CEZ ELECTRO BULGARIA AD

Transcription

PROSPECTUS dated 30 March 2012
CEZ ELECTRO BULGARIA AD
(incorporated as a joint stock company under the laws of the Republic of Bulgaria)
Offering of up to 1650 ordinary shares and
admission to trading of 5000 shares on a regulated market
This document represents a Prospectus for a public offering of up to 1 650 ordinary shares issued by CEZ
Electro Bulgaria AD (referred to as Offered Shares, respectively CEZ Electro as the Issuer or the Company) to
Bulgarian and foreign investors (the Offering) and admission to trading on the Bulgarian Stock Exchange - Sofia (BSE) of
all ordinary shares issued by CEZ Electro (Shares), each at a par value of 10 levs. The Offered Shares will be offered for
sale on the Bulgarian market by means of a public offering based on this Prospectus (Public Offering), although it is
possible that limited marketing activities, addressed to certain Qualified Investors, might be undertaken. No public offering
will be made in jurisdictions outside Bulgaria and all possible marketing activities, according to the previous sentence, will
be brought in line with the local legislation of such country (including the Regulation S under the U.S. Securities Act) and
will not constitute a public offering in the relevant country.
This Prospectus is prepared in accordance with the Bulgarian law and the Rules for admission to trading on the
BSE managed by “Central Cooperative Bank” AD (“Central Cooperative Bank” or “CCB”) and provided by the
“Privatization and Post-Privatization Control Agency” (“PPCA”), and was approved by the Bulgarian Financial
Supervision Commission (FSC).
The Shares of CEZ Electro Bulgaria AD are registered under ISIN code: BG1100024113
Shares can be sold and bought on the stock exchange after they have been admitted to trading on the BSE‟s
Primary market, on a date determined by the Management Board of BSE. It is expected that the Shares will be admitted to
trading on the exchange on the 15th of October 2012 and share transactions on BSE will be possible from 9:30 on the 15th
of October 2012.
This Prospectus contains comprehensive information on CEZ Electro Bulgaria AD which is
necessary to take a decision to invest in the Shares issued by the Issuer, including the basic risks related to the
Issuer and its business. Investors must rely solely on the information provided in this Prospectus. No other
person has been authorized by CEZ Electro to provide information other than that included in this Prospectus.
Investing in shares is associated with certain risks. It is in investors’ best interest to examine
thoroughly this Prospectus by paying special attention on Section “Risk Factors” on page 16 of this
Prospectus, containing the main risks specific to CEZ Electro and the shares issued by it.
CCB and PPCA are jointly responsible for any damages resulting from incorrect, misleading or incomplete data
contained in this Prospectus. The persons responsible to prepare all annual financial statements of CEZ Electro are jointly
liable together with the aforesaid persons for any damages resulting from incorrect, misleading or incomplete data
provided in the financial statements of the Issuer, and the certified auditor of CEZ Electro is responsible for the damages
resulting from the Issuer’s financial statements audited by him/her.
____________________________________________________________________________________________
THIS PROSPECTUS WAS APPROVED BY THE FINANCIAL SUPERVISION COMMISSION BY
DECISION №949-PD DATED 19 SEPTEMBER 2012, WHICH SHOULD NOT BE CONSTRUED AS
RECOMMENDATION TO INVEST IN THE OFFERED SHARES. THE FINANCIAL SUPERVISION
COMMISSION BEARS NO RESPONSIBILITY FOR THE CORRECTNESS AND COMPLETENESS OF THE
INFORMATION CONTAINED HEREIN.
____________________________________________________________________________________________
Offering Manager and Listing Agent – Central Cooperative Bank AD
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CEZ ЕLECTRO BULGARIA AD
Prospectus
INVESTORS MAY OBTAIN AND EXAMINE THIS PROSPECTUS AS WELL AS ANY ADDITIONAL
INFORMATION RELATED TO THIS PROSPECTUS IN THE OFFICES OF:
 THE OFFERING MANAGER:
Central Cooperative Bank AD
Sofia, 2 Stefan Karadzha Street
Tel. (+359 2) 981 73 94, from 9.00 – 17.00
Fax: (+359 2) 987 19 48
Е-mail: [email protected]
Silviya Hristova
www.ccbank.bg
This Prospectus as well as any additional public information about CEZ Electro may be obtained
from the public registers of the Financial Supervision Commission (www.fsc.bg) and the Bulgarian Stock
Exchange – Sofia AD (www.bse-sofia.bg ).
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The Central Cooperative Bank in the capacity of an Offering Manager (”Manager”) acts only on
behalf of the Privatization and Post-privatization Control Agency (PPCA) with regard to the Offering and
shall have no responsibility to persons other than PPCA for providing protection which it normally provides to
its clients or for providing advice related to the Offering, a transaction or a contract, incorporated by reference
in this document.
The distribution of this document and the Offering of the Shares in some jurisdictions may be
restricted by law.
No action has been or will be taken on the part of the offer or of the offered shares PPCA, CEZ
Electro, its shareholders as at the date of issuing of this document, the Manager or any other person to admit
the Shares to trading by means of public offering or permit the acquisition or distribution of this document (or
any other offering or promotional materials or applications(s) related to the Shares in jurisdictions, in which a
similar action may be required to this end. In view of this, neither this document nor an advertisement or any
other material related to the offering may be distributed or published in a jurisdiction, except under
circumstances which will ensure compliance with the applicable legislation. Persons having this document in
their possession must acquaint themselves with and abide by these restrictions. Any violation of such
restrictions may constitute an infringement of the Security Acts of such jurisdiction. For information on the
restrictions related to the offering and distribution of this document, please see “Terms and Conditions of the
Offering”.
Potential investors must rely solely on the information contained in this document. No other person
has been authorized to provide information or statements other than those contained in this document and if
such information or statements have been provided or made, then these should not be considered as being
authorized by the Manager, PPCA or CEZ Electro. Without excluding the obligations to publish
supplementary Prospectus pursuant to the Bulgarian Law on public offering of securities of 1999, neither the
delivery of this document nor the subscription or purchase of Shares, in compliance with this document may
by any means lead to the conclusion that there has not been a change in the business of CEZ Electro or that the
information contained in this document is correct after the date of this document.
The content of this document should not be construed as legal, financial, business or tax advice. Each
potential investor must consult his own legal, financial, business or tax advisers. Should you have any doubts
with regard to the contents of this document, you might need to consult a broker, a bank manager, a lawyer, an
accountant or other financial adviser. You should bear in mind that the price of the securities and the income
they would generate may either decrease or increase.
For the purposes of the Offering the Manager acting as an investor, on its behalf, may negotiate with
himself upon the preliminary consent of the selling shareholder and as such it may retain, purchase, sell, offer
for sale or otherwise dispose on its behalf of these securities, other securities of CEZ Electro or other
investments related to the Offering or by any other means. The Manager has no intention to disclose the
amount of such investments or transactions otherwise except for the purpose of complying with its statutory
obligations to do so.
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FORWARD-LOOKING STATEMENTS
This document contains statements which reflect the current view of PPCA and CCB regarding the
financial results, business strategy, plans and goals of the management for future operations (including plans
for business development of CEZ Electro).
These forward-looking statements apply both to CEZ Electro and the sector in which it operates.
Statements including the terms “expects”, “intends”, “plans”, “believes”, “foresees”, “assumes”, “will”,
“aims”, “strives to”, “can”, “will”, “could”, “continues” as well as any other statements related to the future
constitute forward-looking statements for the purposes of the Bulgarian legislation associated with securities
or for other purposes.
All forward-looking statements included in this document concern issues associated with existing
risks and uncertainty. Therefore, there are and there could be essential factors that may result in significantly
different actual results of CEZ Electro than those specified in the statements. These factors include but are not
limited to those described in the part of this document titled “Risk Factors” which should be examined in
conjunction with any other cautionary statements included in this document. Any forward-looking statements
in this document reflect how CEZ Electro sees currently the future events and are subject to these and other
risks, uncertainty and speculations related to the business of CEZ Electro, the results from its operations and
its strategy for further growth and liquidity.
Any forward-looking statements shall be only considered up-to-date as at the date of this document.
Outside the obligations ensuing from the provisions of the Bulgarian legislation and the Regulation of the
Bulgarian Stock Exchange, PPCA, the Manager and CEZ Electro shall not have the obligation to promote
publicly or make comments on whichever of the forecast statements as a result of any additional information,
new circumstances and the like. This should be taken into account with regard to all subsequent written and
verbal forward-looking statements of CEZ Electro, and the persons acting on behalf of CEZ Electro,
respectively. Prior to taking a decision to invest, potential investors should assess the factors, indicated in this
document, which may lead to the actual results of CEZ Electro differing from those specified in the document.
PRESENTATION OF FINANCIAL INFORMATION
Unless stated otherwise, the financial information included in this document shall be prepared in
compliance with the International Financial Reporting Standards (IFRSs).
Anyone who is considering buying Shares should rely on their own research for CEZ Electro, the
Offering conditions and the financial information provided in this document.
Some data, provided in this document, including financial information, were subject to rounding up
and approximations. In view of this, in some specific cases, the sum of the figures in a table column or a row,
or percentages included in this document, may not correspond to the exact total sum indicated in the relevant
column or row.
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PRESENTATION OF MARKET AND ECONOMIC INFORMATION
The market and economic information used in this document was derived from different professional
and other independent sources. The accuracy and completeness of such information cannot be guaranteed.
The information contained in this document relating to the economic sector in which CEZ Electro
operates (which may include assessments and approximations) was extracted from publically accessible
information, including publications and disclosed information pursuant to the requirements of the existing
securities-related legislation and other regulations. The Manager and PPCA confirm that such information has
been correctly communicated by its sources and to the best of the knowledge of the Manager and PPCA, no
facts have been omitted which may lead to the communicated information being represented in an incorrect or
misleading manner. However, The Manager and PPCA relied on the correctness of this information without
carrying out its own independent check. Part of the information in this document regarding Bulgaria was
gathered from documents and other formal, public and private sources, including from participants on the
Bulgarian capital markets and financial sector. This, however, does not imply any level of uniformity of the
presented information which was obtained from all these sources. In relation to this the Manager and PPCA is
responsible only for the accurate presentation of extracts of the relevant sources of information. The Manager
and PPCA shall not bear any additional or other responsibility with regard to the presented information.
The figures in this Prospectus, including in the financial statements incorporated by reference in the
Prospectus are presented as follows: the number “one thousand and five hundreds” shall be read “1,000.05”,
the number “one thousand and five tenths” shall be read “1,000.50”, the number “one million” shall be read
“1,000,000.00”, and all other numbers are presented and written in the same way, unless provided otherwise.
INFORMATION FROM THE WEB SITE OF CEZ ELECTRO
The content on the website of CEZ Electro is not a part of this Prospectus.
CURRENCIES
Unless otherwise specified, all references in this document to Euro, EUR or € shall be understood
as the official currency of the European Union and those made to BGN, lev or levs shall be understood as the
official currency of Republic of Bulgaria.
EXCHANGE RATES
In 1997 the lev‟s exchange rate was pegged to the exchange rate of the Deutsche mark and later to
the exchange rate of the Euro. Currently, the lev‟s exchange rate (BGN) according to the fixed exchange rate
of the Bulgarian National Bank is 1,95583 levs per 1 Euro (1,00 lev = €0,51).
Unless specified otherwise, all conversions from levs to Euro and vice versa in this document shall
be based on the fixed exchange rate of BNB, which is 1,95583 levs for 1 Euro.
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INFORMATION TO FOREIGN INVESTORS
CEZ Electro is a joint stock company, incorporated in Republic of Bulgaria and its assets are located
in Bulgaria. In addition, a part of the members of the Supervisory Board and the Management Board of the
Issuer are Bulgarian citizens and most of their property is located in Bulgaria. As a result it may prove difficult
for foreign investors to take legal actions in Bulgaria with regard to the Offered Shares against CEZ Electro or
a part of the members of its Supervisory Board or Management Board. Moreover, foreign investors may also
encounter difficulties in recognizing and enforcing judgments in Bulgaria that were originally delivered by
foreign courts and other foreign authorities against CEZ Electro or a part of the members of its Supervisory
Board or Management Board.
The recognition and enforcement of foreign court judgments and other acts in Bulgaria is done
according to the provisions of the Bulgarian Civil Procedure Code, which transposes Regulation (EU) 44/2001
of December 22nd 2000 of the Council of the European Union on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters when the foreign acts fall within the scope of
application of Regulation (EU) 44/2001. Recognizing and enforcing foreign court judgments and other acts in
Bulgaria, which were originally delivered in countries for which the Civil Procedure Code does not apply,
respectively Regulation (EU) 44/2001 is done according to the Bulgarian International Private Law Code.
REFERENCE TO SPECIFIC TERMS
Some terms used in this Prospectus are defined when first mentioned. Other terms, used frequently in
this document, including some terms in capital letters or terms from the energy sector are defined in Section
“Definitions and terms specific for power engineering”.
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DISCLAIMER
This Prospectus is prepared by the Manager of the Offering and Listing Agent Central Cooperative
Bank, based on specific information provided for this purpose by the Company and other information that
CCB has.
Central Cooperative Bank and the Offerer of the Offering Shares PPCA assume a responsibility for
the completeness and correctness of the information contained in this Prospectus. Executive directors of CCB
Sava Stoinov and Ivailo Donchev and executive director of PPCA Emil Karanikolov, by signing the last page
of this Prospectus, declare in the capacity of representatives of CCB and PPCA that, to the best of the CCB
and PPCA knowledge (which has taken all measures necessary to ensure the correctness of this statement) this
Prospectus contains complete information about the Company and the Shares that is essential in the context of
the Offering and Listing and nothing has been omitted that may affect the correctness or completeness of this
information. In addition, pursuant to article 81, paragraph 2 of LPOS the aforesaid executive directors of CCB
and PPCA declare that the Prospectus is in compliance with the requirements of the law.
In accordance to the Law on Public Offering of Securities, CCB and PPCA shall be jointly and
severally liable for any damages resulting from providing false, misleading or incomplete data in this
Prospectus. The persons responsible to prepare the company‟s Financial Statement (see General Information
– Preparation of Financial statements) shall be jointly and severally liable together with CCB and PPCA for
any and all damages resulting from providing false, misleading or incomplete data in the Financial statements
of the Company and the auditors of the Company (see General Information – Auditor) - for any damages as a
result of issued auditor‟s reports on the Company‟s financial statements audited by them. In view of this the
aforesaid persons have declared the relevant circumstances pursuant to article 81, paragraph 5 of LPOS and
have submitted these statements to FSC.
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CONTENTS
SUMMARY .................................................................................................................................................................... 1
RISK FACTORS ......................................................................................................................................................... 16
RISKS SPECIFIC TO THE ISSUER‟S BUSINESS AND THE INDUSTRY IN WHICH IT OPERATES ..................................16
GENERAL RISKS ...............................................................................................................................................21
SHARE-RELATED RISKS ....................................................................................................................................21
RISKS RELATED TO BULGARIA .........................................................................................................................24
REASONS FOR THIS PUBLIC OFFERING AND USE OF THE PROCEEDS .................................................. 28
CAPITALIZATION AND INDEBTEDNESS ........................................................................................................... 29
DIVIDENDS AND DIVIDEND POLICY .................................................................................................................. 30
OVERVIEW OF THE ELECTRICITY SECTOR IN BULGARIA ....................................................................... 31
ESTABLISHING, PRIVATIZATION AND REORGANISATION OF THE SECTOR ..........................................................31
GENERATING, SUPPLYING AND TRADING IN ELECTRICITY ................................................................................31
MARKET LIBERALIZATION ...............................................................................................................................36
ENVIRONMENTAL ISSUES .................................................................................................................................37
BUSINESS OVERVIEW ............................................................................................................................................ 39
INTRODUCTION ................................................................................................................................................39
STRENGTHS ......................................................................................................................................................39
STRATEGY .......................................................................................................................................................39
HISTORY ..........................................................................................................................................................40
CEZ GROUP .....................................................................................................................................................40
LICENSES .........................................................................................................................................................44
MAIN ACTIVITIES .............................................................................................................................................44
MARKETS AND SALES ......................................................................................................................................45
COMPETITION ..................................................................................................................................................46
JUDICIAL AND ADMINISTRATIVE PROCEEDINGS................................................................................................46
RELATED PARTY TRANSACTIONS .....................................................................................................................48
ENVIRONMENTAL ISSUES .................................................................................................................................49
INSURANCES ....................................................................................................................................................49
EMPLOYEES .....................................................................................................................................................50
MANAGEMENT AND CORPORATE GOVERNANCE ....................................................................................... 52
MEMBERS OF THE MANAGEMENT BOARD........................................................................................................52
MEMBERS OF THE SUPERVISORY BOARD .........................................................................................................53
OTHER INFORMATION RELATING TO THE DIRECTORS.......................................................................................56
REMUNERATIONS AND COMPENSATIONS ..........................................................................................................57
MEETING OF THE SUPERVISORY AND MANAGEMENT BOARD ..........................................................................57
AUDIT COMMITTEE ..........................................................................................................................................58
CORPORATE GOVERNANCE ..............................................................................................................................58
MAJORITY SHAREHOLDER AND SELLING SHAREHOLDER ..................................................................... 61
SELECTED HISTORICAL AND FINANCIAL INFORMATION ........................................................................ 63
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STATEMENT OF COMPREHENSIVE INCOME .......................................................................................................63
STATEMENT OF FINANCIAL POSITION ..............................................................................................................63
SELECTED INFORMATION ON STATEMENT OF CASH FLOWS ..............................................................................64
SELECTED FINANCIAL INDICATORS ..................................................................................................................65
OPERATING AND FINANCIAL OVERVIEW ...................................................................................................... 66
GENERAL .........................................................................................................................................................66
SIGNIFICANT FACTORS INFLUENCING THE BUSINESS RESULTS..........................................................................66
CURRENT TRENDS AND PROSPECTS ..................................................................................................................67
CERTIFIED ORGANISATIONAL STANDARDS .......................................................................................................68
KEY ELEMENTS OF THE ACCOUNTING POLICY ..................................................................................................68
BUSINESS RESULTS ..........................................................................................................................................81
LIQUIDITY AND CAPITAL RESOURCES ...............................................................................................................84
ANALYSIS OF THE FINANCIAL POSITION ...........................................................................................................85
DESCRIPTION OF SHARES AND APPLICABLE BULGARIAN LAW ............................................................ 88
INTRODUCTION ................................................................................................................................................88
SHARE CAPITAL ...............................................................................................................................................88
CAPITAL INCREASE ..........................................................................................................................................89
RIGHTS ATTACHED TO SHARES ........................................................................................................................91
SHARE CAPITAL REDUCTION ............................................................................................................................92
SHARES INVALIDATION AND BUY-BACK...........................................................................................................93
TRANSFER OF SHARES .....................................................................................................................................93
MAJOR TRANSACTIONS AND RELATED PARTY TRANSACTIONS .......................................................................95
MEETINGS OF SHAREHOLDERS.........................................................................................................................96
DIVIDENDS.....................................................................................................................................................100
TRANSFORMATION AND DISSOLUTION ...........................................................................................................101
RIGHTS OF MINORITY SHAREHOLDERS ...........................................................................................................102
CHANGES IN THE RIGHTS OF THE SHAREHOLDERS ..........................................................................................102
SUPERVISORY BOARD AND MANAGEMENT BOARD .......................................................................................103
DISCLOSURE OF INFORMATION BY PUBLIC COMPANIES ..................................................................................107
CERTAIN OBLIGATIONS FOR DISCLOSURE OF INFORMATION BY SHAREHOLDERS AND MEMBERS OF THE BOARDS
OF PUBLIC COMPANIES ...................................................................................................................................108
CHANGE OF CONTROL OVER A PUBLIC COMPANY AND SHAREHOLDERS' RIGHTS ............................................109
INVOLUNTARY REDEMPTION OF SHARES AND RIGHT TO LEAVE. DELISTING FROM THE REGISTER OF PUBLIC
COMPANIES ....................................................................................................................................................109
REPUBLIC OF BULGARIA .................................................................................................................................... 111
INFORMATION ABOUT THE BULGARIAN MARKET OF SECURITIES ................................................... 120
TAXATION ................................................................................................................................................................ 131
GENERAL INFORMATION ................................................................................................................................131
CAPITAL GAINS .............................................................................................................................................131
INCOME FROM DIVIDENDS ..............................................................................................................................132
DOUBLE TAXATION AVOIDANCE TREATIES ...................................................................................................132
OTHER TAXES ................................................................................................................................................133
OFFERING TERMS AND CONDITIONS ............................................................................................................. 135
INTRODUCTION ..............................................................................................................................................135
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ESTIMATED SCHEDULE OF THE OFFERING .....................................................................................................136
DISCLOSURE OF OFFERING-RELATED INFORMATION ......................................................................................138
PUBLIC ANNOUNCEMENT OF THE RESULTS FROM THE OFFERING ...................................................................144
ADMISSION OF SHARES FOR TRADING ON BSE ..............................................................................................144
CANCELLATION OR SUSPENSION OF THE OFFERING .......................................................................................145
STATEMENT OF INTENT BY CERTAIN PERSONS TO TAKE PART IN THE OFFERING ............................................146
PERSONS INVOLVED IN THE OFFERING ...........................................................................................................146
PAYMENT AGENTS AND OTHER AGREEMENTS CONCERNING THE OFFERING. ..................................................147
DILUTION .......................................................................................................................................................147
MARKET MAKER UPON TRADING IN SHARES ON BSE.....................................................................................147
OTHER ISSUES OF SECURITIES ........................................................................................................................147
SETTLEMENT OF TRANSACTIONS IN SHARES ............................................................................................ 148
OFFERING-RELATED CLEARING AND SETTLEMENT ........................................................................................148
SECONDARY TRADING OF THE SHARES ..........................................................................................................149
SALES RESTRICTIONS ......................................................................................................................................... 150
EUROPEAN ECONOMIC AREA .........................................................................................................................150
GREAT BRITAIN .............................................................................................................................................151
SWITZERLAND ...............................................................................................................................................151
USA ..............................................................................................................................................................152
INCORPORATION BY REFERENCE. DOCUMENTS AVAILABLE FOR REVIEW ................................... 153
GENERAL INFORMATION ................................................................................................................................... 155
CEZ ELECTRO ...............................................................................................................................................155
STATUTORY ACTS REFERRING TO THE COMPANY AND ITS SHAREHOLDERS....................................................155
SUBSIDIARIES AND ASSOCIATE COMPANIES ...................................................................................................156
REAL ESTATE PROPERTIES, PLANT AND EQUIPMENT .......................................................................................156
INVESTMENTS (CAPITAL EXPENDITURES) .......................................................................................................156
RESEARCH AND DEVELOPMENT .....................................................................................................................156
INTELLECTUAL PROPERTY..............................................................................................................................156
MATERIAL CONTRACTS ..................................................................................................................................156
SIGNIFICANT CHANGES ..................................................................................................................................157
AUDITOR........................................................................................................................................................157
PREPARATION OF FINANCIAL STATEMENTS ....................................................................................................157
APPROVAL OF THIS PROSPECTUS ...................................................................................................................157
MISCELLANEOUS ...........................................................................................................................................157
DEFINITIONS AND TERMS SPECIFIC FOR POWER ENGINEERING........................................................ 159
STATEMENT OF LIABILITY ................................................................................................................................ 162
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SUMMARY
This Section should be read as an introduction to the Prospectus and investors should take their
decision to invest after thorough examination of the Prospectus in its entirety. Investors, particularly foreign
investors, should take into consideration that in case of filing a claim with regard to the content of the
Prospectus they might be required to pay for the translation of this Prospectus before starting court
proceedings. The persons who have drawn up this Section, including its translation are responsible for
damages provided that the information contained in this Section is found to be misleading, incorrect or
contradicts the other parts of the Prospectus.
Business Overview
CEZ Electro Bulgaria AD is a Bulgarian joint stock company, which is doing the business of electric
power supply to over 1.79 million households and to over 0.28 million legal entities in Western Bulgaria on a
territory of about 40 thousand sq.km. The Company operates on the basis of an exclusive license, issued by
SEWRC.
CEZ Electro is a part of CEZ a.s. group, the Czech Republic, which is one of the top ten energy
companies in Europe and a leader on the market of electric power in Central Europe.
In 2011 the revenue of the Company amounted 1,243,434 thousand levs (2010 1,167,661 thousand
levs), EBITDA was 1,195 thousand levs (2010: 1,119 thousand levs), and the net profit was 2,401 thousand
levs (2010: 3,051 thousand levs).
The registered capital of CEZ Electro is 50 thousand levs, where the State Consolidation Company
holds a stake of 33%, and CEZ a.s. - 67 %. The capital, after the latest amendments in 23.08.2011, has been
distributed in 5 thousand ordinary, registered, book-entry voting shares, freely transferrable, at par value of 10
levs each.
The company's head office in the city of Sofia and its registered address is in the city of Sofia, 140,
G.S. Rakovski Str.
CEZ Electro has no subsidiaries and affiliates.
Licences, Research and Development, Trends and Perspectives
The Law on Energy regulates the trade in energy as a business, which is subject to licensing by
SEWRC. Respectively, most important to the activity of CEZ Electro are the following licences issued to the
company:

Public Electricity Supply Licence, № L-135-11/ 29.11.2006, issued by SEWRC, valid until
August 2039; and

Electricity Trading Licence, № Л-229-15/17.05.2007, issued by SEWRC for a period of 10 (ten)
years, i.e. until May 2017.
CEZ Electro does not perform R&D activity.
Concerning the new trends and prospects for CEZ Electro, please refer to “Operational and financial
overview – Current trends and prospects” and “Operational and financial overview – Significant factors
affecting the business results”
___________________________________________________________________________________
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Employees
As at 31 December 2011 the number of employees of CEZ Electro accounts for approximately 68, at
the Prospectus date their count is 69. For more detailed information, please refer to “Business overview –
Employees”.
Corporate history
In November 2004 Republic of Bulgaria (through the Privatisation Agency) and CEZ a.s., Czech
Republic executed a privatization contract for the sale of shares of the three electricity distribution companies
in Western Bulgaria – Elektrorazpredelenie Stolichno AD, Electrorazpredelenie Sofia oblast AD, and
Elektrorazpredelenie Pleven AD, which later merged into one company - CEZ Distribution Bulgaria AD. The
process of privatization of the three electricity distribution company was completed in the beginning of 2005.
In January 2007, Elektrorazpredelenie Stolichno AD, Electrorazpredelenie Sofia oblast AD, and
Elektrorazpredelenie Pleven AD split their activities of electricity supply and electricity distribution and all
activities related to public supply of electricity were transferred to CEZ Electro Bulgaria AD, which was
incorporated in August 2006, and the distribution operations remained with the electricity distribution
companies (transformed into CEZ Distribution Bulgaria AD).
Competitive advantages
The following strengths of the Company will help it benefit from future growth opportunities and
achieve its strategic goals:

Experienced management team and personnel
The Management of CEZ Electro has long management experience in the energy sector and
profound knowledge in the assets, organization and activity of the Company. Also, the Company has highly
qualified personnel having the necessary professional background and experience.

Part of CEZ Group
The Company is a part of CEZ a.s. business group, the Czech Republic, which gives CEZ Electro the
advantage of benefiting from the experience and complex support of a company, which is a leader in the
electricity market in Central Europe.
Strategy
The Company‟s strategy is focused on ensuring high quality services to its customers and increasing
the value of the shareholders‟ equity which is planned to be realized in two main directions:

Developing the main scope of business of the Company
A priority of CEZ Electro is its effective participation in the electricity market by using its trading
licence and retaining its customers, particularly corporate customers, which were the first (after January 2007)
that had the option to choose freely their electricity supplier. In view of this the Company will make every
effort to ensure continuous, reliable and high quality electricity supply to its customers and create new
customer-oriented service packages both for individual customers and balancing groups.

Improving the operating efficiency of the Company
CEZ Electro will continue to carry out the activities it has been licensed to conduct at economically
feasible costs and by being transparent to SEWRC and its end customers by looking for reserves which to
allow it to reduce its operating expenses through optimized utilization of its resources and improving the
organization of its activity.
___________________________________________________________________________________
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Management and Supervisory Board
At present members of the Management Board are:



Kremena Stoyanova Stoyanova
Peter Baran
Zhanna Vasileva Pehlivanova
Chairman of the Management Board
Vice-Chairman of Management Board
Member of Management Board
Mrs. Stoyanova graduated in Accounting and Control from UNWE – Sofia and has a Master Degree
in Finance and Banking from SU Kliment Ohridski. She is a member of АССА (Association of Chartered
Certified Accountants). She held various consulting and managerial positions in finance, and since 2005 she
had worked as Senior Auditor in Ernst & Young. She is fluent in both English and German. In 2005 she
joined the team of CEZ and in 2006 was appointed a member of the Management Board. In 2009 she took up
the post of Chairperson of the Management Board.
Mr. Baran graduated in Finance and Banking from the School of Business Administration in
Karvina, the Czech Republic. He specialized in Petroleum Management at the Canadian Petroleum Institute.
He held various posts in financial institutions, including in the field of the construction and petroleum
business. Until 2006 he was a member of the Management Board of MERO ČR, a.s. He has a command of
German, English, Russian and Polish. Since 2011 he has been a member of the Management Board of CEZ
Electro.
Mrs. Pehlivanova holds a Master degree in Industrial Management and Economics from UNWE –
Sofia. She is also a holder of a Certificate in Management from the Centre for European Programmes at the
American University – Sofia. She held different administrative positions in banking institutions, including as a
member of the Management Board of DZI – Social Security AD (2006). Until 2009 she was Manager of the
Analysis and Risk Management Department in the Road Infrastructure Agency, subordinate to the Council of
Ministers. She has a command of Russian and English. She joined the team of CEZ Electro 2010 as a member
of the Management Board and Sales Director.
The present members of the Supervisory Board are:
 Karel Klusak
 Lucie Brabcova
 Evzhen Kochenda
 David Mahač
 Hristo Stoyanov Petrov
 Dimitar Zlatkov Kuyumdjiev
 Evgeniya Biserova Aleksieva
Chairman of the SB
Member of the SB
Member of the SB
Member of the SB
Member of the SB
Vice-Chairman of the SB
Member of the SB
Mr. Karel Klusak has a degree in electric power engineering and telecommunications. In 2001 he
graduated in Kuřim, the district of Brno. His professional career began in 1987 in Středočeské energetice
power plants in Prague and later he held different operational positions in the company. Since 2005 he has
worked as a coordinator in CEZ Prodej s.r.o. Since 2008 he has been a member of the Supervisory Board of
CEZ Electro.
Mrs. Brabcova holds a Bachelor degree in law from the College of Advanced Legal Studies in
Prague and Master degree in International Business. From 1989 to 2006 she held different administrative
positions in General Motors, The Czech Airlines, and in the Czech Trade Bank. Since 2006 she has been
working in CEZ a.s. in the field of international acquisitions. She is fluent in English and German and has a
working command of Bulgarian and Chinese. She has been a member of CEZ Electro since 2006.
___________________________________________________________________________________
3
Prospectus
Mr. Mahač holds a Master degree in law from the Charles University in Prague. He has a Bachelor
degree in Finance and Accounting. He began his career as a consultant in Ernst & Young. Later he held
different managerial positions in the energy industry and since 2008 he has been working in CEZ a.s. in the
acquisitions department. He has a command of English and German. Since 2008 he has been a member of the
supervisory Board of CEZ Electro.
Mr. Kochenda is a graduate in Domestic Trade and holds a Master degree in Economics from the
University in Toledo, a PhD in Economics from the University in Huston (USA). In 1985 he took up the post
of Manager of the Investments Department in a Czech corporation and later he held a number of managerial
posts in different companies. He pursued an academic career and also worked for non-government
organizations, media and institutions. In 2004 he received his PhD in Economics from the Charles University
in Prague, became a member of the Commission on Accreditation, and etc. Since 2011 he has been a member
of the Supervisory Board of CEZ Electro.
Mr. Petrov has a Master degree in Business Administration specializing in international economic
relations, marketing and advertising. He has a command of Hungarian, English and Russian. He began his
career as a foreign-trade manager and after that, from 1996 to 2004, held a number of managerial posts in the
trade sector. In 2005 he set up his own company. Since 2010 he has been a member of the Supervisory Board
of CEZ Electro.
Mr. Kuyumdjiev is a qualified engineer with a degree in thermal and nuclear power engineering from
IMEE (Institute of Mechanical and Electricity Engineering) – Sofia. Since his graduation, in 1972, he has been
working in the field of his specialty and over the years he held key positions in the Kozloduy Nuclear Power
Plant, Thermal Power plant Bobov Dol, NEC and others. In 2009 he took up the post of Director of Security
of Power Supply in the Ministry of Economy, Energy and Tourism. Has a command of Russian, French and
English. Since 2010 he has been a member of the Supervisory Board of CEZ Electro.
Mrs. Aleksieva has a Master degree in International Relations from New Bulgarian University –
Sofia. Her career began in 2005 when she worked for the 23 rd Regional Election Committee and until 2007 she
held several municipal posts. Since 2007 she has been а coordinator for the city of Sofia for GERB political
party. She has a command of English and Russian. Since 2011 she has been a member of the Supervisory
Board of CEZ Electro.
With a decision of the Extraordinary Meeting of the Shareholders dated 26 April 2012, after the date
of the Prospectus, Dimitar Kyumdzhiev was released as a member of the Supervisory Board and on his place
Boyko Vassilev Valkov was appointed.
Mr Valkov has a bachelor degree in geology of the mineral resources from the University of Mining
and Geology – Sofia and a MA degree in communication and security technology from the Higher Transport
School – Sofia. His career started in 1998 at OF “Metropoliten” EAD, where since 2008 he is head of
laboratory. He speaks Russian. Mr Valkov is a member of the Supervisory Board since 11.06.2012, and his
mandate expires on 11.06.2017.
As at the date of this Prospectus the company has established and functioning an Audit Committee
For additional information regarding the members of the Management and Supervisory Board, please
see “Management and corporate governance”.
CEZ Group
CEZ a.s., the Czech Republic and its subsidiaries (CEZ Group) is one of the top ten energy
companies in Europe both in view of its installed capacity and number of customers. It holds a leading position
in the energy market in Central Europe. From the overall volume of electrical power generated in the Czech
___________________________________________________________________________________
4
Prospectus
Republic, the power generated by CEZ Group accounts for almost three-quarters. CEZ Group operates 2
nuclear power plants, 15 thermal power plants on the territory of the Czech Republic, 3 thermal power plants
outside the Czech Republic, 34 water power plants, including 3 pumped-storage hydroelectric power plants, 2
wind farms and one photovoltaic power plant.
As at 30 June 2011 CEZ Group (including the parent company CEZ a.s.) comprises 130 business
units, 62 of which have their head offices and registered addresses in the Czech Republic, 32 in countries in
Central and Western Europe, and the rest 36 in Southeast European countries and Turkey.
Mainly, the core business of CEZ Group in Bulgaria includes distribution, public supply, generation
of and trade in electricity. Apart from CEZ Electro (in which CEZ a.s. owns 67% of the shares), other main
companies that are part of CEZ Group in Bulgaria are CEZ Bulgaria EAD, CEZ Distribution Bulgaria AD,
CEZ Trade Bulgaria EAD, Thermal power plant Varna EAD, CEZ Elektroproizvodstvo Bulgaria EAD and
Free Energy Project Oreshec EAD, as well as CEZ Laboratoris Bulgaria EAD (in liquidation). Within CEZ
Group, the Company is dependent on the Majority Shareholder CEZ a.s., while it has the same rights and
cooperates with CEZ Distribution Bulgaria AD and the other companies within CEZ Group.
CEZ Electro has no subsidiaries.
Majority Shareholder
Majority Shareholder of the Company is CEZ a.s., which holds directly 3 350 ordinary voting bookentry shares, representing 67% of the company‟s total share capital and votes in the General Meeting, as a
result of which CEZ a.s. has a direct control of the Company. The remaining 33% (1650 Shares) are held by
the State Consolidation Company and these Shares are now being offered for sale in compliance with this
Prospectus.
For more detailed information regarding the Majority Shareholder, please refer to „Majority
Shareholder and Selling Shareholder”.
Articles of Association and applicable regulatory acts
CEZ Electro conducts its business in compliance with the Law on Commerce, the Energy Law and
other regulations governing the business of the energy companies, as well as with the provisions of its Articles
of Association and other internal rules.
After the Prospectus is approved by decision of FCS and after the company‟s Shares have been listed
in the Register of FCS with the aim to be traded on a regulated market, CEZ Electro shall change its status to a
public company. From that point on the special provisions of the Law on Public Offering of Securities, with
regard to the public companies, shall apply to CEZ Electro.
For more detailed information regarding the Articles of Association and some other applicable
provisions of the Law on Commerce, please refer to “Description of the Shares and the applicable Bulgarian
law”. Regarding the regulation of the energy sector in Bulgaria, please refer to “Energy Sector Overview”. For
more detailed information regarding the applicable regulatory acts, please refer to “Regulatory Acts relevant to
the Company and its Shareholders”.
___________________________________________________________________________________
5
Prospectus
Documents available for review
The Prospectus, the audited financial statements of CEZ Electro for the years 2011, 2010 and 2009
(Financial Statements), the Articles of Association of the Company will be available for review within the
normal working hours during the work week (excluding on Saturday, Sunday and on official holidays) in the
office of Central Cooperative Bank at 2 Stefan Karadja Str., Sofia, Bulgaria, as well as on the website of the
Bank www.ccbank.bg, from the date of publication of this Prospectus and throughout the period of its validity,
and with regard to the other documents – within time periods not shorter than those determined by law.
Auditor
The auditor of CEZ Electro is the specialized auditing company “Ernst and Young Audit” OOD,
with a head-office and address of administration: 1124 Sofia, Sredec region, Polygraph Office Center, № 47А
Tsarigradsko shose blvd, floor 4, registered at the Companies Register at the Registry Agency subjected to the
Minister of justice with unified identification code (UIC) 130972874. The auditor certified the financial
statements of CEZ Electro for the years, ending on 31 December 2011 and 31 December 2010, via the
registered auditor Ivaylo Kolev (diploma № 703 of ICPA), and 31 December 2009, via the registered auditor
Filip Lyapov (diploma № 537 of ICPA).
The professional authority, where the person is a member is the Institute of Certified Public
Accountants in Bulgaria (ICPA). “Ernst and Young Audit” OOD has reg. №108 in the list of the registered
auditing companies of ICPA.
Summary information on related party transactions
CEZ Electro has made and intends to make future transactions with related parties within the
meaning of IAS 24 “Related party disclosure”.
Normally, the related party transactions to which the Company is a party involve sale and purchase
of electricity, services, rents and intra-group loans. All related party transactions are conducted as transactions
between non-related parties (at arm‟s length prices), except in the case of selling electricity, which is done at
regulated prices.
For more detailed information regarding the related party transactions to which the company is a
party, please refer to Note 13 to the annual financial statements of the Company for 2011, Note 12 to the
annual financial statements of the Company for 2010 and Note 12 to the annual financial statements of the
Company for 2009, as well as “Business Review – Related Party Transactions”
Review of the risk factors
Investing in Shares is associated with risks which may have adverse effect on the business, financial
condition, business results or prospects of CEZ Electro and may affect adversely the value of the Shares. To
review the risk factors related to the macro economic conditions, the Company’s business and the Shares,
please refer to “Risk Factors”.
Risks specific to the Issuer’s business and the industry in which it operates

Business of CEZ Electro can be affected adversely by a fall in the consumption of electricity due
to economic, political or technological reasons.

Business of CEZ Electro is vulnerable to changes in climate.
___________________________________________________________________________________
6
Prospectus

Business of CEZ Electro is associated with a risk of a rise in the price of electricity due to an
increase in the prices of the primary energy recourses and more stringent CO2 emissions
standards.

Liberalization of the energy market in Bulgaria and stronger competition.
CEZ Electro operates in a highly regulated sector of the economy and its financial results are
dependent on a number of regulatory acts and decisions of the regulatory body – the State Energy and Water
Regulatory Commission; the company is exposed to risk upon determining the prices of electricity by the
regulator all expenses, necessary for the performance of the activity, not to be taken into account.

Risks related to interruption in the supply of electricity.

Risks related to the legislation outside the energy sector, the regulatory practice and their
changes.

Litigations or other extrajudicial proceedings or actions may have adverse effect on the business
of the Company, its financial condition or its business results

CEZ Electro may choose an inappropriate market strategy


Transaction with related parties under conditions other than the market ones.
The Company is dependent on some of the members of its management bodies and its operations
and may be exposed to risk if it is not able to retain or hire qualified personnel.

The company is exposed to operational risk inherent in its business operations, including risks of
non-compliance by third parties, on which the Company relies for its activity or fail of
professional duties by the staff

Strikes or other industrial activities as well as negotiations with professional unions may impair
the activity of CEZ Electro or increase its operating costs.

Risks associated with the Company obligation under the Energy Efficiency Act

Credit risk
 There is a risk that the companies permits and licenses could be revoked or the Company may
not be able to receive necessary permits and licenses in its future work

Risk of failure or limitation in funding including a significant increase in the cost of financing
and changes in the interest rates
General Risks

As a newly emerging market Bulgaria is subjected to a greater risk compared to the developed
markets.
Shares-related risks

The market price of the Shares may be highly variable

Risks related to the Bulgarian securities market

The Bulgarian Stock Exchange is significantly smaller and less liquid than the securities markets
in some other countries
___________________________________________________________________________________
7
Prospectus

Additional financing through Shares, including by means of convertible or exchangeable bonds
and other similar instruments may have “Dilution effect” for the shareholders of CEZ Electro

Significant future sales of Shares may affect their market price

There is no guarantee that cash dividends will be distributed to the shareholders

CEZ Electro is controlled by its Majority Shareholder and should this shareholder take some
actions which are not in the best interest of the other shareholders the value of the Shares may
drop.

