection to the Electrical Distribution Network Procedure, ANRE approved the ANRE Order no. 19/20.01.2021, in force on 19 March 2021, by which it modified the Investment Procedure approved by the ANRE Order no. 204/2019 and established the obligation of distribution operators, to carry out the connection works to the final consumers, in addition to the annual investment plan. Regulatory asset base (“RAB”) In accordance with the old tariff methodology for electricity distribution approved by ANRE Order no. 72/2013 with subsequent amendments (Orders no. 112/2014, no. 146/2014 and no. 165/2015), and the new tariff methodology of electricity distribution approved by ANRE Order no. 169/2018 with subsequent amendments (ANRE Orders no. 193/2018, no. 60/2019, no. 203/2019, no. 207/2020, no. 3/2021 and no. 101/2021), hereinafter referred to as Methodology, the determination of the distribution tariffs is based on, inter alia, the RAB. The RAB calculation is based on capital expenditure. The regulatory asset base at the beginning of the first regulatory period (1 January 2005) (“initial RAB”) includes the net book value of the property, plant and equipment and intangible assets as approved by ANRE and used only for regulated electricity distribution. The subsequently calculated RAB includes besides the initial RAB, as a net value, the net value of the tangible and intangible assets subsequently acquired through investments approved by ANRE. The RAB does not include the fixed assets financed from donations or other non-reimbursable funds, including the connection fee received from the new users of the electricity distribution network. Tariff adjustments Annually, ANRE makes revenue corrections due to: change in the quantities of electricity distributed compared to the forecast; change in quantities and acquisition price for the regulated own technological consumption (distribution network losses) compared to the forecast; the annual change in controllable operating and maintenance costs, realized and accepted against the forecast; annual change in uncontrollable operating and maintenance costs compared to the forecast; changes in revenues from reactive energy compared to the forecast; failure to meet/exceeding the approved investments programme; revenues generated from other operations made by the distribution operator and the quantity of electricity recovered from recalculations. In regulated activities, the regulator establishes through the tariff adjustment mechanism (as presented above), the criteria to recognise over or under recoveries of one period in future periods. The Group does not recognise regulatory assets and liabilities in respect of these under or over recoveries, as these differences are recovered or returned through the tariffs charged in subsequent periods. Electricity supply Regulated market Starting with the 1 January 2018, the total liberalization of the energy market was achieved and conditions were created for the transition to eligibility of a larger number of household consumers. There were significant migrations of domestic consumers between suppliers, which led to a change in the structure of their portfolio. Furthermore, in 2019 there was an increase in the number of products offered by suppliers to final consumers and consumers options for offers that combine electricity, natural gas and/or telecommunications services. 297 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)However, after the total aforementioned liberalization from 1 January 2018, the regulatory framework for the supply activity has been modified starting with 1 March 2019, in accordance with the provisions of the Government Emergency Ordinance (GEO) no. 114/2018. The new secondary legislation approved by ANRE has reintroduced the regulated contracts with the electricity producers and modified the pricing methodology for the household consumers in the regulated segment. Subsequently, by Government Emergency Ordinance no. 1/2020, the period of application of regulated tariffs to household consumers was shortened, respectively until 31 December 2020. The secondary legislation issued by ANRE approved a series of rules and conditions for the liberalization of the electricity market with regards to the manner and frequency of informing and offering the final consumers beneficiaries of universal service, the supply in last resort regime, the applicable framework contracts and the possibility to grant a commercial discount to the domestic clients, at least until 30 June 2021. The abovementioned regulatory changes are applicable for consumers in the regulated market. Taking into account the provisions of the Electricity Law and the European Directive no. 54/2003, the electricity market is fully liberalised starting with 1 July 2007 and all consumers were declared eligible. The eligible consumers are free to choose their electricity supplier from which they purchase electricity at negotiated prices. For the other consumers (including those that did not exert their eligibility right), as mentioned before, the tariffs/prices have been regulated/approved on the basis of ANRE orders, until 31 December 2019 for non-household consumers and 31 December 2020 for household consumers. Through ANRE Order no. 188/2020 for the approval of the Regulation for the designation of suppliers of last resort, the notion of obligatory SoLR and optional SoLR disappears. The designation of a supplier as SoLR is made at national level and not on network areas, as previously provided. SoLRs are designated for an indefinite period, starting with 1 January 2021, and in the designation process the eligibility criterion based on serving a number of at least 2,000 consumption places at national level is no longer applied, so that any supplier can become SoLR. Through ANRE Decision no. 2123/2020, Electrica Furnizare S.A. was designated as a supplier of last resort for an indefinite period, starting with 1 January 2021, for all network areas in Romania. The criterion for taking over a consumer as a last resort supplier will be the “lowest cost”, regardless of whether they are domestic or non- domestic consumer. The lowest cost is established by ANRE monthly, for each network area, by consulting the offers published by SoLR on their own web pages. As of 1 January 2021, regulated end-user prices for electricity had been removed and the market fully liberalized for all types of consumers. Therefore, both universal service prices and competitive prices are set freely by suppliers. Also, for 2021, ANRE had set a series of specific obligations concerning notification of consumers and the offers sent to them for the suppliers of last resort which had regulated consumers at the end of 2020. Competitive market Transactions on the competitive wholesale market are transparent, public, centralised and non-discriminatory. Participants to the wholesale market can trade electricity based on the bilateral contracts concluded on the dedicated markets. The supply of electricity to consumers on the competitive market is based on negotiated contracts (within the limits of the regulations in force). Electricity consumption is invoiced, according to the contractual provisions, at negotiated tariffs with the final consumer. Changes in legislation Over 2021, several changes have been brought to the legislation, having a significant impact on the supply of electricity, as follows: • Enforcement of Order no. 143/2021 amending the Electricity and Gas Law no. 123/2012, which transposes into national legislation Directive (EU) 944/2019 on common rules for the internal market for electricity and brings new rights and obligations for the suppliers of electricity concerning inter alia: obligation to supply universal service (US) to household consumer only; removal of the obligation to set up physical customer care centers for US customers at max. 50 km; obligation to issue settlement bills for household consumer once every 3 months at the least; right to conclude directly negotiated bilateral transactions on the wholesale markets for any period of time; obligation to procure the electricity needed to cover customers’ consumptions, whose breach shall be sanctioned with a fine calculated as a percentage of the annual turnover; • Implementation, from 1 November 2021 to 31 March 2022, due to the increase in energy price on the 298 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)international and national markets and the impact thereof on Romanian consumers, of the consumers support schemes approved by Order no. 118/2021, as approved with amendments by Law no. 259/2021 and amended by Order no. 130/2021, Order no. 2/2022, and Order no. 3/2022. The following support mechanisms have been put in place: compensation of household consumers for part of the costs borne with the electricity invoices, exemption (until 31 January 2022) of several types of non-household consumers from payment of regulated tariffs and other taxes/contributions, capping the selling price for household and non-household consumers (until 31 January for certain types of non-household consumers, as of 1 February 2022 for all non-household consumers), suspending the invoice payment for vulnerable consumers. The amounts compensated will be received from the the National Agency for Payments and Social Inspection for household consumers and a from the Ministry of Energy for non-household consumers. The amounts will be recovered in 30 days after submitting the required documentation to the National Agency for Payments and Social Inspection or Ministry of Energy. (for further details please refer to Note 18) Green certificates Electricity suppliers have a legal obligation to purchase green certificates from producers of electricity from renewable sources, based on annual targets or quotas set by law, which are applied to the quantity of electricity purchased and supplied to final consumers. The cost of green certificates is invoiced to final consumers separately from the tariffs for electricity. For 2021, the mandatory estimated annual quota for green certificates was established by ANRE through Order no. 237/2020 (0.4505 GC/MWh) following that until 1 March 2022, ANRE will establish also through another order, the annual mandatory quota for the acquisition of green certificates related to 2021, based on the quantities of electricity from renewable sources and the final consumption of electricity of the previous year. For 2020, the mandatory quota of green certificates was established by ANRE through Order no. 9/2021, at the value of 0.45074 GC/MWh. Electricity generation Green certificates Electricity producers are entitled by to receive a certain number of green certificates for each MWh of electricity produced from renewable sources and injected into the network, according to Law No. 220/2008 and based on the accreditation issued by ANRE. Photovoltaic Stanesti Park is accredited to receive a number of 6 GC for each MWh produced and delivered, of which by 2020 4 GC were issued for trading and 2 GC postponed (the postponement is introduced by Law no. 184/2018). The green certificates can be sold on the spot market, term market or a combination of both. The selling price must fall between the minimum and maximum values set by Law no. 220/2008 for establishing the system for promoting the production of electricity from renewable energy sources, republished, with subsequent amendments. The trading value of green certificates on the markets in accordance with the provisions of Law no. 220/2008, republished, with subsequent amendments and additions from Order no 24/2017, falls between: (a) a minimum trading value of EUR 29.4/GC and (b) a maximum trading value of EUR 35/GC. For the year 2021 and 2020, the trading of green certificates was carried out at the minimum price on all markets, as a result of the excess GC offered for sale compared to the suppliers’ purchasing obligations. COVID-19 impact On 11 March 2020 the World Health Organization (hereinafter “WHO”) declared the COVID-19 outbreak a pandemic and on 16 March 2020 Romania entered into a state of emergency. Measures taken by the Romanian Government included restrictions on the cross-border movement of people, entry restrictions on foreign visitors and lock-down of certain industries. Furthermore, significant key players on the market decided to shut down their operations, especially in the automotive and heavy industries, while some smaller businesses decided to curtail or temporarily suspend their operations. Therefore, on a macroeconomic level, the COVID-19 pandemic generated a downturn of the economy leading to a decrease in the demand for electricity, especially from non- household consumers. In the fight against the COVID-19 pandemic, the Group has adopted all the necessary measures for the activity of the companies within the Group to continue to be carried out under normal conditions and issued guidelines aimed at preventing and/or mitigating the effects of contagion at the workplace. Most important measures 299 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)included strict adherence to hygiene and social distancing rules as well as working from home where possible. In addition, technicians who perform field work received special equipment in order to minimize the risk of infection. A resilience plan was developed for each company within the Group, identifying essential activities and critical roles through scenario analysis and ensuring staff backup. All the aforementioned resilience plans were integrated at Group level in order to ensure that actions taken were appropriate for each company individually as well as for the Group overall. As a result all key functions of the Group were maintained, enabling the Group to provide secure energy distribution and supply services while maintaining the safety of employees and consumer. Moreover, the Group will build on its policy to promptly and transparently communicate any information that is reasonably expected to affect investor’s perception and as further effects of the COVID-19 pandemic over the financial results of the Group can be established, such information will be included in the future financial statements and will be made available to investors. Increase in Energy price impact Following the total liberalization of the electricity market from 1 January 2021 for all types of consumers, the international context of the energy markets characterized by an imbalance between supply and demand at European level, corroborated with the energy policies developed both at EU and national level, has led to an increase in electricity prices. Moreover, the strong increase in energy prices is both the result of external factors, such as the exponential increase in the price of emission allowances, and of internal factors, such as the high share of energy traded on the spot market (DAM). The entire energy sector was affected by the increased energy price. The aforementioned difficult conditions led to an increase in operating expenses, mainly for the acquisition of energy for network losses and for supplying activity. The unstable economic environment, led to a decrease in financial performance for 2021, as compared with the previous year but with no significant difficulties in receivables collection and consequently payment of debts being noted. The Group actively reviews and implements policies and strategies to recover from the loss generated by the increase in energy price, strategies which mainly aim in revising the method of generating the selling price for final consumers, concluding agreements with specific clauses ensuring new financing facilities, closely monitoring suppliers and consumers payment terms, monitoring daily cash flow and forecasted cash flow. Therefore, considering the actions already implemented and the strategies which will be applied, the Group anticipate a recovery on its financial performance and its operations in the foreseeable future. The Group continues to closely monitor the macroeconomic outlook and as additional information will be available, their effects on the activity of Group companies and over the financial results will be analyzed. 2 Basis of accounting These annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“IFRS-EU”). The consolidated financial statements were authorized for issue by the Board of Directors on 28 February 2022 and will be submitted for shareholders’ approval in the meeting scheduled on 20 April 2022. The Company also issues an original version of the consolidated financial statements prepared in accordance with IFRS-EU in Romanian language, that will be used for submitting to the Bucharest Stock Exchange, which is the original binding version. Details of the Group’s accounting policies are included in Note 6. The Group has consistently applied the accounting policies to all periods presented in these consolidated financial statements. 3 Functional and presentation currency These consolidated financial statements are presented in Romanian Lei (RON), which is the functional currency of all Group companies. All amounts have been rounded to the nearest thousand, unless otherwise indicated. 300 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)4 Use of judgements and estimates In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. (a) Judgements Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statements is included below. Revenue recognition The Group assesses its revenue arrangements based on specific criteria to determine if it is acting as a principal or an agent. In applying IFRS 15, the Group has identified that it acts in the capacity of an agent in case of transactions as Balancing Responsible Party (“BRP”) and thus recognises revenue as the net amount of the commission earned by the Group. The Group concluded that it is acting as a principal in all other revenue arrangements. Service Concession Arrangements The distribution subsidiaries (as operators) that merged into one single distribution operator as of 31 December 2020 concluded concession contracts with the Ministry of Economy (as grantor) in 2005, updated by subsequent addendums. These contracts concern the operation of electricity distribution service in the established territory (Transilvania Nord, Transilvania Sud, Muntenia Nord), on the risk and responsibility of the operators and taking into account the regulations applicable to the operation, modernization, rehabilitation and development of energy distribution networks specified in the Electricity Law, the terms and conditions of the licenses for electricity distribution and the regulations issued by ANRE. The distribution operator resulting from the merger of the three distribution operators within the Group, Distributie Energie Electrica Romania concluded addendums to the concession agreements signed with the Ministry of Economy for the operation of electricity distribution service in all three areas. IFRIC 12 “Service Concession Arrangements” deals with public-to-private service concession arrangements. IFRIC 12 applies to public-to-private service concession arrangements if: (a) the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and (b) the grantor controls - through ownership, beneficial entitlement or otherwise - any significant residual interest in the infrastructure at the end of the term of the arrangement. The control or regulation referred to in condition (a) could be by contract or otherwise (such as through a regulator). The activities of the electricity distribution operators, including distribution tariffs, are regulated by ANRE. The concession contracts are concluded for a period of 49 years and may be extended for a period equal to no more than half of that period. As a price for the concession, the operators pay an annual royalty fee recognized in the distribution tariff of 1/1000 of the revenues from electricity distribution. According to the concession contracts, the operators use the assets representing the distribution network owned by them located in the above-mentioned territory for electricity distribution. According to the concession contracts, the grantor will buy at the end of the term of concession contract the ownership right of the “relevant assets”, that are mainly the electricity distribution networks, at a price equal to the value of the regulated assets base at the end of the concession. Within the arrangements, the Group incurs significant expenditure in relation to the development and maintenance of the infrastructure. The construction works are either outsourced by the Group to sub- contractors, or performed internally. Significant management judgment is involved in accounting for the concession arrangements under IFRIC 12, including those in respect of the recognition of revenue based on the separation of construction or upgrade services from operation services. 301 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)The concessionaires act as service suppliers (they build, modernize and maintain the distribution network) and the revenues related to the construction or improvement of infrastructure is recorded according to IFRS 15. This results in revenues and expenditures being recognized in the profit and loss account (related to the construction and modernization of infrastructure), as well as of a margin resulting from rendering the construction services establised by the Group. The 3% margin applied is determined based on the Group’s experience in working with external contractors. (b) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that may result in a material adjustment in the subsequent twelve month period is included in the following notes: • Note 6 l) – assumptions regarding the useful life of the intangible assets related to concession arrangements; • Nota 6 c) – assumptions regarding recognition of revenue from supply and distribution of electricity to consumers based on estimates for electricity delivered and for which no reading was performed yet; • Notes 18 and 31 – assumptions and estimates about measurement of the allowance for trade receivables at the level of expected credit losses (ECL), respectively in determining the loss rates; • Note 23 – assumptions regarding the revalued amount of property, plant and equipment; • Notes 29 and 34 – recognition and measurement of provisions and contingencies; • Notes 17 – recognition of deferred tax asset; • Note 18 – assumptions and estimates of amounts to be received from the state following the application of the compensation and capping scheme. Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities, which the Group can access; • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes: • Note 31 – Financial instruments; • Note 23 – Property, plant and equipment. 5 Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the land and buildings which are measured based on the revaluation model. 6 Significant accounting policies The Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements. The new amendments to existing standards that are effective starting with 1 January 2021 do not have a significant impact over the Group’s consolidated financial statements. 302 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)(a) Going concern The consolidated financial statements have been prepared on the going concern basis. In making this judgement management considers current trading performance and access to finance resources. The Group has prepared a forecast that includes the following assumptions: • A return to positive operating cash flow from May 2022, following with the assumption that the effects of the law 118/2021 will no longer continue past March 31, 2022. The consequence would be that the price for the end customers will no longer be capped; • The utilisation of confirmed debt facilities up to a limit of RON 2,537,223 thousand, including RON 1,830,000 thousand total overdraft limits (please see Note 20 and 36) and RON 707,223 thousand long term loans (please see Note 30); • The utilisation of not yet confirmed facilities amounting to RON 840,000 thousand which would be drawn down during the forecast period; • The Group has received the waiver letter from EBRD on 24 February 2022 (Note 36), however this is subject of obtaining the waiver letters also from EIB and BCR for which the Group was non compliant as at 31 December 2021; The management of the Group is of the opinion that based on the discussions with EIB and BCR the waiver letter will be obtained also from these 2 banks; At the present time the projections are based on the latest assumptions that include the ending of the Law no. 118/2021 regarding the compensation and ceiling scheme in March 2022. At the date of issuance of these consolidated financial statements the regulatory position is under review and there may be further laws enacted which could adversely impact the Groups operating cash flows beyond the 1st of April 2022. Given the current market uncertainties, the Group has outlined a proposal to be approved in the forthcoming annual shareholders meeting regarding the approval of a total ceiling of short-term financing up to RON 1,500,000 thousand. In light of the importance of the Group as the supplier and distributed of electricity on the Romanian market, having 39.6% (according to the latest ANRE report 2020 for the distribution segment) as market share on the electricity distribution and 18.39% (according to the latest ANRE report November 2021 for the supply segment) as market share on the electricity supply market and having as main shareholder of Electrica SA the Romanian State, the management believes sufficient financing will be made available to cover any financing requirements arising from this uncertainty and Group will be able to meet its obligations as they fall due. Based upon the above projections and other information, given the measures already implemented and the strategies to reduce the risks which may occur due to the instability of the economic environment, the Board of Directors has, at the time of approving the consolidated financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the consolidated financial statements. (b) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are included in the consolidation perimeter from the date that control commences until the date on which control ceases. (ii) Loss of control On the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently that retained interest is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. (iii) Non-controlling interests The Group measures any non-controlling interests in the subsidiary at their proportionate share of the subsidiary’s identifiable net assets. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. 303 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)(iv) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. (c) Revenue The Group recognize the revenues from contracts with customers in accordance with IFRS 15. Under the standard, revenue is recognized when or as the customer acquires control over the goods or services rendered, at the amount which reflects the price at which the Group is expected to be entitled to receive in exchange of those goods or services. Revenue is recognized at the fair value of the services rendered or goods delivered, net of VAT, excises or other taxes related to the sale. Supply and distribution of electricity The revenue from supply and distribution of electricity to consumers is recognized when electricity is delivered to consumers (consumed by consumers), based on meter readings and based on estimates for electricity delivered and for which no reading was performed yet. The invoicing of electricity sales is performed on a monthly basis. Monthly electricity invoices are based on meter readings or on estimated consumptions based on the historical data of each consumer. Electricity supplied to consumers which is not yet billed as at the reporting date is accrued on the basis of recent average consumption or based on subsequent meter readings. Differences between estimated and actual amounts are recorded in subsequent periods. Revenues from electricity distribution and supply also include the cost of green certificates recharged by the Group to final consumers (see paragraph (k)). The Group acts in the capacity of an agent in case of transactions as Balancing Responsible Party (“BRP”). Thus, in its quality as an agent, the Group recognizes revenue for the commission earned in exchange for facilitating the transfer of goods or services. Any holder of a production/supply/distribution license must be established as a Balancing Responsible Party or must delegate this responsibility to a Balancing Responsible Party. By delegating this responsibility to a BRP, there is the benefit of imbalance aggregation in the meaning of Balancing Market cost reduction by comparison with the case where the producer/supplier/distributor would act itself as a Balancing Responsible Party. Electrica Furnizare S.A. acts as BRP for a large number of participants, electricity producers as well as electricity suppliers and distribution operators. For the settlement of imbalances, BRP Electrica is using the “method of internal redistribution of payments”, ensuring benefits of imbalance aggregation for all the participants included in the BRP. BRP Electrica provides the transmission of physical notifications to CNTEE Transelectrica SA and its role is to balance the differences between the electricity contracted and the electricity measured at the level of the entire BRP. Generation and sale of electricity The electricity produced by the Group is mainly sold on the Day Ahead Market and the revenue is recognized when the electricity is injected into the network and is being sold on the market. Sale of green certificates Electricity suppliers have a legal obligation to purchase green certificates from producers of electricity from renewable sources, based on annual targets or quotas set by law, which are applied to the quantity of electricity purchased and supplied to final customers. Cost of green certificates is invoiced to final customers separately from the tariffs for electricity. Electricity producers are entitled by the law in force to receive a certain number of green certificates for each MWH of electricity produced from renewable sources and injected into the network. The green certificates can be sold on the spot market, term market or a combination of both. The selling price must fall between the minimum and maximum values set by Law no. 220/2008 for establishing the system for promoting the production of electricity from renewable energy sources, republished, with subsequent amendments. Revenue from green certificates is recognized in the profit or loss statement when the green certificates are sold on the trading market. 304 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Rendering of services Revenues related to services rendered are recognised in the period in which the services were rendered based on statements of work performed, regardless of when paid or received, in accordance with the accrual basis. Sales of goods Revenue from sale of goods is recognized when the control of the goods has been transferred to a customer. Control refers to the customer’s ability to direct the use of and obtain substantially all of the remaining benefits from, an asset. Service concession arrangement Revenue related to construction or upgrade services under service concession arrangement is recognised based on the stage of completion of the work performed, consistent with the accounting policy on recognising revenue on construction contracts, as follows: • Revenue in respect of variations to contracts and incentive payments is recognised when there is an enforceable right to payment and it is highly probable it will be agreed by the customer. Variable consideration is assessed on a contract by contract basis according to the facts, circumstances and terms of each project and only recognised to the extent that it is highly probable not to significantly reverse in the future. Revenue in respect of claims is recognised only if it is highly probable not to reverse in future periods. • If the outcome of a construction contract can be estimated reliably, then contract revenue is recognised in profit or loss in proportion to the stage of completion of the contract. The stage of completion is assessed with reference to surveys of work performed. Otherwise, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. • Contract expenses are recognized as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognised immediately as expense. (d) Commissions The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements except for the transactions acting as Balancing Responsible Party. If the Group acts in the capacity of an agent rather than as the principal in a transaction, then the income recognised is the net amount of commission earned by the Group. (e) Finance income and finance costs The Group’s finance income and finance costs include: • interest income; • interest expense; • foreign currency gains or losses on financial assets and financial liabilities; • impairment losses recognised on financial assets (other than trade receivables). Interest income or expense is recognised using the effective interest method. (f) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date, as communicated by the National Bank of Romania. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated to the functional currency. 305 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)(g) Employee benefits (i) Short-term employee benefits Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (ii) Defined benefit plans The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, are recognised immediately in other comprehensive income. The Group determines the net interest expense/(income) on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. (iii) Other long-term employee benefits The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. (iv) Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted. (h) Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or in other comprehensive income. (i) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and • taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 306 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that the future taxable profits will be available against which they can be used. The Group applies IFRIC 23 „Uncertainty over Income Tax Treatments”. IFRIC 23 clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. In such a circumstance, the Group shall recognise and measure its current or deferred tax asset or liability applying the requirements in IAS 12 based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this interpretation. The Group assesses whether it is probable (more than 50% chances) that a tax authority will accept an uncertain tax treatment. Thus, the Group shall reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the entity expects to better predict the resolution of the uncertainty: (a) the most likely amount - the single most likely amount in a range of possible outcomes. The most likely amount may better predict the resolution of the uncertainty if the possible outcomes are binary or are concentrated on one value. (b) the expected value - the sum of the probability-weighted amounts in a range of possible outcomes. The expected value may better predict the resolution of the uncertainty if there is a range of possible outcomes that are neither binary nor concentrated on one value. (i) Green certificates Electricity supply Electricity suppliers have a legal obligation to purchase green certificates from producers of electricity from renewable sources, based on annual targets or quotas set by law, which are applied to the quantity of electricity purchased and supplied to final customers. The cost of green certificates is accrued in the profit or loss based on the quantitative quota determined by the regulator representing the quantity of the green certificates that the Group has to purchase for the year and based on the price of green certificates acquired on the centralized market. The obligation for covering the annual acquisition quota is accrued in profit or loss. Electricity generation Electricity producers are entitled by the law in force to receive a certain number of green certificates for each MWH of electricity produced from renewable sources and injected into the network. Green certificates are recognized as inventories when the producer has the right to receive as a result of energy produced and delivered into the network, at nil nominal value. Recognition in the profit and loss account is done at the time of their sale. ( j) Inventories Inventories consist mainly of spare parts that do not meet the recognition criteria for property, plant and equipment, consumables, goods for resale, other inventories and the natural gas storage. Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average cost method. The cost of inventories includes all the acquisition costs and other expenses related to bringing the inventories to their current place and condition. Consumables used for the repairs and maintenance of the electricity network are included in profit and loss when consumed and presented in “Repairs, maintenance and materials”. 307 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)(k) Property, plant and equipment (i) Recognition and measurement Property, plant and equipment are stated initially at cost, which includes purchase price and other costs directly attributable to acquisition and bringing the asset to the location and condition necessary for their intended use. After initial recognition, land and buildings are measured at revalued amounts less any accumulated depreciation and any accumulated impairment losses since the most recent valuation. The other items of property, plant and equipment are measured at cost less any accumulated depreciation and any accumulated impairment losses. Revaluations of land and buildings are made with sufficient regularity to ensure that the carrying amount does not differ materially from the one that would be determined using the fair value at the end of the reporting period. When a building is revalued, the accumulated depreciation is eliminated against the gross carrying amount of that item, and the net amount is restated to the revalued amount of the asset. If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment. Spare parts, stand-by and servicing equipment are classified as property, plant and equipment if they are expected to be used during more than one period or can be used only in connection with an item of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. (ii) Subsequent expenditure Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group. (iii) Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land and construction in progress are not depreciated. The estimated useful lives of property, plant and equipment are as follows: Category Buildings Equipment Motor vehicles and office equipment Useful lives (years) 45-70 3-25 3-10 Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (l) Intangible asset in a service concession arrangement (i) Recognition and measurement The Group recognises an intangible asset arising from a service concession arrangement when it has a right to charge for use of the concession infrastructure. An intangible asset received as consideration for providing construction or upgrade services in a service concession arrangement is measured at fair value on initial recognition with reference to the fair value of the services provided. Subsequent to initial recognition, the intangible asset is measured at cost, less accumulated amortization and accumulated impairment losses. 308 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) (ii) Amortization The amortization method used is selected on the basis of the expected pattern of consumption of the expected future economic benefits embodied in the asset, and is applied consistently from period to period, unless there is a change in the expected pattern of consumption of those future economic benefits. The Group determined that the amortization method that reflects appropriately the expected pattern of consumption of the expected future economic benefits is correlated with the amortisation of the regulated asset base “RAB”. (m) Connection fees According to art. 25 paragraph (1) of Law no. 123/2012 on electricity and natural gas, as subsequently amended and supplemented, access to power grids of public interest is a mandatory service provided under regulatory conditions, which the transmission and system operator as well as the distribution operators must ensure. At the request of a new or pre-existing customer, the distribution operators are obliged to communicate the technical and economic conditions for the connection network and to cooperate with the applicant to choose the most advantageous technical and economic solution. Afterwards, a connection contract is concluded between the distribution operator and the customer at a regulated tariff. The actual construction of the connection installation is carried out by a construction supplier certified by ANRE. The Group collects cash from customers, which is used only to pay for the construction of the connection station, and the Group must then use this asset to connect customers to the network. According to ANRE Order no. 59/2013, with subsequent amendments, these assets remain in the ownership of the network operator. The Group recognizes the assets at nil value, net of the amount of the deferred income representing the contributions from customers. The assets financed from connection fees received from the new users of the distribution network are not included in the RAB. At the end of the concession contract, the assets built from the connection tariff will be transferred to the concessionaire free of charge together with the assets part of RAB. Starting with 2021, according to ANRE Order no. 160/2020 amending ANRE Order no.59/2013, the connection installations that are financed by the customers will remain in their ownership and are being exploited by the network operator. However, according to ANRE Order no. 17/2021 for the connection installations of all household consumers and of the non-household with lengths less than 2.5 km, the distribution operator has the obligation to finance them and these will remain in the ownership of the network operator. (n) Other intangible assets (i) Recognition and measurement Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses. (ii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. (iii) Amortization Amortization is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognised in profit or loss. The estimated useful lives of software and licenses are 3-5 years. Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (o) Assets held for sale Non-current assets or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held-for-sale and subsequent gains and losses on remeasurement are recognised in profit or loss. 309 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investee is no longer equity accounted. (p) Financial instruments Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. (i) Financial assets All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. Financial assets are initially measured at fair value and subsequently at amortized cost in accordance with IFRS 9, as they are held in a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal reimbursements, plus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting for any loss allowance. Foreign exchange gains and losses The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. Loans and receivables These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Loans and receivables comprise trade receivables, cash and cash equivalents and deposits. Trade receivables Trade receivables include mainly unsettled invoices issued until reporting date for supply and distribution of electricity and services, late payment penalties and accrued revenue for electricity delivered and services rendered until the end of the year, but invoiced after the end of the year. Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and deposits with maturities of three months or less from the set-up date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. (ii) Financial liabilities All financial liabilities are measured subsequently at amortised cost using the effective interest method or at fair value through profit or loss. Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held-for-trading, or (iii) valued as at fair value, are measured subsequently at amortised cost using the effective interest method. 310 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability. Other financial liabilities include bank borrowings, bank overdrafts, financing for network construction related to concession agreements and trade payables. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents in the statement of cash flows. (iii) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognised as a deduction from equity. Repurchase and reissue of ordinary shares (treasury shares) When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within share premium. (iv) Impairment Impairment of financial assets The Group recognizes a loss allowance for expected credit losses on investments in debt instruments that are measured at amortized cost or at fair value through other comprehensive income. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group always recognizes lifetime expected credit losses for trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. (i) Significant increase in credit risk In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a default occurring on the financial instrument at the date of initial recognition. Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. (ii) Write-off policy The Group writes off a financial asset after the finalization of the bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. (iii) Measurement and recognition of expected credit losses The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date. For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate. 311 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. (q) Revaluation reserve The difference between the revalued amount and the net carrying amount of property, plant and equipment is recognised as revaluation reserve included in equity. If an asset’s carrying amount is increased as a result of a revaluation, the increase is recognised and accumulated in equity under the heading of revaluation reserve. However, the increase is recognised in profit and loss to the extent that it reverses a revaluation decrease of the same amount of the asset previously recognised in profit and loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised in profit or loss. However, the decrease is recognized in equity in revaluation reserves if there is any credit balance existing in the revaluation reserve in respect of that asset. The revaluation reserve is transferred to retained earnings in an amount corresponding to the use of the asset (as the asset is depreciated) and upon disposal of the asset. (r) Dividends Dividends are recognized as a deduction from equity in the period in which their distribution is approved and recognised as a liability to the extent it is unpaid at the reporting date. Dividends are disclosed in the notes to financial statements when their distribution is proposed after the reporting date and before the date of the issuance of the financial statements. (s) Pre-paid capital contributions in kind from shareholders These contributions from a shareholder represent pre-paid contributions of land for which the Company obtained title deeds in respect of future issuance of shares. The amounts recorded are based on the fair value of the land. (t) Provisions A provision is recognised if, as a result of a past event, the Group has a present, legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating losses are not provided for. (u) Contingent assets and liabilities A contingent liability is: (a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group; or (b) a present obligation that arises from past events that is not recognised because: i. it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or ii. the amount of the obligation cannot be measured with sufficient reliability. 312 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Contingent liabilities are not recognized in the Group’s financial statements, but disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. A contingent asset is not recognized in the Group’s financial statements, but disclosed when an inflow of economic benefits is probable. (v) Leases The Group applies IFRS 16 „Leases”. (i) The Group as lessee The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (with a lease term of 12 months or less) and leases of low value assets (of less than USD 5,000). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the default rate in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: • the lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; • the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); • a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a separate line in the consolidated statement of financial position. (ii) Rental income Rental income from property, plant and equipment other than investment property is recognised as Other income. Rental income is recognised on a straight-line basis over the term of the lease. (w) Investment in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. 313 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5. Under the equity method, an investment in an associate is recognised initially in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. The Group discontinues the use of the equity method from the date when the investment ceases to be an associate. (x) Segment reporting Segment results that are reported to the Company’s Board of Directors (the chief operating decision maker) include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. (y) Subsequent events Events occurring after the reporting date 31 December 2021, which provide additional information about conditions prevailing at the reporting date (adjusting events) are reflected in the consolidated financial statements. Events occurring after the reporting date that provide information on events that occurred after the reporting date (non-adjusting events), when material, are disclosed in the notes to the consolidated financial statements. When the going concern assumption is no longer appropriate at or after the reporting period, the financial statements are not prepared on a going concern basis. 7 Adoption of new and revised standards and interpretations Initial application of new amendments to the existing standards effective for the current reporting period The following amendments to the existing standards issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective for the current reporting period: • Amendments to IFRS 9 “Financial Instruments”, IAS 39 “Financial Instruments: Recognition and Measurement”, IFRS 7 “Financial Instruments: Disclosures”, IFRS 4 “Insurance Contracts” and IFRS 16 “Leases” – Interest Rate Benchmark Reform — Phase 2 adopted by the EU on 13 January 2021 (effective for annual periods beginning on or after 1 January 2021), • Amendments to IFRS 16 “Leases” – Covid-19-Related Rent Concessions beyond 30 June 2021 adopted by the EU on 30 August 2021 (effective from 1 April 2021 for financial years starting, at the latest, on or after 1 January 2021), 314 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)• Amendments to IFRS 4 Insurance Contracts “Extension of the Temporary Exemption from Applying IFRS 9” adopted by the EU on 16 December 2020 (the expiry date for the temporary exemption from IFRS 9 was extended from 1 January 2021 to annual periods beginning on or after 1 January 2023). The adoption of amendments to the existing standards has not led to any material changes in the Group’s consolidated financial statements. Standards and amendments to the existing standards issued by IASB and adopted by the EU but not yet effective At the date of authorization of these consolidated financial statements, the following amendments to the existing standards were issued by IASB and adopted by the EU and which are not yet effective: • Amendments to IAS 16 “Property, Plant and Equipment” – Proceeds before Intended Use adopted by the EU on 28 June 2021 (effective for annual periods beginning on or after 1 January 2022), • Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” - Onerous Contracts – Cost of Fulfilling a Contract adopted by the EU on 28 June 2021 (effective for annual periods beginning on or after 1 January 2022), • Amendments to IFRS 3 “Business Combinations” – Reference to the Conceptual Framework with amendments to IFRS 3 adopted by the EU on 28 June 2021 (effective for annual periods beginning on or after 1 January 2022), • IFRS 17 “Insurance Contracts” including amendments to IFRS 17 issued by IASB on 25 June 2020 – adopted by the EU on 19 November 2021 (effective for annual periods beginning on or after 1 January 2023), • Amendments to various standards due to “Improvements to IFRSs (cycle 2018 -2020)” resulting from the annual improvement project of IFRS (IFRS 1, IFRS 9, IFRS 16 and IAS 41) primarily with a view to removing inconsistencies and clarifying wording – adopted by the EU on 28 June 2021 (The amendments to IFRS 1, IFRS 9 and IAS 41 are effective for annual periods beginning on or after 1 January 2022. The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.). The Group has elected not to adopt the amendments to existing standards in advance of their effective dates. The Group anticipates that the adoption of these amendments to existing standards will have no material impact on the financial statements of the Group in the period of initial application. New standards and amendments to the existing standards issued by IASB but not yet adopted by the EU At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following new standards and amendments to the existing standards, which were not endorsed for use in EU as at the date of publication of these consolidated financial statements (the effective dates stated below is for IFRS as issued by IASB): • IFRS 14 “Regulatory Deferral Accounts” (effective for annual periods beginning on or after 1 January 2016) – the European Commission has decided not to launch the endorsement process of this interim standard and to wait for the final standard, • Amendments to IAS 1 “Presentation of Financial Statements” – Classification of Liabilities as Current or Non-Current (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 1 “Presentation of Financial Statements” - Disclosure of Accounting Policies (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” - Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January 2023), • Amendments to IAS 12 “Income Taxes” - Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for annual periods beginning on or after 1 January 2023), • Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred indefinitely until the research project on the equity method has been concluded), • Amendments to IFRS 17 “Insurance contracts” - Initial Application of IFRS 17 and IFRS 9 – Comparative Information (effective for annual periods beginning on or after 1 January 2023). The Group anticipates that the adoption of these new standards and amendments to the existing standards will have no material impact on the consolidated financial statements of the Group in the period of initial application. 315 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)8 Operating segments (a) Basis for segmentation The following summary describes the operations of each reportable segment: Reportable segments Operations Electricity and natural gas supply Buying and supplying electricity and natural gas to final consumers (includes Electrica Furnizare S.A.) Until 31 December 2020, the electricity distribution service included the former Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. and Societatea de Distributie a Energiei Electrice Muntenia Nord S.A., currently Distributie Energie Electrica Romania S.A. (that covers the all three distribution areas: Electricity distribution Transilvania Sud, Transilvania Nord and Muntenia Nord), Electrica Serv S.A. and the activity performed by Societatea Energetica Electrica S.A. within the distribution network until June 2020. Starting with 2021, the electricity distribution service includes the activity of Societatea de Distributie Energie Electrica Romania S.A. and the activity performed by Electrica Serv S.A within the distribution network. Electricity generation panels) (includes Electrica Energie Verde 1 SRL and starting with Production of electricity from renewable sources (photovoltaic September 2021 includes Electrica Productie Energie S.A.). External electricity network maintenance activity of Servicii Energetice Muntenia S.A. (until 30 November Repairs, maintenance and other services for electricity networks owned by other distributors. Until 31 December 2020, included the 2020) and a part of Electrica Serv S.A.. Starting with 2021, includes the activity of Electrica Serv S.A., without the activity performed in the distribution network. The Board of Directors of the Company reviews management reports of each segment. Segment earnings before interest, tax, depreciation and amortisation (“EBITDA”) is used to measure performance because management believes that such information is one of the most relevant in evaluating the results of the segments. There are varying levels of integration between the Electricity supply, Electricity distribution and External electricity network maintenance segments. This integration includes electricity distribution and shared electricity network maintenance services. Inter-segment pricing policy is determined on an arm’s length basis. All assets are allocated to reportable segments, except for investments in associates and deferred tax assets. 316 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated), ) 1 1 4 2 3 6 ( ) 1 8 8 6 2 ( , , ) 0 3 8 0 8 4 ( ) 6 9 9 7 2 1 ( , ) 6 4 6 ( 2 4 9 3 , ) 2 8 8 2 5 5 ( , , ) 6 7 6 2 0 8 ( 6 3 1 , 3 8 8 7 , 0 6 8 5 1 5 , d e t a d i l o s n o C l a t o t n o i t a d i l o s n o C s n o i t a n m i i l e d n a s t n e m t s u d a j , 4 6 8 8 7 1 , 7 - - ) 9 3 4 , 1 0 4 , 1 ( , 4 6 8 8 7 1 , 7 ) 9 3 4 , 1 0 4 , 1 ( ) 3 5 2 , 1 3 3 ( ) 0 5 2 , 1 3 3 ( 9 7 7 , 1 2 3 , 9 1 4 7 7 3 ) 7 3 9 2 2 6 ( , ) 0 5 0 3 7 ( , - - - , 4 6 8 8 7 1 , 7 9 3 4 , 1 0 4 , 1 , 3 0 3 0 8 5 8 , 1 9 9 , 1 4 7 2 1 , 6 2 8 1 1 , 8 6 ) 8 6 8 7 1 ( , 0 5 8 4 2 0 6 , 9 4 9 2 , 3 7 9 8 , 4 4 5 , 1 ) 8 3 7 ( , 9 8 3 9 8 3 , 1 0 6 4 , 1 4 7 5 , s e u n e v e r l a n r e t x E 6 5 4 , 1 4 3 , 1 7 0 9 0 3 , e u n e v e r t n e m g e s - r e t n I , 5 4 8 0 3 7 2 , , 7 6 3 2 7 7 5 , ) 3 0 0 3 5 1 ( , , ) 0 1 6 3 5 4 ( t fi o r p / ) s s o l ( t n e m g e S x a t e r o f e b e u n e v e r t n e m g e S ) 8 9 4 3 7 ( , 6 3 3 ) t s o c ( / e m o c n i e c n a n fi t e N - - - ) 3 ( ) 8 7 6 6 5 ( , 5 0 8 3 , ) 2 9 4 ( ) 5 7 2 2 ( , , ) 5 5 5 8 7 4 ( ) 2 9 0 0 1 ( , ) 0 9 2 2 ( , ) 5 4 9 , 1 5 4 ( ) 8 2 2 4 1 ( , t n e m r i a p m i f o l a s r e v e R d n a t n a p l , y t r e p o r p f o d n a n o i t a z i t r o m A i n o i t a c e r p e d ) 5 1 3 , 1 7 ( ) 4 5 1 ( ) 9 0 6 8 ( , ) 4 5 1 ( 7 3 1 7 3 1 2 7 5 4 , 0 4 4 2 7 3 , , ) 8 1 7 9 3 4 ( * A D T I B E d e t s u d A j f o l a s r e v e R / ) t n e m r i a p m I ( d n a e d a r t f o t n e m r i a p m i - - - - - - i l e b g n a t n i d n a t n e m p u q e i t e n , s t e s s a l d e h s t e s s a f o t n e m r i a p m I l e a s r o f r e t r a u q d a e H r o f l a t o T l e b a t r o p e r s t n e m g e s y t i c i r t c e e l l a n r e t x E k r o w t e n e c n a n e t n a m i y t i c i r t c e E l n o i t a r e n e g y t i c i r t c e E l n o i t u b i r t s i d d n a y t i c i r t c e E l s a g l a r u t a n y l p p u s 1 2 0 2 r e b m e c e D 1 3 d e d n e r a e Y s t n e m g e s e b a t r o p e r l t u o b a n o i t a m r o f n I ) b ( ) 6 1 6 0 7 ( , - 0 7 ) 6 8 6 0 7 ( , ) 2 1 2 ( - ) 7 0 7 2 3 ( , ) 7 6 7 7 3 ( , t e n , l s e b a v e c e r i r e h t o , 9 1 2 3 9 3 , 1 , ) 1 6 8 2 4 0 , 1 ( 0 3 8 , 1 2 2 - , ) 1 4 4 6 6 2 2 ( , - - ) 0 4 2 9 3 ( , ) 6 3 4 3 6 7 ( , 9 0 5 2 8 1 , 9 3 5 4 , 6 0 1 , 5 7 7 5 7 5 , , 8 6 0 7 6 9 9 , , 4 7 9 0 6 3 2 , 3 7 0 6 1 2 , 1 2 3 , 1 1 5 ) 3 5 2 , 1 3 3 ( 2 2 8 , 1 2 3 , ) 1 5 4 3 4 5 ( ) 3 3 0 6 1 ( , ) 0 9 7 4 3 ( , 4 4 7 7 1 4 , 2 5 5 , 1 4 2 9 5 8 , 6 6 4 7 , 0 0 3 , 1 ) 7 4 ( 8 6 0 2 , 1 4 5 3 6 2 , 8 9 9 ) 0 4 0 9 3 1 ( , ) 8 7 6 9 8 3 ( , r e t f a t fi o r p / ) s s o l ( t n e m g e S x a t ) 2 9 4 2 2 6 ( , ) 7 0 1 , 6 0 1 ( s t fi e n e b e e y o p m E l , 7 8 3 0 0 5 4 7 3 9 , e r u t i d n e p x e l a t i p a C , 2 0 8 5 8 0 8 , , 6 1 3 2 2 4 , 1 , 1 4 7 5 4 1 1 3 2 0 6 , 7 5 1 , 7 5 0 , 1 , 5 9 8 6 1 2 , 1 l s e b a v e c e r i s t e s s a t n e m g e S r e h t o d n a e d a r T i l s t n e a v u q e h s a c d n a h s a C , 2 3 4 6 9 2 , 1 , ) 9 2 3 6 1 0 , 1 ( 1 5 5 3 5 , , 0 1 2 9 5 2 2 , 7 1 9 7 2 , 3 7 3 4 2 , , 6 5 2 6 2 8 , 4 6 6 0 8 3 , 1 l s e b a y a p r e h t o d n a e d a r T l e e y o p m e m r e t t r o h s d n a s t fi e n e b 317 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) d e t a d i l o s n o C l a t o t n o i t a d i l o s n o C s n o i t a n m i i l e d n a s t n e m t s u d a j r e t r a u q d a e H r o f l a t o T l e b a t r o p e r s t n e m g e s y t i c i r t c e e l l a n r e t x E k r o w t e n e c n a n e t n a m i y t i c i r t c e E l n o i t a r e n e g y t i c i r t c e E l n o i t u b i r t s i d d n a y t i c i r t c e E l s a g l a r u t a n y l p p u s 2 0 4 7 2 6 , 4 4 5 , 1 2 9 8 4 8 2 6 , - - - , 1 9 6 0 2 1 3 1 5 - , 1 1 7 6 0 5 1 3 0 , 1 2 9 8 4 8 2 6 , 4 1 6 2 , - - - - - 9 8 4 8 2 6 , - 7 4 1 , 5 1 0 7 2 3 , 9 0 1 , 8 0 2 , 2 0 6 8 9 2 1 2 0 2 r e b m e c e D 1 3 d e d n e r a e Y s t f a r d r e v o k n a B y t i l i b a i l e s a e L i s g n w o r r o b k n a B 318 | 2021 ANNUAL REPORT ELECTRICA S.A. x a t e r o f e b ) s s o l ( / t fi o r p t n e m g e s s a l d e t a u c a c l d n a d e n fi e d s i s t n e m g e s g n i t a r e p o r o f ) A D T I B E l y e m a n r o n o i t a s i t r o m a d n a i n o i t a c e r p e d , x a t , t s e r e t n i e r o f e b i s g n n r a E ( A D T I B E d e t s u d A * j g n i t a r e p o e h t n i s t e s s a e b g n a t n l i i i d n a t n e m p u q e d n a t n a p l , y t r e p o r p f o t n e m r i a p m i f o l a s r e v e r / t n e m r i a p m i d n a n o i t a z i t r o m a , i n o i t a c e r p e d ) i r o f j d e t s u d a t n e m g e s g n i t a r e p o n e v g a f o i S R F I o t e v i t a n r e t l a n a s a d e t a e r t l e b t o n d u o h s d n a e r u s a e m S R F I n a t o n s i A D T I B E . t n e m g e s g n i t a r e p o e h t n i e m o c n i e c n a n fi t e n ) i i i d n a e a s l r o f l d e h s t e s s a f o t n e m r i a p m i ) i i , t n e m g e s e h t , e c n e u q e s n o c a s A . p u o r G e h t y b d e s u t a h t i m o r f y l t n a c fi n g i s r e f f i d y a m i s e n a p m o c r e h t o y b A D T I B E e t a u c a c o t d e s u d o h t e m e h T l l . l d e n fi e d y m r o f i n u t o n s i A D T I B E , r e v o e r o M s e r u s a e m . . i s e n a p m o c r e h t o f o A D T I B E o t n o s i r a p m o c f o e s o p r u p e h t r o f n o p u d e i l e r e b , h c u s s a , t o n n a c e t o n s i h t n i d e t n e s e r p A D T I B E , ) 8 1 9 0 9 4 ( - ) 6 1 5 0 1 ( , , ) 2 0 4 0 8 4 ( ) 5 6 0 , 1 ( ) 7 1 7 ( , ) 3 9 7 5 6 4 ( ) 7 2 8 2 1 ( , d e t a d i l o s n o C d n a s n o i t a n m i i l e n o i t a d i l o s n o C l a t o t s t n e m t s u d a j r e t r a u q d a e H 0 0 1 , 1 0 5 6 , - - , ) 9 0 9 8 9 2 , 1 ( 0 0 1 , 1 0 5 6 , , ) 9 0 9 8 9 2 , 1 ( - - - r o f l a t o T l e b a t r o p e r s t n e m g e s 0 0 1 , 1 0 5 6 , , 9 0 9 8 9 2 , 1 , 9 0 0 0 0 8 7 , l a n r e t x E y t i c i r t c e e l k r o w t e n e c n a n e t n a m i 8 4 1 , 0 3 9 5 1 7 0 3 0 3 , , 9 0 3 2 4 4 ) 3 9 4 7 0 2 ( , , 7 3 7 4 0 3 5 6 0 5 4 3 , ) 6 8 1 , 5 ( ) 5 8 0 7 1 ( , ) 0 7 9 4 1 2 ( , 3 8 1 , 0 6 2 ) 8 9 2 2 6 ( , ) 8 1 1 ( 6 3 7 3 , - 6 3 7 3 , ) 5 0 7 ( ) 8 1 3 , 1 ( y t i c i r t c e E l n o i t a r e n e g y t i c i r t c e E l n o i t u b i r t s i d d n a y t i c i r t c e E l y l p p u s s a g l a r u t a n 4 9 0 5 9 , ) 0 9 0 5 6 ( , 2 6 8 5 5 2 , 8 2 2 4 , , 9 2 6 6 8 4 , 1 7 9 1 , 4 6 2 , 1 , 6 2 8 0 5 7 2 , , 7 8 5 0 8 9 4 , 0 4 1 , 5 1 0 5 , e u n e v e r t n e m g e S 3 5 5 4 3 , e u n e v e r t n e m g e s - r e t n I 0 2 0 2 r e b m e c e D 1 3 d e d n e r a e Y s e u n e v e r l a n r e t x E ) s s o l ( / t fi o r p t n e m g e S x a t e r o f e b / e m o c n i e c n a n fi t e N ) t s o c ( d n a n o i t a z i t r o m A i n o i t a c e r p e d SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) d e t a d i l o s n o C d n a s n o i t a n m i i l e n o i t a d i l o s n o C l a t o t s t n e m t s u d a j r e t r a u q d a e H r o f l a t o T l e b a t r o p e r s t n e m g e s l a n r e t x E y t i c i r t c e e l k r o w t e n e c n a n e t n a m i y t i c i r t c e E l n o i t a r e n e g y t i c i r t c e E l n o i t u b i r t s i d d n a y t i c i r t c e E l y l p p u s s a g l a r u t a n f o l a s r e v e R / ) t n e m r i a p m I ( 0 2 0 2 r e b m e c e D 1 3 d e d n e r a e Y ) 6 3 7 , 1 ( ) 9 8 2 , 1 ( ) 7 3 5 ( ) 0 0 5 , 1 ( 5 8 7 , 1 ) 7 3 0 , 1 ( i d n a t n e m p u q e d n a t n a p l , y t r e p o r p f o t n e m r i a p m i ) 5 2 0 3 ( , 8 8 1 - - 9 4 1 , 3 5 9 7 7 4 7 , 6 0 8 6 5 , , 6 6 8 8 8 8 ) 6 6 4 3 ( , 7 6 1 , 2 6 - 3 8 5 8 9 , ) 6 1 4 6 3 ( , ) 3 7 1 ( 3 4 5 7 8 3 , ) 3 9 4 7 0 2 ( , , 4 1 8 7 0 3 , 2 2 2 7 8 2 ) 2 1 4 3 ( , - 8 8 1 - , ) 1 0 5 4 7 7 ( 0 4 6 7 0 6 , 8 1 8 , 1 6 0 8 , - - ) 0 2 8 , 1 3 ( 0 6 0 , 1 , ) 1 8 6 2 4 7 ( ) 2 5 7 7 1 ( , , 0 8 5 6 0 6 6 3 2 , ) 5 8 8 3 8 5 , 1 ( 6 0 2 8 6 7 , , 7 9 4 7 7 8 8 , 2 3 4 8 9 , 8 5 6 4 4 , 0 3 8 2 , ) 7 3 2 ( - ) 7 1 6 ( 4 2 - 4 0 0 4 2 6 , 8 9 4 5 6 2 , * A D T I B E d e t s u d A j ) 6 2 1 , 4 ( ) 0 8 8 , 1 3 ( e d a r t f o ) t n e m r i a p m I ( / t n e m r i a p m i f o l a s r e v e R 8 8 1 - f o t n e m r i a