Inflation-related risk

Currency-related risk
Risks specific to Bulgaria

Political risks

Economic risks

Risks related to the functioning of the legal system

Exchange rates and Currency board

Taxation
Shares and Offering
This summary of the terms and conditions of the Offering provides selected information on the Offering and
the Offered Shares. The information contained in this summary does not purport to be exhaustive and should be
viewed solely in the contexts of the more detailed information provided in this Prospectus, in particular in “Terms of
the Offering” and “Share Transaction Settlement” and “Restrictions to Sale” .
Offered Shares
1 650 ordinary book-entry shares, each at a par value of
10 levs, issued from the share capital of CEZ Electro,
constituting the total portion of the company‟s share
capital owned by the Selling Shareholder.
Planned Schedule of the Offering
For detailed information about the Planned Schedule
related to the Offering and the Listing on the BSE see
„Offering Terms and Conditions” “Expected Offering
Timetable”
Initial and minimum price of an Offered Share
The initial and minimum price of an Offered Share
determined by the Selling Shareholder will be
published on the website of the Company
(www.cez.bg) and/or on the website of the Offering
manager (www.ccbank.bg) (Public Announcement),
___________________________________________________________________________________
8
Prospectus
and according to the Rules of BSE (if applicable).
Execution of the sales transactions of the Offered
Shares. Price of the Offering=
The transactions for purchase of the Offered Shares
shall be executed on the Privatisation segment of the
BSE Primary market, and the determination of the sale
price and the allocation of the Offered Shares shall be
carried out by the BSE Trading system under the
conditions of the adopted method of "combined auction
by tender".
On the auction date, as announced by BSE, investment
intermediaries - members of the Stock Exchange
(including the Offering manager) may enter unlimited
number of limit and market orders for purchase of
Offered Shares. Each investment intermediary can see
only the orders they have entered and not those entered
by the other stock members. The investment
intermediary that operates on the account of the Selling
Shareholder is the Offering Manager.
Ranking of the orders entered by the BSE System and
determining the transaction price for the Offered
Shares
In case that the total volume of the limit orders at the
maximum price, together with the volume of the market
orders which can be executed at the maximum price
exceed the volume of the Offered Shares
In this case the BSE System accepts as a cut-off price
the best buy limit order price. The Cut-off Price is used
also as a sell order price and transactions in Offered
Shares are made only at this price. In view of the preset priority criterion for managing the execution of the
orders, based on their time of entry, a buy order may be
partially executed. Sale limit orders which are at prices
lower that the cut-off price will not be executed and no
transactions will be concluded.
In case that the overall volume of the limit orders at
maximum price, together with the volume of the market
orders which can be executed at maximum price is
below the volume of the Offered Shares
BSE System sorts the submitted buy orders in a
descending order by price and then in ascending order
by time of entry. BSE System determines as a cut-off
price the limit order price at which the volume of the
limit orders priced at or above the cut-off price together
___________________________________________________________________________________
9
Prospectus
with the volume of the market orders executable at the
cut-off price does not exceed the volume of the Offered
Shares.
All limit orders priced at or above the cut-off price will
be executed at the price specified therein (i.e.
transactions are completed at the prices specified in
these buy orders). Market orders are completed (and
transactions are carried out) at the weighted average
price of all successfully completed limit orders. Buy
limit orders priced below the cut-off price will not be
executed and the related transaction will not be carried
out.
The number of the Offered Shares that have remained
unsold after the auction ends will be transferred to the
following day.
Disclosing information related to the Offering
At the end of each auction held on the BSE
Privatisation Market the Stock Exchange will publish
information about the auction according to its Rules.
Public Announcement with regard to the result of the
Offering (including the number of the Shares sold and
information on the prices of the completed
transactions), will be published on the web-site of the
Company (www.cez.bg) and/or on the web-site of the
Offering manager (www.ccbank.bg) (see „Disclosing
information related to the Offering” above), within
seven days from the end of the Offering, and at the
same time will be presented to FSC and BSE
If there is a need of disclosing additional information
related to the Offering this will be done by means of a
Public Announcement.
Currency of the Offering
BGN
Listing on BSE
Based on this Prospectus the Offering manager CCB
intends to submit an application for listing of all
Shares, i.e. 5000 Shares on the main market of the
Bulgarian Stock Exchange. CCB intends to commence
the trade in Shares on BSE not later than the beginning
of October 2012
Voting rights
Each Share (including the Offered Shares) provides its
owner the right to one vote. Decisions of the General
Meeting shall be made by an ordinary or qualified
majority of the votes attached to Shares whose owners
participate in the Meeting in person or by proxy. As at
the date of this Prospectus, the Articles of Association
___________________________________________________________________________________
10
Prospectus
of the Company does not contain any restrictions as to
the number of the Shares or the voting right that one or
more persons may have.
Dividend
All buyers of Offered Shares will be entitled to a
dividend for future financial years, at equal terms with
the other shareholders on condition that the General
Meeting makes a decision for paying out such a
dividend, please refer to “Description of shares and
applicable Bulgarian law – Dividends”.
Offering manager
Central Cooperative Bank AD acting as an Investment
Intermediary
Mandate Agreement
According to the requirements included in the Mandate
agreement for public offering of shares entered into on
19th of July 2011, the Offering manager has agreed to
make every effort, through active marketing activities
for the needs of the public offering, to sell the Offered
Shares, i.e. to attract investors to acquire the Offered
Shares at a price which will not be lower than the
minimum price that has been announced by the Selling
Shareholder. Neither the Manager nor any other person
shall act as an underwriter, under the terms of a firm
commitment, nor shall guarantee the full or partial sale
of the Offered Shares.
Stabilization and other similar arrangements
The company, the Selling Shareholder and the Offering
manager do not foresee stabilization transactions.
Also, there are no arrangements for exceeding the
amount of the Offered shares and/or a “green shoe”
option.
Lock-up Agreements
There are no arrangements between the Issuer, the
Selling Shareholder and the Offering manager which
prohibit the disposal of Shares, referred to as “lock-up
agreements”
Shareholder’s capital and dilution
The Shareholder‟s capital of the Company amounts to
50 thousand levs and is divided into 5 000 ordinary
registered book-entry shares, each at a par value of 10
levs.
The Offering will not lead to any dilution of the
shareholder‟s interests in the Company and the total
number of votes which each shareholder may exercise
during the General Meeting shall not change.
Settlement and Transfer of Offered Shares
Settlement of transactions in Offered Shares entered
___________________________________________________________________________________
11
Prospectus
into on the BSE Privatization market will be realized
based on the “delivery versus payment” principle and
they will be transferred to the relevant investors‟
accounts with the Central Depository or to the account
of a global or local trustee appointed by the investor
who will keep these Shares on behalf of the investor
(Trustee), on the day T+2, where T denotes the day on
which the transaction is registered in the BSE System.
Investors may request to be issued with certifying
documents for the Shares which they have acquired
during the Offering (depository slips, issued by the
Central Depository) by the Investment Intermediaries
through which they have submitted orders and with
which they have opened customer sub-accounts or at
the Trustees through which the Share transactions were
settled, in compliance with the provisions of the Rules
of the Central Depository. For the Shares owned by
them Investors can be provided with an excerpt of their
customer accounts maintained by the Investment
Intermediaries or Trustees.
Shares Code
ISIN code: BG1100024113
Utilization of the income
The net proceeds from sales of Offered Shares are for
the use of the Selling Shareholder. The Company shall
not receive any part of the proceeds from the sale of the
Offered shares.
Offering-related expenses
The estimated expenses related to the Offering and
Listing on the BSE will amount to approximately 3 524
levs. For details, please refer to “General information”
Summary of the Financial and Operational Information
This Section should be read in close conjunction with the information contained in “Operational and
Financial Review” and in the Financial Statements and the Notes to them and the other financial data presented in
other parts of this Prospectus.
Selected financial and operational data
The following tables present selected financial data of the Company as at the dates and for the periods
specified below:
Statement of Comprehensive Income
The table below provides information on the statement of comprehensive income for the specified periods.
STATEMENT OF COMPREHENSIVE INCOME (000’levs)
Sale of electricity
Other income
Income
2009
1,149,428
4,890
1,154,318
2010
1,163,660
4,001
1,167,661
2011
1,236,286
7,148
1,243,434
Costs for purchased electric power
(769,759)
(814,346)
(788,931)
___________________________________________________________________________________
12
Costs for electric power distribution
Cost for materials and consumables
Costs for external services
Staff costs
Impairment losses
Other costs
Operating profit
Prospectus
(358,728)
(21)
(16,881)
(1,928)
(5,214)
(325)
1,462
(326,135)
(17)
(15,451)
(1,841)
(7,863)
(890)
1,118
(420,005)
(17)
(16,319)
(2,085)
(9,863)
(5,021)
1,193
Financial income
Financial costs
Pre-tax profit
4.712
(29)
6,145
2,318
(29)
3,407
1,501
(26)
2,668
Income tax costs
(617)
(356)
(267)
Profit for the period
5,528
3,051
2,401
Total comprehensive annual income, net of taxes
5,528
3,051
2,401
Consolidated statement of financial position
The table below provides information on the statements of the financial position as at the specified dates.
STATEMENT OF FINANCIAL POSITION (000 levs)
Assets
Long-term assets
Intangible assets
Deferred tax assets
2009
2010
2011
11
3,057
3,068
10
3,697
3,707
8
4,647
4,655
TOTAL ASSETS
105,698
409
15,000
248
103,503
224,858
227,926
113,741
266
0
170
66,917
181,094
184,801
123,598
299
0
52
89,714
213,663
218,318
EQUITY AND LIABILITIES
Equity
Fixed capital
Statutory reserves
Reserve from setting aside
Retained earnings
Total equity
50
5
74,701
34,114
108,870
50
5
65,380
3,051
68,486
50
5
65,378
5,452
70,885
93
0
13,949
14,042
105
2,273
12,001
14,379
117
843
10,982
11,942
51,987
62,639
44,826
Short-term assets
Trade and other receivables
Receivables from related parties
Loans granted to related parties
Overpaid income tax
Cash equivalents and short-term deposits
Long-term liabilities
Payables for retirement benefits for the staff
Provisions for liabilities
Cash guarantees under electricity sales contracts
Short-term liabilities
Trade and other payables
___________________________________________________________________________________
13
Prospectus
Payables to related parties
50,836
2,191
105,014
119,056
227,926
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
38,996
301
101,936
116,315
184,801
85,959
4,706
135,491
147,433
218,318
Information on the Cash Flow Statements
The table below provides information on selected items of the cash flow statements for the specified
periods.
Net cash flows by types of business (000 levs)
From operating (main) activities
From investment activities
From financial activities
Net (decrease)/ increase of cash flows and cash equivalents
Opening cash balance
Closing cash balance
2009
11,311
(5,000)
(29)
6,282
97,221
103,503
2010
(8,148)
15,000
(43,438)
(36,586)
103,503
66,917
2011
22,799
0
(2)
22,797
66,917
89,714
Information from the Capitalization and Indebtedness Table
The following table contains information on the capitalization and indebtedness of the Company as at 31 st
December 2011.
31 December 2011
(LEVS’000)
Total short-term liabilities
Provisions
135,491
44,826
85,959
4,706
Total long-term payables
Provisions
11,942
117
843
10,982
Total liabilities
147,433
Equity
Fixed capital
Reserves
Retained earnings
70,885
50
65,383
5,452
Total liabilities and equity
218,318
Selected financial indicators
The table below provides information on the selected financial indicators of the Group for the specified
period.
For the year ending on 31 December
2009
2010
2011
Return on Assets (%) (1)
2.4
1.5
1.2
Return on Equity (%) (2)
5.2
3.4
3.4
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14
Prospectus
Income per share (levs) (3)
1,105.6
610.2
480.2
Dividends per share (levs)
-
8,686.6
-
Number of shares
5.000
5,000
5.000
Share capital (levs)
50,000
50,000
50,000
Assets Turnover (4)
5.1
5.6
6.1
Operational margin (%) (5)
0.1
0.1
0.1
47.8
37.1
32.5
1.464
1,119
1,195
Equity/ assets ratio (%) (6)
EBITDA*(Earnings before
amortization)
interests,
taxes,
depreciation
and
Source: CEZ Electro
(1) The return on assets has been calculated as the net profit, divided by the average mean of the assets at the end of the
preceding period and at the end of the current period
(2) The return on equity has been calculated, whereas the net profit is divided by the average mean of the shareholders’
equity at the end of the preceding period and at the end of the current period
(3) The profit per share is calculated, whereas the net profit is divided by the average number of shares for the period
(4) The assets turnover has been calculated, whereas the sales income has been divided by the average mean of assets at the
end of the previous period and at the end of the current period
(5) The operative margin has been calculated, whereas the profit before financial income and expenses and taxes has been
divided by the sales income
(6) The ratio “Shareholders’ equity /assets” has been calculated, whereas the shareholders’ equity at the end of the period
has been divided by the assets at the end of the period
Latest Developments
Аs at the date of the preparation of this document no material change in the financial or economic condition
and prospects of CEZ Electro has been observed after 31st of December 2011.
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RISK FACTORS
Prior to making any investments in the Shares of CEZ Electro, potential investors should consider
very carefully the risk factors indicated in this Section, in addition to the other information contained in this
Prospectus. In case that any of the risks described below should occur this may have an adverse effect on the
business of CEZ Electro, its business results or its financial position. If this results in drop in the market price
of the Shares, the investors, specified further on may lose partially or in full their investments. The risks and
uncertainties described below are neither the only issues to which CEZ Electro is exposed, nor exhaustive.
Additional risks and uncertainties, which at present are not known or are considered insignificant may also
impact adversely the business of CEZ Electro, the results of its operations or its financial condition. Potential
investors should read these documents in full and should not rely solely on the information set forth in this
Section.
Risks specific to the Issuer’s business and the industry in which it operates
CEZ Electro activity can be affected negatively by a fall in the consumption of electricity due to
economic, political or technological reasons.
The consumption of electric power to a great extent depends on a series of economic, political, social
and technological factors. The Global economic crisis is having certain adverse effect on the consumption of
energy sold by the Company. As a result of the economic instability a great number of companies reduced
their production capacities, which led to reduction in the consumed electricity by industry. The economic
decline has affected the stability of many business consumers, which has resulted in delay and/or
postponement of the payment of their bills for electricity consumption. Such effect caused by the existing
unemployment has been observed in the domestic consumers too, who encounter difficulties to pay promptly
their bills. With deepening of the crisis or if there is a new recessionary process to represent a risk to adversely
affect development and financial position of CEZ Electro.
Another factor affecting the Company‟s business is the introduction of new technologies,
diversification of energy sources and routes. The introduction of different energy sources in the country, such
as solar energy and natural gas, the use of biomass for heating and/or water heating, which has been becoming
more widely used in households, poses a risk of reduction in the Company‟s future income from sales of
electricity as a public supplier. The diversification of the sources of energy in the country inevitably would
result in reduction of prices of the different primary energy resources. The increasing popularity of the effects
from implementation of energy efficiency measures, as well as the achieved effects, are expected to result in
reduction in the consumed electricity, which is likely to affect adversely the income of the Company in the
next years.
The business of CEZ Electro is vulnerable to changes in climate
The climate conditions, in particular changes in the temperature, cause seasonal fluctuations in the
consumption of electricity which in its turn affects the income of CEZ Electro. The company‟s income tends to
fall significantly at higher ambient temperatures during the winter months and lower temperatures during the
summer months.
The business of CEZ Electro is associated with a risk of raising the price of the electricity due to
an increase in the prices of the primary energy recourses and the enforcement of more stringent CO2
emissions standards
The prices of the electricity in the country do not include yet expenses related to purchase of CO2
emission permits. This will be done, and power plants will have to pay for all amounts of CO2 they emit. The
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result will be a significant increase in the prices of electricity, and the risk for the company is related to a
possible future decrease in the consumed energy both by households and industrial customers.
The continuous increase in the prices of primary energy resources (petroleum, natural gas, coal)
worldwide results in raising the price of the electricity. The so called derivative energy resources which are
suitable for direct use by end consumers are produced from primary energy resources. These are the electricity,
various petroleum products and the thermal energy. In the future the prices of the primary energy resources are
expected to remain variable. Price fluctuations are mainly due to changes in the production expenses,
transportation tariffs, the total demand and supply on the international markets, as well as other regulative and
political factors such as imposing more stringent CO2 emission standards. The limit on the supplies, because
of geopolitical factors such as disputes between different countries with regard to natural resources could bring
about a significant rise in the prices of electricity.
Such an increase in the prices of primary energy resources could have adverse effect on business of
the Company as it is possible, in view of the fact that the end prices of electricity are regulated within the
pricing year 01 July – 30 June or due to certain political reasons, that the price difference in the purchase price
of primary energy resources could not be calculated in the end user price, determined by law.
Liberalization of the energy market in Bulgaria and building a stronger competition
The liberalization of the energy market in Bulgaria involves the possibility that all suppliers can sell
electricity freely and all consumers have the right to choose freely their electricity supplier. As of 1 st January
2007 all consumers have the right to choose their supplier of energy. With the expected changes in the Law on
Energy a group of protected consumers should be defined – domestic and other end users connected to the
distribution grid in the low voltage part. This will allow more companies to trade in energy freely. Among the
factors, which determine whether consumers will choose to use the services of the Company, are the price,
product and service quality, reputation and customer relations. It is possible that new companies with more
aggressive marketing policy could attract current customers of the Company as their own clients.
In summary, it is anticipated increased competition in the sectors and markets in which the Company
operates and respectivly increasing risk and price risk in sales. There are no guarantees that it will sustain its
competitive positions in the future and retain its market segment and customers.
With the market liberalization, the Company will start performing the role of a coordinator of a
special balancing group on the regulated market. In this role, the Company is expected to prepare detailed
forecasts for the expected electricity consumption and to assume new responsibilities, including balancing,
stipulated in the respective regulatory framework. As a result of that there may be significant expenses, which
due to various reasons are not included in the price of electricity for consumers.
Under such development the possible losses and limitations may have a considerable unfavourable
effect on the results from the activity, the financial state and the perspectives for company development.
CEZ Electro operates in a highly regulated sector of the economy and its financial results are
dependent on a number of regulations and decisions of the regulatory body – the State Energy and Water
Regulatory Commission (SEWRC); the company is exposed to risk upon determining the prices of
electricity by the regulator all expenses, necessary for the performance of the activity, not to be taken into
account .
The activity of the Company and the energy sector as a whole is governed by a number of regulations
at national, European and international level. For example, the Company buys electricity mainly from National
Electricity Company AD (over 94% of the energy bought by the Company) and in smaller quantities from
thermal plants and suppliers of renewable sources of energy. If SEWRC decides to raise the regulated price of
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electricity, at which the company buys electricity, without calculating the effect in the prices to the end clients,
this may have a significant unfavourable effect on the company financial results.
On the other hand, the Company supplies end users with electricity at a regulated price, determined
by SEWRC, and the regulatory body considers a number of factors related to the specific regulatory period
such as a regulatory asset base (ARB), return on equity (ROE), approved annual operating expenses according
to an issued public electricity supply licence and etc. The pricing elements are evaluated by SEWRC, whereas
the decision of SEWRC upon determining prices usually does not correspond to the parameters, declared by
the company. There is a risk that in determining the regulatory price the requested by the Company values may
not be approved or entirely recognized, which could prevent these expenses from being included in the price of
the energy for sale, which in return could affect negatively the financial results of the Company. In addition,
there is cross subsidizing between the various groups of clients, which leads to price risk, whereas these prices
do not reflect the actual expenses of the distinct groups. In case the prices determined by the regulator do not
take into account fully the incurred expenses, this may have a significant unfavourable effect on the financial
state and the business perspectives for company development.
On the other hand, the government policy to provide incentives for certain “green” or renewable
sources of energy may also have adverse effect on the business of the Company. Although the current supply
from such sources of energy constitutes an insignificant part of the total supply of energy, there are no
guarantees that in the future such policy will not result in a drop in the sales of the Company and respectively
in a decrease in its financial result.
Risks related to interruption in the supply of electricity.
CEZ Electro is exposed to a risk of losses or incidental expenses related to interruptions in the power
supply to customers.
Possible interruptions may harm the reputation of the Company, deteriorate the relationships with
clients, including leading to an outflow of clients and have significant negative impact on the business results
and the financial position of the Company.
Risks related to the legislation, the regulatory practice and amendments there of.
CEZ Electro operates in a highly regulated dynamic environment with possible sudden and
fundamental changes in the applicable legislation, its interpretation or practice of enforcement. Generally the
business of the Company is subject to a number of stringent regulations, including in the area of environment
protection, taxes, occupational health and safety, etc.
Amendments in legislation and its implementing practices may have significant negative effect on
the business operations, financial standing and the business results of the Company.
Breaching the regulations, including as a result of interpreting certain norms, may lead to fines or
other sanctions by the state regulatory authorities. Every deprivation or limiting significant permits and
licenses, issued by the competent authorities, as well as all sanctions, fines or penalties, paid by the Group for
non-complying with the regulatory requirements, may limit the scope of its operations or have a significant
unfavourable effect on the reputation and business of the company, its financial state and/or the results of the
company operations.
Litigations or other put-of-court proceedings or actions may have adverse effect on the business of
the Company, its financial position and business results
Due to the nature of its business the Company may be exposed to the risk of legal actions on the part
of its customers (including collective claims), employees, shareholders, contractors etc. by means of private
actions, administrative proceedings, actions taken by competent authorities or other types of legal proceedings.
The cost of the legal defence related to future lawsuits may be significant. There is a possibility of negative
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advertisement related to lawsuits brought against the Company which may harm the Company‟s reputation
regardless of whether the claims are well-founded and whether the Company has been found guilty. Because
of this lawsuits may have negative effect on the Company‟s business, its financial position and/or business
results.
CEZ Electro may choose an inappropriate market strategy
Both future profits and the economic value of CEZ Electro are contingent on the strategy chosen by
the management of CEZ Electro. Inappropriate or delayed changes in the strategy of CEZ Electro could have
significant adverse effect on the business of CEZ Electro, its operating results and financial position. The
company endeavours to exclude or at least decrease this risk, selecting and endeavouring to retain in the
management team proven experts with qualification and experience in the field of the activity, performed by
the company.
Transactions with related parties under conditions, other than the market conditions.
This is the risk for the company to conclude transactions with related parties, which differ in terms of
conditions from those, which are concluded on an entirely market principle, between unrelated parties. During
the years, covered by the historical financial information, presented in this Prospectus, the company concluded
transactions with related parties, the information about which has been presented in more detail in Section
“Business review – transactions between related parties”. As specified there, the company considers that these
transactions are performed at the usual market prices, with the exception of sales of electricity, which are at
regulated prices. In the future the company does not plan to make transactions with related parties under
conditions other than the market conditions. The main risk for the tax liable person, if it does not prove that the
principle of the independent market relationships is complied with upon transactions with related parties, is the
National Revenue Agency to reorganize its financial result and to determine new responsibilities, based on any
publicly accessible information. In the specific case CEZ Electro is an assignor of services to related parties –
companies from the CEZ group in Bulgaria, according to concluded contracts for the rendering of services.
The risks specified above are minimum to the company, because there is documentation about transfer pricing,
which is in keeping with the regulatory provisions and the published by the National Revenue Agency in 2010
“Guidelines for documenting the transfer prices, applied upon transactions between related parties”. The
documentation about the transfer pricing is prepared for each tax year by CEZ Bulgaria EAD. Additionally, it
has to be taken into consideration that after the acquisition by CEZ Electro of the statute of a public company,
it shall comply with the regime of approval of transactions with interested persons in the sense of Art. 114,
para. 5 of the Public Offering of Securities Act (which to a great extent coincides with the main categories of
related parties), intended by the special law – Art. 114 et seq. of the Public Offering of Securities Act, which
aims at intensified control on the conclusion of such transactions, including for compliance with the
requirement the transactions to be performed under market conditions (see section “Description of the shares
and the applicable Bulgarian legislation – Transactions at considerable value and transactions with interested
persons”).
The Company is dependent on some of the members of its management bodies and its operations
may be put at risk if it is not able to retain or hire qualified personnel
The business of CEZ Electro is highly dependent on the input of certain persons participating in the
management bodies of the Company. The Company‟s activity and its ability to develop its operations depends
also on its ability to attract and retain qualified managerial and R&D personnel. There is no certainty that the
services provided by the specified persons and personnel will be available in the future to CEZ Electro. The
success of the Issuer will depend partially on its ability to retain and motivate these persons. The inability of
CEZ Electro to maintain enough experienced and qualified personnel to take managerial, operational and
technical positions may have significant negative effect on its activity, operating results and financial position.
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The company makes consistent efforts to reduce these risks, endeavouring to attract and retain qualified
management team and other experts.
The company is exposed to operational risk inherent to its business operations, including the risks
of non-performance by third parties, on which the company relies for the performance of its activity or nonperformance of the professional obligations by the staff.
CEZ Electro is exposed to a risk of losses or contingencies related to inadequate or non-functional
internal processes, human errors, system failure or external circumstances as errors in executing operations,
clerical or secretary errors, interruption of business processes (due to different factors such as software or
hardware failure and communication breakdown), fraud, unauthorized transactions and damages on assets.
Each failure of the Company‟s in-house control system to detect or eliminate an operative risk, including nonperformance of the professional obligations by the staff, or each failure of a third party to execute properly the
tasks they have been assigned with could have significant negative effect on the Company‟s business, its
financial position and business results.
Strikes or other industrial activities as well as negotiations with trade unions may impair the
activity of the Group or increase its operational risks
The Company is exposed to a risk of strikes, slowing down or ceasing its work and other industrial
activities. Possible occurrence of such events in the future may affect adversely the business of the Company,
its financial position and/or business results.
Risks related to the obligation of the Company pursuant to the Law on Energy Efficiency
Pursuant to the Law on Energy Efficiency, the Company has individual target for energy savings to
the size of 645 GVtC, which is mandatory and must be achieved by the end of 2016 and provided that the
company fails to fulfil its individual target, it shall pay a contribution to the Energy Efficiency Fund. At
present there are not clearly approved Methods of Assessment of the realized energy savings from a number of
activities, which subsequently poses the risk that the measures taken by the Company for energy savings
would not be recognized by the Sustainable Energy Development Agency. Furthermore it is not possible to
determine the size of the contribution to the Energy Efficiency Fund, which the Company shall make if it fails
to meet the preset individual target, as the price per 1 GVtC of the target is not yet specified. These problems
may incur risks, which may have material effect on the financial position of the Company.
Credit risk
The Company supplies electric power to different users – business and domestic users. The Company
may suffer material losses in case of failure of the users to pay their bills. Moreover, the possibility of the
Company to collect its receivables is limited by the effective legal framework. It results in uncertainty
concerning the collection of receivables by clients and may affect adversely the business of the financial
position of the Company.
There is a risk for the provided to the company solutions and licenses to be revoked or that the
company may not be able to obtain in the future the permits and licenses, necessary for the activity
Upon performing its activity the company uses permits and licenses. There are no guarantees that the
company will continue to use these permits and licenses and it will be able to renew them on time or to receive
additional ones, concerning new projects and /or activities, or such, which will be required in the future
according to the applicable legislation.
Risk of impossibility or limitations in the provision of the attracted resource, including a
considerable increase in the price of the financing
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The access to financial resource, as well as the price of the financing, is an important factor and
condition for the realization of the strategy and goals of the company. The risk of impossibility to provide the
attracted resource under acceptable conditions or upon significant limitations included, not only as a result of
the deteriorated economic environment, an increase in the base interest rates and/or the interest rate premium,
may have a significant negative effect on the perspectives for development of the business, the results of the
activity and the company financial state.
Mechanisms for minimizing the risks, specific to the company activity
The mechanisms for managing the risks at CEZ include the following main categories:
Transfer – transferring the risk to a third party – usually via an insurance policy;
Avoidance – avoid the realization of risk– e.g. not to start an activity, which carries risk. This means that you
miss the possibility to profit from a certain activity;
Reducing – applying the mechanisms, via which the company decreases the damages or lowers the probability
of the occurrence of the given risk;
Acceptance – to accept the damages (remaining risk), when they occur. Applied to risks of low level of the
damages, as well as the risks of very high level of the damages, which concern the main activity of the
company and for which there are limited possibilities for efficient activities.
For additional information, please see note 15 to the annual financial statements for 2011, respectively note 14
to the annual financial statements for 2010 and note 14 to the annual financial statements for 2009.
General risks
Emerging markets
Investors in emerging markets such as Bulgaria should be aware that these markets are exposed to
greater risks than those inherent to more developed markets, including in some cases significant legal,
economic and political risks. In addition, adverse political or economic developments in other countries could
have a significant negative impact on the Bulgaria's GDP, its foreign trade and economy in general. Investors
should pay special attention in evaluating the existing risks and must decide for themselves whether, in the
light of those risks, investing in the Shares is appropriate. Generally, investing in emerging markets is to be
done mainly by experienced investors who fully appreciate the significance of the risks involved. Investors
should also note that emerging markets tend to change rapidly and therefore the information contained in this
document may become outdated quite quickly.
Share-related risks
The market price of the Shares may be highly variable
The price at which shares will be traded hardly can be predicted but their price could be highly
variable due to multiple factors, including changes in the forecasts and anticipations of investors regarding the
financial and economic position of CEZ Electro and the result of its operations. The share market value is
determined by the demand and supply and the price of shares may raise or fall. These „price fluctuations‟ may
lead to each security being worth in a given moment much less than it would worth in another moment. This
dynamics of prices is especially characteristic of the ordinary share market which stock prices can be subject to
sudden fluctuations in response to publicly disclosed information regarding the financial results of the Issuer,
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changes in legislation, anticipated financial crisis, the decisions of the Regulatory Agency or other essential
events.
Risks related to the Bulgarian securities market
There may be less information available in the Bulgarian securities market than is available about
companies in other securities markets. There is still a difference in the regulation and monitoring of the
Bulgarian securities markets (despite the implementation of the relative European directives), and the
behaviour of investors, brokers and other participants, compared to the markets in Western Europe and the
United States. The Financial Supervision Commission monitors for the disclosure of information and the
adherence to the other regulatory standards in the Bulgarian securities markets, the compliance with laws,
and issues regulations and instructions on disclosure requirements, insider trading and other matters. It is
possible, however, that there is less publicly available information about Bulgarian companies than it is
normally made available to investors by public companies in other securities markets, which could affect the
price of the Shares.
The Bulgarian Stock Exchange is significantly smaller and less liquid than the securities markets
in some other countries
The Bulgarian Stock Exchange is significantly smaller and less liquid than the securities markets in
some other countries, such as those in the United States and Western Europe. This generates a risk which
exhibits itself as potential possibility of each investor to buy or sell desired securities on the secondary market
at any given moment. The sources of this specific risk may be different (very high share market value, few
freely tradable shares – the so called “free-float”, little or no investor‟s interest in the country and/or in the
specific company in particular, and etc.).
As at 31 December 2011, shares of 401 companies were listed for trading on the Bulgarian Stock
Exchange, 24 of which were listed for trading on the Official Market, 307 on the Unofficial Market, and 70
companies were listed on the Real Estate Investment Trusts Market.
As at 31 December 2011 the market capitalisation of the companies traded on the BSE amounted to
3,123 million levs for those traded on the Official Market and 7,629 million levs for those traded on the
Unofficial Market. Additionally, the companies whose shares are traded on the Real Estates Investment Trusts
Market have capitalization of 1,683 million levs. As at 31 December 2010 the market capitalisation of the
companies traded on BSE was 3,479 million levs on the Official Market and 5,863 million levs on the
Unofficial Market (1, 412 million levs on the Real Estate Investment Trusts Market).
The number of the transactions executed on the regulated market in 2011 dropped by 0.4% as
compared to 2010, and the stock exchange turnover went up by 5 % (up to 717 023 thousand levs). During the
year the three basic BSE indices marked a drop (SOFIX by 11.11%, BG40 by 0.88% and BGTR30 by
12.85%). In 2011 the market capitalization indicator/ GDP slightly raised to 16.1% compared to 15.3 % in
2010.
At the same time very few companies represented a large portion of the market capitalisation and a
significant part of the trading volumes on the Bulgarian Stock Exchange. Low liquidity also results in other
impediments such as excessive volatility, in the case of a market that is also vulnerable to speculative activity
as the liquidity is generally so low that prices can be manipulated by relatively small trades. Therefore, there is
no guarantee that the Shares will be actively traded, and if this is the case, the price volatility may increase.
Any additional financing through Shares, including through convertible or exchangeable bonds
and other similar instruments may have “Dilutive effect” on the shareholders of CEZ Electro.
The holdings of the holders of Ordinary shares in the Company‟s issued share capital, viewed as a
percentage, may be “diluted” in case of a future increase in the share capital of CEZ Electro provided that
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those shareholders don‟t subscribe new shares proportionally to the number of shares they currently hold, or in
case that they don‟t belong to the class of shareholders that have pre-emptive rights for subscription.
According to the Bulgarian legislation and the Rules of the Bulgarian Stock Exchange, CEZ Electro is obliged
to offer these ordinary shares to the current shareholders in compliance with their right to acquire such a part
of the new issued shares which corresponds to their share interests before the increase. Nonetheless, the
current shareholders may choose not to take part in future issue of ordinary shares which will result in
“dilution” of their current holdings in the share capital of the Issuer.
“Dilution” of the holdings of the shareholders in CEZ Electro may occur when, for one reason or
another, shareholders fail to exercise their right to subscribe exchangeable bonds, warrants and any other
instruments which may be exchanged for shares of CEZ Electro proportionally to their current shareholdings
and if the other holders of these instruments exercise their right to exchange and acquire new shares of the
share capital of the Issuer.
Significant future sales of Shares may affect their market price
In case that significant number of shares is offered for sale, the stock exchange price of the Shares
may drop. Sales of additional quantities of Shares on the stock exchange market after the Offering may affect
negatively the market price of the shares.
Sales of significant number of Shares or the anticipation of such sales may reflect adversely the
market price of the Shares. Such sales may also lead to CEZ Electro encountering difficulties in issuing new
shares in the future at a time and price CEZ Electro considers appropriate.
There is no guarantee that cash dividends will be distributed among the shareholders
Subject to distribution is the profit of the Company after tax assessment. Although there is no
guarantee that the Company will distribute cash dividends among the shareholders. The decision to distribute
shares is taken by the General Meeting of the shareholders of the Company. It is possible that in a specific year
the Company may generate no profit at all but even if there is a profit the General Meeting of the shareholders
may not take a decision for its distribution in the form of dividends. Any paying out of dividends will depend
on the profit and cash flow of CEZ Electro and on the expenses of CEZ Electro and its investment plans and
the intentions of its major shareholders.
CEZ Electro is controlled by its Majority Shareholder and should this shareholder take some
actions which are not in the best interest of the other shareholders the value of the Shares may drop
According to the Articles of Association of the Company, CEZ a.s. will have the opportunity to have
a casting vote on most of the issues considered by the General Meeting, including amendments in the Articles
of Association, capital increase and reduction, appointing and discharging members of the Supervisory Board,
paying out of dividends, execution of major transactions. The Control on the Issuer exercised by the Majority
Shareholder may delay or impede the change of the control over CEZ Electro, prevent merger or any other
business combination part involving the Issuer. In addition the Majority Shareholder may, in certain cases
provided for by the law, submit commercial proposal leading to significant changes, including delisting of the
company and ceasing the trade in its shares on the stock exchange.
Inflation related risk
The inflation risk is associated with the possibility that the inflation may affect the actual return on
the investments, including the investments in Shares. The low inflation level after 1998 allowed the business to
generate non-inflationary income from operations. Despite the positive trends resulting from the currency
board and the maintained stringent fiscal policy, which have their effect on the change of the inflation rate, the
Bulgaria‟s economy openness, its dependence on the energy sources and the fixed exchange rate of the
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Prospectus
Bulgarian lev to the Euro pose a risk of import of inflation. With the increasing inflation rate in the country,
the actual profitability index of the investment may drop due to an increase in the total price level.
Currency-related risk
The Shares of CEZ Electro were denominated in Bulgarian levs. Any unfavourable change in the
exchange rate of the lev to other currencies would affect the profitability which investors (particularly foreign
investors outside the Euro zone) expect to gain by comparing it to the profitability which they would obtain
from investing in other currencies, which on its part could lead to a fall in the inventor‟s interest and a drop in
the price of the Shares. And yet, the fixed exchange rate of the lev to the main foreign currencies limits the
fluctuations of the main currencies to the Euro and minimizes the currency-related risk.
Risks related to Bulgaria
Political risks
Since 1989, Bulgaria has pursued a programme of political and economic structural reform aiming to
establish a free market economy through privatisation of state enterprises and minimising the state regulation
of the economy.
The last parliamentary elections in July 2009 were won by a formation established by the mayor of
the Bulgarian capital Boyko Borissov named Citizens for European Development of Bulgaria with 116 seats
(out of 240 seats). Second was Coalition for Bulgaria with 40 seats, followed by the Movement for Rights and
Freedoms with 38 seats, Ataka party with 21 seats, The Blue Coalition (mainly the Union of Democratic
Forces and Democrats for Strong Bulgaria) with 15 seats and Order, Law and Justice with 10 seats. Boyko
Borissov formed a one-party government, as at the date of this Prospectus the support for the government in
the Parliament seems to be stable. For more information, please refer to “Republic of Bulgaria – Political
Review”.
Bulgaria was invited to join the North Atlantic Treaty Organisation (NATO) at the NATO Summit in
Prague on 22 November 2002. On 18 March 2004 the Bulgarian Parliament ratified the North Atlantic Treaty
and on 29 March 2004 Bulgaria was officially recognised as a member of the alliance.
Bulgaria joined the European Union (EU) in 2007. However, the European Commission continues to
keep a watchful eye on how Bulgaria carries out its commitments to implementing reforms by enforcing an
enhanced monitoring system to oversee whether Bulgaria complies with the terms of its accession treaty. If
this supervision shows that Bulgaria does not meet the requirements of the EU with regard to: transparency of
the spending of public resources, fighting the corruption, efficiency and independence of the judicial system,
as well as food safety, there is a significant risk that protective clauses in the sphere of the domestic market,
internal affairs and the judicial system might be activated later on. Also, a part of the subsidies and transfers
from the European funds may be reduced or stopped.For more information, please refer to “Republic of
Bulgaria - NATO and European Union Accession”.
Bulgaria‟s accession to the EU legitimates both the economic reforms that have been undertaken in
the name of the country‟s integration to the Union and some weaknesses shown during the transition to market
economy and democracy. Yet, the future economic growth will still be dependent on the political will for
implementing economic reforms and the introduction of EU‟s best market practices (in the long-term aspect),
on the ability of the country to overcome the crisis (in the short term aspect) by maintaining reasonable fiscal
policy. The government‟s ability to carry out reforms, in its turn, depends on the extent to which the members
of the government are capable of continuing their line of cooperation in promoting the current reform,
especially in an economic crisis. There is no guarantee that a change in the administration will not result in a
significant and rapid change in the political and economic conditions in the country, which may have a
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Prospectus
material adverse effect on CEZ Electro's business, its business results and financial position. For more
information, please refer to the “Republic of Bulgaria – Political Overview”.
The current Bulgarian political system is vulnerable to fragmentation of the political forces,
economic hardship, dissatisfaction with the reform and the EU membership due to unrealistic expectations, as
well as social instability, all of which could have a material adverse effect on the business of CEZ Electro, its
results of operations and financial position. The next scheduled parliamentary elections are due in July 2013.
Economic risks
Until 1989 the Bulgarian economy was administered by the central authorities. Since the end of the
Communist Rule in 1989 governments have pursued a policy of economic reforms and stabilisation. This
policy involved liberalization of prices, cutting down on defence expenditures and subsidies to state-owned
enterprises, privatization of state-owned enterprises, reform in the tax systems and the insolvency, introduction
of legal structures aiming to facilitate private, market-oriented activities, stabilization of the currency and
encouraging foreign trade and investment. The scope, speed and nature of any future economic reforms remain
uncertain. Certain measures aiming to improve the country's economic condition were and still are expected to
remain unpopular. Accordingly, the levels of popularity and political support for the government tend to vary.
For more information, please refer to the “Republic of Bulgaria – The Bulgarian Economy”.
Like some other countries in transition, in the last few years Bulgaria has been running a significant
trade and current account deficits (despite the considerable decrease in the deficits in 2010). Bulgaria is an
open-type economy, which development is directly influenced by the international market conditions, which
were favourable in the period 2008-2009. In this light, despite the improvement in a number of economic
indicators in 2010 and 2011, the raging global financial crisis is having a detrimental effect on the business
conjuncture in the country, mostly with regard to the decrease of the export and the drop in the flow of
foreign capitals, which reflects on the investment activity, unemployment level, domestic consumption.
The business of the Issuer, its business results and its financial position largely depend on the
condition of the Bulgarian economy, which in turn affects the loan growth, interest costs and customers' ability
to meet their obligations on time. Any negative change in one or more macroeconomic factors, such as interest
rates, which are influenced by the interest rates in the Eurozone by virtue of the Currency Board arrangements,
inflation, salary levels, unemployment, foreign investment and international trade, could have a materially
adverse effect on the business of the Issuer, its business results and financial position.
The Bulgarian business has a limited history of operating in free market conditions. Accordingly,
when compared to the companies, operating in countries with a developed market economy, the Bulgarian
businesses are characterised by virtually no management experience in market conditions, limited capital
resources with which to develop their operations, and low labour efficiency. In addition, Bulgaria has a limited
capacity to support a stable market system.
In 2011, according to data from BNB, Bulgaria has a current account surplus to the amount of 0.9 %
of the GDP and negative balance of trade to the amount of 5.1% of the GDP. For the entire 2009 and 2010 the
current account balance remained negative to the amount of 8.9% and 1.0% of the GDP and the balance of
trade also remained negative (11.9% and 7.7% of the GDP). Significant improvement of both indicators in
2011 was due to the increase in the export (FOB) of the country which for 2011 raised by 30.0% as against
2010, while the import was raised by 21.2%. Bulgarian economy is of open type and its development depends
directly on the international market conditions. In this sense the global financial crisis which broke out in the
middle of 2008 impacted negatively the economic conjuncture in the country, mostly in reducing the export
volumes and a drop in the inflow of foreign investments which affected the investment activity, the level of
unemployment, income, domestic consumption and led to negative actual economic growth of 5.5 % in 2009.
In 2010 was seen some recovery and GDP marked slight increase of 0.4%. In 2011 this trend remained and the
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yearly actual rate of change was 1.7%. The Bulgarian economy as affected by the global financial crisis with a
little delay mainly in view of the shrinking external consumption and rapidly diminished financial inflows in
the country, including the direct foreign investments (in 2010, as well as in 2011 there is a negative balance on
the financial account, and the direct investments amount to EUR 1,341 billion in 2011 compared to EUR 1,208
billion in 2010 and EUR 2,437 billion in 2009). According to data from BNB the recovery rate of the CEE
countries was stable in the first and second quarter of 2011 but there is an overwhelming apprehension that the
global recovery might be held back. These apprehensions are influenced most strongly by the deepening of the
debt crisis in the Eurozone and particularly in Greece.
Risks related to the functioning of the legal system
Bulgaria‟s legal system has been undergoing a transformation in line with the development of the
market economy in the country. The legal and administrative practice remains problematic and the persons
counting on Bulgarian courts to deliver effective settlement of disputes related to ownership, infringement of
laws, breach of contracts and other issues, often find out that this can be a difficult proposition. Although the
biggest part of the Bulgarian legislation is already brought into line with the EU legislation, the incorrect
application of the valid law by the court and the administrative authorities is still developing in a way which is
not always in conformity with both the EU legislation and market development. As a result there are some
ambiguities and inconsistencies and an investment risk which would not be so significant in the case of
investing in a company which has been set up in a jurisdiction with more developed legal system. And yet, in
the last five years the Bulgarian commercial legislation has become relatively modern and comprehensive. The
expected implementation of regulations in areas such as company law and securities, as well as changes in the
current regulatory acts, with the view of further bringing into line of the Bulgarian legislation with the law and
regulations of the EU after Bulgaria‟s accession to the EU on 1 st of January 2007 is anticipated in the near
future to result in more consequent development of the civil and commerce law in the country.
Going by the aforesaid, there are two major dangers related to the development of the legal system in
Bulgaria: (a) possible failure of the efforts to achieve consistency between the Bulgarian and the EU laws and
the rapidly growing commercial relations may deepen the legal uncertainty; and (б) defects in the legal system
which can bring about uncertainty related to corporate operations, control and other issues which are normally
undisputed in other countries.
Exchange rates and currency board
Since 1st July 1997 in Bulgaria there has been an operating currency board system, according to
which the exchange rate of the Bulgarian lev was pegged first to the Deutsche mark and then, after the
Eurozone was created, to the Euro. Maintaining a system of a currency board is considered especially
significant component of the economic reform in Bulgaria and requires continuing political support for the
noninflationary policy that has been carried out. Both the stringent rules of the currency board which excludes
possible devaluation of the exchange rate, and the independent monetary policy may not agree with the future
needs of the Bulgarian economy. However, it is expected that the currency board system will be preserved
until the country joins the Eurozone, but there is no guarantee that this will be achieved.
Any significant devaluation of the lev may have considerable negative effect on suppliers and
customers of CEZ Electro, its business, business results and financial position. For more information regarding
the currency board arrangement, please refer to “Republic of Bulgaria – Bulgarian Economy – Currency
Board Arrangement”.
Taxation
Taxes paid by Bulgarian business include withholding tax, local (municipal) taxes and fees,
corporate income tax; value added tax, excise duty, export and import duties and property taxes. The Bulgarian
taxation system is still developing which could result in contradictory tax practice both at a state and municipal
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level. Some provisions of the tax law are ambiguous; often there is a lack of unanimous or unified
interpretation of the law or a unified practice of the tax authorities. Due to various interpretations of tax law
the risk related to the Bulgarian tax law might be higher than that in other tax jurisdictions in developed
countries. The company may not guarantee that Bulgarian tax authorities or other competent tax authorities
will not render other different unfavourable interpretation of the regulations applicable to the Company, and
this may have an adverse effect on its business, financial position and/or the business results.
Investors should be aware that the value of the investment in the Shares may be adversely affected by
changes in the current tax legislation.
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REASONS FOR THIS PUBLIC OFFERING AND USE OF THE PROCEEDS
This public offering of the portion of the share capital of CEZ Electro which is owned by the State
Consolidation Company is carried out based on decision № 3220-P of the Agency for privatization and postprivatization control from 3rd May 2011.
The main reason for this Public Offering is the sale of the Shares of the Company owned by the State
Consolidation Company.
The proceeds from the sale of the shares will be paid to the Selling Shareholder.
CEZ Electro is not issuing new shares with regard to the Offering and will gain no proceeds from the
sale of the Shares.
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CAPITALIZATION AND INDEBTEDNESS
The following information shows the capitalization of the Company based on data from its audited
financial statements as at 31 December 2011.
31 December 2011
(000’levs)
Total current liabilities
Provisions
135,491
44,826
85,959
4,706
Total long-term liabilities
Payables for retirement benefits to the staff
Provisions
Cash guarantees under electricity sale contract
11,942
117
843
10,982
Total liabilities
147,433
Equity
Share capital
Reserves
Retained earnings
70,885
50
65,383
5,452
Total liabilities and equity
218,318
Source: CEZ Electro
All liabilities of the Company are unguaranteed and/ or unsecured. The Company has no indirect/
off-balance liabilities
The Directors of CEZ Electro believe that the working capital of the Issuer (e.g. the possibility of
CEZ Electro to gain access to cash and other liquid resources for duly payment of its current liabilities) is
sufficient both as at the date of this document and for a further period of 12 months.
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DIVIDENDS AND DIVIDEND POLICY
The Company‟s policy with regard to distribution of dividends is carried out in compliance with the
provisions of the Law on Commerce and in compliance with the decisions of the General Meeting.
In 2010 the Company took a decision to pay out dividends (from the profit for the period 2006-2009
and for the reserve, created upon the separation of the Company from the distributing companies) to the
amount of 43,433 million levs or 8 686,60 levs per share.
Any decision for future distribution of the profit among shareholders of CEZ Electro will be made by
the General Meeting. For more information, please refer to „Description of the shares and the applicable
Bulgarian law”.
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OVERVIEW OF THE ELECTRICITY SECTOR IN BULGARIA
Establishing, privatization and reorganisation of the sector
The process of reorganization of the Bulgarian energy sector started in 2000 with a separation by the
National Electricity Company (NEC) of the electricity producing, electricity distributing, the repair and other
companies of the sector. The electricity distributing companies at that time have as scope of business the
distribution of electricity through electricity distribution networks which they both owned and exploited and
through networks and plants situated on the relevant licensed territory owned by third parties and sale of
electricity to end users. These companies were established through separation from National Electricity
Company (NEC) by assigning to them the relevant assets necessary to acquire licences to distribute and supply
electricity, required by law. Seven electricity distribution companies were established based on a regional
principle -“Elektrorazpredelenie Stolichno” EAD, “Electrorazpredelenie Sofia Oblast” EAD,
“Elektrorazpredelenie Pleven” EAD, “Elektrorazpredelenie Plovdiv” EAD, “Elektrorazpredelenie Stara
Zagora” EAD, “Elektrorazpredelenie Varna” EAD and “Elektrorazpredelenie Gorna Oryahovitsa” EAD.
In 2003, by decision of the government of Republic of Bulgaria and after a special strategy was
approved by the National Assembly, a procedure for privatization of these seven companies started. For the
purposes of the privatization these seven companies were grouped in three packages – “East”, “Northwest”,
and “Southeast”, consisting of as follows:
- package “East” includes “Elektrorazpredelenie Varna” EAD and “Elektrorazpredelenie Gorna
Oryahovitsa” EAD;
- package “Northwest” includes “Elektrorazpredelenie Stolichno” EAD, “Elektrorazpredelenie
Sofia Oblast” EAD and “Elektrorazpredelenie Pleven” EAD;
- package “Southeast” includes “Elektrorazpredelenie Plovdiv” EAD and “Elektrorazpredelenie
Stara Zagora” EAD.
A decision was made to sell 67% of the companies‟ shares and the remaining 33% to be kept by the
government. Investors were given the option, which was incorporated in their privatization agreements, to sell
part of the acquired shares to an international financial institution and EON was the first company to take
advantage of this option by selling 8% of the acquired shares to the European Bank for Reconstruction and
Development. The privatization was successfully completed at the end of 2004, and the new majority
shareholders - CEZ (The Czech Republic) for package “Northwest”, EON (Germany) for package “East” and
EVN (Austria) for package “Southeast” took over the management of the companies in the beginning of 2005.
Generating, supplying and trading in electricity
The total installed capacity in the country was 12 072 MW in 2010. The maximum available power
generation capacity amounts to 9 728 MW, and the peak load in January 2010 was 7 270 MW. In 2010 the
annual net generation of electricity in the country was 41,57 TWh, which represented an increase in the net
power generation by more than 11% compared to 2009. With sales on the free market to the amount of 11,28
TWh, the share of opening of the electricity market for the country in 2010 accounts for 27,1% from the net
production. The annual total end consumption of electricity in the country was 25,1 TWh in 2010 and the
physical quantity of electricity supplied to the end customer on the free market was 4,52 TWh.
The figure below provides graphical information on the historical and the estimated consumption of
electricity in Bulgaria in the period 2005 – 2025 (TWh)
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Gross consumption – maximum variant
Gross consumption – minimum variant
Sector structure and players
The figure below represents the way in which the energy sector in Bulgaria operates, the main
activities (generation, supply, transmission of energy, etc.) and the main players.
Generation
Public Supply
Transmission
System
Management
Distribution
Supply
- CEZ Electro
Bulgaria
NEC – public
supplier
- NPP
- TPS
- WPP
NEC – energy
Transmission
Company
- CEZ
EOS EAD –
Electricity
System
Operator
Elektrorazpredelenie
- EVN Bulgaria Elektrosnabdiavane
- EVN Bulgaria Elektrorazpredelenie
End consumer
- E.ON Bulgaria
prodazhbi
- E.ON Bulgaria Elektrorazpredelenie
Cogenerations
Congregation
Electricity generation
Bulgaria operates a diverse electricity generation mix including nuclear, thermal power plants and
renewable energy sources (water, wind, solar plants). The generation of electricity is performed by stations
which were separated from NEC in 2000, part of which are privately owned and another part, which is at
present included as parts of the holding “Bulgarian Energy Holding” EAD, is co-owned by the Bulgarian state.
The Nuclear Power Plant NPP Kozloduy (installed capacity of 3760 MW, and in exploitation - 2000
MW, after the decommissioning of blocks 1, 2, 3 and 4), TPP „Maritsa Iztok 2" (1556 МW installed capacity)
are sole proprietorships 100% owned by BEH EAD.
TPP „Varna" EAD (1260 MW ), TPP „Maritsa Iztok 3" (906 MW ), the future replacing capacity on
the site of TPP „Maritsa East 1" (670 MW), TPP „Maritsa 3" (120 MW), TPP „Rousse" (220 MW) and TPP
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„Bobov Dol" (630 MW) are majority or entirely privately owned. Small WPPs were privatized and the bigger
water capacities of PSPP are property of NEC.
The net generation of electricity in the country in 2010 was 41,57 TWh, and the following table
contains data on the fuel mix categorized by primary energy sources.
2010
NPP
TPP
RES
Co-generations
Total
Unit of measure
TWh
TWh
TWh
TWh
TWh
Net generation of
Share (%)
electricity
14.24
34.3
17.43
41.9
6.1
14.7
3.8
9.1
41.57
100
Source: SEWRC
Bulgaria is highly dependent in terms of energy as it imports more than 70 per cent of its primary
energy resources. The only one significant local energy source is the low-quality lignite coals with high
sulphur content. The country depends mainly on imported Russian fuels – petroleum, natural gas, high quality
coals and nuclear power. This structure of energy balance brings certain apprehension as to the security of the
energy supply. The European Union which dependence on imported fuels is less – app. 40 per cent but with a
tendency to go up to 70 per cent in 20 years – makes considerable efforts in two main directions:
-
Reducing the relative energy consumption per unit of gross product;
-
Tapping new domestic renewable energy sources (RES) - solar energy, wind energy, and etc.
Supply with electricity. System Management
Public supplier of electricity in Bulgaria is NEC – a subsidiary of Bulgarian Energy Holding EAD.
NEC carries out licensed activities involving transmission, system management, generation of electricity
through WPP and PSPP (2 563 MW), supply of electricity to consumers connected to the distribution grid of
the Electricity distribution companies and is a part to bilateral electricity purchase agreements.
Since 01.01.2007, after a reorganization according to the requirements of Directive 2003/54, the
subsidiary companyElectricity System Operstor EAD (ESO) has been a company separate from NEC, and its
energy transmission assets became property of the parent company. ESO performs the following functions:
operation of the electric power system based on a license for operation of an electric power system; it is a
market operator and is legally, organizationally, independent both financially and in terms of the financial
reporting, as well with regard to the process of making decisions concerning its activities regulated by law.
The distribution of electricity and the operation of the electricity distribution grids is performed by
energy distribution companies, which are also owners of the distribution grids installed on certain territories
and hold licences to distribute electricity in these regions. The distribution of electricity is a communal
service. The activities related to distribution of electricity and the operative management of distribution grids
are also separated in individual legal entities. Three energy distribution companies were licensed, which are
majority-owned (with 67% each) by EON (Northeast Bulgaria), EVN AG (Southeast Bulgaria) and CEZ a.s.
(Western Bulgaria). With the view to fulfilling the requirements of Directive 2003/54 these companies were
reorganized by means of separation of the activities involving distribution and supply of electricity both in
organizational and legal terms.
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E.ON EVN
CEZ
Prospectus
Statistics on the electricity distribution companies (EDC)
Number of consumers
EDC
Sq.m
households
industrial
Sofia region
19 093
529 890
58 960
Sofia city
1 311
584 784
71 560
Pleven
19 613
579 473
60 339
Stara Zagora
21 000
596 562
85 569
Plovdiv
20 000
400 941
151 947
Varna
14 360
520 031
71 716
Gorna Oryahovitsa
15 623
499 512
38 707
Golden Sands
30
5
460
Source: SEWRC
Trade in electricity, import and export
In 2010 18% of the domestic consumption in the country is traded on the wholesale market at freely
negotiated prices, and in 2009 this share amounted to app. 24.5%. The drop in the relative share of the
electricity traded on the free market in the country in 2010 compared to 2009 was to a great extent due to
certain consequences from the financial and economic crisis which affected the country. With annual total
consumption of electricity in the country amounting to 25,1 TWh in 2010, the share of the quantities traded on
the domestic market was to the amount of 4,52 TWh. See also „Market Liberalization” below.
Traditionally Republic of Bulgaria is a net exporter of electricity to the countries in the region of
Southeast Europe. In 2010 the share of the net export of the country amounting to 8,44 TWh exceeded 19% of
the net generation of electricity in the country. This was due to realized electricity generation from wellstructured and optimized mix of primary energy resources – nuclear energy (34,3 %), energy from local coals
and partially from imported coals (51%), water energy and other RES (14,7%) and other. As a result, in most
of the year and especially in the case of increased consumption of electricity in the region (during the winter
and sometimes in the summer) the prices of electricity in most of the neighbouring countries rise significantly.
Regulation of the electricity market
The activity of the Bulgarian energy sector is regulated by several laws (including the Energy Law,
the Renewable Energy Sources Act, and the Energy Efficiency Act) and by over fifty subordinate regulations.
Also, the activity and organization of the market in the country are regulated by the Electricity
Trading Rules. The rules for trading with neighbouring countries are in compliance with the existing EU Rules
and also with the bilateral agreements and the rules for trans-border exchange and trade in electricity.
Regulatory Authorities
The Minister of Economy, Energy and Tourism is the government body which carries out the energy
policy of the country, which is determined by the Council of Ministers of the Republic of Bulgaria. The
Minister of Economy, Energy and Tourism develops and proposes to the Council of Ministers strategy
guidelines and programmes for development of the sector. The Minister performs also the functions of an
owner with respect to the energy companies which are property of the state.
The State Energy and Water Regulatory Commission (SEWRC) is an independent specialist
government body responsible for the state regulation of the activities in the energy industry and the water
supply and sewage services. The Commission was set up in 1999 under the name State Energy Regulation
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Commission. In the energy sector, SEWRC monitors the energy markets, exercises control over the process
and licences with regard to the activities involving generation, transmission and distribution of natural gas,
trade in electricity and natural gas, generation and transfer of thermal energy.
The Agency for Sustainable Energy Development (ASED), which is a successor of the Agency for
Energy Efficiency (АЕЕ) is a legal entity financed from the state budget which has the status of an executive
agency and is subordinate to the Minister of the economy, Energy and Tourism. АЕЕ was restructured in
ASED on 03.05.2011 with the adoption of the Law on Renewable Energy Sources (LRES). It acts for the
implementation of the state policy for promoting the production and consumption of electricity, thermal
energy and cooling energy from renewable sources, production and consumption of gas from renewable
sources and production and consumption of biofuels and energy from renewable energy sources in transport,
as well as implementation of the state policy for improvement of energy efficiency upon end use of energy and
the provision of energy services.
Price regulation and pricing
The prices of electricity on the regulated market in Bulgaria are determined by SEWRC according to
the Ordinance on regulation of electricity prices, promulgated in the State Gazette, issue 17 from 2 nd March
2004. In compliance with the requirements of the Ordinance, in approving the prices of the electricity
generating plants, the public supplier NEC AD and the transfer and access tariffs of ECO EAD, the
Commission applies the method of the regulation “return on equity rate”. The regulation by using “return on
equity rate” was created solely with the purpose to prohibit energy companies from using their monopolistic
positions and get excessively higher return on their assets. In compliance with the requirements of the
Ordinance in approving the distribution prices of the energy distribution companies and end suppliers of
electricity, the Commission applies the method “revenue cap“. The regulation by using “revenue cap” was
created with the aim of creating additional incentive for the companies to reduce their expenses. This is
achieved through determining the prices or income, which a company may generate for a period of several
years, regardless of the amount of the expenses it is incurring during the said period. According to the
Ordinance, the Commission approves prices based on approved necessary income, including estimated
economically feasible expenses and rate of return, as well as estimated quantities of electric power for a given
regulatory period. The regulatory body performs ongoing monitoring of the actual values of the necessary
income of the energy companies and their components, and upon ascertaining material deviations between the
approved and actual expenses and/or the rate of return it may at its discretion conduct further regulatory audit,
after completion of the pricing period. The audit results reflect on the prices for the new pricing period. After
completion of the regulatory period, the Commission performs regulatory review of license holders. The
review results are taken into account for the approval of the pricing parameters of the company for the next
regulatory period.
In January 2012 the Council of Ministers presented to the National Assembly of Republic of
Bulgaria Bill for amending and supplementing the Law on Energy. The bill foresees that transactions at prices
regulated by the Commission may be entered into between:
-
The public supplier and the operator of the electricity transmission network and the operators of
electricity distribution networks, for electricity which is necessary to offset the technological
expenses related to energy transfer and distribution.
-
The generating plants and end suppliers or the public supplier of electricity;
-
The public supplier and end suppliers of electricity;
-
The end suppliers and domestic and other end users for sites connected to the electricity
distribution network at low voltage level, which have not chosen another supplier.
Proposed amendments impose on the electricity distribution companies the obligation to provide
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clear and comprehensible invoices to their customers. It is also explicitly provided that the end customers will
be able to choose freely their electricity supplier and the switch over shall be made within three weeks.
The changes also provide for NEC, CEZ, EON and EVN to be licenses as suppliers of the last resort,
which will ensure the supply of electric power to the clients, which were not able to find a supplier on the free
market. Initially the supplier of last instance will supply the end clients for objects, joined to the electricity
distributing network at the level average voltage, which have not chosen another supplier.
Market liberalization
The liberalization of the electricity market in Bulgaria is being implemented in compliance with the
requirements of the EU legislation. Practically, the liberalization of the electricity market is organized in stages
so that conditions for competition among the electricity generating companies are created and in order to
provide consumers with the freedom to choose their supplier.
Historically, the initial form in which the Bulgarian electricity market operated was based on the
“Sole buyer” business model. Later, in compliance with the liberalization process, the domestic electricity
market was built on the model of bilateral agreements and a balancing market. Currently there are two
concurrently operating electricity market segments – regulated and free market. Over the time the share of the
latter has been increasing.
Since 1st July 2007 the Bulgarian electricity market has been fully liberalized, which means that each
consumer has a statutory right to choose its supplier and have free and equal access to the electricity
transmission network at the place of consumption. A market model based on an equal access of third parties to
the network was implemented, in which all transactions are made through direct bilateral contracts between the
energy generating companies or traders and the consumers, and the insufficient quantities are purchased while
the excess quantities on bilateral agreements are sold on the balancing market. In the transitional period of
phased liberalization, in parallel with the free segment in which the prices were negotiated freely between the
parties to transactions which were subject to balancing, there was still a segment in which electricity-related
transactions were entered into at prices regulated by SEWRC and where market players were not subject to
balancing.
The unregulated market segment functions on the basis of freely negotiated prices between traders,
consumers and independent energy generating companies which are trading in quantities of electricity which
have left over after the obligation under the determined quota to public suppliers were fulfilled, with the aim of
meeting the needs of the protected consumers. The trade is carried out by bilateral contracts, at freely
negotiated prices on a market organized by ECO. Meanwhile, the system operator is in process of deploying a
platform which will allow them to organize a “spot” market.
Currently, real market deals at freely negotiated prices are concluded by 6 electricity generating
companies, 66 consumers and 34 electricity traders. The target set by the Government in its programme is 30%
increase in the freely negotiated quantities of electricity on the domestic market in 2013.
In 2010 the registered companies trading in electricity reached 151, of which 106 were active in the
electricity market. The largest share of purchased/sold electricity by a market participant is below 23% of the
total traded volume on the market. The share of the energy purchased/sold by the three largest market players
did not exceed 44% of the total traded volume.
In 2010 the average price of the balancing energy on the domestic market in case of a deficit was
152.42 lv./MWh, while the average price of the balancing energy in case of a surplus was 26.80lv/MWh.
At present it has actively been worked on implementing a new market model for trading in
electricity. In 2010 general trading rules were introduced for distribution of the capacity at the BulgarianRomanian and Bulgarian-Greek boundaries. Capacity distribution is done by the system operators by means of
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open public procedures in a clear and non-discriminatory manner. All market players may freely import,
export or transit electricity. In the current 2011 general tender rules for capacity distribution are expected to be
introduced on all borders of the country.
New Rules for trading in electricity (RTE) were promulgated in August 2010 which regulate the
hourly traded quantities on all market deals; trading on the electricity stock exchange; market monitoring;
requirements for publishing generally accessible market information; requirements for providing information
to SEWRC by ECO, NEC, electricity distribution companies (EDC), market players, which is necessary for
conducting an analysis and assessment of the electricity market efficiency. By the Law on amending and
supplementing the Energy Law the requirements for the Third EU liberalization package will be implemented.
The electricity stock exchange is only an element of the whole change of the market model.
Currently a timetable of the activities relating to the preparation of the stock exchange trade has been drawn
up. NEC, ECO and EDC are in process of implementing new information systems for hourly trading. The
information platform for submitting “next day” schedules by traders has been redeveloped. Any end supplier
will state on an hourly basis the schedule of consumption of its clients on “the next day” basis. Market
administration will be carried out by ECO by virtue of an additional licence. Later on, it is planned to be
created an option for merging the markets of Bulgaria and Romania.
According to the model on the market of electricity, set forth in the Rules for commerce with
electricity (promulgated, State Gazette, copy promulgated, State Gazette, copy 64 dated 17.08.2010) CEZ
Distribution has two possibilities – to be a member in a balancing group or a coordinator of a special balancing
group. The presence of a big group of clients, joined to the distribution network and having various dynamics
for measuring the energy load, is an important precondition for the coordinator to decrease its expenses for
imbalances. In the rules there is the explicit possibility, upon an approval by SEWRC, the end supplier and the
distributing company that have licenses for the same specified territory may form a special balancing group. In
view of this possibility CEZ Distribution plans to join as a member in the special balancing group, coordinated
by CEZ Electro Bulgaria AD.
In July 2011 the testing of the new stock exchange trading platform started. The stock
exchange will be operative after 2012, after a one-year test period.
Environmental issues
CO2 emission in producing electricity
Local coals
Imported coals
Nuclear energy
RES
1100-1250
1000
0
0
Source: Bulgarian Industrial Association
Carbon intensity of the electricity, determined as a ratio of the total emissions of the power
generating plants to the total generation of electricity was 555 kg/MWh in 2008. A specificity of the resource
structure of the Bulgarian electricity generation is the very small share of the natural gas used in the production
of electricity. This specificity affects the electricity economy in two ways: positively, in terms of the energy
security as it reduces the dependence both on the import and vulnerability to crises in the supply and in terms
of ecology. Carbon Dioxide emissions related to generating electricity from natural gas are 400 kg/MWh, i.e. 3
times lower than those emitted by the coal electricity plants. At the same time, particular attention should be
paid to the fact that the electricity generated by using natural gases is far more expensive than electricity
generated in NPPs and TPPs.
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The progress of the RES technologies will lead to a reduction in the investment costs per a unit of
electrical capacity and an increase in the production efficiency. As a result, it is expected that until 2020 the
expenses per a unit of generated electricity generated by photovoltaic plants will drop, as compared to the
current expenses, by 50%, from water power – by 10%, from wind and biomass – by 6%. On the other hand,
the price of the electricity generated from traditional sources will continue to rise under the influence of
various factors, already mentioned in this document, including trade in emissions. These two tendencies will
bring together the price levels of the “green” and traditional energy, and will reduce the required financial
support for promoting the development of RES, respectively.
Source: International Environment Agency
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BUSINESS OVERVIEW
Introduction
CEZ Electro Bulgaria AD is a Bulgarian joint stock company operating in the field of supplying with
electricity more than 1.79 million households and over 0.28 million businesses in Western Bulgaria on a
territory of approximately 40 thousand square kilometres. The Company conducts its activity based on
exclusive licence issued by SEWRC.
CEZ Electro is a part of the group CEZ a.s., the Czech Republic, which is one of ten biggest energy
companies in Europe holding a leading position in the electricity market in Central Europe.
In 2011 the revenues of the Company amounted to 1,243,434 thousand levs (in 2010: 1,167,661
thousand levs), EBITDA was 1,195 thousand levs (in 2010: 1,119 thousand levs), and the net profit for the
period was 2,401 thousand levs (in 2010: 3,051 thousand levs).
CEZ Electro‟s registered share capital is 50 thousand levs of which the State Consolidation Company
owns 33% and CEZ a.s. 67%. Following the latest changes of 23.08.2011 the share capital is divided in 5
thousand ordinary registered book-entry voting shares, each at a par value of 10 levs.
The Company‟s headquarters are in the city of Sofia and the registered address is in the city of Sofia,
140 G.S.Rakovski Str.
As at 31st December 2011 CEZ Electro had 68 employees.
CEZ Electro has no subsidiaries and associated companies.
Strengths
The following advantages of the Company will help it to benefit from future growth opportunities
and achieve its strategic goals:

Experienced management team and personnel
The Management of CEZ Electro has long management experience in the energy sector and
profound knowledge in the assets, organization and business of the Company. Also, the Company has highly
qualified personnel having the necessary professional background and experience.

Part of CEZ Group
The Company is a part of CEZ a.s. economic group, the Czech Republic, which gives CEZ Electro
the advantage of benefiting from the experience and complex support of a company - leader in the electricity
market in Central Europe (see CEZ Group below).
Strategy
The Company‟s strategy is focused on ensuring high quality services to its customers and increasing
the value of the shareholders‟ equity which is planned to be realized in two main directions:

Developing the main scope of business of the Company
Priority of CEZ Electro is its effective participation in the electricity market by using its trading
licence and retaining its customers, particularly industrial customers, which were the first (after January 2007)
to be offered the option to choose freely their electricity supplier. In view of this the Company will make every
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Prospectus
effort to ensure continuous, reliable and high quality electricity supply to its customers and create new
customer-oriented service packages both for individual customers and balancing groups.

Improving the operating efficiency of the Company
CEZ Electro will continue to carry out the activities it has been licensed to conduct at economically
feasible costs and by being transparent to SEWRC and its end customers by looking for reserves which to
allow it to reduce its operating expenses through optimized utilization of its resources and improving the
organization of its business.
History
In November 2004 a privatization agreement was executed between Republic of Bulgaria (through
the Privatization Agency) and CEZ s.a., the Czech Republic for the sale of the shares owned by the three
electricity distribution companies in Western Bulgaria – “Elektrorazpredelenie Stolichno” AD,
“Elektrorazpredelenie Sofia Oblast” AD and “Elektrorazpredelenie Pleven” AD, which later merged into one
company – CEZ Distribution Bulgaria AD. In the beginning of 2005 the privatization of these three electricity
distribution companies was completed.
In January 2007 “Elektrorazpredelenie Stolichno” AD, “Elektrorazpredelenie Sofia Oblast” AD and
“Elektrorazpredelenie Pleven”AD separated their activities related to public supply of energy from the
distribution of electricity, whereas in this way they separated their commercial activity from the distribution of
energy and all activities involving public supply of electricity were transferred to CEZ Electro Bulgaria” AD
which was set up in August 2006, while the activities involving electricity distribution remained main activity
of the electricity distribution companies (transformed in CEZ Distribution Bulgaria AD).
CEZ Group
CEZ a.s., the Czech Republic and its subsidiaries (CEZ Group), is one of the ten leading energy
companies in Europe both in terms of its installed capacity and number of customers. It holds a leading
position in the electricity market in Central Europe. In the total volume of the electricity generated in the
Czech Republic, CEZ Group holds almost three-quarters. CEZ Group runs 2 nuclear power plants, 15 thermal
power plants on the territory of the Czech Republic, 3 thermal power plants outside the Czech Republic, 34
water power plants, including 3 pumped-storage hydro-electric power plants, 2 wind farms and one
photovoltaic power plant.
CEZ Group (including the parent company CEZ a.s.) comprises 130 business units, 62 of which have
their headquarters and registered addresses in the Czech Republic, 32 in other countries from Western and
Central Europe and the remaining 36 are situated in SEE countries and Turkey.
The main business of CEZ Group in Bulgaria is distribution, public supply, generation and trade in
electricity. Apart from CEZ Electro (in which CEZ a.s. owns 67% of the share stock), other main companies of
CEZ Group in Bulgaria are:
 CEZ Bulgaria EAD – set up in the middle of 2005 with the task to provide management and
support activities to all companies in CEZ Group Bulgaria. The company is 100% owned by CEZ
a.s.
 CEZ Distribution Bulgaria AD is a company responsible for maintaining the distribution network
and ensuring continuous and high quality supply of electricity to its consumers in Western Bulgaria.
CEZ a.s., the Czech Republic owns 67% of the share stock of the Company. The remaining 33% are
owned by the Bulgarian state in the face of the Ministry of Economy and Energy (now transferred to
the State Consolidation Company).
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Prospectus
 CEZ Trade Bulgaria EAD is a company trading in electricity on the liberalized market. The
services offered by the company are sale and purchase of electricity for privileged customers. CEZ
Trade Bulgaria EAD was established in 2005 and is one of the first traders licensed to trade in the
energy market. The company is 100% owned by CEZ a.s.
 TPP Varna EAD is the second largest thermal power plant in Bulgaria and the Balkan Peninsula
with 1260MW installed capacity The company is 100% owned by CEZ a.s.
 CEZ Elektoproizvodstvo Bulgaria EAD was established in 2008 with scope of business
electricity and thermal power generation, as well as construction and repair activities in the field of
electrical power engineering and thermal power engineering, electricity generation and thermal
power generation. The company is 100% owned by CEZ a.s.
 Free Energy Project Oreshets EAD – the single owner of that company is the Dutch-based
company CEZ Bulgarian Investments B.V., which a subsidiary of CEZ a.s. and 100% owned by the
latter. The company was purchased in connection with the operation of the photovoltaic power plant
Oreshets and is one of the projects, in which CEZ plans to invest in Bulgaria
 “CEZ Laboratories Bulgaria” EOOD (in liquidation) was established in 2006, whereas its scope
of business includes the verification of electricity meters; verification of electricity measuring
transformers; verification of voltage measuring transformers; logistic servicing of electricity meters
and measuring transformers. The company is 100% property of CEZ a.s.
Within the CEZ Group the Company is dependent on its Majority Shareholder CEZ a.s. (acting
directly or through the agency of CEZ Bulgaria EAD) and is equal to and cooperates with CEZ Distribution
Bulgaria AD and the other companies of CEZ Group.
As at the date of the prospectus, “CEZ Electro Bulgaria ― AD is a company under contracts with
companies from the group of CEZ a.s., as follows:
Contract for services between “CEZ Bulgaria” EAD and “CEZ Electro Bulgaria” AD with a term of
effectiveness till 01.12.2017. By virtue of this contract “CEZ Bulgaria“ EAD is obliged to render the following
services to “CEZ Electro Bulgaria“ AD:

Financial and accounting services – the services cover the entire financial – accounting servicing, the
cash operations and servicing in the field of finance, tax consulting, consulting in the field of
insurance, preparation of reports and methodologies;

Services in the field of Human resource – the services cover consultations on topics concerning
Human resource, selection and recruiting staff, administration of the staff, calculation, reporting and
presentation for payment and processing of the remuneration of the staff, staff training;

The services in the field of the public relations and communications – the services cover the entire
presentation of “CEZ Electro Bulgaria” AD in the media, provision of PR consulting and
collaboration, monitoring of the publications in the media, concerning “CEZ Electro Bulgaria” AD
and its activity, collaboration with regard to the development and implementation of the
intercompany communication strategy, management of the corporate communications;

Services in the field of Customer service – the services cover the administration of all applications,
statements, pleas and signals by clients of “CEZ Electro Bulgaria” AD, specified in the classifier of
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Prospectus
the services, as well as in the up-to-date price list of “CEZ Electro Bulgaria” AD; Acceptance and
submission to “CEZ Electro Bulgaria” AD of messages of the VIP line, according to the approved
methodology for servicing via this line; Issuance and print of invoices for the performance of paid
services, according to the up-to-date price list of “CEZ Electro Bulgaria” AD; Accepting payment of
the due amounts from clients and their administration in the client information system; print,
enveloping and delivery of the commercial and marketing correspondence; administering the
correspondence from /to external institutions, including scanning, maintenance of an electronic
archive, enveloping and sending; Monitoring, analysis and reporting of the performed services;
Management of the receivables from clients for electricity supply; invoicing and management of the
payments.

Services in the field of the information technologies and the communications – the services cover the
provision of access to the software and the modules of the information systems in the field of the
management of finances, control and reporting, planning, the logistics, the administration and other
applications of SAP ERP. The service also includes the maintenance and solution of the queries and
problems of the end users; The provision of access to the software and the modules of the information
systems in the field of managing the customer service, control and reporting, invoicing, planning,
administration and other applications of the specialized Client Information System. The service also
includes the maintenance and the solution of the queries and problems of the end users, as well as
planning and deploying the functional capacity; Provision for use of personal computers, notebooks,
suitable peripheral devices, system software and main software according to a standard of ICT for the
performance of the everyday official duties of the end users. The standard is updated annually. The
service includes the organization of the guarantee and beyond guarantee servicing of the technology,
the maintenance and the solution of queries and problems of the users, planning and development of
the used peripheral devices and main applied software; Building up, maintenance and administration
of the corporate telecommunication infrastructure for the needs of “CEZ Electro Bulgaria” AD and
the provision of a legitimate access to it for the end users from these companies for the performance
of their everyday official duties. The service also includes the organization of the guarantee and
beyond guarantee servicing of the necessary specialized equipment and software for the needs of this
infrastructure, maintenance and the solution of queries and the problems of users, as well as planning
and development of the used shared total resources; provision for use of specialized software or
technical equipment, for the performance of the specific official duties of the end users. The service
also includes the organization of the guarantee and beyond guarantee servicing of the technology, the
maintenance and solution of queries and problems of the users, as well as planning and development
of the used peripheral devices and main applied software; Provision for use of the necessary technical
equipment for access to telecommunication services of fixed and mobile operators. The service does
not include services subject to licensing for the transmission of voice and data. The service includes
the organization of the guarantee and beyond guarantee servicing of the technology, the maintenance
and the solution of queries and problems of the users, as well as planning and development of the
used personal devices and main applied software.

Legal services – the services cover the legal collaboration, providing written opinions and oral
consultations with regard to issues and cases, raised by “CEZ Electro Bulgaria” AD;

Services in the field of property management – the services cover management of estates, office
planning, maintenance of the buildings, secretarial activity, the activities associated with investigating
the necessity, introduction and performance of a regime of control over the access and supervision, as
well as performance of the actual security activity /with technical means and physical force / for the
estates /own estates and those, used on another legal grounds / by CEZ Electro Bulgaria” AD with
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Prospectus
regard to the company activity, and also provides collaboration and intermediation to “CEZ Electro
Bulgaria” AD in the relationships of the latter with the institutions of the public authority /national,
territorial, authorities of the executive, court and legislative power and the specialized control
institutions /;

Services in the field of management consulting and the economic activity – the services cover the
following fields: services in the field of project management; consultations with regard to the strategy
of the company and its realization, coordination with the international strategic guidelines, structuring
and planning the strategy with regard to the implementation of projects and coordinating the regional
resources. Participation in the management and control boards of the company; optimization of the
organizational processes in the company, implementation of new better practices, analyses of the
efficiency, offering and introducing measures to increase the efficiency of processes; services in the
field of the regulatory collaboration; services in the field of the internal audit; services in the field of
coordinating the commercial activities.