p m i f o l a s r e v e R l e a s l r o f d e h s t e s s a t e n , l s t e s s a e b g n a t n i i t e n , l s e b a v e c e r i r e h t o d n a ) 6 2 3 2 1 6 ( , 6 5 7 , 1 0 6 0 8 3 , 1 3 5 7 , ) 3 0 6 2 1 1 ( , s t fi e n e b e e y o p m E l 4 6 5 4 , e r u t i d n e p x e l a t i p a C , 7 2 0 3 0 2 , 1 s t e s s a t n e m g e S 9 9 0 7 7 , 2 5 1 , 4 1 2 ) s s o l ( / t fi o r p t n e m g e S x a t r e t f a , 5 3 2 2 6 0 , 1 , ) 6 1 0 4 3 5 ( 3 2 3 5 6 1 , , 8 2 9 0 3 4 , 1 7 9 7 7 , 9 0 1 2 4 8 9 2 5 , 0 8 1 , 3 9 8 9 2 9 0 7 5 , 0 0 0 0 2 3 , - - 5 8 4 3 9 1 , 4 4 4 7 7 3 , 5 1 7 , 1 8 0 8 4 , 8 9 4 5 8 1 , 3 2 4 5 8 1 , 0 0 0 0 2 3 , - - - - - l s e b a y a p r e h t o d n a e d a r T t r o h s ( h s a c d e t c i r t s e R ) m r e t h s a c d n a h s a C l s t n e a v u q e i r e h t o d n a e d a r T l s e b a v e c e r i 6 0 3 4 7 9 , ) 9 4 4 5 1 5 ( , 5 1 6 , 1 1 0 4 1 , 8 7 4 , 1 9 7 5 3 , 6 8 7 7 2 , , 5 3 3 5 2 6 0 4 4 , 1 2 8 l e e y o p m e m r e t t r o h s d n a 6 6 9 4 6 1 , 2 2 6 7 2 , 9 0 9 8 7 7 , - - - 4 5 4 , 1 - - 6 6 9 4 6 1 , 8 6 1 , 6 2 9 0 9 8 7 7 , 4 5 3 - - - - - 6 6 9 4 6 1 , 2 3 0 3 2 , 9 0 9 8 7 7 , 2 8 7 2 , - - s t f a r d r e v o k n a B y t i l i b a i l e s a e L i s g n w o r r o b k n a B s t fi e n e b x a t e r o f e b ) s s o l ( / t fi o r p t n e m g e s l l s a d e t a u c a c d n a d e n fi e d s i s t n e m g e s g n i t a r e p o r o f ) l A D T I B E y e m a n r o n o i t a s i t r o m a d n a n o i t a c e r p e d i , x a t , t s e r e t n i e r o f e b s g n n r a E i ( A D T I B E d e t s u d A * j g n i t a r e p o e h t n i l s t e s s a e b g n a t n i i i d n a t n e m p u q e d n a t n a p l , y t r e p o r p f o t n e m r i a p m i f o l a s r e v e r / t n e m i r i a p m d n a n o i t a z i t r o m a , i n o i t a c e r p e d ) i r o f j d e t s u d a t n e m g e s g n i t a r e p o n e v g a f o i S R F I o t e v i t a n r e t l a n a s a d e t a e r t e b t o n d u o h s d n a e r u s a e m S R F l I n a t o n s i A D T I B E . t n e m g e s g n i t a r e p o e h t n i e m o c n i e c n a n fi t e n ) i i i d n a e a s l r o f l d e h s t e s s a f o t n e m r i a p m i ) i i , t n e m g e s , e c n e u q e s n o c a s A . p u o r G e h t y b d e s u t a h t m o r f y l t n a c fi n g i s i r e f f i d y a m i s e n a p m o c r e h t o y b A D T I B E e t a u c a c o t d e s u d o h t e m e h T l l . l d e n fi e d y m r o f i n u t o n s i A D T I B E , r e v o e r o M s e r u s a e m . . i s e n a p m o c r e h t o f o A D T I B E o t n o s i r a p m o c f o e s o p r u p e h t r o f n o p u d e i l e r e b , h c u s s a , t o n n a c e t o n s i h t n i d e t n e s e r p A D T I B E e h t 319 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) (c) Reconciliation of information on reportable segments to consolidated amounts 31 December 2021 31 December 2020 Total assets Total assets for reportable segments 10,149,577 9,645,703 Elimination of inter-segment assets (2,375,782) (1,603,551) Unallocated amounts 109,341 19,666 Consolidated total assets 7,883,136 8,061,818 Trade and other receivables Trade and other receivables for reportable segments 2,436,080 1,596,251 Elimination of inter-segment trade and other receivables (1,042,861) (534,016) Consolidated trade and other receivables 1,393,219 1,062,235 Trade and other payables and short term employee benefits Trade and other payables and short term employee benefits for 2,312,761 1,489,755 reportable segments Elimination of inter-segment trade and other payables and (1,016,329) (515,449) short term employee benefits Consolidated trade and other payables and short term 1,296,432 974,306 employee benefits 320 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)9 Revenue 2021 2020 Electricity distribution and supply 6,517,777 5,697,668 Supply of natural gas 98,503 42,362 Construction revenue related to concession agreements (Note 24) 500,387 696,246 Repairs, maintenance and other services rendered 59,854 54,472 Proceeds from sale of green certificates Re-connection fees Sales of merchandise Total 1,138 1,205 - 3,163 2,673 4,516 7,178,864 6,501,100 In respect to the timing of the revenue recognition, most of the Group’s services provided are transferred to the customer over time, only a small part amounting to RON 2,081 thousand (2020: RON 2,131 thousand) being transferred at a point in time (e.g. metering services provided by the distribution companies, providing periodic data analysis to the customer for certain taxes collected on behalf of them). 10 Electricity and natural gas purchased 2021 2020 Electricity purchased 4,967,315 3,298,325 Green certificates purchased Natural gas purchased 581,729 145,680 557,222 50,158 Total 5,694,724 3,905,705 The cost of electricity and natural gas purchased includes the cost of the green certificates purchased by the supply subsidiary which has a legal obligation to purchase green certificates from producers of electricity from renewable sources, based on annual targets or quotas set by law, which are applied to the quantity of electricity purchased and supplied to final customers. The cost of green certificates is then invoiced to final customers separately from electricity tariffs. 321 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)11 Other income and expenses (a) Other operating income Rental income Late payment penalties from customers Revenues from indemnities and compensations Revenue from notices Other Total 2021 93,143 28,356 47,499 5,943 20,830 195,771 2020 93,753 26,872 17,153 6,018 21,626 165,422 Rental income refers mainly to the rental of the electricity poles by the distribution subsidiary to telecom operators. In 2021 revenues from indemnities and compensations consists mainly of compensations invoiced, following the early termination of energy contracts by suppliers. (b) Other operating expenses Other taxes and duties Utilities Printing and distribution of invoices services IT services Security services Meters reading expenses Cash collection services Rent Postage and telecommunication services Call centre services Marketing expenses for the supply activity Cleaning expenses Expenses with clients notified Sponsorships and donations Expenses with services from subcontractors Cost of merchandise sold 2021 43,211 39,697 36,960 30,411 26,718 22,219 15,819 12,205 11,680 11,011 7,836 5,078 2,197 1,039 - 733 2020 42,388 40,753 38,720 29,106 27,012 19,514 16,079 4,992 7,307 10,678 4,859 5,145 1,224 3,611 7,989 4,994 Other Total 322 | 2021 ANNUAL REPORT ELECTRICA S.A. 76,333 60,733 343,147 325,104 SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)12 Net finance result Interest income Other finance income Total finance income Interest expense Interest cost for employee benefits (Note 15) Foreign exchange losses, net Total finance costs Net finance cost 13 (Loss)/Earnings per share 2021 1,765 882 2,647 (24,110) (5,007) (411) (29,528) (26,881) 2020 8,962 689 9,651 (20,710) (5,883) (143) (26,736) (17,085) The calculation of basic and diluted (loss)/earnings per share has been based on the following profit attributable to Company’s shareholders and weighted-average number of ordinary shares outstanding: (Loss)/Profit attributable to shareholders (Loss)/Profit for the year attributable to the owners of the Company (552,882) 387,543 Profit attributable to shareholders of the Company (552,882) 387,543 2021 2020 Number of ordinary shares (in number of shares) Number of ordinary shares at 31 December 339,553,004 339,553,004 2021 2020 For the calculation of basic and diluted earnings per share, treasury shares (6,890,593 shares) were not treated as outstanding ordinary shares and were deducted from the number of issued ordinary shares. (Loss)/Earnings per share Basic and diluted (loss)/earnings per share (RON) 2021 (1.63) 2020 1.14 323 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)14 Short-term employee benefits 31 December 2021 31 December 2020 Personnel payables 52,419 Current portion of defined benefit liability and other employee 18,257 52,573 10,420 24,531 4,768 25,342 5,084 101,102 92,292 benefits Social security charges Tax on salaries Total For details of the related employee benefit expenses, see Notes 15 and 16. In Romania, all employers and employees, as well as other persons, are contributors to the State social security system. The social security system covers pensions, child benefit, temporary inability to work situations, risks of work accidents and professional diseases and other social assistance services, redundancy payments and incentives granted to employers for creating new jobs. 15 Post-employment and other long-term employee benefits The Group provides cash benefits to employees depending on seniority in the form of jubilee bonuses and depending on the years of service at retirement in the form of retirement bonuses. The post-employment and other long-term employee benefits are stipulated in the Collective Labour Contracts. Also, in accordance with Government Decisions no. 1041/2003 and no. 1461/2003, the Group provides also, as benefit in kind, free of charge electricity in quantity of KWh 1,200 per year to employees who retired before 30 September 2000 from the companies that belonged to the former Minister of Energy. From all the Collective Labour Contracts of the Group companies the benefit in kind consisting of free of charge electricity granted to employees who retired was excluded. This benefit was stipulated in the Collective Labour Contracts valid until 31 December 2019 for all subsidiaries and until 31 March 2020 for Electrica SA. Thus, the Group management considers that legally, the companies belonging to the Electrica Group have the obligation to continue to grant the free quota of electricity to the persons retired before 30 September 2000 and who fulfil the conditions stipulated in the Government Decision no. 1041/2003, this right resulting from the stipulations of the Government Decision no. 1041/2003. The free of charge electricity benefit granted to employees who retired from the Group after 30 September 2000 or who will retire in the future from the Group is no longer granted starting with 1 January 2020 in case of all subsidiaries and 1 April 2020 in case of Electrica SA, due to the fact that the aforementioned benefit was expressly excluded from the Collective Labour Contracts. In the same time, in order to compensate for the exclusion of the benefit in the form of free of charge electricity, as per the new Collective Labour Contracts in force starting 1 January 2020, respectively 1 April 2020, the retirement bonus increased by 1 gross monthly base salary on all three levels of seniority. On 20 December 2021 the Board of Directors of Electrica SA approved the implementation of a reorganization process of the Headquarters’ personnel structure and the initiation of the collective dismissal procedure, formally communicated to all employees on 23 December 2021. On 2 February 2022, the Board of Directors approved the amendment of the Headquarters’ organizational structure effective as of 1 March 2022 and the notification of relevant authorities and of the Trade Union regarding the final decision to implement the reorganization process and to carry out the collective dismissal of the employees who currently occupy the positions to be cancelled. According to the Collective Labour Contract, based on seniority, the employees who currently occupy the positions to be cancelled are entitled to receive a number of gross average base salary (Note 15 b)). The estimated termination benefit amounts to RON 5,054 thousand. In 2021 and 2020, employee benefit obligations were computed by an independent actuary using the projected unit credit method with benefits calculated proportionally to the period of service. 324 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)31 December 2021 31 December 2020 Defined benefit liability Other long-term employee benefits 79,078 88,356 68,101 86,195 Total 167,434 154,296 - Current portion* - Non-current portion *included in Personnel payables in Note 14 18,257 149,177 10,420 143,876 (i) Movement in the defined benefit liability and other long-term employee benefits The following tables shows a reconciliation from the opening balances to the closing balances for the defined benefit liability and other long-term employee benefits and its components. There are no plan assets. Defined benefit liability 2021 2020 Balance at 1 January 68,101 59,698 Included in profit or loss Current service cost Past service cost Interest cost Included in other comprehensive income Remeasurements loss - Actuarial loss Other Benefits paid Balance at 31 December 5,158 5,054 2,194 4,519 (346) 2,493 5,891 7,152 (7,320) 79,078 (5,415) 68,101 Other long-term employee benefits 2021 2020 Balance at 1 January 86,195 80,547 Included in profit or loss Current service cost 8,285 8,482 325 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Other long-term employee benefits Past service cost Actuarial (gain)/ loss Interest cost Other Benefits paid Balance at 31 December 2021 - (1,859) 2,814 (7,079) 88,356 2020 767 1,645 3,390 (8,636) 86,195 Defined benefits refer to the retirement bonuses granted according to the seniority within the Group and other long-term benefits refer to the jubilee bonuses granted for seniority. (ii) Actuarial assumptions The following were the main actuarial assumptions at each reporting date: (a) Macroeconomic assumptions: • inflation. The actuary used information from the National Commission for Strategy and Prognosis: Valuation date 31 December 2021 Valuation date 31 December 2020 7.5% 5.9% 3.2% 3.0% 2.8% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Year 2021 2022 2023 2024 2025 2026+ • the discount rate used is based on the yield of the Romanian Government bonds at the reporting date, therefore the weighted average discount rate is 5% for the year 2021 (2020: 3.3%); • the electricity price per KWh used for 2022 is RON 1.129673, for 2023 it was considered a tendency to recover from the energy crisis, and starting with 2024 is adjusted with inflation (2020: RON/KWh 0.525110); • the mortality rate published by the National Institute of Statistics was adjusted to 90% to approximate the mortality rates by generations; • taxes and social charges are those in force as at the reporting date. (b) Group specific assumptions: • For the year 2022 were taken into consideration the salaries’ growth rates budgeted by the Group. Starting with the year 2023, salaries’ growth is forecasted at the inflation rate; • Employees’ turnover: based on historical data; • Jubilee and retirement bonuses granted based on seniority as per the collective labour contracts, as follows: 326 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Jubilee bonus based on years of service in the Group Seniority 20 years 30 years 35 years 40 years 45 years Retirement bonus based on years of service in the Group Seniority Between 8 and 10 years Between 10 and 25 years More than 25 years No of gross monthly base salaries 31 December 2021 31 December 2020 1 2 3 4 5 1 2 3 4 5 No of gross monthly base salaries 31 December 2021 31 December 2020 2 3 4 2 3 4 The Group provides also as benefit free of charge electricity in quantity of kWh 1,200 per year to employees who retired before 30 September 2000 who fulfill the conditions stipulated in the Government Decision no. 1041/2003. In the event of pensioner’s death, the husband/wife is entitled to receive the same benefit until he/ she will marry again. Termination benefits (a) Termination benefits for individual lay-offs at the Group’s initiative In accordance with the Collective Labour Contracts concluded between the Group and the Unions, when individual labour contract are terminated at the Group’s initiative, the Group pays termination benefits to the employees depending on their period of service, as follows: Period of service salaries salaries No of gross monthly base No of gross monthly base 31 December 2021 31 December 2020 1 - 2 years 2 - 5 years 5 - 10 years 10 - 20 years More than 20 years 2 3 4 5 8 2 3 4 5 8 327 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)(b) Termination benefits for collective lay-offs at the Group’s initiative For collective lay-offs, according to the Collective Labour Contracts, the Group pays termination benefits to the employees depending on their period of service, as follows: Period of service salaries salaries No of gross monthly base No of gross monthly base 31 December 2021 31 December 2020 1 - 3 years 3 - 5 years 5 - 10 years 10 - 20 years 3 6 7 11 3 6 7 11 More than 20 years 16 16 The above mentioned stipulations do not apply to employees with individual labour contract concluded for a determined period. The above stipulations do not apply to employees that obtained other higher cumulative salary compensation rights, provided by legal regulations regarding the Group’s reorganization and restructuring. Employees who are re-employed within the Group after lay-off are not entitled to the above- mentioned benefits. (c) Termination benefits for voluntary redundancies In accordance with the Agreements signed between the Group and the Unions and the Addendums to Collective Labour Contracts, in case the individual labour contract is terminated as voluntary redundancy from the employee, the Group pays termination benefits depending on the period to reach the standard retirement age, the period of service in the Group and the seniority. The number of gross monthly base salaries paid as termination benefits vary between 5 and 23. (iii) Sensitivity analysis Significant actuarial assumptions for the determination of the benefit obligation are the discount rate, expected salary increase and retirement age. The sensitivity analysis below has been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. Increase by 1% Decrease by 1% 2021 2020 2021 2020 Discount rate (12,489) (13,216) 12,489 13,216 Salary growth 12,957 13,561 (12,957) (13,561) Increase by 1 year Decrease by 1 year Retirement age 2021 3,677 2020 3,367 2021 2020 (3,677) (3,367) The sensitivity analysis presented above may not be representative of the actual change in the benefit obligation as it is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated. In presenting the above sensitivity analysis, the present value of the benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the benefit obligation liability recognized in the statement of financial position. 328 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)16 Employee benefit expenses Average number of employees Number of employees at 31 December 2021 7,919 8,020 2020 8,053 8,126 2021 2020 Wages and salaries* 796,137 738,009 Social security contributions Meal tickets Termination benefits 19,486 33,585 6,135 17,133 27,080 25,751 Total employees benefits for the year 855,343 807,973 Capitalised employee benefit expenses (52,667) (33,472) Total employees benefits in the statement of profit or loss 802,676 774,501 *Wages and salaries includes also current service cost, defined benefits and other long-term employee benefits. Management remuneration is disclosed in Note 33 b) Related parties. 17 Income taxes In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. The Group considers that the accounting records for taxes due are adequate for all open tax years, based on assessment made by management taking into account various factors, including the interpretation of tax legislation and previous experience. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period when such a determination is made. (i) Amounts recognised in profit or loss Current tax expense 2021 242 2020 53,928 Deferred tax (benefit)/expense (79,771) 838 Total (benefit)/expense related to income tax (79,529) 54,766 329 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)(ii) Amounts recognised in other comprehensive income 2021 2020 Before tax Tax expense Net of tax Before tax (expense)/ tax Tax Net of benefit Revaluation of land, land improvements and - - - 43,823 (7,931) 35,892 buildings Remeasurement of (5,891) (45) (5,936) (7,152) 572 (6,580) defined benefit liability Total (5,891) (45) (5,936) 36,671 (7,359) 29,312 (iii) Reconciliation of effective tax rate (Loss)/Profit before tax 2021 (632,411) 2020 442,309 (Benefit)/Tax using Company’s domestic tax 16% (101,186) 16% 70,769 rate Non-deductible expenses -7% 45,558 6% Non-taxable income 3% (15,878) -5% Deduction of legal reserves 0% (2,574) -1% Other tax effects 0% (1,607) 0% Recognition of tax effect of previously unreco- 1% (3,842) -4% gnised tax losses 27,453 (20,537) (3,244) (402) (19,273) Income tax (benefit)/expense 13% (79,529) 12% 54,766 (iv) Movement in deferred tax balances 2021 at 1 January in profit or comprehensive Deferred tax Net balance Recognised Recognised in other Deferred 2021 loss income Net tax assets liabilities Balance at 31 December 2021 Property, plant and 41,757 (1,919) equipment Intangible assets related 171,712 15,788 to concession agreements - - 39,838 - 39,838 187,500 - 187,500 Employee benefits (22,603) (1,382) 45 (23,940) (23,940) - 330 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Balance at 31 December 2021 2021 at 1 January in profit or comprehensive Deferred tax Net balance Recognised Recognised in other Deferred 2021 loss income Net tax assets liabilities Tax loss carried (7,765) (88,207) forward Other items (4,121) (178) - - (95,972) (95,972) (4,299) (4,299) - - Tax liabilities/ (assets) before set-off 158,121 (79,771) 45 78,395 (148,943) 227,338 Set off of tax Net tax liabilities/ (assets) 65,412 (65,412) (83,531) 161,926 The Group recognised a deferred tax asset in amount of RON 88,207 thousand in relation to the suffered loss from 2021. The recognition was based on the latest management assumptions and judgements in which the subsidiaries for which a deferred tax asset was recognised, will generate future taxable profit in the next 7 years will, against which the subsidiaries can use the benefits therefrom. The 7-year period is the maximum period in which the Group is allowed to use the benefit in the current tax jurisdiction. Net Recognised Recognised Deferred 2020 balance at in profit or in other Acquisition of Net Deferred tax 1 January loss comprehensive subsidiaries* tax assets liabilities 2020 income Balance at 31 December 2020 Property, plant and 35,828 (4,876) 7,931 2,874 41,757 equipment Intangible assets related to concession agreements 162,923 8,789 - Employee benefits (20,203) (1,828) (572) Impairment of trade (19,402) (1,457) receivables Tax loss carried (6,959) 395 forward Other items (3,936) (185) - - - Tax liabilities/ - - - - - 41,757 171,712 171,712 (22,603) (22,603) (20,859) (20,859) - - - - (1,201) (7,765) (7,765) - (4,121) (4,121) (assets) before 148,251 838 7,359 1,673 158,121 (55,348) 213,469 set-off Set off of tax 35,682 (35,682) 331 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Net tax liabilities/ (assets) (19,666) 177,787 *see Note 32 (v) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the certain tax losses generated by the Company, because it is not probable that future taxable profit will be available against which the entity generating it can use the benefits therefrom. Tax losses 18 Trade receivables 2021 356,623 2020 371,426 31 December 2021 31 December 2020 Trade receivables, gross 2,325,477 1,979,348 Bad debt allowance (980,858) (949,573) Total trade receivables, net 1,344,619 1,029,775 Trade receivables from related parties are presented in Note 33. Trade receivables, gross, comprise: 31 December 2021 31 December 2020 Electricity distribution and supply 1,323,732 1,026,525 Late payment penalties receivable Customers with judicial execution titles Repairs, maintenance and other services Other 81,311 766,109 17,700 136,625 84,729 760,229 12,624 95,241 Total trade receivables, gross 2,325,477 1,979,348 Following the adoption of the Order no. 118/2021 with subsequent amendments approved by Law no. 259/2021 with subsequent amendments and Order no. 226/2021 concerning the capping and compensation mechanism, part of the receivables due to the subsidiary Electrica Frunizare S.A. for the sale of electricity and gas are against the Romanian State through National Agency for Payments and Social Inspection and Ministry of Energy. The amounts estimated to be received are of RON 59,271 thousand from the National Agency for Payments and Social Inspection for household consumers and of RON 11,420 thousand from the Ministry of Energy for non- household consumers. The amounts will be recovered in 30 days after submitting the required documentation to the National Agency for Payments and Social Inspection or Ministry of Energy, depending on the case. The receivables are booked under the caption “Electricity distribution and supply”. The reconciliation between the opening balances and the closing balances of the impairment for trade receivables in the form of lifetime expected credit losses is as follows: 332 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Lifetime expected credit losses 2021 2020 Balance as at 1 January Loss allowance recognized Decrease in loss allowance Amounts written off Balance as at 31 December 949,573 94,400 (22,944) (40,171) 980,858 1,022,140 60,773 (121,176) (12,164) 949,573 The aging of trade receivables is presented in Note 31. Loss allowances are determined according to IFRS 9 “Financial instruments” based on “expected credit loss” model. In applying IFRS 9, the Group has identified 5 clusters of customers based on shared risk characteristics: 3 separate clusters for the distribution subsidiaries and 2 clusters (households and non-households) for the supply subsidiary. A significant part of the bad debt allowances refers to clients in litigation, insolvency or bankruptcy procedures, many of them being older than five years. The Group will derecognize these receivables together with the related allowances after the finalization of the bankruptcy process. These receivables were treated separately in computing the allowance according to IFRS 9. Amounts written off refer mainly to clients for which the bankruptcy procedure was finalized. Oltchim (a state-controlled company) was an important customer of Electrica S.A. until January 2012, when the Company transferred the contract to Electrica Furnizare S.A.. In January 2013, Oltchim entered into insolvency procedures and subsequently in May 2019 started the bankruptcy procedures. Due to the uncertainties regarding the recoverability of the amounts owed by this customer, the Group recognized in prior years a bad debt allowance for the entire amount receivable. During 2020, the Group adjusted the uncollected VAT in amount of RON 105,042 thousand related to the doubtful receivables from Oltchim, based on the sentence of starting the bankruptcy procedures and the provisions of art. 287 of the Fiscal Code. As the entire amount was recovered during 2020, by offsetting the VAT positions to be recovered with the payment position at the level of the VAT group to which the companies in the Electrica Group belong, the bad debt allowance was reversed with the same amount. During 2021, receivable for Oltchim in amount of RON 29,329 thousand was written off as it was not recognised in the final bankruptcy table. The bad debt allowance was also adjusted with the same amount. In the light of the impact generated by COVID-19 pandemic, the Group has identified the probability of default, taking into account a number of factors to ensure that the classification to default is done not only based on the historical expected credit loss but also based on circumstances according to which economic losses are likely to occur. IFRS 9 is based on a set of principles that, by nature are not mechanical and require the application of a certain degree of professional judgement. In applying IFRS 9 as of 31 December 2021, the Group has considered all the information available without undue costs (including forward looking information) that may affect the credit risk of its receivables since original recognition, thus recording a bad debt allowance in amount of RON 94,400 thousand. 333 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)19 Other receivables VAT receivable Interest receivable Other receivables Lifetime expected credit losses Total other receivables, net 31 December 2021 31 December 2020 12,566 18 56,140 (20,124) 48,600 12,565 77 40,782 (20,964) 32,460 Other receivables include mainly guarantees and receivables to be recovered from state authorities in respect to medical leave indemnities. The reconciliation between the opening balances and the closing balances of the impairment for other receivables is as follows: Loss allowance 2021 2020 Balance as at 1 January 20,964 22,728 Loss allowance recognized Decrease in loss allowance Balance as at 31 December 20 Cash and cash equivalents - (840) 20,124 237 (2,001) 20,964 Bank current accounts Call deposits Cash in hand 31 December 2021 31 December 2020 167,859 53,897 74 179,362 391,514 53 Total cash and cash equivalents in the consolidated 221,830 570,929 statement of financial position Overdrafts used for cash management purposes (627,402) (164,966) Total cash and cash equivalents in the consolidated (405,572) 405,963 statement of cash flows 334 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)31 December 2021 31 December 2020 Restricted cash – short-term - 320,000 On 16 October 2021 the long term borrowings from BRD – Groupe Societe Generale were repaid, so the amount of the collateral deposits in amount of RON 320,000 thousand presented in the consolidated statement of financial position as short-term restricted cash as at 31 December 2020, were released. Until the authorization for issue of these Consolidated Financial Statements by the Board of Directors, the Group has overdrafts from various banks (ING Bank N.V., Raiffeisen Bank, Banca Comerciala Romana, Banca Transilvania, BNP Paribas, Intesa Sanpaolo Bank and BRD – Groupe Societe Generale S.A.) with a total overdraft limit of up to RON 1,830,000 thousand and maturities ranging from January 2022 to December 2023 out of which overdrafts in amount of RON 760,000 thousand were signed subsequently in the period between 31 December 2021 and 28 February 2022. (for further details please see Note 36) The overdraft facilities are used for cash management purposes and are not financial in nature from the perspective of presenting in the consolidated statement of cash flows. The outstanding balance of the overdraft facilities as at 31 December 2021 is of RON 627,402 thousand (31 December 2020: RON 164,966). The following information is relevant in the context of the consolidated statement of cash flows. Non-cash activity includes: • set-off between trade receivables and trade payables of RON 5,941 thousand in 2021 (2020: RON 9,734 thousand). 21 Assets held for sale Electrica Serv S.A.’s Board of Directors approved the selling plan of part of their available assets and accordingly, those assets were presented as Assets held for sale, being expected to be sold in the following period. During 2021 were sold a number of 4 assets (8 in 2020) in amount RON 478 thousand (RON 1,735 thousand in 2020). In November 2021, due to the fact that Electrica Serv S.A. did not managed to sell some of the assets approved in the initial selling plan in 2019, the market conditions for selling being limited by the COVID pandemic resulting in difficulties in finding an active buyer, a new plan was approved with the assets for which the sale is highly probably, offers being received and are available for immediate sale in current conditions; the rest of the assets in amount of RON 10,190 were reclassified to Property Plant and Equipment (Note 23). The assets held for sale comprise: Land and buildings Equipment Total assets held for sale 22 Inventories 31 December 2021 31 December 2020 5,132 280 5,412 15,476 - 15,476 As at 31 December 2021 and 31 December 2020, inventories are as follows: Spare parts Consumables and other materials Natural gas 31 December 2021 31 December 2020 28,569 33,399 5,367 40,582 22,672 1,725 335 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)31 December 2021 31 December 2020 Other inventories Allowance for impairment of inventories Total inventories 13,938 (8,315) 72,958 23,868 (18,781) 70,066 Inventories include mainly spare parts, consumables and the natural gas storage (applicable only for the supply subsidiary) that was set up according to ANRE’s regulations. Spare parts refer mainly to items such as cables, conductors, sockets, switches which are used for the distribution network. As at 31 December 2021, the remaining quantity of natural gas stored is of MWh 12,186 (31 December 2020: MWh 20,307), amounting to RON 5,367 thousand (31 December 2020: RON 1,725 thousand). With the acquisition of Electrica Energie Verde 1 (former Long Bridge Milenium S.R.L) (please refer to Note 32), the Group took over the balance of green certificates existing at the acquisition date, respectively 31 August 2020. The photovoltaic park receives a number of six green certificates for each MWh of electricity produced and delivered, out of which for the period 2013-2020, two green certificates were postponed for trading, following to be recovered in equal tranches from 1 January 2021 to 31 December 2030. Green certificates are recognized in the caption “Other inventories” when they energy is produced and injected into the network, at Nil nominal value. On 31 December 2021, Electrica Energie Verde 1 SRL holds a total of 181,850 green certificates (31 December 2020: 148,581), out of which 125,825 are postponed for trading (31 December 2020: 139,805) and the remaining 56,025 are tradeable green certificates (31 December 2020: 8,776). Starting with January 2021, the recovery of the postponed green certificates began, in equal tranches of 1,165 green certificates on a monthly basis, for ten years. 23 Property, plant and equipment The movements in property, plant and equipment in 2021 and 2020 are as follows: Land and land Buildings Equipment furniture Construction Total improvements and office in progress equipment Vehicles, Gross carrying amount Balance at 1 232,386 192,728 287,174 93,424 27,742 833,454 January 2020 Additions 85 157 1,997 1,259 2,986 6,484 Transfer from construction in - progress Transfer to intangible 1,269 - 622 (1,891) - assets related (1,442) - (213,590) - (2,567) (217,599) to concession agreements 336 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Land and land Buildings Equipment furniture Construction Total improvements and office in progress equipment Vehicles, Disposals (920) (1,471) (11,419) (1,048) (45) (14,903) Revaluation recognized in other comprehensive income Revaluation 15,834 27,989 recognized in (126) (2,294) profit or loss Gross book value netted - - off against the - (26,563) - accumulated depreciation at revaluation Acquisition of - - - subsidiary (Note 258 5,333 34,734 1,079 32) - - - - 43,823 (2,420) (26,563) 41,404 Balance at 31 246,075 197,148 98,896 95,336 26,225 663,680 December 2020 Additions Transfer from construction in progress - - 167 482 150 8,368 9,167 1,257 2,001 1,967 (5,225) - Disposals (46) (383) (7,664) (503) (180) (8,776) Reclassification from/(to) assets 6,769 4,368 (1,914) - - 9,223 held for sale (Note 21) Balance at 31 252,798 202,557 91,801 96,950 29,188 673,294 December 2021 Accumulated depreciation and impairment losses Balance at 1 January 2020 Depreciation - - 24,152 163,883 82,446 18,875 289,356 5,922 17,058 4,870 - 27,850 337 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Land and land Buildings Equipment furniture Construction Total improvements and office in progress equipment Vehicles, (403) (11,321) (766) 1,905 - - (1,196) (26,563) - - - - - (123,208) - - - (12,490) 1,905 (104) (1,300) - - (26,563) (123,208) 5,013 45,216 86,550 18,771 155,550 7,532 8,865 4,721 (14) (4,546) (96) - (3,805) 947 (1,142) - - - - 21,118 (4,656) (137) (3,942) - (195) 13,478 44,588 91,175 18,634 167,875 Accumulated depreciation of disposals Impairment loss Reversal of impairment loss Accumulated depreciation netted off against gross book value at revaluation Transfer to intangible assets related to concession agreements Balance at 31 December 2020 Depreciation Accumulated depreciation of disposals Reversal of impairment loss - - - - - - - - - Reclassification from/(to) assets - held for sale (Note 21) Balance at 31 - December 2021 Net carrying amounts At 1 January 2020 232,386 168,576 123,291 10,978 8,867 544,098 At 31 December 2020 246,075 192,135 53,680 8,786 7,454 508,130 At 31 December 2021 252,798 189,079 47,213 5,775 10,554 505,419 338 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Tangible assets include mainly land, buildings and equipment. In 2021, following the changes made in the in the selling plan for Electrica SERV there were reclassified from assets held for sale to Property Plant and Equipment, land and buildings having as net book value RON 10,190 thousand. (see further details in Note 21). In 2020 transfers to intangible assets related to concession agreements in the net amount of RON 94,391 thousand refer to: - the AMR system (Automatic Meter Reading) equipment consisting of electricity measuring equipment in amount of RON 92,949 thousand; - 2 plots of land in the total surface of 28,696.79 sqm in amount of RON 1,442 thousand that were contributed in kind by Electrica SA to the share capital of its distribution subsidiaries (SDEE Transilvania Nord S.A., SDEE Transilvania Sud S.A., SDEE Muntenia Nord S.A.), these assets being part of the distribution network (see Note 24). As at 31 December 2020, the Group performed the revaluation at fair value of tangible assets consisting of land, land improvements and buildings. The revaluation was performed by an independent authorized evaluator Darian DRS S.A.. Following the revaluation the gain charged to other comprehensive income was in amount of RON 43,823 thousand and the loss recognized in profit or loss was in amount of RON 2,420 thousand. Measurement of fair value The Group’s land, land improvements and buildings are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value measurements of the Group’s land, land improvements and buildings as at 31 December 2020 were performed by Darian DRS S.A., an independent valuer not related to the Group. Darian DRS S.A. is member of the National Association of Authorised Romanian Valuers and has appropriate qualifications and recent experience in the fair value measurement of properties in the relevant locations. The valuation conforms to International Valuation Standards and was based on recent market transactions on arm’s length terms for similar properties, whenever possible and discounted cash-flows method. There has been no change to the valuation technique during the period between the present revaluation performed as at 31 December 2020 and the previous one, performed as at 31 December 2017. The following table shows the valuation techniques used in measuring fair values (Level 3), as well as the significant unobservable inputs used. Category Valuation technique Significant unobservable between key Inter-relationship inputs unobservable inputs and fair value measurement Land and land Market approach Adjustment for liquidity, The estimated fair improvements location, size. value would increase/ The fair value is estimated based on selling price per square meter of land of similar characteristics (i.e. ownership, legal limitations, financing and selling conditions, location, physical and economical properties and best use). The market price is mainly based on recent transactions. (decrease) if: Adjustment for liquidity, location or size would be lower/(higher) 339 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Category Valuation technique Significant unobservable between key Inter-relationship inputs unobservable inputs and fair value measurement Buildings Market approach and discounted cash-flows (DCF) method Buildings were evaluated using the following methods, depending on the best use and the availability and credibility of available market information: Market approach Adjustment for liquidity, Adjustment for liquidity, The market approach is based location, size. location or size would be lower/(higher) on the selling price per square meter for buildings with similar characteristics (i.e. ownership, legal limitations, financing and selling conditions, location, physical and Office space rent economical properties, and best Occupancy rates use), adjusted for liquidity, location, size etc. (between 80% and 90%) Yield rates (between 7% The DCF method Annual rent per sqm The valuation model based on (between 9 and 19 EUR/ the DCF method estimates the sqm), depending on and 10%) present value of net cash flows to location; Occupancy rates were be generated by a building taking higher/(lower) into account occupancy rate and Commercial space rent Yield rates were lower/ annual rent. The discount rate Occupancy rates (higher) estimation considers, inter alia, (between 85% and 90%) Annual rent per sqm was the quality of a building and its Yield rates (between higher/(lower) location. 7.25% and 11.5%) Annual rent per sqm (between 10 and 60 EUR/ sqm), depending on location; 24 Intangible assets Intangible assets include mainly intangible assets related to distribution service concession agreements recorded in accordance with IFRIC 12 “Service Concession Arrangements”, as well as licenses and costs of SAP ERP implementation, customer management and billing system and other software, as follows: Intangible assets related to Software and Intangible concession agreements licenses assets in progress Total Gross book value Balance at 1 January 8,934,136 191,424 1,669 9,127,229 2020 Additions 598,930 2,226 - 601,156 340 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Transfers from property, plant and 91,824 - - 91,824 equipment Transfers from intangible assets in - progress 302 (302) - Transfers from property, plant and equipment in progress 2,567 - Reclassification to intangible assets 4,503 related to concession agreements (4,503) Disposals - (770) - - - 2,567 - (770) Balance at 31 9,631,960 188,679 1,367 9,822,006 December 2020 Additions 500,387 5,730 576 506,693 Transfers from intangible assets in progress Disposals - - 34 (34) - (1,042) - (1,042) 10,132,347 193,401 1,909 10,327,657 Balance at 31 December 2021 Accumulated amortization and impairment losses Balance at 1 January 3,745,981 179,683 2020 Amortization 429,216 5,498 - - 3,925,664 434,714 341 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Reclassification to intangible assets 1,578 related to concession agreements Accumulated amortization of - disposals (1,578) (770) Balance at 31 4,176,775 182,833 December 2020 Amortization 441,015 Accumulated amortization of - disposals 4,536 (1,042) 4,617,790 186,327 Balance at 31 December 2021 Net carrying amounts - - - - - - - (770) 4,359,608 445,551 (1,042) 4,804,117 At 1 January 2020 5,188,155 At 31 December 2020 5,455,185 At 31 December 2021 5,514,557 11,741 5,846 7,074 1,669 1,367 1,909 5,201,565 5,462,398 5,523,540 The distribution subsidiaries (as operators) that merged into one single distribution operator as of 31 December 2020 concluded concession contracts with the Ministry of Economy concerning the operation of electricity distribution service in the established territory (Transilvania Nord, Transilvania Sud, Muntenia Nord), on the risk and responsibility of the operator and taking into account the technical regulations applicable to the operation, modernization, rehabilitation and development of energy distribution networks specified in the Electricity Law, the terms and conditions of the licenses for electricity distribution and the regulations issued by ANRE. The distribution operator resulting from the merger of the three distribution operators within the Group, Distributie Energie Electrica Romania concluded addendums to the concession agreements signed with the Ministry of Economy for the operation of electricity distribution service in all three areas starting with 1 January 2021, taking over all the rights and obligations from the three former electricity distribution companies. The Group applies IFRIC 12 for the accounting of the transactions under these concession contracts. (See further details in Notes 4, 6(c) and 6(l)). For the year ended 31 December 2021, the Group has recognized construction revenue related to the concession agreements of RON 500,387 thousand (2020: RON 696,246 thousand) and construction costs of RON 485,813 thousand (2020: RON 675,967 thousand). 