The remuneration for the distinct services is determined entirely based on the Report on the transfer
pricing according to the method „expenses plus ― and includes: 1) the expenses of the provider of
services (for salaries and social security, depreciation of the assets, materials and other expenses that
have occurred in the process of rendering the services) ; 2) the remuneration, paid to subassignees
with regard to the rendering of the services; and 3) additional remuneration to the amount of 4-6% on
the expenses of the provider of services under p.1) above. This remuneration becomes due after the
parties sign a monthly protocol for accepting the rendered service.
The contract for the rendering of services for the election of suppliers between “CEZ Bulgaria” EAD
and “CEZ Electro Bulgaria” AD with a term of effectiveness till 01.12.2017; By virtue of this contract “CEZ
Bulgaria“ EAD is bound to render the following services associated with the preparation of election
procedures:

keeping a database with the potential suppliers;

keeping a register for the performance of the orders;

preparation of reports and documents for the selection procedure;

preparation of the contracts with the suppliers;

ensuring the updating of the contract documents via preparation of supplements and annexes;

preparation of the distinct stages upon procedures for election, stemming from the effective Bulgarian
legislation or from an agreement between the parties, ensuring the announcement of the distinct tasks
and discussing the contract conditions with the providers;

ensuring external consulting with regard to the submission of applications and the election of
providers;

archiving the documentation, concerning the orders, with the exception of the originals of the
concluded contracts;
A contract for the rent of cars between “CEZ Bulgaria” EAD and “CEZ Electro Bulgaria” AD with
a term of effectiveness till 01.12.2017; Under this contract “CEZ Bulgaria” EAD provides for rent cars to
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Prospectus
“CEZ Electro Bulgaria” AD. The remuneration under the contract is the rent price per hour and per
kilometer.
A contract for the rent of real estates between “CEZ Bulgaria” EAD and “CEZ Electro Bulgaria”
AD with a term of effectiveness till 01.12.2017; Under this contract “CEZ Bulgaria” EAD provides for rent
real estates to “CEZ Electro Bulgaria” AD. The remuneration under the contract is the rent price and
recovering the expenses for maintenance.
In 2011 the expenses of CEZ Electro Bulgaria AD under the contract with CEZ Bulgaria EAD
amount to BGN 15,132 thousand.
1.
A contract for the settlement of the financial relationships on occasion of the provision of the service
access and transfer of electricity in the distribution network, property of “CEZ Distribution
Bulgaria“ AD, concluded between “CEZ Distribution Bulgaria” AD and “CEZ Electro Bulgaria”
AD (with no term); This contract settles the financial relationships between the parties for the
rendering of network services – the price for access and distribution in the electricity distribution
network, markups for green energy and for energy from highly efficient combined production, from
ОРМ to the end supplier /ES/ under the conditions of the Rules on trading electricity, applied since
01.07.2011 and in keeping with LE and the by-laws, associated with its implementation. The prices
and the accounts under the contract are determined by the State Energy and Water Regulatory
Commission.
2.
Contracts for rent of cars between “CEZ Distribution Bulgaria” AD and “CEZ Electro Bulgaria”
AD (with a term of effectiveness till 01.12.2012); Under this contract “CEZ Distribution Bulgaria ”
AD provides for rent cars to “CEZ Electro Bulgaria ” AD. The remuneration under the contract is
the rent price per hour and per kilometer.
3.
A contract for renting real estates between “CEZ Distribution Bulgaria” AD and “CEZ Electro
Bulgaria” AD (renewed every year); Under this contract “CEZ Distribution Bulgaria” AD provides
for rent real estates to “CEZ Electro Bulgaria” AD. The remuneration under the contract is the rent
price and recovering the expenses for maintenance.
4.
In April a cession contract was concluded between TEPP Varna EAD and CEZ Electro Bulgaria AD
by virtue of which the cedant transfers to the cessionary valid unrepaid receivables for sold electricity
against the National Electricity Company EAD.
Licenses
The Energy Law regulates the trade in electricity as an activity subject to licensing by SEWRC.
Respectively, most important to the business of CEZ Electro are the following licences the company that the
company holds:

Public Electricity Supply Licence, № Л-135-11/ 29.11.2006, issued by SEWRC with validity
until August 2039; and
 Electricity Trading Licence, № Л-229-15/17.05.2007, issued by SEWRC with validity period of
10 (ten) years, i.e. until May 2017.
Significant industrial, commercial or financial contracts, or new production processes
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Prospectus
As far as the Manager and PPCA are aware, there are no significant to the business activity or
profitability of the Issuer industrial, commercial or financial contracts, or new production processes.
Main activities
CEZ Electro acts as an end supplier of electricity on the territory of West Bulgaria, by virtue of a
Public Electricity Supply Licence.
According to the Energy Law an “end supplier” is any energy company which provides electricity or
natural gas to households and enterprises with less than 50 employees and with annual turnover up to 19.5
million levs that have not used their right to choose the company from which to buy electricity or natural gas.
The end supplier buys electricity generated by means of renewable energy sources and highly efficient
combined generation of electric and thermal power by power generating companies which have been
connected to the power distribution network. The end supplier enters into agreements for sale of electricity:
 under publicly announced general terms and at prices regulated by SEWRC– with households
and enterprises having less than 50 employees and annual turnover of up to 19.5 million levs which
have not exercised their right to choose their supplier of electricity or natural gas. The supply of
electricity to these two groups of consumers is a commonly provided service;
 at freely negotiated prices – under the Energy Law end suppliers are obliged to ensure the supply
of energy to all consumers that have been connected to the electricity distribution network, which
have obtained a statute of privileged consumers but which have not chosen another supplier (to the
moment they exercise this right).
Under the terms of the Electricity Supply Licence by an end supplier the Company has the obligation
to supply with electricity two categories of consumers on equal terms.
Also, based on the granted electricity trade licence, CEZ Electro was registered as a trader in the
balancing energy market with virtual code № 096TTZ01. From the time of the registration up to now the
Company has had no registered week schedules and transactions which have been entered into at freely
negotiated prices.
Markets and Sales
By virtue of the licence it holds, CEZ Electro is the only end supplier of electricity (at regulated
prices) to the consumers connected to the electricity distribution network of CEZ Distribution Bulgaria AD on
the territory of Western Bulgaria. The geographical region which the Company serves coincides with the
region in which CEZ Distribution Bulgaria AD operates, and specifically comprises of the following
administrative units:
 Sofia city municipality: the districts „Sredets”, „Izgrev”, „Studentska”, „Mladost”, „Iskar”,
„Pancharevo”, „Vazrazhdane”, „Ilinden”, „Krasna poliana”, „Lulin”, „Vrabnitsa”, „Novi Iskar”,
„Bankia”, „Oborishte”, „Poduyane”, „Serdica”, „Nadezhda”, „Kremikovtsi”, „Slatina”, „Lozenets”,
„Triaditsa”, „Krasno Selo”, „Ovsha Kupel” and „Vitosha”;
 Regions: Sofia, Pernik, Kuystendil, Blagoevgrad, Pleven, Lovech, Vratsa, Montana and Vidin; a
part of Veliko Tarnovo region (the villages of Dilyanovtsi and Chervena).
The proceeds from electricity sales of the Company for the last three financial years were related
solely to the Electricity Supply Licence and amounted to 1,149,428 thousand lv. in 2009, 1,163,660 thousand
lv in 2010 and 1,236,286 thousand lv. in 2011.
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The table below contains data on the proceeds from sales of electricity of the Company (which
constitute over 99% of its total revenue) for each of the last three fiscal years, by categories of customers.
Proceeds from sale of electricity by types of customers
(in 000’levs)
Businesses
Households
Other electricity distribution companies
2009
607,621
541,520
287
1,149,428
2010
2011
613,954
661,966
549,484
574,115
222
205
1,163,660 1,236,286
Source: CEZ Electro
The sales of electricity of CEZ Electro in 2011 amount to 9,085 Gigawatt hours, with 8,798 Gigawatt
hours of electricity being sold in 2010 and 8,700 Gigawatt hours of electricity in 2009.
The sales of the company are relatively higher in winter and summer months when the electricity
consumption grows.
The Company has neither introduced any significant new products or services in the last three years
nor has developed any.
Impact of the exceptional factors on the main activities, markets and sales of the Issuer
As far as it is known to the Manager and PPCA, there are no exceptional factors, which may impact
on the information, presented above with regard to the main activities of the Issuer, the markets and its sales.
Competition
At present CEZ Electro has not been exposed to strong competition due to the legal restriction
allowing only one Electricity Supply licence to be issued to an end supplier for a single territory (the Company
has such a licence for the territory of Western Bulgaria). Secondly, despite the liberalization of the market in
Bulgaria (since 1st July 2007), no active process of change of the electricity suppliers has been registered so
far. Additionally, the free market still reports much lower volume of sales than those on the regulated
electricity market, in which the Company operates as an end supplier.
By the establishment of the energy stock exchange it is anticipated that consumers will be given the
right to choose their electricity supplier (this option is currently available only to legal entities). This would
lead to increase in the competition between the electricity traders in the country.
Judicial and administrative proceedings
In carrying out its activity CEZ Electro is normally a party to different judicial proceedings,
including in connection with proceedings which ended with penalties imposed by SEWRC, against which the
Company lodges appeals to the judicial authorities. As far as it is known to the Manager and PPCA at the date
of this Prospectus and within the 12 month period prior to the date of the Prospectus the following judicial
disputes may affect its financial position and business results:

the great number of proceedings the Company has initiated against debtors in default (including
cases under the terms of enforcement proceedings for receivables calculated based on current
invoices for electricity; claims for declaratory judgements for undue receivables claimed on
invoices for electricity; lawsuits (mainly for compensations); enforcement cases related to
energy ;

court proceedings against SEWRC initiated by a statement of claim filed by the Company
against price-approving decisions of SEWRC, as well as prices for additional fees;
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Prospectus
court disputes with SEWRC associated with complaints of the company against punitive degrees,
composed by the Chairman of the Commission with regard to the licensing activity of the
company;
Additionally, in the future there is a danger of the initiation of administrative proceedings associated
with complaints to decisions of SEWRC.
With the exception of the abovementioned, the Manager and PPCA do not know of any state, legal,
court, administrative or arbitrage proceedings (pending ones and those, for which there is a probability to be
initiated) in the last 12 months, which may have or may have had considerable consequences in the near past
for the Issuer.
Concerning the Company‟s accrued provisions for lawsuits and penalties please see Note 10 to the
annual financial statement of the Company for 2011.
With regard to the trials of the Group there are the following trials of “CEZ Distribution Bulgaria”
AD (which is also a part of the group of CEZ in Bulgaria), that have occurred in relation to its ordinary
activity, whereas in the ordinary course of its activity “CEZ Distribution Bulgaria” AD is a party under various
legal proceedings, including in relation to imposed by SEWRC sanctions, which “CEZ Distribution Bulgaria”
AD argues in front of the court authorities. As far as it is known to the Manager and PPCA, as at the date of
preparation of the prospectus and within 12 months before the date of the prospectus the following court
disputes may have an impact on the financial state and the results of the activity of “CEZ Distribution
Bulgaria” AD:

many proceedings, which CEZ Distribution maintains, with regard to its ordinary activity – tort
(damages for burnt appliances, physical damages, etc) - 19 proceedings; Proceedings concerning the
obligation of the company to purchase energy devices, built up by users - 33 proceedings; Trade
disputes (penalties, losses of profit, undue enrichment, etc.) - 23 proceedings; Assignees for
electricity - 768 proceedings; Proceedings for compensations under the General terms and conditions
of the company during the duration of the interrupted electricity supply - 2 proceedings; Collection of
receivables from rent for the use of premises in the transformers and the column network of cable
operators - 15 proceedings; Collection of receivables associated with prices for joining – 11
proceedings; Proceedings for property and real rights - 278 proceedings; Proceedings for
compensations for the rent of electricity devices /price for provided access - 1 proceedings;
Administrative proceedings (concerning the detailed arrangement plan, cadaster maps, etc.) - 2
proceedings; Proceedings concerning receivables associated with protocols for unauthorized use of
electricity - 39 proceedings; Criminal proceedings under the Criminal Code associated with thefts of
electricity appliances (conductors, etc) - 29 proceedings.; Labor disputes, including court
administrative proceedings, concerning the employment relationships - 33 proceedings.

Administrative proceedings against decisions of SEWRC, CPC, CPC, DPC, etc. - 12 proceedings.

Administrative criminal proceedings, initiated based on complaints of the company against punitive
resolutions for various administrative breaches, issued by SEWRC - 12 proceedings.
With the exception of the abovementioned, the Manager and PPCA do not know of the existence of
state, legal, court, administrative or arbitrage proceedings (pending proceedings and proceedings, for which
there is a probability to be initiated) during the last 12 months, which may or may have had considerable
consequences in the near past with regard to the financial state or profitability of the CEZ group in Bulgaria.
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Related party transactions
CEZ Electro has entered into and intends to enter into transactions with related parties within the
meaning of IAS 24 “Related party disclosure” (Appendix to Regulation (EC) No 1126/2008 of 3 rd November
2008 on adopting certain International Financial Reporting Standards in compliance with Regulation (ЕС) No
1606/20002 of the European Parliament and the Council, amended by Regulation (EC) No 1274/2008 of 17 th
December 2008 on the amendment of Regulation (ЕC) No 1126/2008 on adopting some International
Financial Reporting Standards in compliance with Regulation (ЕC) No 1606/20002 of the European
Parliament and the Council with regard to International Financial Reporting Standards (IAS) 1. According to
the said accounting standard “related parties” to the Company are the Majority Shareholder, the other
companies which are part of CEZ Group (regarding the companies part of CEZ Group Bulgaria, please see “ –
CEZ Group” above), as well as the members of the Management and Supervisory Boards.
The ordinary deals between related parties, to which the Company is a party, include sale and
purchase of electricity, services, rents and intra-group loans. All transactions between related parties are
conducted as transactions between non-related parties (at arm‟s length prices), excluding the transactions
involving sale of electricity which are concluded at regulated prices.
The table below presents information about the total amount of the transactions with related parties
and the due balances as at 31.12.2009, 31.12.2010, 31.12.2011 and as at the date of the prospectus, as far as
the manager and PPCA dispose with this information:
Sales to related parties (thousand BGN)
CEZ Distribution Bulgaria AD
CEZ Bulgaria EAD
Total
Purchases from related parties (thousand BGN)
CEZ Bulgaria EAD
Total
Receivables from related parties (thousand BGN)
CEZ Bulgaria EAD
Total
Liabilities to related parties (thousand BGN)
CEZ Bulgaria EAD
Total
Loans granted to related parties (thousand BGN)
CEZ Bulgaria EAD
Total
Interest from loans, granted to related parties (thousand BGN)
CEZ Bulgaria EAD
Total
Remuneration to the main management staff (thousand BGN)
Short-term income
Total
2009
1,720
52
1,772
2009
358,838
15,953
374,791
2009
407
2
409
2009
42,942
7,894
50,836
2009
15,000
15,000
2009
700
700
2009
372
372
2010
1,671
69
1,740
2010
326,238
14,262
340,500
2010
264
2
266
2010
34,385
4,611
38,996
2010
2010
340
340
2010
364
364
2011
1,834
73
1,907
2011
420,117
15,132
435,249
2011
297
2
299
2011
75,713
10,246
85,959
2011
2011
2011
437
437
30.03.2012
835
132
967
30.03.2012
169,152
3,898
173,050
30.03.2012
294
2
296
30.03.2012
73,347
11,045
84,392
30.03.2012
30.03.2012
30.03.2012
Source: CEZ Electro
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For more detailed information regarding the related parties transactions with parties related to the
Company, please see Note 13 to the annual financial statements of the company for 2011, Note 12 to the
annual financial statements of the company for 2010 and Note 12 to the annual financial statements of the
company for 2009 (refer to „Incorporation by reference”).
The Manager and PPCA do not dispose with additional more detailed information concerning the
transactions with related parties after the date of the last financial statements till the date of the Prospectus,
except the specified above.
Environmental issues
The Company believes that it operates in compliance with all material aspects of the requirements for
environmental protection which are currently applicable to its business.
The prices of electricity in the country do not cover the full operating expenses of the licensed
companies. SEWRC policy for limiting the company expenses is reflected in the Report of SEWRC on setting
the prices of electricity for the price period 2012/2013. (The report is published on the web site of the
Commission dated 28.05.2012). The prices of electricity do not include the expenses of the companies for the
purchase of permits for issuing СО2-issues. According to Directive 2003/87/ЕО of the European Parliament
and the Council for the establishment of a scheme for trading quotas for issues of greenhouse gases within the
Community, amended and supplemented by Directive 2009/29/ЕО of the European Parliament and of the
Council, the fuel installations, using extracted fuels, including the producers of energy, from 01.01.2013 on
have to include in the price of energy their expenses for participation in the scheme for trading carbon issues.
The expectations of all analysts are that the present prices of 5-7 €/ton СО2 (www.Carbon finance.bg) will
invariably increase after 01.01.2013.
The result of keeping down costs will be a considerable increase in the prices of electricity upon the
100% opening of the market, whereas the risk for the company concerns the possible negative impact on the
quantities of sold energy.
As at the date of this prospectus the company is not aware of other present or future environmental
problems, which may impact significantly its activity and financial state. The intentions of the management of
CEZ Electro are in the future the activity of the company to continue to be in keeping with the environmental
requirements.
Insurances
Any concluded insurances comply with the obligations arising from the applicable law with a view to
the business of the Company.
The company has concluded the compulsory Occupational Accident Insurance, which complied with
the provisions of the Regulation on compulsory insurance of employees for the occupational accident risk,
adopted by Government Decree No. 24 of 06.02.2006.
With a view to its business-related risks, the Company maintains General Third-party Liability
Insurance, which covers the liability to third persons related to its business include product liability (liability
for bodily injuries, property damages and missed benefits).
Since the beginning of 2009 till now CEZ Electro has not suffered any significant insurance damages
and has not claimed such damages respectively.
According to the Company the scope of its insurance policies agrees with the practices of other local
companies which operate in the relevant markets and is optimal in view of the balance between the costs of
insurance and the likelihood of the insured risks.
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49
Prospectus
Employees
The number of the employees in the Company as at 31 st December 2011 (working both on full-time
and part-time basis) was 68 persons, and as at 31 st December 2010 and 31st December 2009 was 68 and 63
persons respectively. As at the date of the Prospectus, the number of the employees is 69 people.
The number of the persons employed in the last three financial years and the breakdown by
categories of personnel and geographical location is as follows:
Categories of personnel
President, legislators , senior officials and managers
2009
2010
2011
30.03.2012
17
17
45
46
14
16
43
47
Technicians and other application specialists
6
5
6
6
Administrative personnel
0
0
0
0
Analysts
Qualified production workers
Total personnel
Distribution of the personnel by region
0
63
0
0
0
68
68
69
Source: CEZ Electro
2011 30.03.2012
50
51
8
8
2009
46
2010
51
Blagoevgrad
7
7
Kuystendil
1
1
1
1
Pernik
0
0
0
0
Pleven
7
7
7
7
0
0
0
0
0
Sofia
Vidin
0
Lovech
0
0
0
Montana
0
0
0
Vratsa
Total personnel
2
63
2
2
68
68
Source: CEZ Electro
2
69
As at 31st December 2011 approximately 74% of the employees of the Company are university
graduates and approximately 26% of its employees have completed a high school or a college.
The funds earmarked in relation to pension to the employees of CEZ Electro as at 31 st December
2011 and 31st December 2010 and 31st December 2009 amount to 117 thousand levs, 105 thousand levs and 93
thousand levs respectively.
The employees of the Company are entitled to fringe benefits in compliance with the applicable law
for i) overtime; ii) night shifts; iii) work on weekends and during holidays. Employees who work in specific,
harmful or dangerous conditions are entitled to personal protection equipment and allowances. The employees
of the Company are entitled to longevity pay, reimbursement of travel expenses for business trips and
compensation for work incapacity due to illness.
In addition to the above, CEZ Electro has adopted an Employee Development Programme intended
to ensure their retention and to promote their future development. The main elements of the social agenda of
CEZ Electro include:
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50
Prospectus

medical care - providing medical care for every employee, services provided by the Occupational
Medical Service, mandatory preliminary periodic medical examinations;

risk assessment – assessment of the risk and complex evaluation of the working conditions at
workplaces;

education and training of the staff - providing training sessions relating to career development of
employees and their direct responsibilities within the company, foreign language learning, improving
their computer literacy, development of managerial skills and knowledge, initiatives for improving
teamwork;

social amenities and cultural events – additional funds allocated for food, celebrating national and
professional holidays, etc.;

Additional pension insurance paid by the employer.
In 2011 in all companies of CEZ Group in Bulgaria was introduced a collective labour agreement,
including in CEZ Electro. As at the date of preparing this Prospectus, employees and workers from the
Company are members in the following trade-union organizations: FE FSO Podkrepa and HSFEB – KNSB.
Within the period between 1st January 2009 and the date of this Prospectus there were no strikes in
CEZ Electro and it wasn‟t a party to a dispute under the collective labour agreement. The Company considers
that it is in very good relations with its employees and staff members and trade unions.
CEZ Electro has not been a party to substantial employment disputes and no significant penalties
have been imposed on it by the Labour Inspectorate.
The company does not hire workers and employees on temporary contracts.
As at the date of this Prospectus no arrangements have been made for employees to acquire shares in
the Company.
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51
Prospectus
MANAGEMENT AND CORPORATE GOVERNANCE
CEZ Electro has a two-tier governance system comprising of Management Board (the Management
Board or MB) which operates under the supervision of a supervisory board (the Supervisory Board or SB).
The Company is represented jointly by each two members of the MB. Regarding the MB and SB, please refer
to „Description of shares and applicable Bulgarian legislation” – “Supervisory Board and Management
Board”.
Except the members of the management and the supervisory board, there is no other senior
management of which depend the activities of CEZ Electro.
Members of the Management Board
At present members of the Management Board are:
Name
Kremena Stoyanova Stoyanova
Petr Baran
Zhanna Vasilevs Pehlivanova
Position
Chairperson of the MB
Deputy Chairperson of the MB
Member of the MB
Date on which was
appointed member of
the MB
29 August 2006
12 January 2011
28 May 2010
End of Office
29 August 2014
12 January 2016
28 May 2015
Source: CEZ Electro
The members of the Management Board can be contacted through the Issuer‟s headquarters – 140
G.S.Rakovski Str., Sofia, Bulgaria.
Below please find brief description of the qualifications and professional background of each
member of the Management Board.
Kremena Stoyanova – Chairman of the MB
Mrs. Stoyanova graduated in Accounting and Control from UNWE – Sofia and has a Master Degree
in Finance and Banking from SU Kliment Ohridski. She is a member of АССА (Association of Chartered
Certified Accountants). She held different consultant and management positions in the finance sector, and until
2005 she had worked as Senior Auditor in Ernst&Young. She is fluent in both English and German. In 2005
she joined the team of CEZ and in 2006 was appointed member of the Management Board of CEZ Electro. In
2009 she took up the post of Chairperson of the Management Board and Executive Director of the Company.
Peter Baran – Deputy Chairman of the MB
Mr. Baran graduated in Finance and Banking from the School of Business Administration in
Karvina, the Czech Republic. He specialized in Petroleum Management at the Canadian Petroleum Institute.
He held various posts in financial institutions, including in the field of the construction and petroleum
business. Until 2006 he was a member of the Management Board of MERO ČR, a.s. He has a command of
German, English, Russian and Polish. Since 2011 he has been a member of the Management Board of CEZ
Electro.
Zhanna Pehlivanova – member of the MB
Mrs. Pehlivanova holds a Master degree in “Industrial Management and Economics” from UNWE –
Sofia. She is also a holder of a Certificate in Management from the Centre for European Programmes at the
American University – Sofia. She held different administrative positions in banking institutions, including as a
member of the Management Board of DZI – Social Security AD (2006). Until 2009 she was Manager of the
___________________________________________________________________________________
52
Prospectus
Analysis and Risk Management Department in the Road Infrastructure Agency subordinate to the Council of
Ministers. She has a command of Russian and English. She joined the team of CEZ Electro in 2010 as a
member of the Management Board and Sales Director.
Members of the Supervisory Board
Name
Karel Klusak
Lucie Brabtsova
Evzhen Kochenda
David Machač
Hristo Stoyanov Petrov
Dimitar Zlatkov Kuyumdjiev
Evgeniya Biserova Aleksieva
Position
Chairperson of the SB
Member of the SB
Member of the SB
Member of the SB
Member of the SB
Deputy Chairperson of the SB
Member of the SB
Date on which was
appointed member of
the SB
16 May 2008
29 August 2006
31 July 2011
2 December 2008
4 January 2010
4 January 2010
5 December 2011
End of Office
16 May 2015
29 August 2014
31 July 2016
2 December 2012
4 January 2015
4 January 2015
5 December 2016
Source: CEZ Electro
At the moment of preparation of the Prospectus Mr Evzhen Kochenda, Mr Hristo Petrov and Ms
Evgenia Aleksieva comply with the requirements for independent members in the sense of art.116a, para.2 of
LPOS.
The members of the Supervisory Board can be contacted through the Issuer‟s headquarters – 140
G.S.Rakovski Str., Sofia, Bulgaria.
Below please find brief description of the qualifications and professional background of each
member of the Supervisory Board.
Karel Klusak – Chairman of the SB
Mr. Karel Klusak has a degree in electric power engineering and telecommunications. In 2001 he
graduated in Kuřim, the district of Brno. His professional career began in 1987 in Středočeské energetice
power plants in Prague and later he held different operational positions in the company. Since 2005 he has
worked as coordinator in CEZ Prodej s.r.o. Since 2008 he has been a member of the Supervisory Board of
CEZ Electro
Lucie Brabtsova – member of the SB
Mrs. Brabtsova holds a Bachelor degree in law from the College of Advanced Legal Studies in
Prague and Master‟s degree in International Business. From 1989 to 2006 she held different administrative
positions in General Motors, The Czech Airlines, and in the Czech Trade Bank. Since 2006 she has been
working in CEZ a.s. in the field of international acquisitions. She is fluent in English and German and has a
working command of Bulgarian and Chinese. She has been a member of the Supervisory Board of CEZ
Electro since 2006.
David Mahač – member of the SB
Mr. Mahač holds a Master‟s degree in law from the Charles University in Prague. He has a MA
degree in Finance and Accounting. He began his career as a consultant in Ernst & Young. Later he held
different managerial positions in the energy industry and since 2008 he has been working in CEZ a.s. in the
acquisitions department. He has a command of English and German. Since 2008 he has been a member of the
supervisory Board of CEZ Electro.
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53
Prospectus
Evzhen Kochenda – member of the SB
Mr. Kochenda is a graduate in International Trade, holds a Master‟s degree in Economics from the
University in Toledo, a PhD in Economics from the University in Huston (USA). In 1985 he took up the post
of Manager of the Investments Department in a Czech corporation and later he held a number of managerial
posts in different companies. He pursued an academic career and also worked for non-government
organizations, media and institutions. In 2004 he received his PhD in Economics from the Charles University
in Prague, became a member of the Commission on Accreditation, and etc. Since 2011 he has been a member
of the Supervisory Board of CEZ Electro.
Hristo Petrov – member of the SB
Mr. Petrov has a Master‟s degree in Business Administration with a specialism in international
economic relations, marketing and advertising. He has a command of Hungarian, English and Russian. He
began his career as a foreign-trade manager and after that - from 1996 to 2004 - he held a number of
managerial posts in the trade sector. In 2005 he set up his own company. Since 2010 he has been a member of
the Supervisory Board of CEZ Electro.
Dimitar Kuyumdjiev – member of the SB
Mr. Kuyumdjiev is a qualified engineer with a degree in thermal and nuclear power engineering from
IMEE (Institute of Mechanical and Electricity Engineering) – Sofia. Since his graduation, in 1972, he has been
working in the field of his specialty and over the years he held key positions in the Kozloduy Nuclear Power
Plant, Thermal Power plant Bobov Dol, NEC and others. In 2009 he took up the post of Director of Security
of Power Supply in the Ministry of Economy, Energy and Tourism. Has a command of Russian, French and
English. Since 2010 he has been a deputy chairperson of the Supervisory Board of CEZ Electro.
Evgeniya Aleksieva – member of the SB
Mrs. Aleksieva graduated International Relations from New Bulgarian University – Sofia. Her career
began in 2005 when she worked for the 23 rd Regional Election Committee and until 2007 she held several
municipal posts. Since 2007 she has been coordinator for the town of Sofia for GERB political party. She has a
command of English and Russian. Since 2011 she has been a member of the Supervisory Board of CEZ
Electro.
With a decision of the Extraordinary Meeting of the Shareholders dated 26 April 2012, after the date
of the Prospectus, Dimitar Kyumdzhiev was released as a member of the Supervisory Board and on his place
Boyko Vassilev Valkov was appointed.
Mr Valkov has a bachelor degree in geology of the mineral resources from the University of Mining
and Geology – Sofia and a MA degree in communication and security technology from the Higher Transport
School – Sofia. His career started in 1998 at OF “Metropoliten” EAD, where since 2008 he is head of
laboratory. He speaks Russian. Mr Valkov is a member of the Supervisory Board since 11.06.2012, and his
mandate expires on 11.06.2017.
Participation of the members of the MB and SB in the management and ownership of other
companies
The table below represent a list of the companies (outside CEZ Electro) and other legal entities and
organizations, in which the members of the Management Board and Supervisory Board (referred to as the
Directors): (а) hold posts in management or supervisory boards; (b) own shares/have interests; or (c) were
partners (shareholders) in the last five years.
___________________________________________________________________________________
54
Name
Company
Prospectus
Position held
Is this position
still held?
Kremena Stoyanova
No participation in management and
supervisory bodies of other companies
Zhana Pehlivanova
No participation in management and
supervisory bodies of other companies
Peter Baran
Hutni montaze, a.s. CR
Member of the Management
Board
No
TPP Varna EAD
Board
Yes
CEZ Bulgaria EAD
Board
Yes
Main syndicate of ЕСНО
Chairperson
Yes
Association of the main organizations of
Chairperson
syndicate ECHO, Central Region
Yes
European Workers' Union
Chairperson
Yes
Teplarna Trmice, a.s.
Member of the Supervisory
Board
Yes
SC CEZ Distributie S.A.
Member of the Supervisory
Board
Yes
Lucie Brabtsova
CEZ Laboratories Bulgaria EOOD
General Manager:
No
Evzen Cochenda
OKK, Koksovny, a.s.
Deputy Chairperson of the
Board of Directors
No
Green Gas DPB, a.s.
Deputy Chairperson of the
Board of Directors
No
NWR Coking, a.s.
Chairperson of the Board of
Directors
No
Nadace OKD
Directors
No
Domov Sue Ryder, o.p.s.
Member of the Board of
Directors
Yes
Centrum ekonomickych studii Vysoke Member of the Board of
skoly ekonomie a management, o.p.s.
Directors
Yes
Spolecenstvi vlastniku jednotek domu 8. Chairperson of the Board of
Listopadu 597/62 Praha6
Directors
Yes
Directors
No
Karel Klusak
David Mahač
Dimitar Kuyumdzhiev
TEPP “Bobov dol“ EAD
___________________________________________________________________________________
55
Hristo Petrov
Prospectus
“Toplofikacia Sliven” EAD
Member of the Board of
Directors
No
Mediacontact Bulgaria OOD
Manager and partner with a
share of BGN 250 or 5% of
the capital
No
Mediacontact Outdoor OOD
General Manager:
Yes
Mediacontact Outdoor OOD
Partner with a share of BGN
2 500 or 50% of the capital
No
Aqua Trade Ltd.
Manager and partner with a
share of BGN 500 or 10% of
the capital
ЕТ “DH-Hristo Petrov”
“Welco Property Bulgaria” EOOD
“KDK” ЕООD
Evgeniya Aleksieva
“Uchenicheski otdih i sport” ЕАD
Boyko Valkov
None
Manager and sole owner of the
capital
Manager and sole owner with
a share of BGN 5,000 or
100% of the capital
Manager and sole owner with
a share of BGN 5,000 or 100%
of the capital
Directors
Yes
Yes
No
No
No
Source: CEZ Electro
Other information relating to the Directors
Apart from the aforesaid participations in the management and ownership in other companies, no one
of the Directors in the last five years:
 has been involved in trade activity other than that they perform in the Company, which could be
regarded important to the Company;
 has been subject to proceedings or penalties imposed by government or other control authorities
(including by professional associations);
 has been deprived from his/her right, by decision of a court, to be a member of administrative,
management or supervisory boards of companies or have senior management functions or manage
the activity of any company; or
 has been a member of an administrative, management or supervisory board or general manager
of a company which was subject of enforcement of judgments, insolvency proceedings, liquidation
or any other similar procedure.
In the last five years no one of the Directors has been convicted for a committed crime.
Family bonds
There are no family relationships between Directors.
___________________________________________________________________________________
56
Prospectus
Administrative, management or supervisory roles in other legal entities
Except the information presented above no one of the Directors is having administrative, supervisory
or management roles in another company or performing important activities outside CEZ Electro which might
be important to the Company.
Conflict of interests
With regard to all Directors there is no actual or potential conflict of interests ensuing from their
private interests or obligations or their commitments to the Company.
Pursuant to the requirements of the law the Directors must carry out their duties with regard to CEZ
Electro by being loyal, preferring the interests of the Company before their own, and making every effort to
avoid situations involving conflict of interests. Nonetheless, if there is a conflict of interests the Director
involved must report in full and within the specified period any such conflict to the relevant competent body,
and cannot participate in the process of decision making on the relevant item of the agenda of the meeting of
the said competent body, as well as may not exercise influence upon other Directors with regard to the way
they vote on the relevant matters.
Transactions and agreements with major shareholders, customers, and service suppliers to the
Company or other persons based on which a Director was appointed to this post
There are no transactions and agreements entered into with major shareholders, customers, and
service supplier to the Company or other persons, based on which a Director was appointed to this post.
Shares or options owned by the Directors
No one of the Director owns Shares or options in the Company.
As at the date of preparing this Prospectus there are no restrictions on the sale of shares owned by the
Directors.
Remunerations and compensations
During the financial year ended on 31st December 2011 the amount of the remunerations paid out to
Directors (including all incidental or deferred compensations) was to the amount of 367 391 levs. The
Manager and PPCA do not dispose with additional information besides the specified in the previous sentence
concerning the individual remuneration, paid to every director. In CEZ Electro there is no special policy for
paying out compensations in kind to Directors for rendering services to the Company, regardless of their
position. All arrangements between the Company and Directors do not provide for any special compensation
upon termination of employment. In the Company there is no policy for allocating or paying out amounts for
providing pensions or any other compensation upon retiring or any other similar benefits for Directors.
Apart from the above, in 2011 the Directors did not receive remunerations or other compensations
and bonuses, including in kind by the Company.
Meeting of the Supervisory and Management Board
The Law on Commerce and the Articles of Association require that the Supervisory Board holds
regular meetings at least once every three months. Extraordinary meetings shall be convened by the
Chairperson of the Board on his own initiative or at the request of another member of the Board, where in the
latter case if the Chairperson of the Board rejects the request within 30 days of its receipt, the other member of
the board may convene the meeting on his/her own. All meetings of the Supervisory Board shall be convened
by written notice with the minimum content as specified in the Articles of Association which will be sent to all
members at least 14 days before the meeting.
___________________________________________________________________________________
57
Prospectus
The Articles of Incorporation require the Management Board to hold regular meetings at least once a
month. Extraordinary meetings shall be convened by the Chairperson of the Board on his own initiative or at
the request of another member of the Board, where in the latter case if the Chairperson of the Board rejects the
request within 10 days of its receipt, the other member of the board may convene the meeting on his/her own.
Pursuant to the Articles of Association, the Supervisory Board and Management Board may make
decisions without meeting if all members of the respective Board agree with the decision and sign it. The
Articles of Association allows for decisions to be made by phone or any other remote communication method
in adhering to the general quorum rules and in this case the decision made should be confirmed in writing by
the members of the respective Board who were present at the meeting and this should be done as soon as
possible.
According to the Articles of Association the meetings of the Supervisory Board are considered
legitimate if all members have been invited and are present in person or are represented by another member of
the Board. Each member of the Board who is present at the meeting may represent only one absent member of
the Board. The Supervisory Board makes its decisions by simple majority of the members present in person or
by proxy, unless a larger majority is not required by law.
According to the Articles of Association the meetings of the Management Board are considered
legitimate if all members of the Board have been invited and more than ½ (half) of all members of the
Management Board are present in person or are represented by another member of the Board provided that
each member of the Board who is present at the meeting may represent only one absent member of the Board.
The Management Board makes its decisions by simple majority of the members.
Audit Committee
According to the Bulgarian law in order to conduct an independent financial audit the General
Meeting should appoint an Audit Committee. The Audit Committee is a standing committee with control
functions over: (а) the financial reporting processes in the Company; (b) Company‟s Internal Control System;
(c) the efficiency of the Company‟s Risk Management System; (d) the independent audit process. The Audit
committee is responsible for checking the independence of the certified auditor.
By decision of the General Meeting of the shareholders of the Issuer, held on 17 th November 2008
was appointed the Audit Committee of the Company. Based on decision of the General Meeting of 22
November 2008 the following are appointed members of the Audit Committee:

Mr. Karel Klusak;

Mr. Leon Vrska;

Mr. Dimitar Zlatkov Kuyumdjiev.
Mr. Leon Vrska meets the requirements of article 40f, paragraph 4 of the Independent Financial
Audit Act for experience and education.
The current audit committee will perform its duties until a new audit committee is appointed.
Corporate Governance
CEZ Electro is a part of CEZ Group – an energy holding which operated in different countries from
Central and Southeast Europe. The Shares of the majority shareholder CEZ a.s., the Czech Republic are
admitted to trade in October 2006 on the Warsaw Stock Exchange. In view of this the company undertakes to
adhere to the internationally recognized standards of good corporate governance and the legal requirements of
the European legislation in this area, and has adopted a Programme for good corporate management (CEZ
___________________________________________________________________________________
58
Prospectus
Corporate Governance Codex). It outlines the guidelines, main principles and requirements for maintaining
and improving the quality, organization and methods of management in the holding structure and aims to
facilitate the achievement of the goals and plans which are in the best interest of the shareholders, investors
and parties involved.
The company operates in full compliance with the applicable law on the corporate governance and in
ensuring the protection of the rights of its shareholders. A two-tier management system is adopted – the
Company is managed and represented by a management board which performs its duties under the supervision
of a supervisory board. The appointment and dismissal of the management and supervisory boards, their
functions and tasks, the structures of the Boards, set forth in the Company‟s Articles of Association, are in full
compliance with the provisions of the Law on Commerce.
With a view of achieving good corporate governance, in CEZ Group has been adopted a policy for
establishing general rules and standards in this direction, which are to be applied by all companies within the
structure, including by the Company. This General policy applies in the following areas:
 The management of the companies within CEZ Group is done in accordance with the existing
legislation in the country and their Internal Regulations regulating the rights of the shareholders;
 The arrangement and holding of General Meetings follows the principles of transparency and
equality;
 As members of the management and supervisory bodies of the companies within CEZ Group are
appointed only individuals having the necessary education and sufficient professional background;
 The information concerning the financial position and corporate status of the company is
prepared and announced to the public and the relevant control authorities at a regular basis;
 Upon the management of the companies within CEZ Group, the interests of all stakeholders are
taken into account.
At present CEZ Electro doesn‟t have its own adopted Programme for implementation of the
internationally recognized standards of good corporate governance but is well acquainted with the standards
underlying the Bulgarian National Corporate Governance Code (the Code) and considers that in their majority
these standards are being adhered to by the Company. After gaining the status of a public company, the
Company will be obliged to comply completely with the corporate governance regime set forth in the Code.
The Code was adopted in October 2007 (respectively amended in February 2012) as a document
complying with the internationally recognized and applied principles of corporate governance of the
Organization for Economic Cooperation (2004). The Code was adopted by the Bulgarian Stock Exchange –
Sofia AD, which obliges the companies which shares are traded on the Official market to comply with its
rules.
The Code represents a standard of best practices and means of communication between businesses in
different countries. It is prepared in compliance with the current legislation without duplicating it. It provides
recommendations on how Bulgarian companies should apply the best practices and principles of corporate
governance. The Code‟s Rules and Norms represent standards of management and supervisions of public
companies. It is built on the understanding of the corporate governance as being a balanced interaction
between shareholders, companies‟ management and parties concerned. The good corporate governance means
loyal and responsible corporate management bodies, transparency and independence, as well as company‟s
responsibility to the public.
___________________________________________________________________________________
59
Prospectus
It proposes rules for protection of shareholders, transparency of the work of the corporate
management bodies and consideration for the parties concerned, which are addressed to the public companies
and to those that plan to change their status to a public company.
The code describes the functions and responsibilities of the corporate management bodies, their
structure and competence, as well as the main guidance in appointing and dismissing members of the
management and supervisory boards in compliance with the principles of continuity and sustainability of their
work and determine their remuneration, taking into account the responsibilities and contributions of each
member of the Board to the performance of the company and its results; the possibility of selecting and
retaining qualified and loyal board members; the need of being in compliance with the interests of Board‟s
members and the long-term interests of the company.
An underlying principle is that the management and supervisory boards must avoid and not allow the
existence of a real or potential conflict of interests. According to the Code, potential conflict of interests exists
when the company intends to enter into a deal with a legal entity in which: а) a member of the
management/supervisory board or related “interested” parties have financial interest; b) a member of the
management/supervisory board is a member of a management board, supervisory board or board of directors.
The Code contains rules for appointing an auditor and recommends that corporate management
should be led by the established requirements for professionalism and rotational principle in preparing
proposals to the general meeting of the shareholders for appointing an auditor.
Special importance is given to the necessity of ensuring the equal treatment of all shareholders,
including the minority shareholders and foreign shareholders as well as protection of their rights by the
corporate management.
Guidance is given to the corporate management bodies on adopting a policy of disclosing
information in compliance with the requirements of the law and the Regulations and on creating and
maintaining a system for disclosing information which to ensure the equality of the information addressees
(shareholders, parties concerned, investment community) and not allowing abuses with internal information.
The Code contains instructions to the corporate management bodies for identification and effective
interaction with the “parties involved”. The Good corporate governance practice requires consideration of all
parties involved in compliance with the principle of transparency, accountability and business ethics.
Compliance with the Code is ensured by using the “obey or account for” principle which means that
the instruction provided in this Code must be obeyed and in case of any deviations or infringement the
management is brought to account.
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Prospectus
MAJORITY SHAREHOLDER AND SELLING SHAREHOLDER
Shareholders in CEZ Electro are:
SHAREHOLDER
CEZ a.s. the Czech Republic
State Consolidation Company
Total:
NUMBER OF SHARES
3 350
1 650
5 000
% OF THE SHARE STOCK
67,00%
33,00%
100,00%
Source: CEZ Electro
Selling Shareholder
The Offered Shares are offered for sale by the Privatization and Post-privatization Control Agency,
effective in the offering at the expense of the State Consolidation Company, which is owned by the Ministry of
Economy and Energy of Republic of Bulgaria. Offering is carried out through the Privatisation and postprivatization Control Agency (please refer to “Terms of the Offering”).
Majority shareholder
The Majority Shareholder in the Company is CEZ .s. (Majority Shareholder) owning directly 3 350
ordinary book-entry voting shares, representing 67% of the share capital and votes in the General Meeting, as a
result of which CEZ a.s. has a direct control over the Company.
CEZ a.s. is a joint stock company, duly established and existing in compliance with the laws of the
Czech Republic, with headquarters and registered address: the Czech Republic, 140 53 Prague 4, Duhova
2/1444, entered in the Commercial Register of the Prague city court under № 45274649, lot B, № 1581. The
Majority Shareholder and its economic group is among the ten top energy companies in Europe taking a
leading place in the electricity market in Central Europe (please refer to „Business overview – CEZ Group”).
Majority owner of CEZ a.s. is the Czech Republic which owns 69.78% of the capital, represented by
the Ministry of Finance of the Czech Republic and the Ministry of Labour and Social Affairs of the Czech
Republic. Through its shareholding in CEZ a.s. the Czech Republic owns direct control over this company and
through it – indirect control over its subsidiary CEZ Electro.
To the best of the Issuer‟s knowledge there are no arrangements which may lead to change in the
control of CEZ Electro on a later date.
The Shares issued by the Company give equal rights and within this meaning the Majority
Shareholder does not have different voting rights. CEZ a.s. exercises its shareholder‟s rights which it has been
granted by the Law on Commerce, the Articles of Association and other applicable regulations. The Articles of
Association and the other Rules of the Company do not contain provisions which are explicitly directed
towards preventing possible abuse with control on the part of the main shareholders of the Company.
Commitment of the Majority shareholder to adhere to the best corporate practices
The Majority Shareholder has declared that in exercising its votes at the General Meeting of the
Company and in its management and supervisory bodies, it will not take advantage of the control they exercise
over CEZ Electro and shall consider the interest of the other shareholders by adhering to the Good corporate
governance programme of the energy holding CEZ Group (CEZ Corporate Governance Codex), and after the
Company becomes a public company the Majority Shareholder shall also abide by the National Corporate
Governance Code (please refer to „Management and Corporate Governance – Corporate governance”).
Transactions entered into between the Company and the Majority shareholder
After obtaining a status of a public company, for CEZ Electro will apply the special provisions of the
Law on Public Offering of Securities when entering into transactions with an interested party, including the
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Prospectus
Majority shareholder. Such transactions between the Company, on the one part and CEZ a.s., directly or
through related parties, on the other part, in fixed assets or resulting in receivables or liabilities to the
Company must be approved by the shareholders in the General Meeting if the value of these transactions is 2%
or higher of the lower value of the assets of CEZ Electro, according to the last audited or last prepared
company balance sheet. When as a result of transactions between the company, on the one hand, and CEZ
A.S., directly or via its related parties, on the other hand, there occur company receivables to an amount,
exceeding 0.2% of the lower value of the assets of CEZ Electro according to its last audited or last prepared
balance sheet, these transactions also have to be approved by the shareholders. Majority Shareholder having
private interest in such a transaction (recognized by law as an “interested party”) has no right to vote at the
General Meeting on this issue. If the value of the transaction is below the above specified thresholds, it has to
be approved by its Management Board, whereas in this case the interested members of the Management Board
are not entitled to participate in taking a decision on this issue. For more information, please refer to
„Description of Shares and the applicable Bulgarian law – major transactions and transactions with
interested parties”.
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Prospectus
SELECTED HISTORICAL AND FINANCIAL INFORMATION
The selected information set forth further on in this Prospectus was obtained from and must be
considered in conjunction with the Audited Financial statements of CEZ Electro including, inter alia, Balance
Sheet, Profit & Loss Account and Cash Flow Statement for 2009, 2010 and 2011 (audited), which are
integral parts to this Prospectus. The Financial Statements of CEZ Electro were prepared by the Issuer as at
31 December 2009, 2010, and 2011 in compliance with the International Financial Reporting Standards and
based on EC Regulation 809/2004 implementing European Directive 2003I71IEС regarding the information
contained in Prospectuses in public offering and admitting of securities to trading.
This Section should be read in conjunction with the information presented in “Operating and
Financial Review” as well as in the Financial Statements, the explanatory appendices to them, as well as in
conjunction with the other information presented in this Prospectus.
Statement of Comprehensive income
The table below provides information on the statement of comprehensive income for the periods
specified.
STATEMENT OF COMPREHENSIVE INCOME (000’levs)
Sale of electricity
Other income
Income
2009
1,149,428
4,890
1,154,318
2010
1,163,660
4,001
1,167,661
2011
1,236,286
7,148
1,243,434
Staff costs
Impairment losses
Other costs
Operating profit
(769.759)
(358,728)
(21)
(16,881)
(1,928)
(5,214)
(325)
1,462
(814,346)
(326,135)
(17)
(15,451)
(1,841)
(7,863)
(890)
1,118
(788,931)
(420,005)
(17)
(16,319)
(2,085)
(9,863)
(5,021)
1,193
Financial income
Financial costs
Pre-tax profit
4.712
(29)
6,145
2,318
(29)
3,407
1,501
(26)
2,668
Income tax costs
(617)
(356)
(267)
Profit for the period
5,528
3,051
2,401
Total comprehensive annual income, net of taxes
5,528
3,051
2,401
Source: CEZ Electro
Statement of Financial Position
The table below provides information about the statements of financial position as at the specified
dates.
STATEMENT OF FINANCIAL POSITION (000 levs)
Assets
Long-term assets
Intangible assets
2009
2010
2011
11
10
8
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63
Deferred tax assets
Prospectus
3,057
3,068
3,697
3,707
4,647
4,655
TOTAL ASSETS
105,698
409
15,000
248
103,503
224,858
227,926
113,741
266
0
170
66,917
181,094
184,801
123,598
299
0
52
89,714
213,663
218,318
EQUITY AND LIABILITIES
Equity
Fixed capital
Statutory reserves
Retained earnings
Total equity
50
5
74,701
34,114
108,870
50
5
65,380
3,051
68,486
50
5
65,378
5,452
70,885
93
0
13,949
14,042
105
2,273
12,001
14,379
117
843
10,982
11,942
Short-term assets
Overpaid income tax
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
51,987
50,836
2,191
105,014
119,056
227,926
62,639
44,826
38,996
85,959
301
4,706
101,936
135,491
116,315
147,433
184,801
218,318
Source: CEZ Electro
Selected information on statement of cash flows
The table below provides information on selected items of the consolidated statement of the cash
flows for the periods specified.
Net cash flows by types of business (LEVS'000)
2009
11,311
(5,000)
(29)
6,282
97,221
103,503
2010
2011
(8,148)
22,799
15,000
0
(43,438)
(2)
(36,586)
22,797
103,503
66,917
66,917
89,714
Source: CEZ Electro
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Prospectus
The table below provides information on the selected financial indicators of the Group for the
specified period.
For the year ending on 31 December
2009
2010
2011
Return on Assets (%) (1)
2.4
1.5
1.2
Return on Equity (%) (2)
5.2
3.4
3.4
1,105.6
610.2
480.2
Dividend per share
-
8,686.6
-
Number of shares
5,000
5,000
5,000
Share capital (levs)
50,000
50,000
50,000
Assets Turnover (4)
5.1
5.6
6.1
Operational margin (%) (5)
0.1
0.1
0.1
Equity/ assets ratio (%) (6)
EBITDA*(Earnings before
amortization)
47.8
37.1
32.5
1,464
1,119
1,195
Income per share (levs) (3)
interests,
taxes,
depreciation
and
Source: CEZ Electro
1. The return on assets has been calculated as the net profit, divided by the average mean of the assets at the
end of the preceding period and at the end of the current period
2. The return on equity has been calculated, whereas the net profit is divided by the average mean of the
shareholders’ equity at the end of the preceding period and at the end of the current period
3. The profit per share is calculated, whereas the net profit is divided by the average number of shares for the
period
4. The assets turnover has been calculated, whereas the sales income has been divided by the average mean of
assets at the end of the previous period and at the end of the current period
5. The operative margin has been calculated, whereas the profit before financial income and expenses and taxes
has been divided by the sales income
6. The ratio “Shareholders’ equity /assets” has been calculated, whereas the shareholders’ equity at the end of
the period has been divided by the assets at the end of the period
Latest Developments
As at the date of this Prospectus no material change in the financial or economic condition and
prospects of CEZ Electro has been observed after 31 st of December 2011.
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65
Prospectus
OPERATING AND FINANCIAL OVERVIEW
This section is a discussion of the business results and the financial position of the Company as of
31 December 2009, 2010 and 2011. The potential investors should read this discussion as an integral part to
the document in its entirety, including the part Risk Factors, the Financial Statements of CEZ Electro and
shall not be limited to the summarized information contained herein. Financial statements of CEZ Electro
have been prepared by the Issuer as of 31 December 2009, 2010 and 2011 in compliance with the
International Financial Reporting Standards
General
This overview of the financial position and the business of CEZ Electro should be read together with
the Financial Statements of CEZ Electro for the years ending on 31 December 2009, 2010 and 2011, audited
by Ernst & Young Audit Ltd. CEZ Electro has prepared its Financial Statements in compliance with the
International Financial Reporting Standards (IFRS), adopted by the International Accounting Standards Board
(IASB), in their current version, applicable to each reporting period, and the relevant interpretations of the
International Financial Reporting Interpretations Committee (IFRIC).
Significant factors influencing the business results
The business results of CEZ Electro depend on a number of factors, including the macroeconomic
conditions in Bulgaria and globally, the electric power prices, determined by the SEWRC and the regulatory
environment in general, legislative and regulatory changes, the climate conditions.
Macroeconomic conditions in Bulgaria and global environment
CEZ Electro operates in Bulgaria and its revenue is generated in Bulgarian levs. The Issuer's
business is connected with the overall economic situation in Bulgaria, the successful application of the
economic reforms driving the market, the growth of the gross domestic product and the purchasing power of
the Bulgarian consumers; the global macroeconomic trends also affect to a certain extent the Company's
business. Bulgaria has been an EU member state since 1 January 2007. The ongoing application of the policy
of market economy and the integration of the country within EU should have a favourable effect on the
Bulgaria's economy in long-term aspect and should improve the environment in which CEZ Electro operates.
However the ongoing convergence of the Bulgarian economy with the EU economy faces certain challenges
and unfavourable aspects (higher sensitivity to fluctuations in the European and world economy, opportunity
for import of inflation, etc.). As at the date of the prospectus, the purchasing power of the Bulgarian consumers
that has decreased as a result of the crisis, affects the business results of the Company (lower growth in
income, certain increase in receivables, etc.) More details about the macroeconomic conditions in Bulgaria are
available in section "Republic of Bulgaria - the Bulgarian economy".
Regulatory environment and anticipated changes
CEZ Electro operates in a strongly regulated environment. The Company's business is governed by
the provisions of the Law on Energy and other regulatory acts in the field of energy, environmental protection,
consumers' protection, as well as the EU law in these areas.
CEZ Electro generates revenue only from selling electric power, only on the regulated market
segment. Therefore the Company's revenue is significantly influenced by the prices of electric power and the
pricing policy of SEWRC, see „Republic of Bulgaria - the Bulgarian economy”.
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Prospectus
The business results of the Company will be influenced by the anticipated regulatory changes such as
the further liberalization of the market of electric power, changes of the regulated electricity prices, the more
restrictive regulations concerning environmental protection.
Seasonality and weather conditions
Generally the electric power consumption and respectively selling electric power to households
increases in winter and decreases in warm months when ambient temperature is higher and the light part of the
day increases. On the other hand, in the cold season grows the number of breakdowns of the electric grid,
which results in decrease in sales; in winter losses from electricity transmission tend to increase.
Current trends and prospects
Economic situation
In the first half of 2011 gradual revitalization of the Bulgaria's economy started. A number of macroindicators improved and created the expectation for growth of consumption in the second half of the year. The
growth of export to the main trade partners from EU has been the main driver of the growth of GDP, which
further has lead to increase in income and the purchasing power of the population. Problems related to the
sovereign debts in the Eurozone have provoked measures for significant cut of the budget deficits, which in its
part is expected to result in reduction of government debts as well as of the consumption in countries, which
are the main importers of Bulgarian products. Probably this will impact the Bulgarian export in 2012.
Therefore the economic growth is expected to be less than the one foreseen in the budget and in case that crisis
of 2008 - 2009 is repeated globally or in the country, recession will occur again.
New prices
SEWRC determines and supervises the electricity prices. As at the date of the prospectus, CEZ
Electro operates in the fourth year (01.07.2011 - 30.06.2012) of the five-year regulatory period. In determining
the price, SEWRC takes into account the inflation level for the previous year, the improvements in quality and
efficiency, the equalization of differences between the forecast and the actual consumption in the previous
period. According to the latest decision on pricing No. Ц 22/29.06.2011 the annual income of the Company,
approved by SEWRC in the fourth pricing period is 705,564 thousand levs and the estimated volume of
electricity is 8,860,348 MWth.
Optimization
Since 01.08.2011 CEZ Electro has been offering to its clients an e-invoice. The e-invoice is
completely legitimate document identical to the paper invoice. By choosing it, the clients will have access to
their electricity bills at any time and anywhere. Clients may start receiving e-invoices by a one-off free of
charge registration for that service. This is possible on the corporate website of CEZ Bulgaria or by calling the
Customer Service Call Centres of the Company.
The company has made investments in a special software to enable issuing e-invoices. Introduction
of the invoice is expected to result in optimization of costs and offered services by adjusting the latter to the
client‟s needs.
By the end of 2011 over 43 thousand clients are expected to make use of the new service. The
replacement of paper invoices by electronic invoices increases the efficiency of the business resources and cuts
the costs for issuing and delivery of invoices to the end customers of the Company. Indirectly the e-invoice
should have positive effect on the environment by reducing the cutting down of trees - a main source for paper
production.
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Prospectus
Certified organization standards
The company is in the process of a certification by the International Organization for Standardization
(ISO). These standards ensure compliance with the best practices with regard to the system for managing the
processes and the client-oriented approach.
Legislation
On 21.04.2011, the National Assembly adopted a new Law on Energy and Renewable Sources
(effective from 03.05.2011), which sets out new requirements to long-term contracts for purchasing electric
power from renewable energy sources. The Law identifies the production facilities on the basis of capacity,
location, technology, covering own consumption and EU financing or national financing, which factors impact
the purchase prices that apply to the relevant producer.
The regulatory body may possibly make changes in the regulatory acts, which govern the rules for
calculation of tariffs. The anticipated legal changes are expected to influence:

The duration of the current five-year regulatory period;
 The method of calculation of the price, which the company being an electricity supplier, charges
to its customers - there could be changes in the size of the return on capital, change in the amount of
the operating expenses.
There is a project for amendment of the Regulation on regulating the prices of electricity, which
envisions a change in the method of regulating the end supplier. The proposed way of pricing via determining
the margin on the average purchase price for energy includes determining the economically feasible operative
expenses of these companies and profit, which has to cover their commercial risk. It is proposed that the
change in the method of regulation enters into force after expiry of the present regulatory period, i.е. from
01.07.2013 .
Key elements of the accounting policy
The financial statements of CEZ Electro have been prepared on the basis of historical price. Financial
statements have been prepared in Bulgarian levs and all amounts have been rounded to thousand levs (000 levs)
unless otherwise agreed.
Compliance statement
The Company's financial statements have been prepared in compliance with the International
Financial Reporting Standards, adopted by the European Union (IFRS adopted by EU).
New and amended standards and interpretations
The adopted accounting policies are consistent with those applied in the previous reporting period
except the following new and amended IFRS and the interpretations of the International Financial Reporting
Interpretations Committee (IFRIC), adopted by the Company as at 1 January 2011.

IAS 24 Related Party Disclosures (amendment), effective as at 1 January 2011

IAS 32 Financial Instruments: Presentation (Amendment), effective as at 1 February 2010
 IFRIC 14 Prepayments of a minimum funding requirement (amendment), effective as at 1
January 2011

IFRIC 19 Extinguishing financial liabilities with equity instruments, effective as at 1 July 2010.

Improvements in IFRS (May 2010)
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Prospectus
When the adoption of a standard or an interpretation is considered to have effect on the financial
statements or the operating results of the Company, that effect is described below:
IAS 24 Related Party Disclosures (amendment)
The International Accounting Standards Board (IASB) has published an amendment to IAS 24,
which clarifies the related party definition. The new definitions put a focus on the symmetrical point of view
on the relations with the related parties and explain the circumstances under which a person or a member of the
key management personnel influences the relations with the related parties of the enterprise. Additionally, the
amendment provides for exemption from the general requirements to disclosure of related parties concerting
transactions with the government or state authorities and enterprises, which are controlled, jointly controlled or
materially influenced by the same government or state authority, as the one of the reporting enterprise. The
adoption of this amendment has no influence on the financial position or business results of the Company.
IAS 32 Financial Instruments: Presentation (amendment)
IASB has published an amendment by which it changes the definition of a financial liability in IAS
32 to enable the enterprises to classify their issues of rights and certain options or warrants as equity
instruments. This amendment is applicable if the rights have been granted proportionally to all existing owners
of the same class non-derivative equity instruments of the enterprise to acquire a fixed number of the own
equity instruments of the enterprise for a fixed amount in any currency. The amendment applies
retrospectively. This amendment has no influence on the financial position or business results of the Company
as it has no such type of instruments.
IFRIC 14 Prepayments of a minimum funding requirement (amendment)
The amendment abolishes an unforeseen consequence, when the company is subject to a minimum
funding requirement and makes an early payment of contributions to cover that requirement. The amendments
allows that the prepayment of costs for future period of service on the part of the enterprise may be recognised
as a pension asset. The amendment applies retrospectively. The company is not subject to a minimum funding
requirement in Bulgaria and therefore the amendment in this Interpretation does not influence the financial
position or its business results.
IFRIC 19 Extinguishing financial liabilities with equity instruments
The interpretation clarifies that the equity instruments issued to a creditor in order to extinguish a
financial liability, meet the requirements for paid remuneration. The issued equity instruments are measured at
fair value. In case that this may not be made reliably, instruments are measured at fair value of the
extinguished liability. Any occurring profit or loss are recognized immediately in the current financial result.
This amendment has no impact on the financial position or business results of the Company.
Improvements in IFRS
In May 2010, IASB published its third collection of amendments in the standards, with the main
purpose of eliminating some inconsistencies and clarifying the formulations. Additional transitive provisions
exist for each standard.
Amendments occurring as a result of the Improvements to IFRS concerning the following standards
and interpretations have no influence on the accounting policies, financial position or business results of the
Company.

IFRS 3 Business combinations

IFRS 7 Financial instruments – Disclosures

IAS 1 Presentation of financial statements
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69

IAS 27 Consolidated and Separate Financial Statements

IAS 34 Interim financial reporting

IFRIC 13 Customer Loyalty Programmes
Prospectus
Significant accounting estimates, assessments and assumptions
The preparation of the financial statements require that the management makes accounting estimates,
assessments and assumptions, which influence the value of the reported assets and liabilities and the disclosure
of conditional liabilities as of the reporting date, as well as the reported income and costs in the concerned
period. Uncertainties related to the assumptions and estimates may result in actual results, which require
significant adjustments in the book values of the relevant assets and liabilities in the next reporting periods.
Estimates and assumptions
The key assumptions, which are connected with future and other main sources of uncertainty in the
estimates as of the reporting date and for which there is a significant risk that they may results in significant
adjustments of the book values of the assets and liabilities in the next reporting period, are given below:
Electric power not invoiced
Income from sale of electric power is recognized in the statement of comprehensive income on a
monthly basis for the period to which the consumption refers. In 2010 CEZ Electro started invoicing on the
basis of 1-month reading of the electric meters and thus in 2011 the Company makes an approximate
assessment for the unread consumed electric power as of the end of the month. The difference in the
approximate assessments for the period shall be recognized as income or costs in the Statement of
Comprehensive Income. This assessment is made on the basis of historical information for the consumption
and trends. Due to the nature of the factors and the assumptions, incorporated in the method, it is possible that
the estimates differ from actual results. The amount of not invoiced energy is adjusted upwards or downwards
depending on the seasonal fluctuations. As of 31 December 2011 the downward adjustment of not invoiced
energy amounted to 742 thousand levs. (2010: decrease of 68.667 thousand levs). Net receivables for electric
power, which is not invoiced, amounted to 5.735 thousand levs. (2010: 6.455 thousand levs). Additional
information is available in Note 6 Trade and other receivables.
The company reports increase in costs as regards distribution price, included in the electric power,
which is not invoiced, to the amount of 10.967 thousand levs. (2010: decrease in costs as regards distribution
price to the amount of 23.871 thousand levs).
Provisions for lawsuits and provisions for penalties
As of 31 December 2011, the best estimate for the required provision for payables related to lawsuits
against the company and imposed punitive measures by SEWRC, which are subject to appeal by the Company
is to the amount of 946 thousand levs. The outcome from these legal disputes is uncertain and the actual
resources, required to cover the debts, may differ from the recognized amounts. Additional information is
available in Note 9.
Provision for higher price of supplied energy
The company makes provisions for payment of the difference in price of energy sold by NEC AD
through the facilities of Toplofikatsia Pernik. The best estimate for this provision amounts to 1.292 thousand
levs.
Provision for energy efficiency
In accordance with the provisions of the Law on Energy Efficiency, CEZ Electro Bulgaria AD is
committed to energy savings. In 2011 the Company was obliged to pursue individual targets for electricity
___________________________________________________________________________________
70
Prospectus
savings as required by the law. As a result of the performed analysis, the Management anticipates that in the
next year an outflow to the amount of 3.311 thousand levs will be probably realized.
Impairment of receivables
The company reports full or partial impairment as regards doubtful and bad debts. The Management
makes an assessment of the adequacy of this impairment on the basis of age analysis of receivables, for which
a general impairment on the basis of days of delay is calculated as follows:
From 30 to 90 days
From 91 to 180 days
From 181 to 360 days
Over 361 days
5%
20%
50%
100%
% Impairment
Specific impairment is calculated for customers subject to insolvency proceedings and liquidation for
which there is not a reliable guarantee for collecting the receivables. Impairment for court and awarded
receivables is calculated on the basis of the level of recoverability of these receivables. Due to the inherent
uncertainty of these estimates, the actual results may differ from the expected ones.
Deferred tax assets
Deferred taxes are recognized based on the balance method for all temporary differences as at the
reporting date, which occur between the tax base of assets and liabilities and their book values. The deferred
assets and liabilities are measured by tax rates, which are expected to be effective in the period in which the
asset is realized; and the liability is settled based on tax rates (and tax laws), which are effective or valid to
significant extent as of the reporting date. The recognition of deferred tax assets depends on the probability of
realizing sufficient taxable profit allowing recovery of the deferred tax asset. As of 31 December 2011 and 31
December 2010 the deferred tax assets came up to 4.647 thousand levs and 3.697 thousand levs respectively.
Additional information is available in Note 4.
Conversion to foreign currency
Financial statements have been prepared in Bulgarian levs, which is the functional currency and the
reporting currency of the Company. Foreign currency transactions are reported in the functional currency
according to the exchange rate applicable on the transaction date. The cash assets and liabilities, denominated
in foreign currency, are converted in the functional currency at the end of each month based on the closing
exchange rate of Bulgarian National Bank on the last business day of the relevant month. Any margins from
currency rate fluctuations are recognized in the statement of comprehensive income. Non-cash assets and
liabilities are assessed by historical acquisition price in foreign currency and are converted in functional
currency according to the exchange rate as at the date of the original transaction (acquisition).
Intangible assets
Intangible assets, acquired separately, including licenses, shall be assessed initially at acquisition
cost. After the initial recognition, the intangible assets are reported at acquisition cost less the accrued
depreciation and possibly the accumulated loss from impairment. The company has no intangible assets with
unlimited useful life.
The useful life of intangible assets is as follows:
Licenses
2009
2010
2011
10 years
10 years
10 years
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71
Prospectus
Intangible assets with limited useful life depreciate for the period of their useful life and are tested
for impairment when there are indications that their value is impaired. The useful life and the applied methods
of amortization of the intangible assets with limited useful life shall be reviewed at least at the end of every
financial year. Any changes in the expected useful life or model of consumption of the future economic
benefits from intangible asset shall be reported by change of the amortization terms or method and shall be
treated as change in the approximate accounting estimates. The amortization costs of intangible assets with
limited useful life are classified as other costs in the statement of comprehensive income.
Profits or losses occurring upon writing-off an intangible asset, representing the difference between
net receipts from the sale, if any, and the book value of the asset are included in the statement of
comprehensive income if the asset is written off.
Impairment of non-financial assets
As of each reporting date, the Company makes an assessment whether there are indications that an
asset is impaired. In case of such indications or if annual test for impairment of an asset is required, the
Company determines the recoverable value of the asset. The recoverable value of an asset is the fair value less
the costs for sale of the asset or the cash flows generating unit and its value in use, whichever is higher.
The recoverable value is determined for each separate asset except when upon using the asset cash
flows are generated, which are independent to a great extent from the cash flows generated by other assets or
groups of assets. When a book value of an asset is higher than its recoverable value, it is considered impaired
and its book value is reduced to its recoverable value. Upon determination of the value of an asset in use, the
estimated future cash flows are discounted to their present value by applying the discount rate before tax,
which reflects the current market assessment of the value of money in time and the risks specific to the asset.
The fair value decreased by the costs for sale is determined by applying appropriate model for assessment. The
calculations are confirmed by using other models of assessment or other available sources of information about
the fair value of cash flows generating asset or unit.
Impairment losses are recognized on additional line in the Statement of Comprehensive Income. As
at each reporting date an assessment is made whether there are indications that the impairment loss of an asset
that was recognized in previous periods might not exist anymore or might decrease. If there are such
indications, the Company determines the recoverable value of that asset.
The loss from impairment is recovered only if there is change in the estimates used upon
determination of the recoverable value of an asset after recognition of the last loss from impairment. In this
case any asset's book value is increased to its recoverable value. A book value of an asset, increased as a result
of recovery of the loss from impairment, may not exceed the book value as it would be (subject to deduction of
depreciation) if in the previous periods no loss from impairment has been recognized for the relevant asset.
Recovery of loss from impairment is recognized in the statement of comprehensive income.
Financial assets
Initial recognition
The financial assets in the scope of IAS 39 Financial Instruments: Recognition and measurement are
classified as financial assets, posted by fair value in profit or loss or in payables and receivables or as
investments held to maturity or as financial assets available for sale or as derivatives, determined as hedging
instruments upon effective hedging, as appropriate. The company classifies its financial assets upon their
initial recognition.
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Financial assets are recognized initially at fair value plus, in case of investments, which are not
reported at fair value in profit or loss, the transaction costs, which refer directly to the acquisition of the
financial asset.
Purchase or sale of financial assets, which requires transfer of the said asset in a period of time
usually established by a normative provision or a valid practice on the relevant market (regular purchases) are
recognized on the trading date (transaction) i.e. on the date on which the Company has made a commitment to
buy or sell the asset.
The financial assets of the Company include cash and short-term deposits, trade and other
receivables, receivables from related parties.
Further measurement
Further measurement of the financial assets depends on their classification as follows:
Loans and receivables.
Loans and receivables are non-derivative financial assets with fixed or identifiable payments, which
are not traded on an active market. After the initial recognition, loans and receivables are assessed by
amortized value based on the method of the effective interest rate (EIR) less impairment losses. Amortized
costs are calculated by taking into account all discounts or premiums upon acquisition and fees or costs, which
are an integral part to EIR. Amortization based on EIR is included in the financial income in the statement of
comprehensive income. Losses occurring from impairment are recognized in the statement of comprehensive
income as other costs.
Writing-off
A financial asset (or, where applicable, a part of a financial asset or a part of a group of similar
financial assets) is written off when:
 the contractual rights on cash flows being generated by the financial asset have expired;
 the contractual rights for the receiving of cash flows from the financial asset have been transferred
or the Company has made the commitment to pay in full the received cash flows without material
delay to any third party by agreement for transfer; provided that (a) the Company has transferred to a
great extent all risks and benefits from the ownership of the financial asset; or (b) the Company has
neither transferred nor retained to a significant extent all risks and benefits from the title on the
financial asset but it hasn't retained the control on it.
When the Company has transferred its contractual rights for receiving cash flows from the financial
asset or has entered into agreement for transfer and it has neither transferred nor kept to a significant extent all
risks and benefits from the title on the financial asset, but it has retained the control on it, then the Company
will continue recognizing the transferred financial asset to the extent it continues holding it. In this case the
Company recognizes the related obligation too.
The transferred asset and the related obligation are measured on a basis, which reflects both the
rights and the obligations, which the Company has retained.
The degree of continuing holding, which is in the form of guarantee for the transferred asset shall be
measured at the initial book value of the asset and the maximum value, which should be recovered by the
Company, whichever is the lower.
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Prospectus
Impairment of financial assets
As at every reporting date, the Company shall make an assessment whether there is objective
evidence that a given financial asset or a group of financial assets may be impaired. A financial asset or a
group of financial assets is considered impaired if there is objective evidence of impairment as a result of one
or more events, having occurred after the initial recognition of the asset ("loss occurrence") and such loss
occurrence would impact the expected future cash flows from the financial asset or the group of financial
assets that could be reliably assessed. Evidence of impairment may include indications that debtors or a group
of debtors experience serious financial difficulties or are in delay or default of payment of interests or
principals or may file for insolvency or declare over-indebtedness or undertake financial reorganization or
when the monitored data indicate measurable decrease in the expected future cash flows, as for example in
defaults or economic conditions, which are connected with defaults on the part of debtors.
Financial assets, reported at amortized cost
As regards financial assets reported at amortized cost, the Company first decides whether there is
objective evidence of impairment individually for the financial assets, which are materially separate or
collectively for the financial assets, which do not exist separately. If it is determined that there is no objective
evidence of impairment of any individually measured financial asset, nevertheless it is material or not, the
asset is included in a group of financial assets with similar characteristics of a credit risk and such group of
financial assets is measured for impairment on a collective basis. Assets, which are measured for impairment
individually and for which the loss of impairment is and continues to be recognized, shall not be included in
the collective measurement for impairment.
If there is objective evidence that an impairment loss has occurred, the amount of loss shall be
measured as the difference between the book value of the asset and the present value of the expected future
cash flows (except future expected losses from loans, which have not occurred yet). The present value of the
expected future cash flows is discounted by the original effective interest rate of the financial assets. If a loan
has a floating interest rate, the discount rate for measurement of the impairment is the current effective interest
rate.
The book value of an asset is decreased by means of a corrective account and the amount of loss is
recognized in the statement of comprehensive Income. Income from interests continues to be accrued on the
decreased book value by using an interest rate, which is used to discount future cash flows for the purpose of
assessing the loss from impairment. The income from interests is posted as a part of the financial income in the
statement of comprehensive Income.
Loans together with the related impairments are written off, when they are not substantially expected
to be collected in the future and all securities have been realized or have been transferred to the Company. If in
the next year the amount of the expected impairment loss increases or decreases due to an event, having
occurred after recognition of impairment, the earlier recognized impairment loss is increased or decreased by
adjustment in the corrective account. If any future writing-off is recovered later, the recovery is recognized in
the statement of comprehensive Income.
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Prospectus
Financial liabilities
Initial Recognition and Measurement.
Financial liabilities, within the scope of IAS 39, are classified as financial liabilities, reported at fair
value in profit or loss, or as loans and borrowed funds or as derivatives, which are effective hedging
instruments, as appropriate. The company determines the classification of its financial liabilities upon their
initial recognition.
Financial liabilities are recognized initially at fair value plus, in case of loans and borrowed funds,
the transaction costs, which refer directly to the acquisition of the financial liability.
Financial liabilities of the Company include trade and other payables, payables to related parties and
interest-bearing deposits under electricity sale contracts.
Further measurement
Further measurement of the financial liabilities depends on their classification as follows:
Loans and borrowed funds
After the initial recognition, loans and borrowed funds are measured at amortized costs by using the
effective interest rate method. Profits and losses from loans and borrowed funds shall be recognized in the
statement of comprehensive Income, when liability is written off, as well as through the process of
amortization.
Amortized cost is calculated by taking into account all discounts or premiums upon acquisition and
fees or costs, which are an integral part to EIR. Amortization based on EIR is included in the financial costs in
the statement of comprehensive Income.
After the initial recognition, the Company assesses the trade payables by amortized cost by using the
method of the effective interest rate.
Financial liabilities, connected with deposits for sale of electricity, represent the amounts collected
by corporate clients to guarantee the future supplies of electricity. These deposits are equal to the average
monthly consumption for the previous twelve months or the provided capacity when the client is connected for
the first time to the grid. Upon termination of the contract, the deposit shall be returned together with the
relevant interest for the period. Interest shall be accrued on a monthly basis in compliance with the General
Terms and Conditions for Sale of Electricity. Considering that the payables are settled only upon termination
of the commercial relations with the client, they are classified as non-current.
Writing-off
A financial liability is written off when it is discharged, i.e. when the obligation set out in a contract
has been cancelled, voided or expired.
When an existing financial liability is replaced by another liability from the same creditor but under
materially different conditions or the conditions of the existing liability have been materially modified, such
replacement or modification is treated as writing-off the initial liability and recognition of a new liability and
the difference in the relevant book values is recognized in the statement of comprehensive Income.
Offsetting of financial instruments
The financial assets and financial liabilities are subject to offsetting and the net value is reported in
the statement of financial position, only if there is a legally executable right for offsetting the recognized
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Prospectus
amounts and the Company intends to settle on a net basis or for concurrent realization of assets and settlement
of liabilities.
Fair value of financial instruments
As at the reporting date, the fair value of the financial instruments, which are traded actively on the
market, is determined on the basis of the quoted market objectives or the quotes of dealers (buy price for long
positions and sell price for short positions) without deducting the transaction costs.
The fair value of financial instruments, for which no active market exists, is determined by means of
measurement techniques. These techniques include the use of recent market direct transactions; references to
current fair value of another instrument, which is substantially the same; analysis of discounted cash flows and
other assessment models.
Analysis of the fair values of the financial instruments and additional information about the method
by which they are measured, is available in Note 18.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and in bank accounts, respectively in levs and in
foreign currency, as well as short-term deposits with original maturity date of three months or less.
For the purpose of the statement of cash flows, the cash and cash equivalents comprise the cash and
cash equivalents as defined above.
Fixed capital
The fixed capital is represented by nominal value of issued and paid shares. The revenues from
issued shares above their nominal value are reported as premium reserves.
Provisions
General terms
Provisions are recognized when the Company has an existing obligation (legal or constructive) as a
result of former events; it is possible that for the discharge of the obligation a flow of resources is required,
containing economic benefits; and a reliable assessment may be made of the value of the obligation. When the
Company expects that any or all costs required for the settlement of the provision, will be recovered, for
example according to an insurance contract, the recovery shall be recognized as a separate asset but only in
case that it is practically certain that such expenses will be recovered. The costs for provisions are presented in
the statement of comprehensive Income, net of the amount of recovered costs.
If the effect of the temporary differences on the value of cash is significant, provisions are discounted
by using the current discount rate before tax, which reflects the risk specific to the obligation. Provided that a
discount is applied, the increase of the provision as a result of the time that has passed, is posted as a financial
cost.
Retirement benefits for the staff
According to the Bulgarian labour law, the Company as an employer shall pay 2 or 6 gross monthly
wages to its employees upon retirement, depending on their length of service. Provided that an employee has
worked with the same employer in the last 10 years of their length of service, he/she shall receive 6 gross
monthly wages upon retirement and if it has worked less than 10 years - 2 gross monthly wages. According to
the Collective Labour Agreement, if the employee has worked in the field of power industry in the last 10
years, he/she shall receive 4 gross monthly wages and if it has worked in this industry over 10 years - 6 gross
monthly wages.
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Prospectus
The retirement benefits plan for the staff is not financed. The company determines its obligations for
paying retirement benefits to the staff by means of the actuary method of assessment.
Actuary profits and losses are recognized as income or cost, when the net cumulative unrecognised
actuary profits or losses as at the end of the previous reporting year have exceeded 10% of the present value of
the obligation for paying retirement benefits to the staff. Actuary profits or losses are recognized for the
expected average remaining number of the length of service of the staff.
Costs for previous length of service are recognized as costs on a linear basis for the average term,
when income has become unconditionally gained. If income has been unconditionally gained, immediately
after introduction or changes in the retirement benefits plan, the Company shall recognize the cost for a
previous length of service immediately.
The obligation for fixed income comprises the present value of the obligation for payment of this
income less unrecognised costs for previous length of service.
Leasing
Whether an agreement is considered a lease or incorporates leasing is determined on the basis of the
substance of the agreement, upon its commencement, and requires assessment on whether the accomplishment
of the agreement depends on the use of a particular asset or assets and whether the agreement transfers the
right to use the asset.
The company as a leaseholder
The lease payments under operational leasing contracts are recognized as costs in the statement of
comprehensive income on the basis of the linear method for the whole period of the lease.
Revenue recognition
Income is recognized to the extent the Company may possibly receive economic benefits and the
amount of income may be reliably determined. Income are assessed by fair value of the received remuneration
less discounts, rebates and other sale taxes or duties. Prior to recognizing any income, the following specific
criteria for recognition shall be also satisfied:
Sale of electricity
Income from sale of electricity is recognized in the statement of comprehensive income on a monthly
basis for the period to which the consumption refers. The company makes an adjustment for the electric power,
which is not read as at the end of the period or refer to future reporting periods by applying the approved
methods.
Service delivery
Income from sale of services is recognized in the profit & loss account depending on the degree of
completion of the transaction as of the reporting date.
Income from penalties
Penalties for default of payment are recognized as income to the extent it is possible that the
company generates flow of economic benefits.
Income from interests
Income from interests is recognized upon charging the interest (by using the method of the effective
interest rate i.e. the interest rate, which accurately discounts the expected future cash flows for the period of
the expected life of the financial instrument to the book value of the financial asset).
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Prospectus
Taxes
Current income tax
The current tax assets and liabilities for the current and previous periods are recognized according to
the amount, which is expected to be recovered by or paid to the tax authorities. Upon calculation of the current
taxes, the tax rates and tax provisions, which are in force or are substantially adopted as of the reporting date,
shall apply.
Current taxes are debited or credited directly to equity (and not in statement of comprehensive
income), when the tax refers to items, which have been recognized directly in equity in the same or in previous
reporting periods.
Deferred taxes
Deferred taxes are recognized based on the balance sheet method for all temporary differences as at
the reporting date, which occur between the tax base of assets and liabilities and their book values.
Deferred tax liabilities are recognized for all taxable temporary differences, safe to the extent to
which the deferred tax liability occurs from the initial recognition of an asset or a liability from a given
transaction, which is not a business combination and has no effect on the book profit or on taxable profit or
loss as at the time the transaction is made.
Assets related to deferred taxes are recognized for all reducible temporary differences, transferred
unused tax losses to the extent a taxable profit is available against which may apply the reducible temporary
differences, the transferred unused tax credits and unused tax losses unless the deferred tax asset occurs from
the initial recognition of an asset or a liability from a given transaction, which is not business combination and
has no effect on the book profit or on the taxable profit or loss as at the time of making the transaction.
The company makes a review of the book value of deferred tax assets as at the end of each reporting
period and decreases it to the extent to which no sufficient taxable profit would be realized to allow the whole
or a part of the deferred tax asset is recovered. Unrecognised deferred tax assets are reviewed as at the end of
each reporting period and are recognized to the extent it is possible that future taxable profit is realized to
enable that the deferred tax asset is recovered.
The deferred tax assets and liabilities are measured by tax rates, which are expected to be effective in
the period in which the asset is realized and the liability is settled based on tax rates (and tax laws), which are
effective or valid to significant extent as of the reporting date.
Deferred taxes are debited or credited directly to equity (and not in statement of comprehensive
income), when the tax refers to items, which have been recognized directly in equity in the same or in previous
reporting periods.
The company offsets deferred tax assets and liabilities only if it has the legal right to deduct current
tax assets against current tax liabilities and deferred tax assets and liabilities refer to income tax imposed by
the same tax authority for the same taxpayer.
Value added tax (VAT)
Income, costs and assets are recognized net of VAT, except the cases when:
 VAT charged for the purchase of assets or services is not reimbursable by tax authorities and in
this case VAT is recognized as a part of the asset's acquisition cost or as a part of the relevant cost
position, as applicable; and