342 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)The main information related to the current concession contracts agreements and the intangible assets amounts recognized for each network distribution area is summarized below: Network Concession Concession Net carrying carrying distribution Contract areas date period (years) Contract expiry period Renewal amount at 31 amount date remaining option December at 31 Net Muntenia Nord area 2005 49 2054 Transilvania 2005 49 2054 Nord area Transilvania 2005 49 2054 33 33 33 Sud area Total (years) 2021 December 2020 Yes 1,915,567 1,893,208 Yes 1,836,161 1,810,611 Yes 1,762,829 1,751,366 5,514,557 5,455,185 The concession contracts can be prolonged for a period up to half of the initial established period of 49 years. The investments in relation to the development and modernization of the infrastructure incurred in 2021 refers mainly to: - Modernization of the current transformer points and stations, current underground and overhead power lines in amount of RON 164,465 thousand (2020: RON 165,480 thousand); - Investments related to improvements for electricity distribution network in amount of RON 143,965 thousand (2020: RON 51,190 thousand). - Significant construction works of new transformer stations, new underground and overhead power lines in amount of 2020: RON 97,449 thousand (2020: RON 36,470 thousand); - Acquisition of own car fleet, including utilities vehicles and specialized vehicles in amount of RON 63,009 thousand; (2020: RON 56,220 thousand); - Modernization and inclusion in SCADA (which is an automatic control system which monitors the equipment) of transformers points and stations, in amount of RON 2,430 thousand (2020: RON 78,980 thousand); 25 Investments in associates On 28 July 2021 and on 7 December 2021, Electrica SA concluded four agreements for the sale-purchase of shares in four project companies having as main activity the production of electricity from renewable sources. The sale-purchase agreements concluded, mention the fact that in the first stage the Group acquires 30% of the share capital of the four companies, remaining that in the following stages, to acquire the remaining 70% of the share capital after the conditions provided in the sale-purchase agreements will be fulfilled. The four companies are as follows: - Crucea Power Park SRL, develops the wind project “Crucea Est”, with a projected installed capacity of 121 MW and a projected electricity storage capacity of 60 MWh (15 MW x 4h), located outside the Crucea area, Constanta County. The estimated purchase price for the “Crucea Est” wind project is 70 thousand EUR/MW for the aforementioned capacity, totalling the amount of 8,470 thousand EUR. On 28 July 2021, Electrica SA paid the amount of EUR 2,541 thousand representing 30% of the project value, respectively 30% of the shares of Crucea Power Park SRL. - Sunwind Energy SRL, develops the photovoltaic project “Satu Mare 2” with a designed installed capacity of 27 MW, located near Satu Mare city. The estimated purchase price for the photovoltaic project “Satu Mare 2” is 55 thousand EUR/MW for the aforementioned capacity, totalling the amount of 1,485 thousand EUR. On 28 July 2021, Electrica SA paid the amount of EUR 445.5 thousand representing 30% of the project value, respectively 30% of the shares of Sunwind Energy SRL. 343 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)- New Trend Energy SRL, develops the photovoltaic project “Satu Mare 3”, with a projected capacity of 59 MW, located near Satu Mare city. The estimated purchase price for the photovoltaic project “Satu Mare 3” is 55 thousand EUR/MW for the aforementioned capacity, totalling the amount of 3,245 thousand EUR. On 28 July 2021, Electrica SA paid the amount of EUR 973.5 thousand representing 30% of the project value, respectively 30% of the shares of New Trend Energy SRL. - Foton Power Energy SRL, develops the photovoltaic project “Bihor 1”, with a projected capacity of 77.5 MW, located near Inand city, Bihor County. The estimated purchase price for the photovoltaic project “Bihor 1” is 55 thousand EUR/MW for the aforementioned capacity, totalling the amount of 4,262.5 thousand EUR. On 7 December 2021, Electrica SA paid the amount of EUR 1,279 thousand representing 30% of the project value, respectively 30% of the shares of Foton Power Energy SRL. Considering the holding percentage of 30%, as at 31 December 2021, the 4 entities are accounted for using the equity method in these consolidated financial statements as provided in the Group’s accounting policies in note 6. The cost of the investments at acquisition date, totalling the amount of RON 25,813 thousand, is detailed as follows: Crucea Power New Trend Sunwind Energy Foton Power Park S.R.L. Energy S.R.L. S.R.L. Energy S.R.L. Acquisition date 31.07.2021 31.07.2021 31.07.2021 31.12.2021 Percentage ownership and voting 30% 30% 30% 30% rights at acquisition date Net assets at acquisition date (242) Group’s share of net assets (73) (5) (2) Goodwill 12,573 4,791 Cost of investment at acquisition 12,500 4,789 date (5) (2) 2,194 2,192 (7) (2) 6,334 6,332 Summarised financial information in respect of each of the Group’s associates is set out below: Crucea Power New Trend Sunwind Energy Park S.R.L. Energy S.R.L. S.R.L. Foton Power Energy S.R.L. 31.12.2021 31.12.2021 31.12.2021 31.12.2021 Non-current assets 7,078 Current assets 945 249 47 161 21 Non-current liabilities (6,904) (303) (190) Current liabilities (1,364) Net assets (245) Reconciliation to carrying amounts: (2) (9) Opening net assets at acquisition date (242) (5) (1) (9) (7) 142 23 (168) (4) (7) (7) 344 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Crucea Power New Trend Sunwind Energy Park S.R.L. Energy S.R.L. S.R.L. Foton Power Energy S.R.L. Loss for the period (3) Closing net assets 31.12.2021 (245) (4) (9) (4) (11) - (7) Reconciliation of the above summarised financial information to the carrying amount of the interest in associates recognised in the consolidated financial statements: Crucea Power New Trend Sunwind Energy Park S.R.L. Energy S.R.L. S.R.L. Foton Power Energy S.R.L. Closing net assets of associates 31.12.2021 (245) (9) Group’s share in associates % 30% 30% Group’s share of net assets as at 31.12.2021 Goodwill Carrying amount of interest in associate (74) 12,573 (3) 4,791 (11) 30% (3) 2,194 (7) 30% (2) 6,334 31.12.2021 12,499 4,788 2,191 6,332 The share loss in amount of RON 3 thousand for the period was recognized in the consolidated statement of profit and loss for the year ended as at 31 December 2021. 26 Capital and reserves (a) Share capital and share premium The issued share capital in nominal terms consists of 346,443,597 ordinary shares as at 31 December 2021 (31 December 2020: 346,443,597) with a nominal value of RON 10 per share. As of 4 July 2014, after the Initial Public Offering (“IPO”), the Company’s shares are listed on the Bucharest Stock Exchange and the Global Depositary Receipts are listed on the London Stock Exchange. The shares owned by the Company’s shareholders that are traded on the London Stock Exchange are the global depositary receipts (GDRs). A global depositary receipt represents four shares. The Bank of New York Mellon is the depositary bank for these securities. The GDRs’ weight in Electrica’s total share capital diminished following the Initial Public Offering, reaching a level of 0.7842% at the end of 2021 as compared to 10.17% at 4 July 2014. The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share in the shareholders’ meetings of the Company, except for the 6,890,593 treasury shares purchased by the Company in July 2014 in order to stabilize the price. All shares rank equally and confer equal rights to the net assets of the Company’s, except for treasury shares. The Company recognizes changes in share capital only after their approval in the General Shareholders Meeting and their registration by the Trade Register. The contributions made by the shareholders which are not yet registered with the Trade Register at year end are recognized as pre-paid capital contributions from shareholders. 345 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)The share premium resulted at IPO was RON 171,128 thousand. The transaction costs of RON 68,079 thousand were deducted from the share premium. Following the SPO that took place in November 2019, the share capital of Electrica SA was increased by in kind and in cash contribution, with the amount of RON 5,037 thousand, from the amount of RON 3,459,399 thousand to the amount of RON 3,464,436 thousand, by issuing a number of 503,668 new nominative and dematerialized shares with a nominal value of 10 RON/share. The costs generated by the secondary public offering were in amount of RON 964 thousand. Also, the Company recorded gains referring to share issue of RON 2,186 thousand, resulting from the difference between the contribution value of the plots of land and their value recorded as pre-paid capital contributions in kind from shareholders. (b) Treasury shares reserve In July 2014, the Company purchased 5,206,593 ordinary shares and 421,000 Global Depositary Receipts, equivalent to 1,684,000 shares (totalling 6,890,593 shares). The total amount paid for acquiring the shares and Global Depositary Receipts was RON 75,372 thousand. (c) Revaluation reserve The reconciliation between opening and closing balance of revaluation reserve is as follows: 2021 2020 Balance at 1 January Revaluation surplus of land, land improvements and buildings 116,372 - Deferred tax liability arising on revaluation of land, land improvements - 87,665 43,823 (7,931) and buildings Release of revaluation reserve to retained earnings corresponding to (13,543) (7,185) depreciation and disposals of property, plant and equipment Balance as at 31 December 102,829 116,372 As at 31 December 2020, the Group performed the revaluation of land, land improvements and buildings at fair value. The previous revaluation was performed as at 31 December 2017 (please see Note 23). (d) Legal reserves Legal reserves are set up as 5% of the gross profit for the year in the statutory individual financial statements of the companies within the Group, until the total legal reserves reach 20% of the paid-up nominal share capital of each company, according to the legislation. These reserves are deductible for income tax purposes and are not distributable. Balance at 1 January 2020 Set-up of legal reserves Balance at 31 December 2020 Set-up of legal reserves Balance at 31 December 2021 (e) Dividends Legal reserves 371,833 20,443 392,276 16,129 408,405 Romanian companies may distribute dividends from statutory profits, according to the separate financial statements prepared in accordance with Romanian accounting regulations. 346 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)The dividends declared by the Company in 2021 and 2020 (from the statutory profits of previous years) are as follows: Distribution of dividends 2021 2020 To the owners of the Company 247,874 246,108 Total 247,874 246,108 On 28 April 2021 the General Shareholders Meeting of the Company approved dividend distribution of RON 247,874 thousand (2020: RON 246,108 thousand). The dividend per share distributed is RON 0.73 per share (2020: RON 0.7248 per share). When calculating the dividend per share, the Company’s repurchased own shares (6,890,593 shares) were not considered as outstanding shares and are deducted from the total number of issued ordinary shares. Out of the dividends declared by the Company of RON 247,874 thousand (2020: RON 246,108 thousand), the dividends paid were of RON 247,258 thousand (2020: RON 245,780 thousand) the remaining difference represents dividends uncollected by the shareholders. 27 Trade payables Electricity suppliers Capital expenditure suppliers Other suppliers Total 31 December 2021 31 December 2020 619,653 156,546 115,136 891,335 373,563 138,391 95,241 607,195 Electricity suppliers are mainly state-owned electricity producers, as detailed in Note 33, but also other participants to the electricity market. Other suppliers include suppliers of services, materials, consumables, etc. 28 Other payables 31 December 2021 31 December 2020 Current Non-current Current Non-current VAT payable Liabilities towards the State 133,833 7,148 - - 128,450 6,820 - - Other liabilities 130,282 32,732 105,676 33,873 Total 271,263 32,732 240,946 33,873 347 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Other liabilities include mainly guarantees, sundry creditors, connection fees, habitat tax and cogeneration contribution. Other non-current liabilities refer to guarantees from customers related to electricity supply. 29 Provisions Balance at 1 January 2021 1,200 18,038 19,238 Tax related Other Total Provisions recognized Provisions utilised Provisions reversed Balance at 31 December 2021 - - (116) 1,084 22,933 22,933 (2,286) (2,286) (4,847) (4,963) 33,838 34,922 As at 31 December 2021, provisions refer mainly to benefits upon the termination of executive directors’ mandate contracts in the form of a non-compete clause amounting to RON 3,971 thousand (31 December 2020: RON 6,139 thousand) and for various claims and litigations involving the Group companies in amount of RON 30,951 thousand (31 December 2020: RON 13,099 thousand). During 2021, the Group set up a provision in connection with the supply subsidiary obligations in amount of RON 10,584 thousand representing compensations arising from the application of the Performance Standard for the electricity supply activity stipulated in the ANRE Order 6/2017, and of the Regulation for the supply of electricity to final customers, approved by ANRE Order no. 235/2019 as a result of the total liberalization process of the market which began on 1 January 2021. 30 Long-term bank borrowings Drawings and repayments of borrowings during the year ended 31 December 2021 were as follows: Balance at 1 January 2021 Drawings of borrowings during the period, out of which: EBRD BCR BRD Total drawings Accumulated interest Payment of interest Currency Interest rate Maturity Amount (RON year thousand) 778,909 RON RON RON Floating rate (1.15% + interbank rate + ROBOR spread) 2031 81,685 ROBOR 3M+1% 2028 82,793 3.85% 2028 70,212 234,690 1,536 (795) 348 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Currency Interest rate Maturity Amount (RON year thousand) Reimbursements, out of which: BRD BRD BRD Banca Transilvania UniCredit Bank BCR Balance at 31 December 2021 RON RON RON RON RON RON 0,02% 3,99% 3,85% 4.59% 3.85% ROBOR 3M+1% 2021 2026 2026 2027 2026 2026 (320,000) (20,800) (12,857) (17,857) (9,600) (4,737) 628,489 As at 31 December 2021, respectively 31 December 2020, the bank borrowings is as follows: Lender Borrower Balance at Balance at 31 December 2021 31 December 2020 BRD Distributie Energie Electrica Romania - 80,000 (former SDEE Muntenia Nord S.A.) BRD Distributie Energie Electrica Romania - 114,000 (former SDEE Transilvania Nord S.A.) BRD Distributie Energie Electrica Romania - 126,000 (former SDEE Transilvania Sud S.A.) Banca Distributie Energie Electrica Romania 98,227 116,086 Transilvania (former SDEE Transilvania Sud S.A.) UniCredit Bank Distributie Energie Electrica Romania 48,498 58,201 (former SDEE Transilvania Nord S.A.) BRD Distributie Energie Electrica Romania 104,000 124,800 (former SDEE Muntenia Nord S.A.) BRD Distributie Energie Electrica Romania (former SDEE Transilvania Nord S.A.) 92,857 69,584 BRD Distributie Energie Electrica Romania 74,342 40,289 (former SDEE Transilvania Sud S.A.) BCR Distributie Energie Electrica Romania 128,243 49,949 (former SDEE Muntenia Nord S.A.) EBRD Total Distributie Energie Electrica Romania 82,322 - 628,489 778,909 Less: current portion of the long-term bank borrowings (508,197) (377,818) Less: accumulated interest (1,536) (795) 349 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Lender Borrower Balance at Balance at 31 December 2021 31 December 2020 Total long-term borrowings, net of current portion 118,756 400,296 Bank Borrowings description (a) Investment loans granted by BRD – Groupe Societe Generale On 17 October 2016, the Company’s distribution subsidiaries (Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., Societatea de Distributie a Energiei Electrice Muntenia Nord S.A. and Societatea de Distributie a Energiei Electrice Transilvania Nord S.A., currently Distributie Energie Electrica Romania S.A.) concluded long term loan contracts with BRD – Groupe Societe Generale, for which Electrica SA is the guarantor. The loan was fully reimbursed at maturity (16 October 2021). The loans were subject to a fixed interest rate of 0.02% per annum. As at 31 December 2021, the outstanding balance is Nil (31 December 2020: RON 320,000 thousand) (see also see Note 20). (b) Investment loan granted by Banca Transilvania On 18 July 2019, Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., currently Distributie Energie Electrica Romania S.A., as a borrower, concluded with Banca Transilvania an investment credit agreement with the purpose of financing investments in the electricity distribution network, according to the investment plan. Main provisions are: Maximum loan amount: RON 125,000 thousand; Interest rate: fixed, 4.59% per annum; Reimbursements: quarterly instalments until 30.06.2027; Grace period: 12 months. As at 31 December 2021, the outstanding balance is of RON 98,227 thousand, of which RON 98,214 thousand principal and RON 13 thousand accrued interest. (Outstanding balance as at 31 December 2020: RON 116,086 thousand) (c) Investment loan granted by Unicredit Bank On 13 November 2019, Societatea de Distributie a Energiei Electrice Transilvania Nord S.A., currently Distributie Energie Electrica Romania S.A., as borrower, concluded with Unicredit Bank an investment credit agreement with the purpose of financing investments in the electricity distribution network, according to the investment plan. Main provisions are: Maximum loan amount: RON 60,000 thousand; Interest rate: fixed, 3.85% per annum; Reimbursements: quarterly instalments until 13.11.2026; Grace period: 12 months. As at 31 December 2021, the outstanding balance is of RON 48,498 thousand, of which RON 48,000 thousand principal and RON 498 thousand accrued interest. (Outstanding balance as at 31 December 2020: RON 58,201 thousand) (d) Investment loan granted by BRD – Groupe Societe Generale On 29 October 2019, Societatea de Distributie a Energiei Electrice Muntenia Nord S.A., currently Distributie Energie Electrica Romania S.A., as borrower, concluded with BRD – Groupe Societe Generale an investment credit agreement with the purpose of financing investments in the electricity distribution network, according to the investment plan. Main provisions are: Maximum loan amount: RON 130,000 thousand; Interest rate: fixed, 3.99% per annum; Reimbursements: quarterly instalments until 28.10.2026; Grace period: 12 months. As at 31 December 2021, the outstanding balance is of RON 104,000 thousand. (Outstanding balance as at 31 December 2020: RON 124,800 thousand) (e) Investment loan granted by BRD – Groupe Societe Generale On 25 June 2020, Societatea de Distributie a Energiei Electrice Transilvania Nord S.A., currently Distributie Energie Electrica Romania S.A., as a borrower, concluded with BRD – Groupe Societe Generale an investment credit agreement with the purpose of financing investments in the electricity distribution network, according to the approved investment plan for 2020. Main provisions are: Maximum loan amount: RON 100,000 thousand; Interest rate: fixed, 3.85% per annum; Reimbursements: quarterly instalments until 2028; Grace period: 12 months. As at 31 December 2021, the outstanding balance is of RON 92,857 thousand. (Outstanding balance as at 31 December 2020: RON 69,584 thousand) (f) Investment loan granted by BRD – Groupe Societe Generale On 25 June 2020, Societatea de Distributie a Energiei Electrice Transilvania Sud S.A., currently Distributie Energie Electrica Romania S.A. as a borrower, concluded with BRD – Groupe Societe Generale an investment credit agreement with the purpose of financing investments in the electricity distribution network, according to the approved investment plan for 2020. Main provisions are: Maximum loan amount: RON 80,000 thousand; Interest rate: fixed, 3.85% per annum; Reimbursements: quarterly instalments until 2028; Grace period: 12 months. As at 350 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)31 December 2021, the outstanding balance is RON 74,342 thousand, of which RON 74,286 thousand principal and RON 56 thousand accrued interest. (Outstanding balance as at 31 December 2020: RON 40,289 thousand) (g) Investment loan granted by Banca Comerciala Romana (“BCR”) On 17 September 2020, Societatea de Distributie a Energiei Electrica Muntenia Nord S.A., currently Distributie Energie Electrica Romania S.A., as a borrower and Electrica SA as a guarantor, concluded with Banca Comerciala Romana S.A. an investment credit agreement with the purpose of financing investments in the electricity distribution network, according to the approved investment plan for 2020. Main provisions are: Maximum loan amount: Ron 155,000 thousand; Interest rate: ROBOR 3M+1% per annum; Reimbursements: quarterly instalments until 2028; Grace period: 12 months. As at 31 December 2021, the outstanding balance is RON 128,243 thousand, of which RON 127,911 thousand principal and RON 332 thousand accrued interest. (Outstanding balance as at 31 December 2020: RON 49,949 thousand) (h) Investment loan granted by the European Bank for Reconstruction and Development (“BERD”) On 2 July 2021, Societatea de Distributie Energie Electrica Romania SA, as a borrower, concluded with the European Bank for Reconstruction and Development a credit agreement for investments in order to finance investments in the electricity