receivables and payables, which are reported with VAT included.
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The net amount of VAT, reimbursable by or due to the tax authorities, is included in the value of
receivables or payables in the statement of financial position.
Standards, which have not taken effect yet
The published standards, which are still not effective or have not been applied early as at the date of
issuing of the financial statements of the Company, have been listed below. The company intends to apply
these standards once they become effective.
IAS 1 Presentation of financial statements (amendment) - Presentation of positions in other
comprehensive income
The amendment applies to annual periods beginning on or after 1 July 2012. The amendments to IAS
change the grouping of the positions, presented in the Statement of Comprehensive Income. Positions, which
may be re-classified (or recycled) in profits or loss at a time in the future (for example upon writing-off or
settlement) shall be presented separately from the positions, which will never be re-classified. This amendment
refers only to presentation and has no influence on the financial position or business results of the Company.
EU hasn't yet endorsed this amendment.
IAS 12 Income taxes (Amendment) - Recovery of basic assets
Amendment applies to annual periods beginning on or after 1 January 2012. The amendment clarifies
the determination of deferred taxes for investment properties measured at fair value. It introduces the refutable
assumption that deferred taxes on the investment properties measured at fair value based on the fair value
model in IAS 40 shall be determined based on the assumption that their book value will be recovered by sale.
Additionally, the amendment introduces the requirement that the calculated deferred taxes on non-depreciable
assets, which are assessed by applying the revaluation model of IAS 16, must be always measured on the basis
of an asset sale. The company doesn't expect any effect on its financial position or business results. EU hasn't
yet endorsed this amendment.
IAS 19 Employee Benefits (amendment)
The amendment applies to annual periods beginning on or after 1 January 2013. IASB has published
a number of amendments to IAS 19. They vary from fundamental changes, as for example the abolition of the
corridor approach and the concept for the estimated return on the assets under the plan to simple interpretations
and changes in wordings. Early application is permitted. The company is in process of assessing the effects of
the amendments on its financial position or business results. EU hasn't yet endorsed these amendments.
IAS 27 Separate Financial Statements (Revised)
The standard applies to annual periods beginning on or after 1 January 2013. As a consequence from
the introduction of the new IFRS 10 and IFRS 12 the provisions remaining in IAS 27 are limited to the
accounting of subsidiaries, joint ventures and associates in the separate financial statements. Early application
is permitted. This standard has no influence on the financial position or business results of the Company. EU
hasn't yet endorsed the standard.
IAS 28 Investments in Associates and Joint Ventures (Revised)
The standard applies to annual periods beginning on or after 1 January 2013. As a consequence of the
introduction of the new IFRS 11 and IFRS 12, IAS 28 was renamed to IAS 28 Investments in associates and
joint ventures. The standard describes the application of the equity methods on investments in joint ventures as
an addition to associates. Early application is permitted. This standard has no influence on the financial
position or business results of the Company. EU hasn't yet endorsed the standard.
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IAS 32 Financial Instruments (Amendment): Presentation - Net presentation of financial assets and
financial liabilities
The amendment applies to annual periods beginning on or after 1 January 2014. This amendment
clarifies the meaning of "currently has the lawful right to net" and also clarifies the application of the IAS 32
criteria on net presentation concerning the settlement systems. Amendments of IAS 32 apply retrospectively.
Early application is permitted. However if an enterprise decides to apply them early, then it shall disclose that
fact and also it shall made the disclosures required by the amendments of IFRS 7 Net presentation of financial
assets and financial liabilities. The company is in process of assessing the effects of the amendments on its
financial position or business results. EU hasn't yet endorsed this amendment.
IFRS 7 Financial Instruments: Disclosure (Amendment) - Improved requirements to disclosure of
Writing-off
Amendment applies to annual periods beginning on or after 1 July 2011. The amendment requires
additional disclosure concerning financial assets, which have been transferred but have not been written off in
order to enable the reader of the financial statements to understand the interaction with these assets, which
have not been written off and the related liabilities. Additionally, the amendment requires disclosure of the
continuing participation of the written off assets to enable the user to assess their nature and the risks related to
the continuing participation of these written off assets. This amendment refers only to disclosures. The
amendment has no effect on the financial position or on the business results of the Company.
IFRS 7 Financial Instruments: Disclosure (amendment) - Net presentation of financial assets and
financial liabilities
This amendment applies to annual periods beginning on or after 1 January 2013. This amendment
introduces requirements for general disclosures. These disclosures will provide to the readers of the financial
statements useful information so that they may assess the effect or the potential effect from the netting
arrangements on the financial position of the company. Amendments to IFRS 7 apply retrospectively. The
company is in process of assessing the effects of the amendments on its financial position or business results.
EU hasn't yet endorsed this amendment.
IFRS 9 Financial Instruments: Recognition and Measurement.
This standard applies to annual periods beginning on or after 1 January 2015. IFRS 9, as published,
represents the first phase of work of IASB for replacement of IAS 39 and is applicable to the classification and
the measurement of the financial assets, as defined in IAS 39. Phase I of IFRS 9 has a material effect on (i)
classification and measurement of financial assets and (ii) changes in accounting for those enterprises, which
have opted to measure their financial liabilities through the fair value option. In the next phases, IASB will
address accounting of the financial assets hedging and impairment. This project is expected to end in the first
half of 2012. The company is in process of assessment of the effects of this standard on the financial position
and the business results. EU hasn't yet endorsed the standard.
IFRS 10 Consolidated financial statements:
The standard applies to annual periods beginning on or after 1 January 2013. IFRS 10 replaces a part
of IAS 27 Consolidated and Separate Financial Statements, which addresses the accounting in consolidated
financial statements. This includes also the issues addressed in SIC-12 Consolidation - special purpose
entities. IFRS 10 sets the model of common control, which is applicable to all enterprises including special
purpose entities. Compared to the requirements, which existed in IAS 27, the amendments introduced by IFRS
require that the management makes a significant estimate to determine which enterprises are controlled and
therefore which should be consolidated by the parent company. The amendment has no effect on the financial
position or on the business results of the Company. EU hasn't yet endorsed the standard.
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IFRS 11 Joint arrangements
The standard applies to annual periods beginning on or after 1 January 2013. IFRS 11 replaces IAS
31 Interests in Joint Ventures and SIC -13 Jointly controlled entities - Non-monetary Contributions by
Venturers. IFRS 11 abolishes the option for accounting of jointly controlled entities (JCE) by using
proportional consolidation. Instead, JCE that complies with the definition for a joint venture must be reported
by applying the capital method. The amendment has no effect on the financial position or on the business
results of the Company. EU hasn't yet endorsed the standard.
IFRS 12 Disclosure of interests in other entities
The standard shall apply to annual periods beginning on or after 1 January 2013. IFRS 12 includes all
disclosures, which earlier were included in IAS 27 and which were connected with the consolidated financial
statements, as well as all disclosures, which earlier were included in IAS 31 Interest in Joint Ventures and IAS
28 Investments in Associates. These disclosures are connected with the participation of the enterprise in
subsidiaries, joint arrangements, associates and structured enterprises. A number of new disclosures are
required. The company is in process of assessing the effects of this standard on its financial position or
business results. EU hasn't yet endorsed the standard.
IFRS 13 Fair Value Measurement
The standard shall apply to annual periods beginning on or after 1 January 2013. IFRS 13 provides
one source of guidance for all assessments pursuant to IFRS. IFRS 13 does not change the requirements
whether the enterprise shall use fair value but rather provides guidance on how to measure ot according to
IFRS, when so required or permitted. The standard shall apply prospectively and early application is permitted.
The company is in process of assessing the effects of this standard on its financial position or business results.
EU hasn't yet endorsed the standard.
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
This amendment shall apply to annual periods beginning on or after 1 January 2013. This amendment
applies only to stripping costs, which occur from operations for removing coal deposits carried out on the
surface of a mine (operating costs for stripping). Costs for the stripping operations result in two main benefits:
a) ore production as stock in the current period and/or b) improved access to ore, which will be yielded in
future (an asset formed by stripping costs). When costs may not be specifically allocated between the stock
produced in the period and the asset formed by the stripping costs, IFRIC 20 requires that the company applies
a basis for allocation based n reasonable production measure. Early application is permitted. The amendment
has no effect on the financial position or on the business results of the Company. EU hasn't yet endorsed
IFRIC 20.
Business results
The table below provides data about the components of the Issuer's net profit about the fiscal years
ending on 31 December 2009, 2010 and 2011, according to the audited annual financial statements for 2009,
2010 and 2011 as well as the change of each component, expressed as a percentage.
Operating income
Sale of electricity
Other income
Operating costs
2009
2010
2011
2010/2009 2011/2010
1,149,428
4,890
1,154,318
1,163,660
4,001
1,167,661
1,236,286
7,148
1,243,434
1.24%
-18.18%
1.16%
6.24%
78.66%
6.49%
(769.759)
(358.728)
(21)
(814.346)
(326.135)
(17)
(788.931)
(420.005)
(17)
5.79%
-9.09%
-19.05%
-3.12%
28.78%
0.00%
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Staff costs
Impairment losses
Other costs
Prospectus
(16.881)
(15.451)
(16.319)
(1.928)
(1.841)
(2.085)
(5.214)
(7.863)
(9.863)
(325)
(890)
(5.021)
(1,152,856) (1,166,543) (1,242,241)
Operating profit
Expressed as % of revenue
-8.47%
-4.51%
50.81%
173.85%
1.19%
5.62%
13.25%
25.44%
464.16%
6.49%
1.462
0.13%
1.118
0.10%
1.193
0.10%
-23.53%
6.71%
Financial income
Financial costs
4.712
(29)
2.318
(29)
1.501
(26)
-50.81%
0.00%
-35.25%
-10.34%
Pre-tax profit
Income tax costs
After-tax profit
6.145
(617)
5.528
3.407
(356)
3.051
2.668
(267)
2.401
-44.56%
-42.30%
-44.81%
-21.69%
-25.00%
-21.30%
Source: CEZ Electro
Sales revenue
In 2011 the net operating income was 1,243,434 thousand levs compared to 1,167,661 thousand levs
in 2010 and 1,154,318 thousand levs in 2009. Net income from sales comprises mainly sales of electric power.
In 2011 operating income increased by 6.49% compared to 2010, and in 2010 it increased by 1.16% compared
to the previous period.
As at 31 December 2011 income from sales of electricity includes sale of electricity to business
consumers to the amount of 661.966 thousand levs, 574.115 thousand levs to households and 205 thousand
levs to other electricity distribution companies. In 2010 sales to business consumers amounted 613,594
thousand levs, 549.484 thousand levs to households and 222 thousand levs to other electricity distribution
companies. In 2009 sales of electric power amounted to 607.621 thousand levs for business consumers,
541.520 thousand levs for households and 287 thousand levs for other electricity distribution companies.
Over the period 2009 - 2010 the other income remains relatively constant and marks an increase in
2011. In 2011 The company gained income of 7.148 thousand levs compared to 4.001 thousand levs in 2010
and 4.890 thousand levs in 2009. In 2011 compared to 2010 increase by 78.66% is reported, while in 2010 a
decrease by 18.18% is reported compared to the previous period. In 2011 the highest share in item 'other
income' is to penalties for overdue receivables under contracts to the amount of 4.278 thousand levs.
Main operating costs
Costs for purchased electric energy
The costs for purchased electric energy are the main costs of CEZ Electro
2009
kWth'000
NEC AD - Main supplier
8.146.836
2010
000'levs
2011
kWth'000 000’levs kWth'000 000’levs
701.757 8.087.495 745.762 8.536.731 729.052
District heating companies
216.528
38.314
223.280
34.667
211.960
34.937
Renewable sources
337.051
29.688
487.023
33.917
336.669
24.942
Total purchased electric power
8.700.415
769.759 8.797.798 814.346 9.085.360 788.931
Source: CEZ Electro
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Prospectus
These costs decreased by 3.12% in 2011 compared to 2010. The costs for purchased electricity
increased by 5.79% in 2010 compared to the previous period.
The costs for the service of transmission and access to the distribution grid and the transmission
network amounted to 420.005 thousand levs in 2011 compared to 326.135 thousand levs in 2010 and 358.728
thousand levs in 2009. Concurrently with the costs for transmission and access fees, the Company generates
income from sales to the same amount. The access to the electricity distribution grid and the distribution
services is provided through CEZ Distribution Bulgaria AD (a related party under the common control of the
parent company CEZ a.s.), and CEZ Distribution invoices the access and transmission fees to CEZ Electro
pursuant to the provisions in the field of power industry. CEZ Electro invoices the fees for transmission and
access to the end clients, oversees the due payment of these fees and assumes the risk related to the
recoverability of these receivables.
Staff costs
Payroll costs of CEZ Electro comprise mainly wages and social security contributions. In 2011 the
staff costs increased by 13.25% compared to 2010 and amounted to 2,085 thousand levs, after the drop to
1,841 thousand levs, i.e. by 4.51% in 2010. In 2011 the wage costs amounted to 1,651 thousand levs and for
social security contributions – 251 thousand levs. In 2010 the wage costs amounted to 1,460 thousand levs and
social security contributions - 211 thousand levs, while in 2009 they were respectively 1,478 thousand levs and
288 thousand levs.
Impairment losses
Impairment losses include bad receivables to the amount of 9.863 thousand levs in 2011 compared to
7.863 thousand levs in 2010 and 5.214 thousand levs in 2009. The company reported an increase of these
losses in the review period, the increase in the course of years was 25.44% in 2011 compared to 2010 and
50.81% in 2010 compared to the previous year.
External services
External services include various services such as services connected with customer service - clients'
base, management, invoicing, debts collection, consulting, state and municipal fees, securities, repair and
general administrative costs (for example communication costs). In 2011 costs for external services increased
by 5.62% and amounted to 16.319 thousand levs, while in 2010 they decreased by 8.47% and amounted to
15.451 thousand levs.
Used materials
Costs for materials and consumables are a small item in the Issuer's statement of income. In 2011 the
costs remained the same as in 2010 (17 thousand levs), while in 2010 costs decreased by some 19.05%
compared to the previous year.
Other costs
In 2011 other costs increased by 464,16% compared to 2010 and amounted to 5.021 thousand levs.
In 2010 they increased by 173.85% to run up to 890 thousand levs compared to the previous year. The
provision for energy efficiency in accordance with the Law on Energy Efficiency, which amounts to 3.311
thousand levs, as well as the provision for the higher price of supplied electricity amounting to 1.292 thousand
levs, represents the highest portion in the company's costs. The other costs include provisions for lawsuits and
imposed penalties (214 thousand levs in 2011 compared to 801 thousand levs in 2010 and 250 thousand levs in
2009), followed by the business trips and entertainment expenses.
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Prospectus
Operating profit
The operating profit, expressed as a percentage of net operating income, is 0.10%, and remains the
same as in 2010. In 2010 there was a decrease as the operating profit in 2010 amounted to 0.10% compared to
0.13% in 2009. In absolute numbers the operating profit of the company amounted to 1,193 thousand levs in
2011, 1,118 thousand levs in 2010 and 1,462 thousand levs in 2009. In 2011 it grew by 6.71% compared to the
previous year and in 2010 it dropped by 23.53% compared to the previous year.
Financial income
In 2011 the financial income amounted to 1,501 thousand levs, which was a decrease by 35.25%
compared to the previous year, in 2010 it amounted to 2,318 thousand levs, which was a decrease by 50.81%
compared to the amount of 4,712 thousand levs in the previous year Accrued income from interests related to
bank accounts and deposits to the amount of 937 thousand levs has the highest portion in 2011. Net financial
income from interests under customers' guarantee for sale of electricity amounted to 564 thousand levs in
2011.
Financial costs were quite constant in the review period (26 thousand levs in 2011, 29 thousand levs
in 2010 and 29 thousand levs in 2009).
The following tax rates apply in accordance with the Bulgarian Law on Corporate Income Taxation
upon assessment of the tax due.
Corporate tax
2008
2009
2010
10%
10%
10%
Liquidity and capital resources
The main capital requirements of the company comprise the main needs of working capital. The
main sources of liquidity of the company are the generated cash flows and short-term borrowed funds, as well
as the management of the working capital.
Long-term capital resources of the Issuer are formed mainly by own funds - the share capital, the
accumulated reserves and the retained earnings (in the last fiscal years it decreased significantly due to the
dividend paid to shareholders in 2010, which amonts to 43,433 thousand levs) and by the borrowed long-term
liabilities (11.942 thousand levs as at the end of 2011).
Sources of short-term financial resources are mainly the current borrowed funds (135.491 thousand
levs as of 31.12.2011).
The Company has not used loans as at the date of the Prospectus
The structure of financing comprised the equity (70.885 thousand levs) and long-term and short-term
liabilities (147.433 thousand levs as of 31.12.2011).
There are no limitations on the use of capital resources, which considerably impacted or could impact
directly or indirectly on the company activity.
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Prospectus
Cash flows
The table below shows the cash flows of the company in 2009, 2010 and 2011 according to the
audited annual financial statements of the company for these years
Net cash flows by types of business (000’levs)
2009
11.311
(5.000)
(29)
6.282
97.221
103.503
2010
(8.148)
15.000
(43.438)
(36.586)
103.503
66.917
2011
22.799
0
(2)
22.797
66.917
89.714
Source: CEZ Electro
For the year ended on 31 December 2011, the net cash flow of the main business of the Issuer was
positive and amounted to 22,799 thousand levs, compared to negative amount of 8,148 thousand levs in 2010,
and the positive amount of 11,311 thousand levs in 2009 (as a result of the decrease of the pre-tax profit and
the twice less interest income). The increase of the commercial receivables in 2011 and 2010 is BGN 19,791
thousand and BGN 15,991 thousand respectively, whereas in 2009 there is a decrease by BGN 4,130 thousand.
The increase in the commercial liabilities in 2011 is by BGN 28,145 thousand, whereas in 2010 and 2009 there
was a decrease by BGN 2,688 thousand and BGN 1,789 thousand respectively.
In 2011 the issuer has no cash flows from investment activities. In 2010 the issuer received net
amount of 15,000 thousand levs from investment activities for 2010 (representing cash inflows from repaid
loans granted to related parties) compared to the net cash outflows of 5,000 thousand levs in 2009 for the same
loans.
Net cash flows, spent for the financial activities of CEZ Electro amounted to 2 thousand levs in 2011
compared to 43.438 thousand levs in 2010 and 29 thousand levs in 2009. In 2010 a great portion of the cash
outflows i.e. 43.433 thousand levs represents the dividend paid in the period 2007 - 2009.
Factors that substantially influence the operating income of the company include the SCEWR's
decisions on pricing by which limit prices are determined at which the company shall sell electric power to end
users, as well as the regulatory framework.
Analysis of the financial position
Assets
The table below shows the main categories of the company's assets as at 31 December 2009, 2010
and 2011 according to the audited annual financial statements for 2009, 2010 and 2011, as well as the change
of each position, expressed in percentage:
Data are given in 000'levs
Assets
Long-term assets
Intangible assets
Deferred tax assets
Total
Short-term assets
2009
2010
2011
2010/2009
2011/2010
11
3.057
3.068
10
3.697
3.707
8
4.647
4.655
-9.09%
20.94%
20.83%
-20.00%
25.70%
25.57%
105.698
409
15.000
113.741
266
0
123.598
299
0
7.61%
-34.96%
-100.00%
8.67%
12.41%
-
___________________________________________________________________________________
85
Overpaid income tax
Total
Total assets
248
103.503
224.858
227.926
Prospectus
170
66.917
181.094
184.801
52
89.714
213.663
218.318
-31.45%
-35.35%
-19.46%
-18.92%
-69.41%
34.07%
17.98%
18.14%
Source: CEZ Electro
As of 31/12/2011 the company's assets amounted to 218,318 thousand levs, which is an increase by
18.14% compared to 2010. In 2010 the company's assets amounted to 184.801 thousand levs and that amount
decreased by 18.92% compared to 2009 (227.926 thousand levs) mainly as a result of cash. In 2009 compared
to the previous year assets marked a minimum increase by 0.92 %
The book value of long-term assets is substantially lower than the one of short-term assets. In the
review period the long-term assets showed a trend of increase (by 25.57% in 2011 compared to the previous
year and by 20.83 in 2010 compared to the previous year), due only to the deferred tax assets. In 2011 the
long-term assets of the Company amounted to 4.655 thousand levs, in 2010 they amounted to 3.707 thousand
levs and in 2009 they were 3.068 thousand levs. The company has no properties, plants and equipment
The short-term trade and other receivables hold the highest share of the short-term assets. As at
31.12.2011 they increased by 8.67% compared to the previous year and as at 31 December - by 7.61%
compared to 31 December 2009. As at the end of 2011 trade and other receivables amounted to 123.598
thousand levs (113.741 thousand levs in 2010 and 105.698 thousand levs in 2009). In 2011 receivables from
sales of electric power, followed by reimbursable VAT had the highest portion.
Cash increased by 34.07% compared to 2010. In 2010 they decreased by 35.35% compared to 31
December 2009 as a result mainly of the dividend of 43.433 thousand levs paid during the year.
Liabilities and owner's equity
The following table shows the structure of the liabilities and the owner's equity of the company as at
31 December 2009, 2010 and 2011 according to the audited annual financial statements for 2009, 2010 and
2011. and the change of its individual components, expressed as percentage.
Data are given in 000'levs
Equity
Fixed capital
Statutory reserves
Retained earnings
Total equity
Liabilities
Total
Total
Total liabilities
Total equity and liabilities
2009
2010
2011
2010/2009
2011/2010
50
5
74.701
34.114
108.870
50
5
65.380
3.051
68.486
50
5
65.378
5.452
70.885
0.00%
0.00%
-12.48%
-91.06%
-37.09%
0.00%
0.00%
0.00%
78.70%
3.50%
93
13.949
14.042
105
2.273
12.001
14.379
117
843
10.982
11.942
12.90%
-13.97%
2.40%
11.43%
-62.91%
-8.49%
-16.95%
51.987
50.836
2.191
105.014
119.056
227.926
62.639
38.996
301
101.936
116.315
184.801
44.826
85.959
4.706
135.491
147.433
218.318
20.49%
-23.29%
-86.26%
-2.93%
-2.30%
-18.92%
-28.44%
120.43%
1463.46%
32.92%
26.75%
18.14%
Source: CEZ Electro
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Prospectus
The Issuer's liabilities amounted to 218.318 thousand levs as at 31 December 2011 and 184.801
thousand levs as at 31 December 2010.
As at 31 December 2011 the equity amounted to 70.885 thousand levs, respectively in 2010 it
amounted to 68.486 thousand levs compared to 108.870 thousand levs in 2009. In 2011 the increase of equity
was by 3.50% compared to the previous year. In 2010 occurred material changes in equity and they were
related particularly with the reserve from setting aside and the retained earnings, which decreased respectively
by 12.48% and 91.06%. The decrease was caused by the payment of a dividend to the amount of 43.433
thousand levs during the year.
In 2011 long-term liabilities decreased by 16.95% compared to 2010. In 2010 they increased by
2.40% compared to the previous year mainly as a result of the non-current part of the provisions to the amount
of 2,273 thousand levs. Concurrently cash guarantees under contracts for sale of electric power outlined a
trend of decrease by 8.49 % in 2011 and by 13.97 % in 2010 compared to previous years and came up to 11
million levs as at 31 December 2011.
In 2011 the short-term liabilities increased by 32.92% compared to the previous year and amounted
to 135,491 thousand levs. As at 31 December 2010 they came up to 101,936 thousand levs compared to
105,014 thousand levs in 2009. In 2011 the short-term liabilities comprise mainly the following two items:
trade and other payables and payables to related parties together with the current share of the provisions to the
amount of 4.706 thousand levs. Trade and other payables marked a decrease by 28.44% in 2011, and at the
year-end they amounted to 44,826 thousand levs (compared to 62,639 thousand levs in 2010 and 51,987
thousand levs in 2009 or respectively an increase by 20.49% in 2010). In 2011 payables to suppliers of energy
prevail (43,298 thousand levs), followed by payables to the budget (920 thousand levs.) etc.
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Prospectus
DESCRIPTION OF SHARES AND APPLICABLE BULGARIAN LAW
Introduction
Below is a description of the basic rights attached to the Shares, as well as some important provisions
of the Issuer's Articles of Association, the Law on Public Offering of Securities and the Law on Commerce
applicable as at the date of this document.
CEZ Electro will obtain the status of a public company with the decision of FSC to approve this
prospectus and to enter the issue of the Company‟s shares in the register of FSC for the purpose of trading
them on the regulated market. From that moment on CES Electro will become subject to the special provisions
of the LPOS concerning public companies.
Once CEZ Electro becomes a public company, the company will make the required amendments in
its Articles of Association for the purpose of ensuring its compliance with all requirements applicable to public
companies, as soon as possible and at the first General Meeting of the Shareholders of the Company. LPOS
provides that a public company shall issue registered book-entry shares. In this regard, CEZ Electro Bulgaria
AD has adopted amendments in its Articles of Association for the purpose of ensuring the compliance of the
shares with the legal requirements. On 15.08.2011 an extraordinary General Meeting of the Shareholders was
held and a decision was made that the Shares of the Company will be transformed from materialized shares
into book-entry shares and this amendment was entered in the Trade Register on 23.08.2011. Issuing and
transfer of book-entry shares will be valid from the date of entry of the issuing, respectively their transfer, in
the Central Depository, which is the Bulgarian national register of book-entry securities.
Pursuant to its Articles of Association and the applicable Bulgarian law, CEZ Electro issues ordinary,
registered book-entry voting shares and freely transferrable shares. In this regard all shares issued by CEZ
Electro are ordinary shares entitling their holders to 1 (one) voting right at the General Meeting of the
Shareholders, to dividend upon profit distribution and to liquidation quota proportionally to their nominal
value in case that the Issuer is dissolved.
Scope of business of CEZ Electro
The scope of business of the Issuer as defined by the Articles of Association (art. 7) includes:
 public supply of electric power pursuant to the Law on Energy subject to obtaining a license for
public supply of electric power and in compliance with the conditions of that license; and
 any other business, which is not forbidden by the law or by the license for public supply of
electric power.
The Articles of Association or other constituent acts do not contain formulated objectives of the
Company other than the above scope of business.
Share capital
The registered capital of CEZ Electro amounts to 50 000 (Fifty thousand) levs distributed in 5000
(Five thousand) ordinary, registered book-entry voting freely-transferable shares, which give right to a
dividend, right to liquidation quota and have a par value of 10 (ten) levs.
Since the company's incorporation and registration in the Trade Register in 2006 to the date of this
Prospectus no changes have been made to the size of the registered capital and the number of shares.
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Prospectus
The whole capital has been paid in cash; in-kind contributions to the capital have not been made.
As of the date of this document the rights attached to the Shares are not substantially limited by
rights granted by other securities, issued by the Company or by contracts executed by the company. The
company does not intend to issue instruments or to execute contracts, which restrict the rights attached to the
Shares. Considering that all Shares give their holders equal rights, the Majority shareholder will have voting
rights at the General Meeting, which are identical to those of the other shareholders of the Company.
Except as specified above, any change in the rights of the holders of Shares (to the extent this is
permitted by law and unless any legal amendment requires so) shall be carried out by amendment of the
Articles of Association by the General Meeting. Considering that the Shares of the Company are of one class
only (and if and unless shares of any other class are issued), any change in the rights attached to the Shares
would result in change of the rights of all shareholders. The Articles of Association of the company makes no
explicit provisions concerning any change of the rights of the holders of the Shares.
No options exist for the Shares of CEZ Electro and there are no conditional or unconditional
agreements, which envisage that the Shares would be subject to options.
According to the Articles of Association CEZ Electro will issue only ordinary shares. The rights
attached to the Shares are not substantially limited by rights granted by other securities, issued by the CEZ
Electro or by contracts executed by the company. CEZ Electro does not intend to issue instruments or to
execute contracts, which restrict the rights attached to the Shares.
CEZ Electro issues book-entry shares and the rights attached to these Shares may be exercised
without obtaining depository receipts by the Central Depository.
As at the date of this document CEZ Electro:

has no shares, which are not considered capital;

has no own shares, held by or on behalf of the Issuer itself or by subsidiaries;

has not issued convertible securities, fungible securities, or securities with warrants;

has no rights to acquire or obligations to issue shares/ capital of the Issuer.
Capital increase
The Law on Commerce and the valid Articles of Association of the Company provide that the capital
of a joint stock company may be increased by issuing new shares, by increasing the par value of existing
shares or by transforming bonds into shares. Once the company acquires a public status and with a view to the
protection of the pre-emptive rights of the existing shareholders, the Company may not increase its capital by
some of the methods allowed for ordinary (non-public) joint stock companies with limited liabilities i.e.:
increase in the nominal value of the existing shares by transforming bonds, which have not been issued as
convertible, into shares; against in-kind contributions pursuant to art. 193 of the Law on Commerce; provided
that shares will be purchased by designated persons.
The capital of a joint stock company, including a public company, may be also increased by
transforming a part of the profit into capital (profit capitalization - paying dividends in the form of new
shares), in which case the newly issued shares shall be distributed among existing shareholders proportionate
to their shareholding before the increase.
The Law on Commerce provides that a resolution to increase the capital of a joint stock company by
issuing new shares shall be made by the general meeting of the shareholders with the majority of 2/3 of the
votes that are present and in case of capital increase by profit capitalization - 3/4 of the shares being present.
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Prospectus
The Articles of Association of a joint stock company may provide for authorization of the Board of Directors,
respectively the Management Board in the event of two-tier system of management, to increase the capital by
issuing new shares for a period of 5 years after the company is entered in the Trade Register or an amendment
is made in the Articles of Association to make the above authorization.
Based on the above, the Articles of Association of CEZ requires that the resolution for capital
increase is made by the majority of 2/3 of the shares, represented at the General Meeting except capital
increase by profit capitalization, which requires majority of 3/4 of the shares, represented at the General
meeting. At present the Articles of Association does not contain any provision authorizing the Management
Board to make resolutions for capital increase.
The Articles of Association of CEZ Electro does not contain provisions for changes of the capital,
which are more restrictive than those provided by law.
Capital increase by issue of rights
After obtaining a public status, CEZ Electro shall comply with the requirements of LPOS on public
offering of shares upon increase of the capital of a public company that may be realized only by issue of rights
and requires that Prospectus is published, containing detailed information about the Issuer and the offered
shares. The prospectus must be approved by the Financial Supervision Commission.
For more information, refer to "Description of the Shares and Applicable Bulgarian Law" - Preemptive Rights of Shareholders.
Capital increase by conversion of bonds
The procedure for capital increase by issue of rights applies also to the issue of convertible bonds by
a public company.
A resolution of the general meeting of the shareholders approving a new issue of convertible bonds is
valid only if it has been approved by the general meeting of the holders of existing convertible bonds. Only the
General Meeting may make a resolution for the issue of convertible bonds of the Company. Although the Law
on Commerce in principle allows so, the Issuer's Articles of Association does not contain authorization for the
Management Board to pass resolutions to issue bonds, including convertible ones.
Capital increase by Issuer's own funds
The capital of the Company may be increased by transforming the profit of the Company or a part
thereof into capital. The Resolution of the General Meeting for capital increase in this way must be adopted
with majority of 3/4 (three-quarters) of the Shares, represented at the General meeting provided that the
General Meeting deciding on this issue shall be held within 3 (three) months after approval of the annual
financial statements for the preceding year. The new shares shall be distributed among Shareholders
proportionate to their shareholding before the increase. If the capital is increased by this method, the right of
the Shareholders to get new Shares may not be cancelled by resolution of the General Meeting.
If the capital of a public company is increased by this method, only persons who hold or have
acquired shares on the date which is the fourteenth day after the resolution of the General meeting of
shareholders to increase the share capital, will have the right to obtain new shares; that date corresponds to the
date concerning the right of shareholders to receive dividend ("Ex-Dividend Date).
Registration of Increases in Share Capital
An increase in the share capital made by any of the above methods is effective from the date of the
registration in the Bulgarian Trade Register. The new shares are issued by registration of the capital increase at
the Central Depositary.
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Prospectus
Pre-emptive Rights
Every shareholder has the pre-emptive right to subscribe new shares within a share capital increase
proportionate to their shareholding at that time. The Bulgarian law provides that the pre-emptive right of
shareholders in public companies may not be withdrawn.
Persons registered as shareholders at the Central Depositary on the Ex-Dividend date shall have preemptive rights to participate in the capital increase (Rights incorporated in securities). If the resolution for
share capital increase has been adopted by the management body, the pre-emptive rights are given to those
persons registered as shareholders at the Central Depositary on the 7th day following the date on which the
announcement for the public offering of new shares and their related rights is promulgated in the State Gazette.
On the business day, following the Ex-Dividend Date (or the seventh day after the announcement, as the case
may be), the Central Depository shall open rights accounts to the persons listed as shareholders in the Register
of the Central Depository on the relevant date.
The commencement date on which Rights may be exercised to subscribe new shares or Rights may
be traded on the BSE shall be specified on the public offering announcement. The term for the exercise of the
Rights must be between fourteen and thirty days after the commencement date of the transfer of Rights. Any
Rights, which are not exercised within this term, shall be offered to the public by means of an one-day auction
organised on the BSE on the fifth business day after the deadline for exercising the Rights. Any Right acquired
at the auction must be exercised by subscribing new shares within ten business days after the auction.
Rights attached to Shares
General description
All Shares issued by the Company, including the Offered Shares by the Selling Shareholder, are
ordinary book-entry shares. They are shares of one class and give equal rights to the shareholders i.e. voting
right at the General Meeting of the Shareholders, as well as the right to a dividend and to a liquidation quota
proportionate to the par value.
Voting right
Every ordinary share as well as every preferred share (provided that a voting right is attached to it)
shall give one voting right at the General Meeting of the Shareholders. In case of public companies, the voting
right shall be exercised by persons listed in the register of Central Depository AD as shareholders 14 days
before the date of the General Meeting. The Central Depository shall provide to the Company a list of its
shareholders as at that date. The only condition for participation at the General Meeting is that a person is
entered in that list (safe for the additional conditions for participation by proxy).
When a draft resolution refers to the rights of shareholders of one class of shares, voting shall be
carried out by classes and the requirements to quorum and majority shall apply to each class separately.
More details concerning the procedure of exercising the voting rights are available in "Description of
the Shares and the applicable Bulgarian law - General Meetings of Shareholders - Participation at the
General Meeting".
Right to Dividend
The company distributes dividends according to the procedure and under the conditions
set out in the Law on Commerce and the Articles of Association, by resolution of the General Meeting.
Advance distribution of dividends is forbidden.
Once the Company becomes a public company, the special provisions of LPOS will apply to the
procedure of exercising the right to a dividend, which provide that only persons, entered in the registers of the
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91
Prospectus
Central Depository as shareholders on the 14th day after the date of the General Meeting, which approved
the annual financial statements and made a resolution for profit distribution (Ex-Dividend Date), shall be
entitled to a dividend. The Central Depository shall provide to CEZ Electro a list of its shareholders as at that
date. The only condition to pay a dividend to a person is that they are included in this list. Persons entitled to a
dividend that fail to exercise that right within a five-year period of limitation, shall lose their right to demand
its payment.
More details concerning the right to a dividend and the procedure for exercising it are available in
„Description of the Shares and the applicable Bulgarian law - Dividends”.
Liquidation quota
Every ordinary share gives the right to receive a liquidation quota proportionate to its par value. This
right is conditional - it will occur and may be exercised only if (and to the extent that) upon liquidation of the
Company and after the claims of all creditors have been satisfied, assets have remained to be allocated among
shareholders and up to the amount of those assets. The size of the guaranteed liquidation quota, as well as the
conditions and the procedure for exercising the rights attached to preferred shares shall be determined in the
particular decision for capital increase by issuing such preferred shares.
More details about the right to liquidation quota are available in „Description of the Shares and the
applicable Bulgarian law” – „Reorganization and Dissolution”.
Share capital reduction
The share capital may be reduced by: (1) reduction of the par value of the Shares; or (2) invalidation
of shares; according to the valid Articles of Association shares may be invalidated only after being
repurchased by the Company or by compulsory invalidation. A Company having obtained the status of a
public company may not reduce its capital by compulsory invalidation of shares.
Share capital reduction shall be made by resolution of the General meeting, indicating the purpose of
the reduction and the procedure. The resolution shall be made with the majority of 2/3 of the shares,
represented at the General Meeting.
The resolution of the General Meeting of the shareholders on share capital reduction shall be
submitted to the Trade Register and shall be announced by stating that CEZ Electro undertakes to pay or
secure its debts to every creditor and the latter may disagree in writing with such capital reduction within 3
months. The capital reduction shall be entered in the trade register after the expiration of the three-month
period mentioned in the previous sentence and shall take effect on the date of entry. A creditor that has
disagreed with the capital reduction within the term specified above and hasn't received satisfaction or
sufficient security for its receivable within that term, may refer to the court according to the procedure for
securing claims to apply for due securing of its receivables through lien or attachment. Security will be
cancelled in case that the registration of the capital reduction is refused or if the creditor is satisfied with its
receivable. Any payments to shareholders related to share capital reduction may be made only after the share
capital reduction is entered in the trade register and the Issuer's creditors, having expressed disagreement, have
been satisfied by receiving a payment or security.
The above provisions concerning the protection of creditors will not apply if the share capital
reduction is made: (а) to cover losses (b) by shares. which are fully owned by the Company and which have
been acquired free of charge or against payment, however provided that the paid price does not exceed the sum
total of the current annual profit, the retained earnings from previous years, the parts of the Reserve Fund and
other funds exceeding the compulsory minimum less uncovered losses from previous years and the deductions
for the Reserve Fund and other Funds, which the Company shall set aside; or (c) in case of concurrent increase
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92
Prospectus
and reduction of capital when as a result of the increase the size of the capital prior to the change has been
reached or exceeded.
The Company's Articles of Association makes no provisions for capital reduction, which are more
stringent than those set out by the law.
Shares invalidation and buy-back
As mentioned above, the applicable law and the current Articles of Association of CEZ Electro
provide that invalidation of Shares shall be carried out (i) after the Shares subject to invalidation are redeemed
by the Company or (ii) by compulsory invalidation subject to the terms and conditions set out in the Articles of
Association. As mentioned above, once the Company acquires the status of a public company, compulsory
invalidation of shares will not be allowed.
According to the valid law, CEZ Electro may buy back its shares by resolution made with the
majority of 1/2 (one second) + 1 of the Shares, represented at the General Meeting, which must also specify
the terms and conditions for such buy-back, as follows:

the maximum number of Shares subject to buy-back

the terms and the procedure by which the Management Board will buy back the Shares;
 the term in which the buy-back will take place provided that it will be up to 18 (eighteen)
months; and

the minimum and maximum limit of the buy-back price;
The resolution of the Shareholders must be entered in the Trade Register.
Buy-back of Shares may only take place if the value of the net assets of CEZ Electro after the buyback would be equal to or higher than the sum total of the share capital, the Reserve Fund and all other funds
which the Company is required to set aside according to its Articles of Association.
Once obtaining the status of a public company, CEZ Electro may reduce its share capital by
redemption and invalidation of its own Shares. A public company may buy back more than 3% of its issued
shares in any calendar year only by way of a tender offer. With regard to any redemption of shares within the
above 3% limit, the public company shall notify in advance the Financial Supervision Commission and shall
disclose data about redeemed shares pursuant to the requirements on disclosure of Regulated Information.
The total nominal value of the redeemed shares may not exceed 10% of the share capital of CEZ
Electro and the Issuer shall transfer the Shares exceeding the limit of 10% within three years. If the Issuer
holds more than 10% of its issued share capital at the end of the said three year period, it must invalidate
shares so that redeemed shares are less than 10% of its capital.
Transfer of Shares
Transfer of Shares becomes effective as of its registration in the Central Depository. Art.20,
paragraph t 3 of the Company's Articles of Association provides that issuing and disposal of the Company's
shares shall be ascertained by a document of registration, issued by the Central Depository. The registration
document is not transferable. Upon transfer of shares, a new certificate of registration is issued to the assignee,
and provided that only a part of the shares are transferred, then a new certificate of registration is issued to the
assignor - for the remaining part of the shares.
Once the Company obtains the status of a public company and its shares are admitted to trading on
BSE, transactions with its shares may be concluded also on the regulated market of securities - BSE.
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Any purchase or sale of Shares, issued by a public company, may be carried out on a regulated
market (i.e. by a transaction concluded on the BSE) or on an OTC security market (outside BSE) through an
investment intermediary, licensed by FSC (or a commercial bank duly licensed by the Bulgarian National
Bank) or through an investment intermediary (a bank), having its head office in another member state, which
has notified the FSC as provided by law of their intention to operate in Bulgaria through a branch office or
under the conditions of free provision of services ("Investment Intermediaries") Particularly, for any
transactions in Shares on the BSE or on the OTC market, investors shall submit buy orders or sell orders to an
Investment Intermediary at their choice provided that over-the-counter transactions with Shares may be carried
out also pursuant to a sale contract executed between the parties or other form of transfer of the Shares for
consideration. The Investment Intermediary shall undertake all actions necessary for the settlement (execution
of the transaction) and its registration to the Central Depository by which the Shares shall be transferred from
the securities account of the seller to the securities account of the buyer. Pursuant to the Law on Markets of
Financial Instruments (transposing Directive 2004/39/EEC) transactions with shares may be concluded also
within a multilateral trading system, organized by an investment intermediary or a market operator, combining
the buy and sell orders of third parties for sale-trade in securities. Transactions with shares, admitted to trading
on a regulated market, may be concluded on OTC market or via a multilateral trading system based on an offer
made by Investment Intermediaries (the so called systematic participants), where the price of offered or
purchased shares shall not exceed the arithmetic mean value of the orders executed in EU, for a given class of
shares. Transfer of Shares upon inheritance or endowment or in case of sale and other transactions, executed
directly between the parties, shall be made by registration of the transaction in the Central Depository and such
transfer shall be also carried out through an investment intermediary acting as a registration agent.
An investment intermediary that trades in shares admitted to trading on a regulated market, on the
OTC market or through a multilateral trading system, shall disclose information about the type, issue, number
and unit price of the financial instruments - subject matter of the transaction, the currency of the transaction,
date and time on which it was concluded and shall indicate whether the transaction is concluded on the OTC
market or through a multilateral trading system. Such disclosure shall be made pursuant to art. 38, paragraph 5
and 6 of LMFI.
Shares may be subject to a special pledge, as well as to a pledge under the Law on Collateral
Agreements of 2006. The protection of the rights of the pledgee is ensured through the registration of such
pledges with the Central Depository. Pursuant to the provisions of Regulation No.38 on the requirements to the
activity of investment intermediaries, any investment intermediary shall ask their clients to declare whether the
Shares subject to sell order or exchange order have been blocked in the Central Depository, whether they are
subject to pledge or distraint, and it may also make a check about these facts in the Central Depository. The
investment intermediary shall not execute the order if it has been declared or established that the Shares have
been blocked at the Central Depository or they are subject to pledge or a distraint is imposed on them. The
prohibition under the previous sentence in case of a pledge will not apply if the assignee has been informed
about the pledge and has explicitly agreed to acquire the pledged Shares, the pledgee has stated its explicit
consent in writing as provided by the Law on Special Pledges, as well as that the pledge has been established
on an aggregation within the meaning of the Law on Special Pledges. Such prohibitions shall also apply in
case that the client has insider information about the Shares or the transaction is considered a concealed sale or
purchase of Shares.
A public company may not impose restrictions on the transfer of its issued Shares. The company may
impose restrictions on the transfer of Shares only if the company is delisted from the Register of Public
Companies, held by FSC.
The Company's Articles of Association does not contain provisions, which would result in delay,
postponement or prevention of the change in control over the Company.
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Major Transactions and Related Party Transactions
Once CEZ Electro becomes a public company, its major transactions and/ or related (interested)
parties transactions will be subject to some restrictions and additional requirements set out in the LPOS.
The Law on Public Offering of Securities provides that persons who manage or represent a public
company may not, without the preliminary approval of the shareholders, conclude transactions as a result of
which: (a) the company acquires, transfers, receives or grants for use or creates any type of security interest
affecting the company 's fixed assets; (b) the Issuer incurs obligations to a person or a group of related persons;
or (c) receivables arise for the Issuer to a person or a group of related persons, in each case, where the
transaction value exceeds:
 one-third of the value of the Issuer's assets according to its most recent audited or its most recent
prepared balance sheet, whichever is lower; or
 in the case of a transaction with an "interested party" - 2% of the value of the Issuer's assets
according to its most recent audited or its most recent prepared balance sheet upon the occurrence of
receivables of the company to one person or a group of related persons (when the debtor is an
interested person) – 0.2% of the lower of the value of the assets of the Issuer according to its last
audited or its last prepared balance sheet.
"Interested parties" are considered: (a) the members of the Management Board and the members of
the Supervisory Board of the Issuer, (b) any special proxy holders of the Issuer and (c) any person who directly
or indirectly holds at least 25% of the votes at the general meeting of shareholders of the Issuer or who
otherwise controls the Issuer, when such person or a person related to such person:
 is a party, a representative or an intermediary to the transaction, or the transaction is carried out
for their benefit; or
 directly or indirectly holds at least 25% of the votes at the General Meeting or controls a person,
who is a party, a representative or an intermediary to the transaction, or the transaction is carried out
for its benefit; or
 is a member of the Management or Supervisory Board, or a procurator of a legal entity under the
previous paragraph.
Any transaction for acquisition or disposal of fixed assets shall be approved by the General Meeting
of the shareholders with the majority of three quarters or more of the votes represented at the general meeting,
in all other cases a simple majority of the votes represented at the General meeting is sufficient. The interested
parties-shareholders are not allowed to vote on these issues at the general meeting.
Transactions between a public company and interested parties which do not require the preliminary
approval of the of shareholders, are subject to preliminary approval by the company's Management board
provided that all interested members of the Management board may not vote on the relevant issue.
When determining whether a preliminary approval of the shareholders for major transactions or
related party transactions is required, the value of individual transactions of the public company with a person
or a group of related persons, which on case by case basis are below the threshold requiring approval by
shareholders, shall be summed up with the value of other transactions with the same person or its related
persons in the previous three calendar years.
Any transaction involving an interested party shall be executed only at arm's length price.
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Pursuant to the law a preliminary approval by the shareholders for the above transactions is not
required in the following cases:
 for transactions concluded in the ordinary course of the business of the public company,
including related to bank loans and collateral unless an interested party is involved or otherwise
participates in such transactions;
 for loans from a holding company and for deposits from a subsidiary company under conditions,
which are not less favourable for CEZ Electro than those available on the market in Bulgaria;
 in case that there is a joint venture agreement pursuant to the Law on Public Offering of
Securities.
The LPOS provides that if a major transaction or a related party transaction requires preliminary
approval by shareholders, then the Management body of the public company shall submit a report to the
general meeting on the expediency of the contemplated transaction.
Any related party transaction or a major transaction, which is made in breach of the requirements of
the Law on Public Offering of Securities, shall be void.
Meetings of Shareholders
The General Meeting of the Shareholders comprises shareholders who have voting rights.
Convening a General Meeting of Shareholders
General Meetings of Shareholders shall be convened regularly at least once a year however not later
than six months after the end of the fiscal year. An extraordinary General meeting of shareholders may be
convened at any time by giving a notice to shareholders. Any General Meeting of the Shareholders shall be
held at the head office of the Company or at any other place in Republic of Bulgaria if approved by the
Management Board. Once the company acquires a public status, the General Meeting shall be held only at the
head office of the Company in the city of Sofia.
The Management Board shall convene the General Meetings. The Supervisory Board may also
convene a general meeting. Shareholders holding jointly or severally at least 5% of the Shares may ask the
District court to convene or to authorize a representative of the shareholders to convene General Meeting
under a specified agenda, and once the company becomes a public company, this right shall be exercised by
the relieved procedure provided by the LPOS, which unlike the Law on Commerce sets no requirements that
the shares should have been held for at least 3 months and allows that a request for convening the general
meeting may be submitted directly to the district court at the head office of the Company without awaiting for
approval of the request by the management body of the Company. Furthermore shareholders holding at least
5% of the Shares may add items to the agenda of already convened General Meeting.
According to the valid Articles of Association, the Management Board shall convene the General
Meeting within one month in the following cases:
 provided that the losses of the Company exceed 1/2 (half) of the Share Capital. In such case the
General Meeting shall be held not later than 3 (three) months after finding out of these losses;