distribution network according to the 2021-2023 investment plan. The main provisions are: The maximum value of the loan RON 195,136 thousand; Interest rate: agreed individually for each tranche drawn; Repayments: 17 half-yearly installments until 31.07.2031; Grace period: 24 months. As at 31 December 2021, the outstanding balance is RON 82,322 thousand, of which RON 81,685 thousand principal and RON 637 thousand accrued interest. The loan agreement is guaranteed by Electrica SA. (i) Investment loan granted by the European Investment Bank (“BEI”) On 14 July 2021, Societatea de Distributie Energie Electrica Romania SA, as a borrower, concluded with the European Investment Bank an investment credit contract for the purpose of financing investments in the electricity distribution network according to the 2021-2023 investment plan. The main provisions are: Maximum value of the loan: EUR 120,000 thousand; Interest rate and Repayments will be agreed individually for each tranche drawn. On 31 December 2021, the outstanding balance is Nil as no withdraw was made from the loan. The loan agreement is guaranteed by Electrica SA. Financial Covenants The financial covenants specified in the agreements with BRD – Groupe Societe Generale and Unicredit Bank have been fulfilled as at 31 December 2021, respectively as at 31 December 2020. In the agreement with Banca Comerciala Romana there is stipulated one financial covenant: leverage ratio: Net Consolidated Debt to Consolidated EBITDA for the 12 months period ending on the last day of the Group’s financial year and each 12 months period ending on the last day of the first half of the Group’s financial year, of not more than 3:1, which should be fulfilled by the Borrower. As at 31 December 2021 due to the breach in the covenant, the Group reclassified the amount of RON 108.961 thousand from “Long term bank borrowings” to “Current portion of long-term bank borrowings” on the Consolidated Statement of Financial Position. The Group started the procedures of obtaining a waver for the loan to not be repayable on demand. In the agreement with European Bank for Reconstruction and Development there are stipulated two financial covenants: interest coverage ratio: EBITDA for the 12 months preceding the date of calculation to interest payments on all Financial Debt due or accrued during such period, of not less than 3.00:1.00 which should be fulfilled by the Borrower and Net Debt to Consolidated EBITDA for the 12 months preceding the date of calculation, of not more than 3.00:1.00 to be fulfilled by the guarantor Electrica SA. Any breach in either of the covenants would constitute non-compliance leading to a repayment of the loan on demand. As at 31 December 2021 due to the breach in the covenant related to the Guarantor, the Group presented the amount of RON 82,322 thousand in “Current portion of long-term bank borrowings” on the Consolidated Statement of Financial Position. On 24 February 2022, the Group obtained a waver letter for the loan to not be repayable on demand but it is subject to obtaining the waver letters for the other loans for which the Group is in non-compliance BCR and BEI. (Note 36) In the agreement with European Investment Bank there are stipulated two financial covenants: interest coverage ratio: means the ratio of EBITDA to Net Finance Charges which shall not be less than 3x and net leverage ratio - means the ratio of total Net Debt to EBITDA which shall not be more than 3x which must be fulfilled by the guarantor Electrica SA. As at 31 December 2021 the Group is in breach with both covenants, bearing the risk to not be able to make drawings from the loan. The Group has started the procedures of obtaining a waver in order to be able to draw from the loan. 351 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)In the loan agreement with BRD-Groupe Societe Generale, due to the existence of the non-performance clause with cross effect, whereby, the non-fulfillment of financial obligation resulting from other loan agreements concluded with other credit institutions, constitutes a breach of current contractual terms having as possible repayment effect. On request, the Group reclassified the amount of RON 224,629 thousand from “Long-term bank loans” to “Current portion of long-term bank loans” in the consolidated statement of financial position. When the Group obtains letters of exception for loans for which it has not complied with the contractual terms regarding the fulfillment of the financial indications, it will reclassify the amount. 31 Financial instruments - fair values and risk management (a) Accounting classifications and fair values According to IFRS 9, financial assets are measured at amortised cost as they are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. The Group assessed that the carrying amount is a reasonable approximation of the fair value for the financial assets and financial liabilities. (b) Financial risk management The Group has exposure to the following risks arising from financial instruments: • credit risk; • liquidity risk; • market risk. These risks are further explained and detailed. (i) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, cash and cash equivalents, restricted cash and bank deposits. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. In the past, the Group had a high credit risk mainly from State-owned companies. Cash and bank deposits are placed in financial institutions which are considered to have low risk of default. The carrying amount of financial assets represents the maximum credit exposure. Trade receivables The Group’s credit risk in respect of receivables was concentrated in the past around state-controlled companies and in the recent years refers to clients that are facing financial difficulties in their industries due to specific changes in circumstances in their industry sector. The Group has implemented a policy on credit risk management and is also considering securing trade receivables. Also, the electricity supply contracts include termination clauses in certain circumstances. The Group establishes an allowance for impairment that represents the amount of expected credit losses, calculated based on the expected loss rates. Impairment The following table provides information about the exposure to credit risk and expected credit losses for trade receivables for customers as at 31 December 2021: 352 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)31 December 2021 Expected credit loss Net trade Credit rates (“ECL”) Gross value Lifetime ECL receivables impaired Neither past due nor 2% 1,080,179 16,615) 1,063,564 No impaired Past due 1-30 days 5% 228,537 (10,598) 217,939 Past due 31-60 days 15% 36,646 (5,317) 31,329 Past due 61-90 days 38% 15,428 (5,930) 9,498 No No No Past due more than 98% 964,687 (942,398) 22,289 Yes 90 days Total 2,325,477 (980,858) 1,344,619 The Group performed a sensitivity analysis and a 5% increase in the expected credit loss rates would not lead a material impact on the results of the Group. The following table provides information about the exposure to credit risk and expected credit losses for trade receivables for customers as at 31 December 2020: 31 December 2020 Expected credit loss Net trade Credit rates (“ECL”) Gross value Lifetime ECL receivables impaired Neither past due nor impaired 2% 812,855 (13,053) 799,802 Past due 1-30 days 1% 163,436 (2,285) 161,151 Past due 31-60 days 12% 48,993 (5,822) 43,171 Past due 61-90 days 33% 17,450 (5,679) 11,771 Past due more than 90 days 99% 936,614 (922,734) 13,880 No No No No Yes Total 1,979,348 (949,573) 1,029,775 Details of the main movements in the allowances for doubtful debts are disclosed in Note 18. (ii) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses. The Group aims to maintain the level of its cash and cash equivalents at an amount in excess of expected cash outflows on financial liabilities. The Group also monitors the level of expected cash inflows on trade receivables together with expected cash outflows on trade and other payables. In addition, the Group maintains overdrafts (refer to Note 20). Exposure to liquidity risk The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted and include estimated interest payments. 353 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Contractual cash flows Carrying amount less than More than Total 1 year 1-2 years 2-5 years 5 years Financial liabilities 31 December 2021 Bank overdrafts 627,402 627,402 627,402 - - - Lease liability 21,544 21,544 9,442 4,874 5,071 2,157 Long term bank borrowings 628,489 628,489 509,733 27,455 82,372 8,929 Trade payables 891,335 891,335 891,335 - - - Total 2,168,770 2,168,770 2,037,912 32,329 87,443 11,086 31 December 2020 Bank overdrafts 164,966 164,966 164,966 - - - Lease liability 27,622 27,622 10,747 6,806 9,961 108 Long-term bank borrowings 778,909 778,909 378,613 70,817 212,453 117,026 Trade payables 607,195 607,195 607,195 - - - Total 1,578,692 1,578,692 1,161,521 77,623 222,414 117,134 (iii) Market risk Market risk is the risk that changes in market prices – such as foreign exchange rates and interest rates – will affect the Group’s income or the value of its financial instruments held. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk The Group is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and the functional currency of the Group. The functional currency of all entities belonging to the Group is the Romanian Leu (RON). The currency in which these transactions are primarily denominated is RON. Certain liabilities are denominated in foreign currency (EUR). The Group also has deposits and bank accounts denominated in foreign currency (EUR). The Group’s policy is to use the local currency in its transactions as far as practically possible. The Group does not use derivative or hedging instruments. Exposure to currency risk The summary of quantitative data about the Group’s exposure to currency risk is as follows: 354 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) in thousands of RON denominated in EUR denominated in EUR 31 December 2021 31 December 2020 Cash and cash equivalents Lease liability 812 (19,118) Net statement of financial position exposure (18,306) 3,347 (24,472) (21,125) The following significant exchange rates have been applied during the year: RON EUR 1 Sensitivity analysis Average rate Year-end spot rate 2021 2020 2021 2020 4.9204 4.8371 4.9481 4.8694 A reasonably possible strengthening (weakening) of the EUR against RON at 31 December would have affected the measurement of financial instruments denominated in a foreign currency and profit before tax by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. Effect 31 December 2021 EUR (5% movement) 31 December 2020 EUR (5% movement) Interest rate risk Profit before tax Strengthening Weakening (915) 915 (1,056) 1,056 For financing purposes, the Group uses both medium and long-term bank loans and short term loans in the form of overdraft facilities (please see Notes 20, 30). The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings (please see Notes 20, 30), as the long term borrowings are contracted mainly at fixed rates, while the overdraft facilities bear variable rates. The Group does not have in place hedging contracts for interest rate. The Groups exposures to interest rates on financial assets and financial liabilities are detailed below. The Group is exposed to the interest rate benchmark ROBOR, which is the interest rate on the Romanian interbank market. 355 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Exposure to interest rate risk The interest rate profile of the Group’s interest-bearing financial instruments is as follows: 31 December 2021 31 December 2020 Fixed-rate instruments Financial assets Call deposits Financial liabilities 53,897 391,514 Long-term bank borrowings (418,893) (728,960) Lease liability (8,276) (9,070) (373,272) (346,516) Variable-rate instruments Financial liabilities Lease liability (13,268) (18,552) Long-term bank borrowings (209,596) (49,949) Bank overdrafts (627,402) (164,966) (850,266) (233,467) Fair value sensitivity analysis for fixed-rate instruments The Group does not account for any fixed-rate financial assets or financial liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable-rate instruments A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased (decreased) profit before tax by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. Profit before tax 50 bp increase 50 bp decrease 31 December 2021 Variable-rate instruments (4,251) 4,251 31 December 2020 Variable-rate instruments (1,167) 1,167 32 Acquisition of subsidiaries On 23 June 2020, Electrica Furnizare S.A. signed a share purchase agreement for the acquisition of 100% of Electrica Energie Verde 1 S.R.L. (formerly Long Bridge Milenium S.R.L.) a company that owns a photovoltaic park located in Stanesti, Giurgiu County, with an installed capacity of 7.5 MW (operational power limited at 6.8 MW). The photovoltaic park was built between October 2012 and January 2013 and has been delivering electricity into the national grid since February 2013. 356 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Closing of the transaction and the transfer of shares’ ownership to Electrica Furnizare S.A. took place on 31 August 2020, the purchase price of the shares being of RON 7,830 thousand (equivalent of EUR 1,617,940), based on the fair value report as of acquisition date. On 30 October 2020, the purchase price was adjusted in accordance with the purchase agreement based on the financial results of the acquired company as at 31 August 2020, the final price being RON 8,006 thousand (equivalent of EUR 1,637,515 and fees of EUR 17,318). Amongst various elements of the transaction, Electrica Furnizare S.A. also took over the loans granted by the former shareholders of Electrica Energie Verde 1 S.R.L. to the acquired company, in amount of RON 18,473 thousand (equivalent of EUR 3,817,749). The acquisition of Electrica Energie Verde 1 S.R.L. will allow the Group to enter the renewable energy market having the main purpose of increasing the Group’s profitability. From the acquisition date until 31 December 2020, Electrica Energie Verde 1 S.R.L. had a contribution to the Group revenues in amount of RON 3,736 thousand and net profit of RON (617) thousand. If the acquisition date would have been the beginning of the period, the Group revenues would have been higher by RON 4,500 thousand and net profit of the Group would have been higher by RON 135 thousand. For the acquisition of the share capital of Electrica Energie Verde 1 S.R.L., Electrica Furnizare S.A. paid the total amount of: Purchase price of shares Settlement of former shareholders loan Total (RON thousand) 8,006 18,473 26,479 For the settlement of former shareholders loans, Electrica Furnizare S.A. paid the loans granted by the former shareholders Electrica Energie Verde 1 S.R.L. in amount of RON 18,473 thousand, the equivalent of the outstanding balance of EUR 3,817,749 at the transaction date. The assets and liabilities of Electrica Energie Verde 1 S.R.L. taken over in the consolidation perimeter at the date when the control was obtained by the Group (31 August 2020) were as follows: Long Brige Milenium as at 31 August 2020 Property, plant and equipment Other intangible assets Trade and other receivables Cash and cash equivalents Other current assets Total assets Long-term bank borrowings Deferred tax liability Trade and other payables Total liabilities 41,404 73 253 5,577 951 48,258 (12,509) (1,673) (120) (14,302) 357 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Net assets acquired Consideration paid Gain from bargain purchase of subsidiaries 33,956 (26,479) 7,477 The bargain purchase resulted is due to the fact that the Group would obtain specific synergies by integrating the production subsidiary with the existing supply company, which otherwise wouldn’t have been seen in the value of the company acquired on a separate individual basis. This is the main reason for the lower consideration paid as compared to the fair value of the net assets acquired. The gain from bargain purchase was recognized in the consolidated statement of profit and loss for the year ended as at 31 December 2020. 33 Related parties (a) Main shareholders As at 31 December 2021 and 31 December 2020, the major shareholder of Societatea Energetica Electrica S.A. is the Romanian State, represented by the Ministry of Energy with a share of ownership of 48.79% from the share capital. (b) Management and administrators’ compensation 2021 2020 Executive Management compensation 34,429 29,072 Executive management compensation refers to both the managers with mandate contract and those with labour contract, from both the subsidiaries and Electrica SA. This also includes the benefits in the event of the termination of mandate contracts for executive directors. Compensations granted to the members of the Board of Directors were as follows: Members of Board of Directors 2021 3,992 2020 2,568 Electrica SA’s Board of Directors comprises 7 members. According to the remuneration policy approved by the General Meeting of Shareholders that took place on 28 April 2021, the annual number of paid sessions is limited to twelve for Board of Directors meetings and to six for each of the committees. Additional committee meetings can be organized only in exceptional situations, upon the Chairs’ committee decision, who are responsible to efficiently organize the agenda and activity. However, only one such additional meeting shall be remunerated, for each committee. No loans were granted to directors or administrators in 2021 and 2020. (c) Transactions with companies in which the state has control or significant influence The Group has transactions with companies in which the State has control or significant influence in the ordinary course of business, related mainly to the acquisition of electricity, transport and system services and sale of electricity. Significant purchases and balances are mainly with energy producers/suppliers, as follows: 358 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated) Supplier OPCOM Purchases (without VAT) Balance (including VAT) 2021 2020 31 December 2021 31 December 2020 1,700,630 272,246 29,203 4,209 Transelectrica 756,925 680,258 155,931 113,059 Nuclearelectrica 512,915 528,652 43,343 Complexul Energetic Oltenia 396,072 304,218 31,502 Hidroelectrica 241,722 476,845 19,711 Electrocentrale Bucuresti 34,776 116,530 ANRE 10,320 10,882 SNGN Romgaz SA 10,727 3,741 Transgaz Others Total 8,958 1,782 7,889 3,824 - 132 3,305 1,226 1,332 61,848 37,350 34,471 - 176 1,245 176 358 3,680,934 2,398,978 285,685 252,892 The Group also makes sales to companies in which the State has control or significant influence representing supply of electricity, of which the most important transactions are the following: Sales Balance, gross Allowance (without VAT) (including VAT) (including VAT) Balance, net Client 2021 31 December 2021 OPCOM 162,855 28,468 Transelectrica 92,505 27,091 SNGN Romgaz SA 48,099 Hidroelectrica CN Romarm 19,622 14,156 CFR Electrificare 10,410 C.N.C.F CFR SA CNAIR 8,281 6,928 Municipiul Galati 4,568 Transgaz CN Remin SA 2,249 700 1,664 2,638 1,093 507 701 962 12 1,571 71,216 - - - - - - (1) - (12) - (71,216) C.N.C.A.F MINVEST SA - 26,802 (26,802) 28,468 27,091 1,664 2,638 1,093 507 700 962 - 1,571 - - 359 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Client Oltchim CET Braila Termoelectrica National Agency for Payments and Social Inspection Ministry of Energy Altii Total Client OPCOM Transelectrica C.N.C.F CFR SA SNGN Romgaz SA CN Romarm Hidroelectrica Municipiul Galati CFR Electrificare Transgaz CNAIR ANAR - Adm. Nat. Apele Romane CN Remin SA CET Braila Termoelectrica Oltchim C.N.C.A.F. MINVEST SA Sales Balance, gross Allowance (without VAT) (including VAT) (including VAT) Balance, net 2021 31 December 2021 - 9 - - - 32,956 536,156 (536,156) 3,361 1,206 59,271 11,420 2,204 (3,361) (1,206) - - (536) - - - 59,271 11,420 1,668 403,338 776,343 (639,290) 137,053 Sales Balance, gross Allowance (without VAT) (including VAT) (including VAT) Balance, net 2020 31 December 2020 60,549 3,634 7,841 5,191 1,246 641 598 1,731 420 12 - - 71,215 3,361 1,217 41,175 40,967 37,501 12,457 9,138 8,575 7,517 3,738 1,569 1,436 549 7 - - - - - - - - - - - - - - (71,215) (3,361) (1,217) 3,634 7,841 5,191 1,246 641 598 1,731 420 12 - - - - - - - 565,484 (565,484) 26,802 (26,802) Others 31,008 1,453 (493) 960 360 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Sales Balance, gross Allowance (without VAT) (including VAT) (including VAT) Balance, net 2020 31 December 2020 256,186 690,846 (668,572) 22,274 Client Total 34 Contingencies Contingent assets Claim against National Agency of Fiscal Administration (“NAFA”) In May 2017, after the revision of Electica’s tax record, the tax authorities issued an enforcement order for additional interest and penalties of RON 39,249 thousand as a result of certain tax record allocations for prior periods. Electrica filed a complaint with the tax authorities against the enforcement order and also filed a legal action to suspend the enforced payment by the resolution of the above mentioned complaint. These additional interest and penalties are related to the prior enforcement orders received by Electrica SA in the prior years of RON 72,460 thousand. In February 2018, Electrica SA has obtained a favourable Supreme Court ruling in one of the litigations with NAFA, which essentially maintains into force a prior Court of Appeal decision, which is favourable for the Group. Based on this Court ruling and in conjunction with all other litigations with NAFA on the same historical amounts, for taxes including penalties and interest, as well as based on analysis with internal and external lawyers, the management best estimate is that Electrica SA shall be able to obtain favourable Court rulings with the end result of no future cash outflows. Also, in April 2019, Electrica SA obtained another favourable decision pronounced by the Bucharest Court of Appeal in one of the disputes with NAFA, whereby the Court obliges NAFA to correct the evidence of the tax receivables so that it reflects the extinction by prescription of the amount of RON 16,916 thousand representing income tax as well as all the related accessories. This decision forms the object of the appeal declared by NAFA, with the Court term on 17 November 2021, at the High Court of Cassation and Justice. Morevover, in November 2019, Electrica SA obtained one more favourable decision pronounced by the Bucharest Court of Appeal in one of the disputes with NAFA, whereby the Court obliges NAFA to cancel the administrative documents issued regarding the accessory fiscal obligations in the amount of RON 39,249 thousand and ordered the refund/ compensation of the amount and the correction of the tax record. Against this decision, NAFA filed an appeal, registered to the High Court of Cassation and Justice, with the Court term on 23 March 2022. Thus, as at 31 December 2019, the Group did not recognize any provision in this respect, taking into account that management’s best estimate is that Electrica SA shall be able to obtain a final favourable Court decision in this case. During 2020, the Group recognized revenues from indemnities in the amount of RON 12,827 thousand related to the amounts collected during the year by Electrica SA from NAFA as a result of the final civil sentences obtained in Court, which ordered the cancellation of certain enforceable titles as well as fiscal decisions. Moreover, as at 31 December 2020, the Group no longer has a contingent liability of RON 39,249 thousand in respect to the additional interest and penalties to be paid by Electrica SA to NAFA, as it applied for the cancellation of ancillary fiscal obligations stipulated by the Government Emergency Ordinance no. 69/2020. Through NAFA’s decision no. 2738/22.12.2020, the cancellation of the ancillary fiscal obligations mentioned above was approved, based in articles IX-XI of the Government Emergency Ordinance no. 69/2020. In April 2021, Electrica SA filed a new action in contradiction with NAFA - file no. 2444/2/2021, pending before the Bucharest Court of Appeal, trial term 16.03.2022, having as object the obligation of NAFA to: correct Electrica SA ‘s tax record in order to reflect the right to a refund for the amount of RON 5,860 thousand, amount paid by Electrica SA in 2020 for the purpose of applying for the cancellation of ancillary fiscal obligations stipulated by the Government Emergency Ordinance no. 69/2020, of an additional amount of RON 818 thousand which was not reflected in the payment made by NAFA in 2020, and payment of legal interest in amount of RON 5,162 thousand computed for the amount returned by NAFA in 2020. 361 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Contingent liabilities Fiscal environment Tax audits are frequent in Romania, consisting of detailed verifications of the accounting records of taxpayers. Such audits sometimes take place after months, even years, from the date liabilities are established. Consequently, companies may be found liable for significant taxes and fines. Moreover, tax legislation is subject to frequent changes and the authorities demonstrate inconsistency in interpretation of the law. Income tax returns may be subject to revision and corrections by tax authorities, generally for a five-year period after they are completed. The Group may incur expenses related to previous years’ tax adjustments as a result of controls and litigations with tax authorities. The management of the Group believes that adequate provisions were recorded in the consolidated financial statements for all significant tax obligations; however a risk persists that the tax authorities might have different positions. Tax inspection report for SDEE Muntenia Nord S.A. The subsidiary SDEE Muntenia Nord S.A. was subject to a tax audit performed by the Local Taxes Department of Galati City Hall that referred to the building taxes paid for the period 2012-2016. The tax audit was finalized in December 2019, when the fiscal inspection report was communicated to the subsidiary. The fiscal report established additional payment obligations for the subsidiary representing building tax for the period 01.01.2012- 31.12.2015 in the total amount of RON 24,831 thousand, of which principal in amount of RON 12,051 thousand and related late penalties computed as of October 2019, in amount of RON 12,780 thousand. Against Galati City Hall, SDEE Muntenia Nord S.A. filed a legal request registered at Ploiesti Court of Appeal, with the next term on 17 February 2022. The Group recognised an expense in amount of RON 12,051 thousand during the year ended 31 December 2019 in accordance with IFRIC 23 „Uncertainty over Income Tax Treatments”. Tax inspection report for Electrica Serv S.A. In May 2017 a tax inspection at Electrica Serv S.A. was finalized and the tax authorities concluded that additional tax obligations of RON 12,281 thousand should be paid by the subsidiary. This amount represents VAT (including related interest and penalties) that was considered tax deductible in the period 2012-2013 by the subsidiary in relation with certain invoices issued by a lease supplier who was inactive at that time. The company appealed in Court the measures imposed by the tax authorities. On 3 July 2019 the Bucharest Court of Appeal partially admitted the appeal through the partial annulment of the fiscal decision for the amount of RON 7,264 thousand representing the VAT and the related interest and penalties, unlawfully retained as non-deductible. Against this solution, both NAFA and Electrica Serv SA filed an appeal, registered at the High Court of Cassation and Justice, with the trial date of 6 October 2022. As at 31 December 2021 and 31 December 2020, the Group has a receivable from the fiscal authorities in amount of RON 12,281 thousand, without a related bad debt allowance, taking into account that management’s best estimate is that Electrica Serv S.A. shall be able to obtain a favourable final Court decision in this case. Other litigations and claims The Group is involved in a series of litigations and claims (ie. with ANRE, NAFA, Court of Accounts, claims for damages, claims over land titles, labour related litigations etc.). As summarised in Note 29, the Group set-up provisions for the litigations or claims for which the management assessed as probable the outflow of resources embodying economic benefits due to low chances of favourable outcomes of those litigations or disputes. The Group does not present information in the financial statements and did not set-up provisions for items for which the management assessed as remote the possibility of outflow of economic benefits. The Group discloses if the case information on the most significant items of litigations or claims for which the Group did not set-up provisions as they relate to possible obligations that arise from past events whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events not wholly within the control of the Group (ie. litigations for which different inconsistent sentences were issued by the Courts, or litigations which are in early stages and no preliminary ruling was issued so far). 362 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)35 Commitments (a) Contractual commitments Contractual commitments as at 31 December 2021 and 31 December 2020 are as follows: 31 December 2021 31 December 2020 Purchase of electricity 3,200,154 2,067,439 Purchase of green certificates 132,937 402,341 Purchase of property, plant and equipment and intangible assets Purchase of investments 212,930 60,485 141,033 - Total 3,606,506 2,610,813 (b) Investment program The investment program at Group level approved for the year 2022 is as follows: Distribution activity Supply activity Maintenance activity Other/ shared Total 2022 689,029 54,788 10,772 10,633 765,222 The capital expenditures actually incurred may differ from the ones planned. (c) Guarantees and pledges At 31 December 2021 and 31 December 2020, the Group has guarantees on its bank accounts opened at ING Bank N.V., Raiffeisen Bank, Banca Comerciala Romana, Banca Transilvania and Intesa Sanpaolo Bank for the overdrafts contracted (please see Note 20), and also on its bank accounts opened at BRD – Group Societe Generale, Unicredit Bank, Banca Transilvania and Banca Comerciala Romana for the long-term borrowings contracted (please see Note 30). At 31 December 2021, the Group has outstanding bank letters of guarantee of RON 1,088,629 thousand (31 December 2020: RON 607,735 thousand) issued in favour of its suppliers. 363 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)36 Subsequent events Change in distribution tariffs starting 1 January 2022 According to the ANRE Order no 119/25.11.2021, the specific tariffs for the electricity distribution service for applicable starting with 1 January 2022, Muntenia Nord area, Transilvania Nord area, Transilvania Sud area and compared to those applicable starting with 1 January 2021 (the last time they were modified), are the following (RON/MWh, presented cumulatively for medium and low voltage levels): Order 119/25.11.2021 Order 221,222,220/09.12.2020 Starting with 01 January 2022 Starting with 01 January 2021 High Medium Low voltage voltage voltage High voltage Medium voltage Low voltage Transilvania Nord area 21.79 48.13 122.78 19.23 66.35 173.93 Transilvania Sud area 22.34 45.49 127.04 22.23 67.47 178.78 Muntenia Nord area 21.02 43.54 140.68 18.72 56.87 184.75 ANRE Order no. 119/25.11.2021 related to the approval of the specific tariffs for electricity distribution service and of the price for reactive electricity for Societatea Distributie Energie Electrica Romania S.A. was published in the Official Gazette of Romania, part I, No. 1148/2.12.2021. Overdrafts facilities In order to minimize any liquidity risks which might appear due to the current unstable economic environment the Group secured the following overdrafts facilities: 1) Overdraft facility granted by Banca Transilvania On 2 February 2022, Electrica Furnizare SA and Banca Transilvania signed an overdraft facility of up to RON 190,000 thousand for financing the current activity, having the following characteristics: Interest rate: ROBOR 1M+0.4% p.a., reimbursements: until 1 August 2022. 2) Overdraft facility granted by BRD - Groupe Societe Generale On 4 February 2022, Electrica Furnizare SA and BRD - Groupe Societe Generale signed a revolving overdraft facility of up to RON 220,000 thousand for financing the current activity, having the following characteristics: Interest rate: ROBOR 1M+0.47% p.a., reimbursements: until 03 August 2022. 3) Overdraft facility granted by Banca Comerciala Romana On 25 January 2022, Distributie Energie Electrica Romania and Banca Comerciala Romana signed an overdraft facility of up to RON 180,000 thousand for financing the current activity, having the following characteristics: Interest rate: ROBOR 1M+0.6% p.a., reimbursements: within 12 months from the withdrawal date, not later than 25 January 2023. 4) Overdraft facility granted by ING Bank N.V On 28 January 2022, the credit facility contract signed between Electrica SA and ING Bank N.V. for an overdraft facility of up to RON 210,000 thousand for financing the current activity, in the context of the liquidity concentration operations set-up within the Group and having the following characteristics: Interest rate: ROBOR 1M+0.8% p.a., was extended until 27.01.2023. On 17 February 2022, Electrica Furnizare SA and ING Bank N.V. signed an overdraft facility of up to RON 170,000 thousand for financing the current activity, in the context of the liquidity concentration operations set-up within the Group and having the following characteristics: Interest rate: ROBOR 1M+0.5% p.a., reimbursements: not later than 6 months from contract date less 15 calendar days. 364 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)Compensation scheme Electrica Furnizare S.A. submitted the requests no. 1341/17.02.2022 and no. 1339/17.02.2022 followed by request no. 1363/18.02.2022 along with the supporting documents to the National Agency for Payments and Social Inspection in order to receive the amounts compensated on the clients invoices for the period 1 November 2021 – 31 January 2022 in amount of RON 95.362 thousand for energy invoices and RON 247 thousand for gas invoices out of which the amount of RON 59,271 thousand refers to amount to be received for the period 1 November 2021 – 31 December 2021. According to Order no. 118/2021 with subsequent amendments approved by Law no. 259/2021 with subsequent amendments and Order no. 226/2021 the amounts will be recovered in 30 days after submitting the request. Waver letter On 24 February 2022, EBRD issued a waiver letter in respect to the Loan agreement dated 02 July 2021 for: (a) the Guarantor’s Financial Ratio, but in respect of its financial year ending 31 December 2021 only; (b) the Event of Default that has occurred and is continuing pursuant to Section 7.01(b) (Financial ratio) of the Loan Agreement, but only in respect of the Guarantor’s failure to comply with the Guarantor’s Financial Ratio for the financial year ending 31 December 2021. The waiver issued by EBRD is conditional to the waivers which must be received from EIB and BCR for which the Group is in default events. The Group has submitted the requests for obtaining waivers for EIB and BCR but are still in progress at the authorization for issue of these Consolidated Financial Statements by the Board of Directors. Geopolitical tensions In February 2022 global geopolitical tensions significantly escalated following military interventions in Ukraine by the Russian Federation. As a result of these escalations, economic uncertainties in energy and capital markets have increased with global energy prices expected to be highly volatile for the foreseeable future. As at the date of this report, management is unable to reliably estimate the effects on the Groups financial outlook and cannot exclude adverse consequence on the business, operations, and financial condition. Management believes it is taking all the necessary measures to support the sustainability and growth of the Group’s business in the current circumstances and that the judgements taken in these financial statements remain appropriate. Chief Executive Officer Georgeta Corina Popescu Chief Financial Officer Stefan Alexandru Frangulea 28 February 2022 365 | 2021 ANNUAL REPORT ELECTRICA S.A. SOCIETATEA ENERGETICA ELECTRICA S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2021(All amounts are in THOUSAND RON, if not otherwise stated)CONSOLIDATED AUDIT REPORT Sector 1, 010735 -98, Tel: +40 21 222 16 61 Fax: +40 21 222 16 60 INDEPENDENT AUDITOR’S REPORT To the Shareholders, SOCIETATEA ENERGETICA ELECTRICA S.A. Report on the Audit of the Consolidated Financial Statements Opinion 1. SOCIETATEA ENERGETICA ELECTRICA S.A. and its subsidiaries (the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement 1, and the 2. 3. Net assets / Equity Net loss Basis for Opinion 1 1, and its RON 4,953,582 thousand RON 552,882 thousand as adopted by EU. 4. 5. Accountants’ Code of Ethics for Professional Accountants (IESBA Code), in accordance with ethical requirements relevant for l on ard for ng our opinion thereon, and we do not provide a separate opinion . 368 | 2021 ANNUAL REPORT ELECTRICA S.A. CONSOLIDATED AUDIT REPORT s Going Concern How our have been prepared on the going concern basis. The key judgement leading to this conclusion are set out in that note. the • We have a challenged the management and the Board of Directors and on the assumptions used; there may be further laws enacted which could adversely • end. In the forthcoming twelve months the group will need to • We have assessed , covenant waivers , • We considered the Group’s requirements The ability of the Group to on stabilizing of the regulatory regime on energy prices as described in note 6 which provides an appropriate margin to support servicing of the Group’s short and long term ancing and • We assessed the adequacy of the disclosure of the basis of adopted; d households • Obtaining an understanding of the a The group has a number of IT systems across the businesses and we revenue cycle. nature and included the following: uncertainty reduces from one period to another, however related to the househol Regulatory Authority (“ANRE”) for the regulated supply market Because of the signif accrued revenue related to the households and the inability of • • • • • 2 revenues related to electricity supplied to customers on the universal service by means of independent re- 2021.; and for 369 | 2021 ANNUAL REPORT ELECTRICA S.A. CONSOLIDATED AUDIT REPORT How our audit As presented in Note 34 to the In included the following: or related • The of whether a provision should be recorded • Obtaining and the high level of professional judgement involved we • Discussing with the internal and external lawyers and assessing the reasonability of the professional judgements used as a basis roup is facing, the lawyers for the cases presented; • Assessing the judgement performed by the Group management lawyers; • – Administrator’s Report 6. The administrators are comprises the Administrator’s report statements and our auditor’s report thereon. Ou our report, we do not express any form of assurance conclusion thereon. tements for the year ended December 31, 2021, our herwise appears to be materially misstated. With respect to the Administrator’s report, we read it and report if this has been prepared, in all material respects, in accordance with the provisions of Ministry of Public Finance Order no. 2844/2016, with subsequent amendments, for the a) ts, in – 107. t b) the administrators’ report has been prepared, in all material respects, in accordance with the provisions of Ministry ; c) the – 107. Moreover, based on our knowledge and understanding concerning the Group and its environment gained during the audit of material misstatement of this Administrator’s report . We have nothing to report in this regard. 1 370 | 2021 ANNUAL REPORT ELECTRICA S.A. CONSOLIDATED AUDIT REPORT Responsi with Order 2844/2016, with subse due to fraud or error. 7. 8. as a going concern, disclosing, as applicable 9. Those charged with governance are l statements that are free from material misstatement, whether from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered a whole are free taken throughout the audit. We also: appropriate to provide a basis for our opinion. The risk o Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are internal control. Evaluate the appropriateness of acc disclosures made by management. audit evidence obtained, whethe if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events o going concern. manner that achieves fair supervision and performance of the group audit. We remain solely responsible for our audit opinion. 10. 11. 12. 13. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicat to bear on our independence, and where applicable, related safeguards. 371 | 2021 ANNUAL REPORT ELECTRICA S.A. CONSOLIDATED AUDIT REPORT 14. in e Report on Other Legal and Regulatory Requirements 15. We have been appointed by the General Assembly of Shareholders April 28, 2021 4 most 1. The uninterrupted total 1. e Company that we No non- provided. Technical Standard“ or “ESEF”) 2019/815 applicable to the ( 213800P4SUNUM5AUDX61 . of SOCIETATEA ENERGETICA ELECTRICA S.A. Management is responsible for preparing Digital Files that comply with the ESEF. This responsibility includes:    the appropriate iXBRL mark ups; with Order 2844/2016 with subsequent amendments; Those charged with governance are responsible for overseein report complies in all material respects with the requirements of ESEF based on the evidence we have obtained. We conducted our Ass A reasonable assurance engagement in accordance with ISAE 3000 involves performing procedures to obtain evidence about assessment of the risks of material departures from the requirements set out in ESEF, whether due to fraud or error. A reasonable assurance engagement includes:    obtaining an understanding of the Company’s including relevant internal controls; Company evaluating format; the  e iXbrl mark-ups, including the voluntary mark-ups comply with the requirements of ESEF. 372 | 2021 ANNUAL REPORT ELECTRICA S.A. CONSOLIDATED AUDIT REPORT We belie in the Digital Files, comply in all materials respects with the requirements of ESEF. 1 December 2021 the Company for the year ended 31 For signature, please refer to the original signed Romanian version. Registered in the Electronic Public Register of Financial Auditors and Audit Firms under AF 4866 On behalf of: DELOITTE AUDIT SRL Registered in the Electronic Public Register of Financial Auditors and Audit Firms under FA 25 The Mark Building, 84-98 and 100- Bucharest, Romania March 1, 2022 th Floor, District 1 373 | 2021 ANNUAL REPORT ELECTRICA S.A. CONSOLIDATED AUDIT REPORT ELECTRICA S.A. - 2021 ANNUAL REPORT DECLARATION OF THE MANAGEMENT We confirm to the best of our knowledge that the consolidated financial in accordance with the applicable accounting statements, prepared standards, give a true and fair view of the financial position of the Group, its financial performance and cash flows for the year ended 31 December 2021, and that the Directors‘ report gives a true and fair view of the development and performance of the business of the Group, together with a description of the main risks and uncertainties associated with the expected development of the Group. Iulian Cristian Bosoanca non-executive director, Chairman of the Board of Directors George Cristodorescu non-executive director Radu Mircea Florescu non-executive director Gicu Iorga non-executive director Adrian-Florin Lotrean non-executive director Dragos-Valentin Neacsu non-executive director Cosmin Ion Petrescu non-executive director Georgeta Corina Popescu General Manager 374 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 ANNUAL REPORT 375 | 2021 ANNUAL REPORT ELECTRICA S.A. 376 | 2021 ANNUAL REPORT ELECTRICA S.A. ELECTRICA S.A. - 2021 DIRECTOR’S REPORT

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