if the Company files for insolvency proceedings; or
 if the economic stability of the Company is put at risk and the company is required to undertake
actions.
Pursuant to the valid Articles of Association, the General Meeting of CEZ Electro shall be convened
by a notice in writing sent to all shareholders at least 30 days before the date of the General meeting.
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Once the Company becomes a public company, the rules of LPOS concerning the convening of a
general meeting shall apply to it.
The notice to convene the General meeting shall include the name and head office of CEZ Electro,
the place, date and time of the meeting, the type of the meeting (i.e. annual or extraordinary), information
about the formalities that must be complied with for participation at the meeting and for exercise of voting
rights, the agenda of the General Meeting and the draft resolutions; information about the total number of
shares and the voting rights at the General Meeting as of the date of the resolution to convene the General
Meeting, including the total number of voting rights for each class of shares, as well as about the right of the
shareholders to participate at the General Meeting; information about the right of the shareholders to add items
to the agenda of the General Meeting and to make proposals for resolutions on matters which are on the
agenda and about the deadline for exercising such right, unless these rights are described in details on the
website of CEZ Electro, in which case it is enough only to make a link to the website where both the rights
and the deadline for their exercising are described; information about the rights of the shareholders to ask
questions during the General Meeting; information about the rules for voting through a proxy, the forms which
are used for voting by a proxy and the templates for voting by proxy, as well as how CEZ Electro shall be
notified about authorisations made by electronic means; information about the rules for voting through
correspondence or through electronic means, if the Issuer has adopted such rules, as well as a link to website
where such rules have been published; the Voting Date (as defined below) with an indication that only the
persons registered as shareholders entitled to voting rights on that date have the right to participate and vote at
the General Meeting; an indication of the place and manner of receiving the written materials for the agenda
of the General Meeting. As of the date of this Prospectus the Issuer has not adopted any rules for voting
through correspondence or by electronic means.
The special provisions of the LPOS require that at least 30 days before the date of the General
meeting, CEZ Electro shall announce the notice at the Trade Register and shall announce it by using an
information agency or any other media so that it may reach the wide public. The Company shall, within the
same term, send the notice and the other documents about the General Meeting to the Financial Supervision
Commission and shall publish them on the Company‟s website for the period of time between the
announcement of the notice according to the previous sentence to the date the concerned General Meeting is
closed. The company shall also publish on its website the templates for voting by proxy or by correspondence,
if applicable. Provided that the templates may not be published for technical reasons, the Company shall also
publish the forms for voting by proxy. If these forms may not be published for technical reasons, the company
shall provide information on its website on how these forms may be obtained as hardcopies, and in this case
upon request by the shareholder, the company shall send the forms by mail on the company's account.
Provided that after announcement of the notice, additional items are included in the agenda on request of
shareholders holding at least 5% of the shares, the Company shall update the notice to convene the general
meeting and shall publish it together with materials in writing according to the same procedure as the first
announcement immediately and not later than the end of the business day, following the date on which the
notice for inclusion of these issues on the agenda was received.
Participation at the General Meeting
Each available Share confers the right to cast one vote at the General meeting of a public company.
Public companies are not allowed to issue preferred shares entitling their holders to more than one vote. The
right to vote at the General meeting is conferred on those persons registered at the Central Depositary as
shareholders 14 days prior to the date of the meeting ("Voting Record Date"). A buyer of Shares registered at
the Central Depositary after the Voting Record Date is not entitled to vote. The Central Depositary shall
provide to CEZ Electro a list of the shareholders, who are entitled to vote on the relevant General meeting. The
entry of the persons in this list is the only prerequisite to their participation at the general meeting of
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shareholders and to the exercise of the voting rights attached to the issued Shares. Persons entitled to vote may
attend the meeting in person or by a proxy.
Any written authorization to represent a shareholder at the General Meeting of the Shareholders of a
public company shall refer to a particular General meeting and shall explicitly specify at least the following:
(а) data about the shareholder and the proxy; (b) number of shares to which the authorization refers; (c) agenda
comprising the issues proposed for consideration; (d) draft resolutions on each issue included in the agenda;
(e) method of voting on each issue, if applicable; (f) date and signature. Authorization may be made by
electronic means and the Company shall ensure at least one method for receiving authorization by electronic
means, as well as it shall publish on its website the terms and conditions for receiving authorizations by
electronic means. The company shall provide a template of the authorization on a hardcopy or by electronic
means, if applicable, together with the materials for the General Meeting or upon request after it has been
convened.
Pursuant to the general provisions of the Law on Commerce, a member of the Supervisory Board or
the Management Board may not act as a proxy of a shareholder at the General Meeting. Once CEZ Electro
becomes a public company, the special provisions of the LPOS will allow that a member of a board may act as
a proxy of a shareholder at the General Meeting, only if such power of attorney explicitly specifies how the
proxy should vote on each item on the agenda.
The amendments in the LPOS effective from March 2009 allow that a public company may include a
provision in its Articles of Association that a general meeting may be held by electronic means via one or more
of the following forms: (а) real-time transmission of the general meeting; (b) two-way real-time
communications enabling the shareholders to take part remotely in the discussions and in making decisions at
the general meeting; (c) a mechanism for voting before and during the general meeting with no need to
authorize a person to take part in person at the general meeting. At present the Articles of Association of the
Company does not provide for holding a general meeting by electronic means.
Quorum and majorities
The Articles of association of CEZ Electro provides that the General Meeting may pass resolutions
on the condition that it has been convened in compliance with the provisions of the law and the Articles of
Association and at least one half (1/2) of the capital is represented at the meeting. In the event that a quorum
is not available upon the first convening of the General Meeting, a new meeting is scheduled not earlier than
14 days thereafter. Such meeting shall be considered lawful irrespective of the number of shareholders that are
present in person or by proxy. The date of the possible new meeting may be indicated in the notice for the
adjourned meeting.
Competences of the General Meeting
According to the Articles of Association, the General Meeting of CEZ Electro has the following
authorities:
 to define the key strategies for business development of the Company, proposed by the
Supervisory Board if the proposed strategies require amendment in the Company's Articles of
Association;

to amend, cancel or supplement the Articles of Association of the Company;
 to pass resolutions on (a) increase or reduction of the Company's capital, including approval of
assessments of in-kind contributions to the capital of the Company and restriction or cancellation of
the right of the shareholders to acquire a part of the new shares proportionate to their capital shares
before the increase pursuant to art. 194, paragraph t 1 of the Law on Commerce, (b) buy-back of
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shares, (c) issuing convertible bonds or other similar instruments affecting the Company's capital (d)
public offering of shares or applications for registration of Shares for trading on a stock exchange;

to transform or liquidate the Company;

to appoint and discharge members of the Supervisory Board;
 to determine the remuneration of the members of the Supervisory Board, their right to receive a
part of the profit of the Company and the right to acquire shares or debt instruments of the Company;
 to determine the size of the guarantee, which is to be provided by the members of the
Supervisory Board and the Management Board;

to indemnify members of the Supervisory Board;

to appoint and discharge auditors;

to approve the annual financial statements after the appointed auditors have certified them;

to make decisions for profit distribution and for payment of dividends;
 to appoint liquidators upon dissolution of the company except in case of insolvency proceedings
and upon appointment of a special manager by the State Commission on Energy Regulation pursuant
to the Law on Energy; and

to make decisions on any other issues within its competence.
The Articles of Association provide that in all cases the resolutions of the General Meeting must
comply with the requirements for independent operation of the electric distribution network operators in a
vertically integrated structure, i.e. as a group of electric distribution companies and an electric supply company
– namely the Company.
The resolutions of the General Meeting shall be passed by simple majority - more than 1/2 (half) of
the Shares represented at the General meeting unless the law or the Articles of Association require a higher
majority.
Majority of 2/3 (two-third) of the Shares, represented at the General Meeting, is required for the
following resolutions of the General meeting:

amending, cancelling or supplementing the Company's Articles of Association;

capital increase;
 restriction or cancellation of the right of the shareholders pursuant to art.194, para.1of the Law
on Commerce to acquire a part of the new shares upon capital increase proportionate to their share
before the increase (once the company becomes a public company such resolution would not be
allowed as the LPOS do not provide for cancellation or restriction of the pre-emptive rights of the
shareholders upon capital increase);

Capital decrease

liquidation of the company.
Pursuant to the law and the Articles of Association a qualified majority of 3/4 of the represented
shares is required to pass resolutions for capital increase by profit capitalization, as well as transformation of
the Company.
Pursuant to the imperative provisions of the Law on Commerce, the resolution on amending and
supplementing the Articles of Association and dissolution of the company shall take effect subject to entry to
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the Trade Register. Increase or reduction of the capital, company transformation, election and discharge of
members of the boards, as well as appointment of liquidators shall be effective from the date of entry in the
trade register. All other resolutions shall take effect immediately unless their effective date is not explicitly
postponed.
According to the special provisions of the LPOS, the majority of three-quarters of the shares
represented at the General Meeting is required for the approval of transactions for acquisition of and disposal
of fixed assets at a value exceeding 1/3 of the Issuer‟s assets and in case that a related party is involved – over
2% of the assets. A majority of three-quarters is required to approve transactions by which within one year
fixed assets at a total value exceeding 1/3 (one-third) of the Issuer's assets are transferred or provided for use to
another person.
Dividends
Profit distribution by CEZ Electro in the form of dividends is allowed only by resolution of the
General Meeting of the shareholders after approval of the audited annual financial statements for the relevant
fiscal year. Advance distribution and payment of dividends is not allowed.
Dividends may only be paid if according to the audited financial statements for the relevant year, the
book value of the assets of CEZ Electro less the book value of the long-term and short-term liabilities and the
dividends subject to payment, shall be not less than the sum total of the share capital, the Reserve funds and
other funds, which CEZ Electro is required to set aside. Payment of dividends may be made up to the sum of
profit for the relevant fiscal year plus retained earnings from previous years, the part of the Reserve Fund and
the other funds of the Issuer exceeding the compulsory minimum less the uncovered losses from previous
years and the deductions for the Reserve fund and the other funds, which CEZ Electro is required to set aside.
According to the Articles of Association the Issuer shall commence payment of voted dividends within three
months from the date of the general meeting of shareholders at which the resolution approving the annual
financial statements and the profit distribution in the form of dividends has been passed.
Each Share entitles its holder to a dividend proportionate to the Share's par value. Once the company
becomes a public company, the right to receive a dividend is exercised by the persons entered in the Central
Depository as Issuer's shareholders on the Ex-Dividend Date. The Central Depository shall provide to CEZ
Electro a list of its shareholders as at that date. The only condition to pay a dividend to a person is that they are
included in this list.
Payment of dividends on book-entry shares shall be made through the Central Depository; the
Company shall transfer the funds for payment of dividends to the account of the Central Depository and the
Central Depository shall transfer the relevant amounts to the account of the investment intermediaries, which
keep the relevant accounts of shareholders, entitled to a dividend. Investment intermediaries are liable for the
payment of dividends to their clients - shareholders of the Company. Shareholders which accounts are not kept
by investment intermediaries will receive their dividends through a bank, designated by the Company or
authorized by the Central Depository.
Persons entitled to a dividend that fail to exercise that right within a five-year period of limitation,
shall lose their right to demand its payment. In such case, funds intended for payment of dividends shall
remain in favour of the Company.
Bulgarian and foreign shareholders shall be subject to the same procedure as regards their right to
receive a dividend or the procedures for its payment (see Taxation - Dividends).
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Transformation and Dissolution
CEZ Electro is subject to transformation according to the procedure set out in the Law on
Commerce. Only the General Meeting may pass resolution for transformation with majority of 3/4 of the
represented shares.
CEZ Electro may be transformed by bundling, merger, split-off, demerger, demerger of a singlemember company and by change of the legal form, with decision of SEWRC pursuant to the Law on Energy
and its implementing regulations. SEWRC shall allow transformation if the person, which will carry out the
business subject to licensing, meets the terms and conditions for issuing a license for that business. SEWRC
shall amend or terminate the existing license and/ or will issue a new license depending on the particular case
within one month after submission of the application. Withdrawal, amendment or issuing a license shall
become effective on the date of entry of the transformation in the Trade Register.
Once the company becomes a public company, transformation by change of the legal form will not
be allowed, and the transformation will be subject to the special provisions of the LPOS, which require that the
contract or the transformation plan, as well as other documents related to the transformation are approved in
advance by the Deputy Chairperson of FSC, who is the head of the Directorate of Investment Activities
Supervision.
FSC also has the authority to impose compulsory administrative measures, including compulsory
instructions and guidance to the Issuer provided that any decision of the shareholders at the General Meeting
or a decision of the Management Board or the Supervisory Board contradicts the law. The Financial
Supervision Commission may impose compulsory measures if a decision of the Management Board or the
Supervisory Board puts at risk the interests of the Issuer's shareholders or those of other investors.
The company may be dissolved:

by decision of the General Meeting, made with majority of two-third of the represented Shares;

if CEZ Electro has been declared insolvent; or
 by ruling of the court made upon a claim lodged by the public prosecutor, if (a) the company
pursuits goals, which are forbidden by law; (b) the net assets of the Company, calculated according
to art. 247a, paragraph t 2 of the Law on Commerce, are less than the issued capital and within one
year the General Meeting hasn't passed a resolution for reduction of the issued capital, for
transformation or dissolution of the Company, or (c) for 6 (six) consecutive months the number of
members of any board is below 3 (three).
Following the dissolution of the Company (except in case of insolvency proceedings) a liquidation
procedure shall be carried out. The General Meeting of the shareholders shall appoint a liquidator and their
remuneration shall be fixed (except in case of compulsory liquidation). A liquidator shall give effect to the
current transactions of the Company, collect the receivables of the company, and sell the Issuer's assets and
satisfy the claims of creditors. The liquidator shall invite creditors to lodge their claims against the company,
after the dissolution of the Company is announced. The notice shall be sent in writing to all known creditors
and shall be entered in the Trade Register. Distribution of the assets of CEZ Electro, if any, to its shareholders
shall be carried out not earlier than six months after the date of the above announcement and after satisfaction
of the claims of all creditors.
The dissolution of the Company shall be made only after a decision of the SEWRC for withdrawal of
the issued license by the procedure set out in the Law on Energy and its implementing regulations. Except in
case of compulsory withdrawal of the license after initiative of SEWRC, the decision of the Commission shall
determine a term as required for the actual termination of the activity or shall appoint an administrator. Until
completion of the procedure for license withdrawal the licensee shall exercise the licensed activity.
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Each share entitles its holder to liquidation quota proportionate to the par value of the share. Such
right will occur only upon liquidation of the company and if after the claims of all other creditors have been
satisfied; there are still assets to be distributed among shareholders. Public companies may not issue preferred
shares entitling their holders to additional liquidation quota.
Rights of minority shareholders
Once the company becomes a public company, it will be subject to the special provisions of the
LPOS ensuring the rights of the minority shareholders.
Art. 118 of LPOS provides that all persons holding jointly or severally at least 5% of the share
capital of the Company, shall have the following rights:
Right to lay claims to the court on behalf of the Company against third persons in case of inaction by
the management bodies of the Company, as well as a claim for compensation for damages caused to the
Company by the management or supervisory bodies or special proxy holders of the Company.
Such minority shareholders may lay claims on behalf of the Company against third persons in case of
inaction by the management bodies of the Company, which puts at risk the interests of the Company.
Such shareholders may also lay claims to the District court at the head office of the Company for
compensation for damages caused to the Company by missions or omissions of the members of the
management and controlling authorities and the special proxy holders of the Company.
Right to convene the General Meeting of the shareholders and to add issues and draft resolutions to
the agenda.
Such shareholders may refer to the district court to ask for convening the General Meeting or to
authorize their representative to convene the General Meeting under agenda determined by them. Additionally
they may ask for the inclusion of issues and propose draft resolutions on issues included in the agenda of the
General Meeting as provided by art. 223а of the Law on Commerce.
Right to appoint auditors
Such shareholders may ask the General Meeting or the district court to appoint auditors to verify the
whole accounting documentation of the Company and to issue a report of findings;
Changes in the rights of the shareholders
In principle, the rights of the shareholders may be changed by amendment in the Articles of
Association of the Company. A resolution for amendment of the Articles of Association shall be approved by
the majority of 2/3 of the represented Shares.
The basic rights attached to the ordinary shares, issued by the Company, as described above in this
section, may not be limited or excluded. The provisions of the Law on Commerce and the LPOS governing
these rights are mandatory and therefore the Articles of Association may set out additional rights but it may
not exclude or limit the rights, which these laws grant to the shareholders.
Pursuant to art. 113, paragraph t 1, item 2 of LPOS, the pre-emptive rights of the shareholders for
subscription of new shares upon capital increase may be excluded only if capital increase is necessary to carry
out fusion, tender offer for exchange of shares or to provide rights to holders of warrants or convertible bonds,
issued by the Company.
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Supervisory Board and Management Board
The Articles of Association provides for a two-tier management system, consisting of Supervisory
Board and Management Board. The members of SB and MB shall be legally capable natural persons or legal
entities. Pursuant to the Articles of Association, a member of a board may not be a person that:
 has been a member of the managing body or control authority or unlimited partner of a company,
which has been dissolved or declared insolvent if after the dissolution there were unsatisfied
creditors;
 is a spouse or a relative by direct line of descent, collateral line or by marriage to another
member of the Supervisory Board or the Management Board.
The members of the Management Board have no right on their own behalf or on someone else's
behalf to enter into transactions, to take part in companies as unlimitedly liable partners, as well as to be legal
representatives or members of management bodies of other companies not connected with the Company,
performing business competitive to the Company's business except with the consent of the Supervisory Board.
Before election, the members nominated to be members of the Management Board or the
Supervisory Board, shall notify in writing the Supervisory Board, respectively the General Meeting if they are
unlimitedly liable partners to any company; if they hold over 25% of the capital of other companies or if they
are members of the management bodies of other companies as general managers, representatives or members
of boards. If these circumstances occur after the election of the person for a member of MB or SB, he/she shall
notify immediately the Supervisory Board, respectively the General Meeting.
The members of the Management Board and the Supervisory Board have equal rights and obligations
regardless of the internal allocation of functions among them and the granting of the management right to the
Executive Director(s). The members of MB and SB must perform their obligations to the interest of the
Company.
The members of the Management Board and the Supervisory Board shall not disclose any
information about the company of which they have become aware in their capacity of members, if this could
influence the business or the development of the Company. This obligation will survive the termination of the
term of office of the members of the MB or SB. The obligation for confidentiality does not refer to
information, which according to the law is accessible to third persons and/or has been already disclosed by the
Company to third persons without imposing on them the obligation for confidentiality.
The members of MB and SB are required to provide a management guarantee in a size determined by
the General Meeting, which shall be at least their 3 (three) month gross remuneration. After the relevant
member is discharged from office and indemnified for his/her activity, the guarantee is recovered to him/ her
together with all accumulated interest. The members of the Management Board and the Supervisory Board are
jointly liable for the damages caused to the company. Every member of the MB or SB may be indemnified by
the General Meeting of the Shareholders, if it is established that he/she has no fault for any occurred damages.
Supervisory Board
The Supervisory Board of CEZ Electro supervises the exercising of the rights of the Management
Board and the conducting of the Company's business.
The Issuer's Articles of Association provides that the Supervisory Board comprises seven members.
The members of the Supervisory Board are elected and discharged by decision of the General Meeting of the
Shareholders, approved by simple majority. Members are elected for a period of 5 (five) years, except the
members of the first Supervisory Board, which are elected for a period of 3 (three) years and may be re-elected
unlimitedly. The Supervisory Board elects a chairperson and a deputy chairperson among its members. The
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Chairperson and the Deputy Chairperson take office on the date of their election and their duties are terminated
when they are removed from SB.
The General Meeting determines the remuneration of the members of the Supervisory Board, their
right to receive a part of the profit of the Company and the right to acquire shares or debt instruments of the
Company.
The LPOS provides that one-third of the members of the Issuer's Supervisory Board shall be
independent persons (i.e. they shall not be: (а) employees of CEZ Electro; (b) shareholders that hold directly or
by related persons at least 25% (twenty-five per cent) of the votes at the General meeting or related parties to
CEZ Electro; (c) persons, which have long-term business relations with CEZ Electro (d) members of the
management or supervisory body, special proxy holders or employees of a company or another legal entity
under letter b and c; (e) related persons to another member of the Management Board or the Supervisory Board
of CEZ Electro).
Authorities of the Supervisory Board
Pursuant to the valid Articles of Association, the Supervisory Board has the following authorities:

to approve its own rules of procedure;

to appoint and discharge members of the Management Board;
 to approve the appointment and to authorize the Executive Director(s) (if any) from the
Management Board , as well as to approve the decisions of the Management Board for authorization
of one or several of its members or one or several special proxy holders to represent the Company;

to approve rules of procedure of the Management Board;
 to approve the organizational structure of the Company and its staff, proposed by the
Management Board;
 to request from the Management Board to provide information or reports on any issue referring
to the Company;
 to define the key strategies for business development of the Company, which are subject to
approval by the General Meeting, if they require amendment in the Company's Articles of
Association;

to approve the decisions of the Management Board for opening and closing branch offices;

to approve the operating plans and the budget of the Company;
 to verify and approve the annual financial statements, the annual business report of the company
and the proposal for profit distribution, and to propose them for approval to the General Meeting;

to approve changes in the Company's accounting policy;

to determine the annual remuneration of the members of the Management Board; and

to make decisions on other issues, which are within its competence pursuant to the law.
Once the company becomes a public company and in accordance with the imperative provisions of
LPOS, the remuneration and the bonuses paid to the members of the Management Board shall be determined
by the General Meeting of the Shareholders.
The valid Articles of Association provides that in all cases the resolutions of the General Meeting
must comply with the requirements for independent operation of the electric distribution network operators in
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a vertically integrated structure, i.e. as a group of electric distribution companies and an electric supply
company – namely the Company.
The transactions mentioned below may be concluded only with the preliminary permission of the
Supervisory Board.
 approval of the execution by the Company of one contract or several interconnected contracts
(including court or out-of-court agreements) for one transaction or several interrelated transactions at
a value exceeding 33% (thirty-three per cent) of the Company's assets measured according to the
Accounting standards included in the balance sheet of the Company as at the end of the fiscal year
immediately preceding the meeting at which these contracts will be reviewed; the requirement for
decision of the Supervisory Board on that item will not apply to transactions made at regulated
prices; or
 approval of the execution by the Company of one contract or several interrelated contracts
(including court and out-of-court agreements) with shareholders holding 10% or more of the Shares
of the Company, with directors (or respectively members of the management board or the
supervisory board) of such shareholders or with directors of such related parties and which (a)
provide for payments or other remunerations in the course of the contract, which value exceeds
individually or in totality 5 % (five per cent) of the total value of the Company's assets, measured
according to the Accounting standards, included in the balance sheet of the Company as at the end
of the fiscal year immediately preceding the meeting at which these contracts are reviewed, or (b)
contain conditions deviating from the arm‟s length principle and from the fair market conditions,
provided that the requirement for a resolution of the Supervisory Board on this item shall not apply
to transactions concluded at regulated prices.
Once the company becomes a public company, the major transactions and/ or the transactions with
related parties shall be subject to the special requirements of the LPOS (see above Description of Shares and
Applicable Bulgarian law – Major Transaction and Related Party Transactions), and in the cases provided by
law, for the conclusion of these transactions will be required the preliminary permission by the General
Meeting of the Shareholders.
The Supervisory Board passes resolutions by simple majority of the members present and duly
represented at the meeting unless the law provides for a higher majority. The decisions will take effect
immediately unless their effectiveness is not explicitly postponed, except for the decisions of the Supervisory
Board for appointment and discharge of members of the management board. They are subject to entry in the
Trade Register and take effect on the date of entry.
Minutes are issued for each meeting of the Supervisory Board and these are signed by the secretary
of the meeting and by all members that are present. All documents presented at the meeting and the
authorizations by those members that are absent, shall be attached to the Minutes. Minutes shall be kept for a
period of at least 5 (five) years.
Management Board
The Issuer's Articles of Association provides that the Management Board comprises three members.
The Supervisory Board shall appoint and discharge members of the Management Board. The term of office of
the members of MB is 5 (five) years, except the members of the first Management Board, which are appointed
for a period of 3 (three) years and may be re-appointed unlimitedly. The management guarantees to be
provided by the members of the Management Board are determined by the General Meeting. The valid
Articles of Association provides that the remunerations of the members of the Management Board are
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Prospectus
determined by the Supervisory Board; once the company becomes a public company and consistent with the
imperative provisions of LPOS, the remuneration and the bonuses of the members of the Management Board
shall be determined only by the General Meeting.
The Articles of Association provides that a member of the Management Board may not be appointed
a person who as at the date of their appointment is (a) a member of the board of an electricity distribution
company or (b) is responsible for the management of an electricity distribution company including for the
operational management of the electricity distribution networks.
The Management Board shall appoint among its members one or several Executive Directors to
manage the day-to-day activities of the Company and to represent the Company to third persons. The
Executive Director(s) are appointed by simple majority and their authorization may be withdrawn at any time
by simple majority. Such resolution is subject to approval by the Supervisory Board. The names of the persons
authorized to represent the Company shall be entered in the Trade Register.
The Management Board shall appoint a chairperson and a deputy chairperson among its members.
MB shall appoint a secretary, who should not be necessarily a member of the Management Board.
Authorities of the Management Board
The Management Board shall make decisions within its competence in compliance with the
resolutions of the General Meeting, the Articles of Association and the valid law. The Company is managed by
the Management Board, which operates under the supervision of the Supervisory Board. The Management
Board shall report on its activity to the Supervisory Board at least once every three months, as well as to the
General Meeting.
The Articles of Association provides that in all cases the resolutions of the Management Board must
comply with the requirements for independent operation of the electric distribution network operators in a
vertically integrated structure, i.e. as a group of electric distribution companies and the electric supply
company – namely the Company.
The Management Board may not decide on issues requiring the preliminary consent of the
Supervisory Board or the General Meeting unless such consent is already obtained.
The Management Board may make decisions with a simple majority of the members present on the
following issues:
 determination of the key strategies for business development of the Company subject to approval
by the Supervisory Board and, where necessary, by the General Meeting;

opening and closing and branch offices with the approval of the Supervisory Board;

election of a chairperson and a deputy chairperson;
 delegating authorities to one or more of their members or to one or more of their special proxy
holders to represent the Company with the approval of the Supervisory Board;
 determination of the organizational structure of the Company and the one of the personnel with
the approval of the Supervisory Board;
 adoption of rules about the organization and the activity of certain structural units of the
Company with the approval of the Supervisory Board;
 appointment of senior officers of the Company, as for example the senior accountant of the
Company;

appointment of attorneys or trade representatives;
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 long-term cooperation of material significance for the Company and termination of such
cooperation; and
 any other issues, which are not within the exclusive competence of the General Meeting or which
do not require preliminary consent in writing of the General meeting or the Supervisory Board as
provided by the Articles of Association.
Minutes are kept for each meeting of the Management Board and are signed by the secretary of the
meeting and by all members that are present. All documents presented at the meeting and the authorizations by
those members that are absent, shall be attached to the Minutes. Minutes shall be kept for a period of at least 5
(five) years.
Some legal obligations for disclosure of information in the field of energy
The Law on Energy provides that enterprises, which do business in the field of yield of energy
resources, processing and trade in fuels, transformation, transfer, distribution and trade in energy are obliged to
disclose information in the following areas:
 They are required to submit annually to SEWRC their annual financial statements, including the
attachments thereto, according to the Law on Accounting and the annual auditor's report and
reporting information by types of activities.
 They are obliged to make researches and analyses, to develop short-term, medium-term and
long-term forecasts for the yield of energy resources, processing and trade in fuels and energy and
adopting the relevant plans to assure them; forecasts together with the relevant reporting information
and the prepared preliminary research, shall be submitted to the Minister of Economy, Energy and
Tourism, to SEWRC, to the mayors of the relevant municipalities, to the transmission enterprises and
the electricity system operator and the relevant distribution enterprises.
 They have to prepare at least once every two years and submit to the minister of economy,
energy and tourism, rehabilitation plans for undertaking measures to improve the efficiency of the
existing production capacities and networks, for building new capacities and networks at minimum
cost. The plans are accompanied by feasibility study and environmental analysis and options for
energy savings.
 Prior to submission to SEWRC of the application for approval of new prices or for amendment
of the existing prices, the companies are required to disclose through the mass media their proposal
for approval of the new prices or for amendment of the valid prices; within 7 days after receiving the
permission by SEWRC it shall publish in mass media the approved limit prices and the prices under
the contracts with the consumers;
 The company - end supplier shall sell electricity under terms and conditions, which are publicly
disclosed. The general terms and conditions shall be published in at least one national and one local
daily newspaper.
Disclosure of information by public companies
The Law against market abuse of financial instruments requires that companies admitted to trading
disclose insider information by the end of the business day, following the day on which the event has occurred
or the company has become aware of it. This information shall be disclosed concurrently to FSC and the
public.
Public companies are required to submit annual and quarterly reports (which contain their annual and
quarterly financial statements) to FSC and to the knowledge of the public. The annual statements contain
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information about the changes in the auditors of the company for the previous three years, the risk factors
relevant to the company and the economic sector in which it operates, review of the investments and the
company's business, analysis of the most significant trends in the production and sale of stocks, financial
prospects of the company for the current fiscal year, information about the members of the management and
supervisory boards, the senior management and the employees on whose work the company depends, principal
shareholders and related-party transactions.
The public company also has duties to disclose information about convened general meeting of the
shareholders (see Description of Shares and the applicable Bulgarian law” – „General Meetings of
Shareholders” – „Convening the General Meeting of the Shareholders” above) and notices concerning
disclosure of shareholdings of certain shareholders (see below „Description of shares and the applicable
Bulgarian law” – „Certain obligations for disclosure of information by shareholders and members of the
boards of public companies”).
Certain obligations for disclosure of information by shareholders and members of the boards
of public companies
The LPOS provides that every shareholder that acquires or transfers directly and/ or indirectly (as
provided by law) voting rights at the General Meeting of CEZ Electro shall inform the Company and FSC if:
(1) as a result of the acquisition or transfer, their voting rights exceed or fall below 5% or a number divisible
by 5%; (2) their voting rights exceed, reach or fall below the limits under item (1) as a result of events, which
cause changes in the total number of voting rights based on information disclosed by CEZ Electro upon every
change in the capital pursuant to art.112e of the LPOS.
The voting rights are calculated on the basis of the total number of voting Shares nevertheless a
restriction is imposed about the exercise of the voting right. Calculation is made for each individual class of
Shares.
In certain cases the requirement for disclosure is not applicable, as for example with regard to the
voting rights attached to Shares acquired only with the aim to perform clearing and settlement within the usual
settlement cycle, which may not be longer than three business days from the transaction date, as well as to
Shares held by trustees in that capacity and on the condition that they may exercise the voting rights attached
to the Shares only by order of the client issued in writing or by electronic means.
The obligation for notification shall be met immediately, however not later than four business days
after the date on which the shareholder or the beneficial owner of the voting rights: (1) has become aware of
the acquisition, transfer or the opportunity to exercise the voting rights or on which, according to the specific
circumstance, it should have become aware, regardless of the date on which the acquisition or transfer have
taken place or the opportunity has occurred for exercising the voting rights; (2) has been notified that their
voting rights have exceeded, reached or fallen below 5 % or a number divisible by 5% of the voting shares at
the general meeting of CEZ Electro as a result of events, which cause changes in the total number of the voting
rights based on information, which has been disclosed pursuant to art. 112e of LPOS. The duty for notification
refers also to individuals that hold directly or indirectly financial instruments entitling them to acquire at their
own initiative and on the basis of an agreement in writing voting shares giving the right to vote at the General
Meeting of CEZ Electro.
CEZ Electro shall disclose to the public the information provided by the notifications hereunder
within three business days after being notified.
The members of the Supervisory Board and the Management Board of CEZ Electro are required to
disclose to the Company, FSC and BSE: (а) the legal entities in which they hold directly or indirectly 25% or
more of the voting shares or which they control; (b) legal entities where they are members of the supervisory
or management boards or are appointed as procurators; or (c) the present and future transactions concerning
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which they could be identified as related "interested" parties. Failure to comply with the above requirements
represents an administrative breach according to the Bulgarian law.
The Articles of Association of the Company does not include explicit provisions concerning the
disclosure of the shareholding in the Company's capital above specific threshold.
Change of control over a public company and shareholders' rights
The LPOS provides that if any person (or a group of persons acting jointly) acquires over 50% of the
shares at the General Meeting of the shareholders of a public company, the said person is required that within
14 days after the acquisition make to the other shareholders a tender offer to purchase their shares. The price
per share in such offer shall be at least equal to the average weighted stock price for the last three months, the
highest price, paid by the bidders in the last 6 months and the fair value, obtained by applying several
generally accepted evaluation methods according to the regulation of FSC, whichever is the highest. As an
option, in addition to the compulsory cash payment, the individual acquiring the control may offer at the
discretion of the shareholders a replacement of their shares with own shares, issued for that purpose.
The tender offering may take place only if preliminary approved by FSC.
In addition to the direct acquisition of voting shares above the specified limit, acquisition of votes is
considered also the conclusion of an agreement to follow a common policy between shareholders holding
together over 50% of the votes, as well as the acquisition of shares/ votes on behalf of persons, acting on the
account of the actual controlling shareholder. Subsequent acquisition of over 2/3 of the votes also incurs the
obligation to make similar tender offering unless such acquisition is made within one year after the preceding
one (as specified above), as well as in certain cases provided by regulation, including if the exceeding of the
threshold of 2/3 is a result from increase of the shareholding of the controlling shareholder upon increase of
the capital of the Company with issue of rights, where the remaining shareholders didn't take part to such
extent so that to keep the previous ratio between shareholdings.
Failure to comply with the obligation for making a tender offer, further to being penalized by FSC as
an administrative breach, shall deprive the person in default by the right to vote at the general meeting of the
public company until the possible future compliance. This legal formulation represents an important legal
guarantee for the interests of the minority shareholders and particularly for the realization of their right to leave
a public company in case of change of control.
Involuntary redemption of shares and right to leave. Delisting from the register of public
companies
Involuntary redemption of shares
Every shareholder that as a result of a tender offer addressed to all shareholders, has acquired at least
95% of the voting shares of the Company („Principal Shareholder”) is entitled within three months after the
end of the tender offer to ask the other shareholders to sell all voting shares held by them (i.e. involuntary
redemption of shares). The terms and conditions for involuntary redemption of shares are subject to approval
by FSC. The price of shares subject to involuntary redemption shall be at least equal to the price of the recently
closed tender offer.
Involuntary redemption shall be announced in the manner applicable to the tender offer and also shall
be carried out by an investment intermediary. Shareholders shall sell their shares to the Principal Shareholder
within one month after the publication of the request for involuntary redemption. Shares, which are not sold
within that term, are considered property of the Principal Shareholder pursuant to the law upon expiration of
the one-month term.
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The Principal Shareholder shall hold the funds required to pay the price of the shares in a separate
bank account in favour of the eligible shareholders. Transfer of shares and payment of their price is done
through the Central Depository.
Withdrawal of already announced involuntary redemption of shares is possible only in case of some
restricted circumstances applicable to the compulsory tender offer.
Right to Leave
Every shareholder is entitled to demand from the person, which as a result of the tender offer has
acquired at least 95% of the voting shares of the Company, to purchase its shares within three months after the
closing of the tender offering,
The Principal Shareholder shall buy such shares within thirty days after receiving the demand. The
sale price may not be lower than the price of the recently closed tender offering.
Delisting from the register of public companies
The LPOS provides that an ordinary public company may be delisted from the register kept by FSC
(i.e. the company will lose its public status) if: (а) The General Meeting has passed a resolution about that with
the majority of at least 2/3 of the represented capital provided that the shareholders are less than 300 persons
and the value of the company assets is below BGN 500 000 for the last two years and as at the date of the
meeting; (b) a shareholder or shareholders holding at least 90% of the voting shares have made a tender
offering and in result they have purchased at least 1/2 of the remaining voting shares; if repurchased shares are
less than the specified then delisting is possible by decision of the General Meeting of the Company made with
the majority of at least 1/2 of the represented capital, which do not include the votes of the tender offerors
related to shares acquired before the tender offering; (c) a shareholder or shareholders that acquired as a result
of the tender offering to all shareholders at least 95% of the voting shares, have purchased involuntary all
remaining voting shares.
Tender offers and offers for involuntary redemption are subject to approval by FSC. A public
company is delisted from the register, kept by FSC, by decision of the Deputy Chairperson after fulfilment of
any of the actions and/ or procedures, specified in letters a to c.
Delisting of a public company by the register, kept by FSC, has material consequences for its
shareholders. The shares of the company shall be delisted tom the Stock Exchange and the trade in them shall
be terminated finally and their public offering shall become impossible. The joint stock company shall lose its
status of a public company and respectively it will not be subject any more to the special legal regime of the
Law on Public Offering of Securities featuring increased protection of the rights of the shareholders and
investors. It will become an ordinary joint stock company subject to the provisions of the Law on Commerce.
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REPUBLIC OF BULGARIA
General information
Bulgaria is a parliamentary republic. It is located on the Balkan Peninsula on an area of 110 thousand
square kilometres. Bulgaria's population is some 7.4 million, which comprises about 85% ethnic Bulgarians
and 9% of the population is of Turkish ethnic origin. Some 76% of the population is Orthodox, the official
language is Bulgarian - a Slavonic language using the Cyrillic alphabet. The Bulgaria's capital city is Sofia, the
biggest city with population of 1.27 million. The other two largest cities are Plovdiv, a city in the Central
Southern Bulgaria with population of approximately 332 thousand and Varna, a port city at the Black Sea with
population of approximately 330 thousand. Bulgaria is divided into 28 administrative districts.
Political Overview
After World War Two, a communist pro-Soviet regime was established in Bulgaria. In November
1989, following the collapse of the Socialistic system, the parliamentary republic in Bulgaria was restored.
From 1989 to 1997 despite of the changes implemented by the new democratic governments, the Bulgarian
Socialistic Party (the former Communist Party) retained its significant influence over the political situation in
Bulgaria. Following the heavy bank and economic crisis in 1996 and 1997, Petar Stoyanov - the nominee of
the United Democratic Forces - won the Presidential Elections in 1996 and the caretaker government with
Stefan Sofiyanski as a Prime Minister initiated a wide-range programme for economic reforms, which was
continued by the government with the Prime Minister Ivan Kostov of the Union of Democratic Forces (UDF) a wide anti-communist coalition, which won the majority of voices at the Parliamentary elections in the middle
of 1997. At the end of 1999, the political support for UDF became weaker, which resulted in delay in the
structural changes, required for the reform of the Bulgarian economy.
In April 2001 the former Bulgarian Tsar Simeon Saxe-Coburg- Gotha established the National
Movement Simeon II (NMSII) and captured a majority of the seats in the National Assembly at the
Parliamentary Elections that were held in June 2001. NMSII formed a coalition government with the
Movement of Rights and Freedoms (MRF). In November 2011, Georgi Parvanov, the nominee supported by
Coalition for Bulgaria (a coalition led by the Bulgarian Socialist Party), was elected a president for a term of
five years winning a victory over the Bulgaria's previous president Petar Stoyanov, supported by NMSII and
the Union of Democratic Forces. At the elections in June 2005, the Coalition for Bulgaria (led by BSP)
captured 82 of total 240 seats in the Parliament and NMSII and MRF captured respectively 53 and 34 seats. As
Coalition for Bulgaria didn't win enough seats to ensure parliamentary majority, a wide coalition government
with partners BSP, NMSII and MRF was established in the autumn of 2005. Sergey Stanishev, the leader of
the Bulgarian Socialist Party, was nominated a prime minister. In October 2006 at the Presidential Elections
Georgi Parvanov won a second 5-year mandate. The last regular parliamentary elections in July 2009 were
won by the formation Citizen for European Development of Bulgaria (GERB), which was founded by the
Mayor of Sofia Boyko Borissov, with 116 seats in the Parliament. Coalition for Bulgaria was second with 40
seats, followed by MRF with 38 seats, the party Ataka with 21 seats, Sinyata Koalitsia (the Blue Coalition mainly the Union of Democratic Forces and Democrats for Strong Bulgaria) with 15 seats and Red, zakonnost
i Spravedlivost (RZS - Order, Legality and Justice) with 10 seats. Boyko Borissov formed a one-party
government, as at the date of this Prospectus the support for the government in the Parliament seems to be
stable.. At the last presidential elections, which were held in October 2011, the nominee of GERB Rosen
Plevneliev (the former Minister of Regional Development and Public Works) was elected a president. The next
regular parliamentary elections should be held in 2013 and the presidential elections - in 2016.
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At the European Parliament elections that were held on 7 June 2009, GERB won by 24.36%
followed by Coalition for Bulgaria with 18.5% and MRF (14.14%), Ataka (11.96%), NMSII (7.96%) and the
Blue Coalitions (7.95%) and thus in the European Parliament GERB captured five seats, Coalition for
Bulgatria - four seats, MFR - three seats, Ataka - two seats, NMSII - two seats and the Blue Coalition - one
seat. The European parties, respectively groups in the European Parliament, to which belong the above
formations, are the following: GERB and the Blue Coalition - the European People's Party (EPP group); BSP the Party of European Socialists (Progressive Alliance of Socialists and Democrats); MRF and NMSII - The
European Liberal Democrat and Reform party (Alliance of Liberals and Democrats for Europe); Ataka (independent, previously - Identity, Tradition and Sovereignty).
At the two rounds of the local government elections on 23 and 30 October 2011, GERB won
independently and in coalition 14 district centres, 8 district centres were won by BSP or nominees supported
by BSP, followed by the right wing (2), MRF (1) and two independent, and the nominee of GERB Yordanka
Fandakova won the elections for mayor of the capital city. The next parliamentary elections will be held in
2013.
The current government led by Boyko Borissov announced a governance programme with the
following priorities:
 Increasing people‟s income and providing for the economic growth and modernization of the
Bulgarian economy

Guaranteeing rule of law, fighting corruption and crime;

Reforming the judicial system in order to restore the sense of justice in society;

Restoring the trust of the EU in Bulgaria in order to unfreeze the blocked EU funds
 Improving the social security of the Bulgarians. Establishing favourable and healthy living
conditions ensuring the personal and public health.
 Developing Bulgaria‟s human capital and creating the conditions for the success of every
individual.
 Turning Bulgaria into a main factor for stability in the region and the world, a respected member
of EU.
The specified priorities were announced in conditions of growth of the Bulgarian economy, which
soon were replaced by recession. For that reason, considering that the government has passed over half of its
mandate, increasing the citizens' income is not so comprehensible (additionally a certain part of the people's
income goes for repayment of the loans received during the period of the boom in crediting in 2005 - 2008). In
2011 the minimum wage was increased, as well as the allowance to the pension of a surviving spouse. A key
direction for growth and modernization of the economy are the large-scale infrastructural projects (highways,
public sport buildings, etc.) In the conditions of crisis, the police manages to a certain extent to protect the
public order and in some aspects it has even achieved certain successes (for example kidnapping). There are
doubts for inefficiency and corrupt practices in the legal authorities and repudiation of fundamental civil
rights. With regard to European finance, to which the country relies very much, is seen certain unfreezing of
European funds,.however their use is still unsatisfactory so far. The social security has not marked visible
improvement; however the impact of recession should be taken into account. The government implemented
important reforms in the pensioning system, which in difference to other European countries, were approved
with relative consensus among negotiators (government, employers and trade unions) and didn't result in
outcries. The reform includes gradual increase of the required length of service and retirement age (to reach
finally 63 years for women and 65 years for men), which generally does not solve the problems of the system
in general, but would bring some relief in the course of time. Furthermore, in practice a part of the professional
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pension funds (only those of the category workers that are expected to retire until 2014) were directed to the
National Social Security Institute. Bulgaria has the reputation of a reliable and secure partner in the region but
nevertheless the declared European goals such as the accession to ERM II and the Schengen Area were not
achieved.
In 2011 for the purpose of better financial stability, especially considering the situation in many
European countries, the Parliament adopted (by amendment of the Law on the Government Budget Structure)
that effective from 1 January 2012 the maximum permissible budget deficit shall be 2% of GDP and the
reallocation of budget funds from the government should not exceed 40% of GDP. The amendments are a part
of the Stability and Growth Pact (initiated by the government). The third measure of the Pact - change of the
direct taxes only with parliamentary majority of two-third of the votes, must be implemented as an amendment
in the Constitution and will be reviewed separately.
On 22 November 2002 Bulgaria was invited to join NATO at the NATO Summit in Prague. On 18
March 2004 the Bulgarian Parliament ratified the North Atlantic Treaty and Bulgaria was officially admitted a
member of the Alliance on 29 March 2004. In 2004 Bulgaria closed the negotiations for EU accession. The
Accession Treaty was signed in Luxembourg on 25 April 2005 and Bulgaria became an EU Member State on
1 January 2007. Despite of the admittance of our country as a full member of EU, the European Commission
will continue overseeing the progress of Bulgaria in the implementation of the judicial reform and the fight
against corrupt practices. For the Bulgarian citizens apply more restrictions for work abroad than those
applying to the citizens of the states from the previous wave of enlargement, which with few exceptions are
still valid as at the date of this Prospectus.
The legislative system in Bulgaria follows the continental model. The Constitution of Republic of
Bulgaria has priority to any other regulatory acts. The main duty of the Bulgarian Constitutional Court is to
pass judgements on the compliance with the constitution of the regulatory acts, adopted by the Parliament. All
international treaties, ratified as provided by the constitution and promulgated in the State Gazette, are binding
and have priority over the norms of the national law. Recognition of foreign court decisions by the national
courts is made subject to the availability of mutuality and in compliance with the compulsory provisions of the
Code on Civil Proceedings.
Bulgarian economy
Modern History
Before 1989 Bulgaria had centrally planned economy oriented to the countries from the Council for
Mutual Economic Assistance (COMECON). The collapse of COMECON in 1991 had a severe adverse effect
on the Bulgarian economy. In the early 90s of 20th century, the implementation of the ambitious programme
for economic reform was prevented by the political instability and the lack of decisiveness for conducting the
economic policy. In the middle of the 90s the increasingly growing losses of the industrial and bank sector,
together with the increased payments on the domestic debt and the worsening deficit on the current account
caused significant outflow of currency from the country, which resulted in the heavy financial crisis in 1996.
The value of the bank deposits dropped from USD 7,4 billion to less than USD 1.8 billion (as at March 1997)
and the inflation reached its peak - 242,35 % per month in February 1997. The Bulgarian economy started to
recover from the crisis after reaching an agreement for support by the International Monetary Fund (IMF).
Introduction of the currency board system
As a part of the reforms proposed by IMF in July 1997 the government of the country introduced the
currency board system by amendments to the Law on the Bulgarian National Bank. The exchange rate of the
Bulgarian lev was fixed to the Deutsche Mark in proportion 1000 levs for 1 Deutsche Mark. Following the
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introduction of euro and the denomination of the lev, the exchange rate of the lev was fixed to the euro at level
1.95583 for 1 euro. The lev is fully convertible currency secured by the currency and gold reserves of BNB.
The currency board system provides for strict policies and procedures to ensure stability of the
exchange rate. A key principle of the currency board system is securing at any time the money supply with
corresponding reserves of foreign currency held by BNB. The Central Bank may not finance the public sector
deficit unless the increased levels of the international currency reserves do not allow relevant increase of
money supply in levs. BNB also may not take part in agreements for repurchasing Bulgarian government
bonds. The crediting of the bank system by BNB is restricted to the cases of liquidity crisis and to the amount
by which the foreign reserves exceed the money stock. These rules significantly restrict the opportunities of
BNB to act as a creditor and a last resort for the bank system. The only instrument of the monetary policy
available to the central bank is the determination of the size of the minimum compulsory reserves of the
Commercial banks.
With the first indications for the forthcoming crisis in February 2009, the Bulgarian government
declared its intentions that the Currency board shall remain until the Bulgaria's accession to the Eurozone. At
the same time leading opposition parties also joined around the need that the Currency board and the existing
fixed rate of the lev to euro remain until the Bulgaria's accession to the Eurozone. In March 2009 in his
address to the investment society, the BNB governor declared that despite of the process of adaptation through
which the Bulgarian economy would pass as a result of the global financial and economic crisis, such
adaptation shall be carried out within the existing regime of currency board and at the current level of the
exchange rate of 1.95583 for 1 euro and he emphasized that Bulgaria will not make any experiments and will
not speculate in its currency regime, which is the milestone of the Bulgarian macroeconomic financial
stability.
Gross domestic product
After the financial crisis of 1996 - 1997 until 2008 including, the gross domestic product (GDP)
turned upwards mainly as a result of the increased consumer demand and internal and foreign direct
investments. In 2009 and 2010 the country was seriously impacted by the global economic crisis, whereas the
first indications for going out of the crisis appeared in the fourth quarter of 2010.
Nominal GDP* (million levs)
Real GDP (% change)
Nominal GDP per capita (lv.)
2004
39,824
6.7
4,989
Source: National Statistical Institute
2005
45,484
6.4
5,529
2006
51,783
6.5
6,411
2007
60,185
6.4
7,379
2008
69,295
6.2
8,711
2009
68,322
-5.5
8,735
2010
70,511
0.4
9,362
2011
75,265
1.7
-
*GDP - end use costs - national level, current prices
In 2011 the gross domestic products marks a growth of 1.7% in real numbers and its value reached
75,265 million levs in current prices. The added value generated in the economy in 2011 increased to 64,831
million levs, marking a growth of 1.8% on an annual basis, which is one of the highest compared to the
previous periods.
A greater part of GDP of Bulgaria is formed by the sector of services followed by the sector of
industry and the agrarian sector.
The industrial sector creates 31.2% of the value added of the economy, which is by 1.7 % more in
comparison to 2010. The sector of the services creates 63.2% of the total value added, and the agrarian sector
reaches 5.6% of the value added. Of the categories of the end-used GDP the investments in main capital reach
a relative share of 20.9% in the total volume of GDP. The individual consumption of the population has 68.6%
of GDP.
GDP increases by 1.6% in the fourth quarter of 2011 compared to the same quarter of the previous
year. In the fourth quarter of 2011 compared to the same quarter of the previous year the gross value added
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increases by 1.2%, whereas its dynamics is determined mainly by the registered growths in: the professional
activities and research; administrative and ancillary activities – by 14.2%; creation and dissemination of
information and creative products; distant messages – by 6.8%; and the industry – by 6.1%. There is a
decrease during the reviewed period in construction - by 8.5%; culture, sports and recreation; other activities;
activities of the households as employers; non-differentiated activities of the households in the production of
goods and services for own production; activities of the exterritorial organizations and departments - by 5.4%,
and services in the field of commerce - by 2.8%. With regard to the components of the end use the major
contribution for the registered positive economic growth of 12.6% is the export of goods and services. The
gross capital formation in share capital has a slump by 9.7%. Source: National Statistical Institute
Inflation
After handling the hyperinflation caused by the bank crisis in 1996 - 1997 and with the introduction
of the currency board system, the growth in prices got stabilized at quite low levels. The annual inflation rate
(at the period end), measured with the Consumer Price Index (CPI) in 2009, 2010 and 2011 was respectively
0.6%, 4.5% and 2.8%. Source: National Statistical Institute.
In 2010 a trend was observed to acceleration of the inflation rate and the key factors for that
dynamics were the significant increase in the international prices of energy products and agricultural products,
which affected the end consumer prices of fuels and foods in Bulgaria, as well as the increase in the excise
duty on tobacco products.
At the end of 2011 in comparison to the previous year there is an increase in the prices in eight of the
twelve consumer groups, whereas the biggest is the increase in the prices of the services for education (4.5%),
the food products and non-alcoholic beverages (4.3%) and of the goods and services in the transport (4.0%).
There is a decrease in the prices of the goods and services, concerning the free time (-2.3%), of the goods and
services in the messages (-0.6%) and of the housing furniture, the household appliances and the other goods
for usual maintenance of the home (-0.2%). Source: National Statistical Institute.
Employment, wages and pensions
The restructuring of the state-owned enterprises and significant shrinkage of the enterprises from the
public sector resulted in high levels of unemployment immediately after the crisis in 1996 - 1997. After it
reached 17,9% at the end of 2001, the level of unemployment turned downwards, 16,3% at the end of 2002,
13,5% at the end of 2003, 12,2% at the end of 2004, 10,7% at the end of 2005, 9,1% at the end of 2006, 6,9%
at the end of 2007 and 6,3% at the end of 2008, being retained at the lowest levels in the recent seventeen
years. As a result of the economic crisis, from 2009 the level of unemployment started increasing. In 2011 for
a third year in a sequence the unemployment in the country increased. According to data of the National
Statistical Institute, the coefficient of unemployment increases by 1.0 % in comparison to 2010 and reaches
11.2%. With men the coefficient of unemployment increases by 1.4 %, and with women - by 0.5 %, and
reaches 12.3 and 10.0% respectively.
The observed permanent tendency of a decrease in the average annual coefficient of unemployment
in Bulgaria (according to data of the National Statistical Institute) in the period 2002 - 2008 made it possible
for a stage by stage approximation, equalization and outrunning of the reported average annual coefficients of
unemployment for the European Union (EU-27) and the Eurozone in the period 2007 - 2009. In 2010 the
reported for Bulgaria via Eurostat coefficient of unemployment indicates an interruption of this 3 year positive
tendency of slump. In Bulgaria in 2010 and 2011 the reported average annual coefficient of unemployment is
higher than the average for the European Union.
After 2000 the average income level is permanently increasing. The average monthly salary in
Bulgaria was 360 levs in 2006, 431 levs in 2007, 545 levs in 2008, 609 levs in 2009, 648 levs in 2010 and
reached 707 levs for 2011
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It must be noted that the average monthly salary in the public sector announced by the National
Statistical Institute traditionally is higher than the one in the private sector. Widely distributed is the
understanding that the official data about the income of the Bulgarian households are undervalued due to the
significant share of unreported income. This phenomenon probably will gradually disappear with the
development of the financial system in Bulgaria and the need of good financial history both of households and
employers.
The Bulgaria's pension system was reformed in January 2000 in order to stabilize the existing system
of cost-covering type by introducing the scheme of compulsory additional pension insurance, managed by
private pension funds. Bulgaria's pension system is based on three pillars - state compulsory pension
insurance, private compulsory pension insurance and private voluntary pension insurance. In 2010 the
government made important reforms in the pension system, which were approved with consensus among
negotiators (government, employers and trade unions). The reform gradually increases the required length of
service and pension age (to reach 63 years for women and 65 years for men). After new negotiations and
changes to the Social Security Code at the end of 2011, the age for retirement starts to grow by 4 months since
2012.
Balance of payment, foreign trade and direct foreign investments
In 2011 the surplus on the current account of Bulgaria amounted to EUR 361,4 million (0,9% of
GDP), with deficit of EUR 375,8 million (1,0% of GDP) and EUR 3 116,2 million (8.9% of GDP),
respectively for 2010 and 2009. The data show that the deficit on the current account decreased significantly
and in 2011 the country already as a surplus. A key factor for that improvement was the decrease of the deficit
on the balance of trade. If in 2009 as a result of the economic crisis and demand shrinking the improvement
came from the import, in 2010 and 2011 the deficit of the trade balance dropped down due to the increase in
the export of goods.
The foreign trade balance (export FOB – import CIF) is negative in 2011 and amounts to EUR
1,974.6 million, which is by approximately EUR 0.8 billion less than the balance for 2010.
In 2011 the value of the import (fob) was EUR 22,201.3 million, marking an increase by 21.1 %
compared to 2010 (EUR 18,324.8 million). A key factor for the increase in import due to their big relative
weight in the total value of import were the raw materials, mineral products and fuels (due mainly to the higher
international prices), the chemical products and the machines.
The export of goods in 2011 reached EUR 20,226.7 million, which is an increase by 30.0 %
compared to 2010 (EUR 15,561.2 million). A key factor for the increase of export in 2011 is the higher
international demand and international prices of some goods traditionally exported by Bulgarian companies.
The increase of export in the previous year due to their big relative weight in the total value of export was due
to the groups "base metals and products of them", “various ready products”, "machines, vehicles and devices"
and "mineral products and fuels".
In 2011 according to preliminary data of the National Statistical Institute, the export of Bulgaria to
third countries increased by 24.4% compared to the previous year and amounts to BGN 14.8 billion, and the
import increased by 19.2% and reaches BGN 18.6 billion. In 2011 the export of Bulgaria to EU increased by
33.6% compared to the previous year and amounts to BGN 24.7 billion, and the import has increased by
22.8% and amounts to BGN 27.0 billion.
On the other hand, the decreasing financial flows on the financial account of the Bulgaria's balance
of payment resulted in negative balance in 2010 and 2011 (for the first time in the recent several years) to the
amount of EUR 698.5 million and EUR 1,194.3 million respectively. The two main reasons about that are the
serious decrease in direct private investment, as well as the main source of instability - the big private debt of
non-financial institutions to non-residents. The repayment of loans to banks related to this debt may be
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supplemented by the closing of the deposits of non-residents in local banks. Refinancing of the private debt of
non-financial institutions to non-residents may be difficult in the event of new deepening of the global
financial crisis. If these data become a trend, then the currency reserves may be put under certain pressure.
In 2011 according to preliminary data of BNB, the direct investments amounted to EUR 1 341.2
million compared to EUR 1 208,5 million for 2010 and EUR 2 436,9 million for 2009. The attracted direct
investments in 2010, according to data of the Ministry of Finance, are in the form of share capital and to the
banking sector in the form of reinvested profit.
Public finance
From 2003 to 2008 including, the governments followed sustainable policy of budget surpluses in
order to limit the stimuli for increase in the trade deficit and the deficit on the current account of the balance of
payment. In 2009 the new government in the conditions of already forthcoming economic crisis admitted a
budget deficit (in 2010 and 2011 too) but notwithstanding the country has one of the best indicators among all
EU member states (the sixth best indicator in 2010 according to data of Eurostat).
In 2010 the sector of the public finance was characterized by stability (due to updating of the budget
in the middle of the year), and the realized deficit (3.1%) is lower than that in 2009 and is little above the
Maastricht criterion. In 2011, according to data of the Ministry of finance, the budget deficit on a cash basis is
to the amount of 2% of GDP, which is considerably less than the forecasted deficit according to the
consolidated fiscal program for 2011 - 2,5% of GDP.
Indebtedness
At the end of December 2011 according to data of the Ministry of Finance, the nominal amount of
the government debt amounts to EUR 5 945.9 million, of which EUR 2 458.3 million internal and EUR 3
487.6 million external. At the end of 2011 the ratio „government debt /GDP ” is 15.3%., and the debt
denominated in USD reached 15.6%, of the debt denominated in EUR – 53.3%, in BGN – 28.6%, and in other
currencies – 2.5%.
The gross foreign debt of Bulgaria at the end of 2011 was EUR 35,384.7 million and decreased by
EUR 1,666.7 million compared to the end of 2010 (EUR 37,051.4 million). As a percentage of GDP the gross
foreign debt is 91.9%, which is a decrease by compared to 2010 (102.8% of GDP).
At the end of 2011 the long-term liabilities were 71.8% of the Bulgaria's gross foreign debt, and the
short-term liabilities were 28.2% of it. Source:BNB.
NATO and the accession to the European Union
Bulgaria was invited to join NATO at the NATO Summit in Prague held on 22 November 2002. On
18 March 2004 the Bulgarian Parliament ratified the North Atlantic Treaty and Bulgaria became a full member
of the Alliance on 29 March 2004.
In 1988 Bulgaria established diplomatic relations with the European Union. In 1993 Bulgaria signed
the European accession agreement, which entered into force in 1995. Bulgaria submitted its application for EU
membership in December 1995 and two years later started the initial negotiations. The Commission presented
its first regular report on Bulgaria's progress towards accession in November 1998. The second report, released
in 1999, recommended opening formal negotiations.
The accession negotiations started on 15 February 2000 and were closed on 15 June 2004, six
months ahead of schedule. The technical closing of the last two negotiation chapters ended on 14 June 2004.
The European Parliament gave its support to Bulgaria's EU membership in April 2005. The
Accession Treaty was signed in Luxembourg on 25 April 2005 and it was ratified by the Parliament on 11
May 2005. In October 2005 the Monitoring Report of the European Commission determined that Bulgaria
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should be subject to an addition six-month probation term and by April or May 2006 it must "undertake
immediate and resolute measures for change" in the field of judicial reform and the fight against corrupt
practices on the high levels of power.
In the next Monitoring Report of 16 May 2006, the Commission confirmed that Bulgaria continues
complying with the political criteria from Copenhagen and that it has a functioning market economy.
Concurrently, in total of six political areas, which continue to give rise to "serious doubts", the Commission
decided to review the process of reforms in Bulgaria in October 2006 and based on this review to decide
whether the initially scheduled date for membership i.e. 1 January 2007 is still achievable. In this last
monitoring report of 26 September 2006, the Commission gave the green light for the Bulgaria's accession in
2007 but it insisted for additional reforms. In case of failure to keep the requirements, the Commission
reserved the right to introduce protective measures, which would result in suspension of payments.
The final monitoring report of the Commission set more stringent conditions for the Bulgaria's
accession to EU in 2007. The country will be closely monitored about the remaining areas of concern. It
includes the judicial system, the fight against corrupt practices, the political cooperation and fight against
organized crime, money laundering, the Integrated Administrative and Control System for Agriculture (IACS),
the measures for protection against Bovine Spongiform Encephalopathy in animals and the Creutzfeldt–Jakob
disease in humans and the financial control
In case of failure to comply with the requirements, the Commission may impose protective measures.
The Accession Treaty provides for three types of protective measures: economic, concerning the common
market and concerning justice and home affairs, which may be imposed up to three years after the accession.
This may result in bans for export of foods and suspension of EU funds such as agricultural and structural
funds, as provided in the report. Additionally there are transitive agreements such as limitation of the free
movement of workers from the new Member States. Further the Commission may undertake rehabilitation
measures to ensure the functioning of the EU policy. It concerns areas such as food safety and aeronautics,
agricultural funds, justice and fight against corrupt practices.
Despite of the discussed option for imposing the so called protective clauses in some for the
indicated areas of concern, it didn't happen and Bulgaria was admitted a full-member of EU on 1 January
2007.
The next goals to the Bulgarian government are to join the system of the Exchange rate mechanism 2
(ERM II) and compliance with the Maastricht criteria for a period of two years, which is a prerequisite for
joining the Economic and Monetary Union (the Eurozone) and the introduction of euro, as well as joining the
Schengen agreement for abolishing the border control at the internal boundaries and for a common visa
system.
The expectations that joining to ERM II will become concurrently with the Bulgaria's accession to
EU didn't come true and the negotiation process still continues. The current government announced that one of
the key priorities will be joining ERM II. After the ambiguous reactions by different individuals and bodies in
EU, this priority has been frozen, probably in terms of the fact that within the conditions of economic crisis the
government was not able to meet the criterion for budget deficit (the today's government revised the data about
the deficit in 2008 and 2009 due to annexes to contracts executed by the former government with fiscal impact
on the budgets for the indicated years). The forthcoming inclusion of Bulgaria to ERM II to a great extent will
depend on the views of ECOFIN about the sustainable development of the economy in general, as well as on
the apprehensions of the states in and outside the Eurozone for its future development. In the conditions of
ERM II, the main challenge to the country probably will be the compliance with the criteria inflation rate and
budget deficit (although the indicators of the latter remain one of the best within EU).
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The expectations that with the performance of the technical criteria for membership to the Schengen
area, it would become a fact, didn't come true. Despite of the resolutions in June and October 2011 of the
European Parliament in support to Bulgaria and Romania and the positive assessments by influential European
leaders (including posing the issue as a priority by the Hungarian and Polish Presidency of the EU Council this
year), at the meeting of the ministers of the interior of EU on 22 September 2011, Holland and Finland
blocked the entry of Romania and Bulgaria to the Schengen Area. The main argument about that was that
Bucharest and Sofia didn't handle the problems with corruption and organized crime. A compromise with
Holland and Finland must be worked out in order to come to membership. The optimistic expectations of the
government are that by the end of 2011 differences will be accommodated.
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INFORMATION ABOUT THE BULGARIAN MARKET OF SECURITIES
Capital markets
Bulgarian Stock Exchange
The trading in shares of public companies is conducted on the Bulgarian Stock Exchange, which is
currently the only regulated stock market in Bulgaria. At the end of 2011, the market capitalization of
companies, traded on the BSE was 16.1% of the Bulgarian GDP compared to 55.5% at the end of the peak
2007. (Source: data of BSE, BNB, own calculations).
The Bulgarian Stock Exchange was created by merger of the largest stock exchanges in Bulgaria in
1995 and two years later in October 1997 it was licensed by the Securities and Stock Exchanges Commission.
At present the Bulgarian government, through the Ministry of Finance, controls 50.05% of the capital of the
Bulgarian Stock Exchange, after the capital increase in 2010.
Until 1 March 2012, equity securities were traded on the Official market (segment A and B) and on
the Unofficial market (segment A and B) of the Bulgarian Stock Exchange. In general terms, the Official
Market is aimed at large public companies with high market capitalisation and high volume of trade in their
shares, whilst the Unofficial Market targets smaller, less well developed companies. However, many Bulgarian
blue chip companies have chosen to list on the Unofficial Market where the regulations are not so stringent.
Since 1 March this year the Stock Exchange has organized two new markets: Primary Market and Alternative
market. Within the Primary market operate two segments for equity securities - Premium and Standard.
Generally it may be assumed that the major part of the issues traded earlier on the Official market (segment A
and B) and on the Unofficial market (segment A only) will be now traded on the Primary market, Premium
Equities Segment and Standard Equities segment, while those earlier traded on the Unofficial market (segment
B only) will be traded on the Alternative market of shares. All issues of financial instruments, admitted to
trading on the markets organized by the Exchange until 1 March 2012 are transferred to the relevant market
and segment, with the highest requirements, which the issues meet in compliance with the criteria set out in the
new Appendix III of the BSE Regulations, effective from the date they enter into force. Also the Exchange
organizes Initial Public Offering Segment on the Primary market - for initial public offering and Privatisation
Segment - for sale of residual state-owned shares.
The Bulgarian Stock Exchange is still considerably smaller and less liquid than most of the European
stock exchanges. During the last years the Bulgarian Stock Exchange has made efforts to ensure higher
transparency and equal treatment of all parties, market price information, remote trading, a T+2 settlement
period, information disclosure and dissemination requirements and National Corporate Governance Code.
In addition to the Bulgarian equity securities, a variety of financial instruments can be traded on the
Bulgarian Stock Exchange, including corporate, government, municipal and mortgage-backed bonds, options
etc. In addition, "compensatory instruments", a type of security issued by various public bodies to persons who
did not receive restitution of assets nationalised during the communist regime after 1990, have been listed on
the Bulgarian Stock Exchange since 2002.
In 2010 the BSE‟s capital was increased and in result the government share rose from 44% to
50.05%. The main argument about that was the subsequent sale of BSE to a strategic investor, which would be
willing to acquire a major shareholding in the Exchange. Also during this year it was decided that BSE would
become a public company. By this process the requirement that any member of the Exchange shall hold at
least 20 000 shares of its capital, was abolished. The trade in shares of BSE started on 6 January 2011, at
presently they are traded on the Primary market.
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Significant interest has been demonstrated throughout the years, especially before the occurrence of
the global financial crisis, by a number of foreign stock exchanges in the acquisition of the government-owned
stake in the Bulgarian Stock Exchange or simply in establishing partnerships with the Bulgarian exchange.
Several of them, including the Nordic operator OMX, Deutsche Boerse, Borsa Italiana, Warsaw Stock
Exchange, Athens Stock Exchange and Vienna Stock Exchange, have officially announced to be potential
bidders if the government decides to open a privatisation procedure for the state-owned stake.
At 31 December 2011, the market capitalisation of the companies traded on the Bulgarian Stock
Exchange was 3.123 million levs on the Official Market and 7.629 million levs on the Unofficial Market. In
2010 the total stock exchange turnover was 174.9 million levs on the Official Market and 218,4 million levs on
the Unofficial market.
At the end of 2011, shares of 401 companies were registered for trading on the Bulgarian Stock
Exchange, of which 24 companies were registered for trading on the Official Market, 307 on the Unofficial
Market and 70 on the Market of real estate investment trusts. Additionally, shares of 6 investment companies
were traded on the Market of collective investment schemes.
The table below sets out the turnover and capitalisation of equities on the Bulgarian Stock Exchange
for the years 2005 to 2011.
Official market
Turnover (million levs)
Market capitalization (million levs)
Unofficial market
Turnover (million levs)
Market capitalization (million levs)
2005
2006
2007
370.2
2,148.30
843.5
5,642.50
1,279.80
8,537.50
929.6
6,285.70
1,449.90
9,671.50
6,506.20
20,449.20
2008
2009
2010
2011
874.7
3,459.30
336.8
3,640.50
145.3
3,479.30
174.9
3,123.5
881.8
7,375.00
230.4
6,546.00
346.8
5,862.70
218.4
7,628.9
Source: Bulgarian Stock Exchange
Regulatory base, supervision and development of the Bulgarian capital markets
In the last decade, most of the efforts in the Bulgarian capital markets field have been concentrated
on the development and stabilisation of the legal framework, the trading infrastructure and the institutions
involved.
In 1995, more than 20 stock exchanges were operating in Bulgaria. However, these stock exchanges
were unregulated and lacked effective supervision over insider trading. In July 1995, the Parliament adopted
the Securities, Stock Exchanges and Investment Companies Act, and in January 1996 the government
appointed members to Bulgaria's Securities and Stock Exchange Commission.
The development of the Bulgarian capital markets in the period from 1996 to 1999 demonstrated the
need for more extensive regulation. In December 1999, the Bulgarian parliament adopted the Law on Public
Offering of Securities, which came into effect in February 2000. The Law on Public Offering of Securities
aimed at providing protection to investors, developing a stable, transparent and efficient capital market and
ensuring equal access and treatment for all participants. After the adoption of the Law on Public Offering of
Securities, the Securities and Stock Exchange Commission was renamed National Securities Commission.
New legal rules concerning corporate governance, introduction of the requirement for shareholders‟ approval
of major transactions, directors‟ duties and continuing disclosure obligations for public companies were
introduced in June 2002.
In the EU accession process both the Bulgarian parliament and the Bulgarian securities regulator
accomplished much work in order to harmonise Bulgarian capital market legislation with the EU directives on
market abuse, prospectuses, transparent reporting obligations, investment services, Undertakings for Collective
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Investment in Transferable Securities (UCITS) and other relevant capital markets directives. The amendments
to the Law on Public Offering of Securities in May 2005 constituted a further step in that direction. From 1
January 2007 amendments to the Law of Public Offering of Securities came in effect with the purpose of
implementing the provisions of Council Directive 85/611/EEC on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in transferable securities (UCITS);
Directive 97/9/ЕC of the European Parliament and of the Council on investor-compensation schemes;
Directive 2003/71/ЕC of the European Parliament and of the Council on the prospectus to be published when
securities are offered to the public or admitted to trading and amending Directive 2001/34/EC; and from 3 July
2007 also the provisions of Directive 2004/109/ЕC of the European Parliament and of the Council on the
harmonization of transparency requirements in relation to information about issuers whose securities are
admitted to trading on a regulated market and amending Directive 2001/34/ЕC, and Directive 2004/25/ЕC of
the European Parliament and of the Council on tender bids.
In 2007 the efforts for harmonization of the Bulgarian law with the European continue by adoption of
the Law on Markets in Financial Instruments which implements the provisions of Directive 2004/39/ЕC of the
European Parliament and of the Council on markets in financial instruments amending Council Directives
85/611/EEC and 93/6/EEC and Directive 2000/12/ЕC of the European Parliament and of the Council and
repealing Council Directive 93/22/EEC; Commission Directive 2006/73/ЕC implementing Directive
2004/39/ЕC of the European Parliament and of the Council as regards organizational requirements and
operating conditions for investment firms and defined terms for the purposes of that Directive, and Directive
2006/49/EC of the European Parliament and of the Council on the capital adequacy of investment firms and
credit institutions (recast).
In 2011 the Law Collective Investments Schemes and Other Collective Investment Undertakings
Activities was adopted, which aims to implement in the Bulgarian legislation the requirements of Directive
2009/65/EC on on the coordination of laws, regulations and administrative provisions relating to undertakings
for collective investment in transferable securities (UCITS).
At the end of 2002, the Financial Supervision Commission was created, taking over the regulatory
functions of the National Securities Commission (created in 1996 as Commission for Securities and Stock
Exchanges), the Insurance Supervision Agency and the Social Insurance Supervision Agency. The legislation
to introduce this change entered into force on 1 March 2003 and the members of the Financial Supervision
Commission were nominated by the Bulgarian parliament shortly thereafter.
The Financial Supervision Commission is an independent state body, whose five members are
elected by the Bulgarian parliament for a term of six years. The Financial Supervision Commission‟s members
are the chairperson, three deputies in charge of the three areas of supervision (namely, capital markets,
insurance markets and social insurance activities) and one more member.
The Financial Supervision Commission regulates public offerings of, and trading in, securities and
the conduct of the securities markets, investment intermediaries, the Central Depositary and collective
investment companies, as well as the Investor-compensation Fund. Under the Law on Public Offering of
Securities, the Financial Supervision Commission must approve any public offering of securities. Following
the approval of the Financial Supervision Commission, the board of the Bulgarian Stock Exchange resolves on
listing of equity securities.
The Financial Supervision Commission exercises control over listed companies, issues and
withdraws licences, gives confirmations and approvals, carries out inspections of the operation of banks in
connection with their activities as investment intermediaries and depositaries and exchanges information with
the BNB, other state institutions and bodies, and non-governmental organisations related to the securities
market.
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Prior to 1 March 2003, the National Securities Commission was a member of the International
Organisation of the Securities and Stock Exchange Commissions (IOSCO). This membership passed to the
Financial Supervision Commission on 1 March 2003.
FSC was also a member of the Committee of European Securities Regulators, which since 1 January
2011 was replaced by the new European Securities and Markets Authority. The chairperson of FSC is a
member of the Supervisory Board of ESMA.
Types of markets organised by the BSE
Since 1 March 2012 the markets organized on the Bulgarian Stock Exchange are the following:
 Primary market of the Bulgarian Stock Exchange or BSE, in which the following segments have
been identified:
Premium Equities Segment
Standard Equities Segment
Segment of Real Estate Investment Trusts
Bonds Segment;
UCUTS Segment;
Compensatory Instruments Segment;
Structured Products Segment;
Rights Segment;
Privatisation Segment;
Initial Public Offering Segment
 Alternative market (Bulgarian Alternative Stock Market or BaSE) on which the following
segments have been identified:
Equities Segment;
Segment for Real Estate Investment Trusts
Privatisation Segment
Shares of joint stock companies with limited liabilities, owned by the state, for which a decision is
made for privatisation via public offering shall be traded on the Privatisation Segment of the Primary market.
Registration of shares in the Privatisation Segment is made by an application submitted by a member
of the stock exchange having executed a contract with the PPCA for intermediation upon the sale of stateowned shares; a true copy of the said contract shall be attached to the application.
Additionally the application (if the issuer of shares is not a public company as at the date of
submission of the application) shall be accompanied by the documents generally required pursuant to art 17,
paragraph t 2 of the stock exchange regulations about registration of an issue of shares on Standard Equities
Segment of the Primary market, including Prospectus for Public Offering of Shares, approved by FSC and
proofs of the assignment of an ISIN code and registration of the shares in a depository institution.
Only Offered Shares shall be initially registered on the Privatisation Segment of the Main market as
described above, and after completion of the procedure for the sale of the state-owned stake, an application
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shall be submitted for registration of all shares, issued by CEZ Electro, on the Primary market, Standard
Equities Segment of the BSE.
Primary market (Premium and Standard Equities Segment) and Alternative market of equities
General information
Securities of one issue may be traded either on the Primary market or on the Alternative market of
the Bulgarian Stock Exchange.
Pursuant to the Law on Public Offering of Securities, all securities traded on the Bulgarian Stock
Exchange must be book-entry securities, registered in the Central Depository and freely transferable. In
addition, the Bulgarian Stock Exchange rules provide that the issuer of the securities must not be in a
bankruptcy or liquidation procedure (this is not applicable to issues traded on the Alternative market) or in
process of transformation and the issuer must comply with the requirements of the Law on Public Offering of
Securities in all other respects.
Eligibility criteria for the individual segments on the Primary market
The Rules of the Bulgarian Stock Exchange provide eligibility criteria depending on whether
admission is sought for the Premium Equities Segment or the Standard Equities Segment of the Primary
Market.
Premium Equities Segment of the Primary market
To be eligible for admission to Premium Equities Segment of the Primary Market, the shares must
have been:
 traded for at least one year on the Standard Equities Segment of the Primary market. Any issue
failing to meet that requirement may be admitted by decision of the Board of Directors of BSE
provided that the issuer's equity exceeds 50 million levs according to the latest audited financial
statements; and
 the issuer has at least five complete financial years and has realized profit in at least 2 of the
recent 5 years and at least 25% of the issue of shares is held by minority shareholders or the total
value of shares held by such shareholders is at least 5 million levs; and
 the average monthly turnover for the recent 6 (six) months is at least 300,000 levs (three hundred
thousand) and the average monthly number of trades for the same period is at least 150 (one hundred
and fifty); and
 the issuer has committed itself to perform activities in accordance with the National Corporate
Governance Code, approved by the stock exchange; and

the issuer is not in a bankruptcy or liquidation procedure,
 In the last 12 months the issuer has disclosed in due term pursuant to the applicable law, the
regulated information (only one delay for the last 12 month is allowed not exceeding one day after
the relevant deadline for provision of the regulated information),
 the issuer shall disclose regulated information to the public in English too through mass media at
its option in the terms set out in the applicable law.
Admission to the relevant Premium Equities Segment of the Primary market is possible also if the
issue does not meet the requirements for average monthly turnover and the number of trades in the last 6 (six)
months but only if the issuer has executed a contract securing minimum liquidity of the issue with a market
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maker.
By decision of the BSE's Board of Directors a registration of an issue on the official market is
admitted also if it does not meet the requirement for a minimum period of trading before the registration but
only under the following conditions:
 the issuer's equity, according to the last audited financial statements, is at least the equivalence of
50 million levs;
 there are enough indications, according to the judgement of the Board of Directors, that the issue
will enjoy increased interest on the part of investors.
Standard Equities Segment of the Official market
All issues that do not meet the quality and quantity criteria of the Premium Equities Segment, as well
as issues of shares of closed-type investment companies nevertheless they meet the requirements of the
Premium Equities Segment or no, are eligible for trading on the Standard Equities Segment of the Primary
market. Furthermore:
 the average monthly turnover for the recent 6 (six) months shall be at least 4,000 levs (four
thousand) and the average monthly number of trades for the same period is at least 5 (five).
 In the last 12 months the issuer has disclosed in due term pursuant to the applicable law, the
regulated information (only one delay for the last 12 month is allowed not exceeding one day after
the relevant deadline for provision of the regulated information),

The issuer shall not be in a bankruptcy or liquidation procedure,
Alternative market of shares
Any issues, which do not meet the quality and quantity criteria of the Premium Equities Segment or
the Standard Equities Segment of the Main market of shares, are admitted to trading on the Alternative market.
Admission to trading on the Alternative market of any issue, which was not admitted earlier to
another market or segment, is not possible.
Admission to trading on the Alternative market is carried out only by ex officio transfer of the issue
by the Exchange.
Issuer of shares, traded on the Alternative market may be subject to liquidation and insolvency
proceedings.
Trading
Trading on the Bulgarian Stock Exchange is made through the trading platform of Deutsche Boerse –
XETRA.
On 30 October 2007, the BSE signed an agreement for the implementation of a new trading system –
XETRA. According to the agreement, the German Exchange will organise the trading and assume the
technical control over it. XETRA was developed for the Frankfurt Stock Exchange in 1997 and users from 19
countries have access to it. The new system started working in the middle of June 2008.
The decision of the Bulgarian Stock Exchange to implement Xetra® is based on the awareness of the
necessity for internationalisation and integration with leading capital markets. This means that, on the one
hand, the main technical requirements will be in place so that the current participants in trading through
Xetra® will have a direct access to the Bulgarian market. On the other hand, the Bulgarian participants will
have the opportunity to trade in more than 17,000 financial instruments listed on Xetra® in accordance with
the principle of common entry point after meeting the membership requirements.
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Xetra® is one of the most powerful trading platforms and is a synonym for the electronisation and
internationalisation of securities trading. The Vienna Stock Exchange has been using Xetra® since November
1999 and the Irish Stock Exchange – since June 2000. In addition, trading on Eurex Bonds and Eurex Repo as
well as electricity trading on the European Energy Exchange in Leipzig run entirely through Deutsche Boerse
technology. The Shanghai Stock Exchange, which is the largest one in China, also intends to use Xetra®
technology as the core element of its future trading platform.
XETRA‟s market model includes 2 main forms of trading – auction and continuous trading. In
addition, XETRA offers functionalities for initial public offerings (IPO) and for disclosure of over-the-counter
trading (OTC).
Any transactions in financial instruments admitted to trading on the exchange are concluded on the
basis of the sell and buy orders entered by the exchange members (order driven market) and the quotes of
market makers.
The duration of a trading session varies depending on the specific type of instrument and the market
where it is listed. Low liquidity instruments registered for trading are traded in through two explicitly
scheduled auctions while all other instruments are traded in continuously in combination with one interim
auction.
Any transaction concluded on the exchange is closed in compliance with the principle of delivery
versus payment, which means that the transfer of the financial instruments is simultaneous with and
interrelated to the payment under the transaction. These activities are performed by Central Depository through
a non-cash settlement.
The trading fees are paid to the exchange by each party to the transaction and they are set as a
percentage of the value of the respective transaction.
Any transactions in financial instruments admitted to trading on the BSE are concluded on the basis
of the sell and buy orders entered by the exchange members and the quotes of market makers. The orders and
quotes are a firm commitment to purchase or sell a certain volume of financial instruments at a certain or
market price and in accordance with additional parameters.
Main types of orders
Market orders – buy and/or sell orders for a certain volume of financial instruments at the best price
on the exchange market as of the time of their entry into the exchange trading system.
Limit orders – buy and/or sell orders for a certain volume of financial instruments at a specified limit
price.
Market-to-limit orders – market orders which are to be executed at the best limit in the order book. If
there is no order on the other side at the time of entry or if only counter market orders are live, a market-tolimit order is rejected by the system.
Additional types of orders
Stop orders which can be:
1) Stop market order – when the stop price is reached or exceeded for stop buy orders or fallen below
for stop sell orders, the stop order is automatically placed in the order book as a market order;
2) Stop limit order – when the stop price is reached or exceeded for stop buy orders or fallen below
for stop sell orders, the stop order is automatically placed in the order book as a limit order.
Iceberg orders – limit orders valid for the day, which are characterised by an overall volume and a
peak volume and for which only the remaining part of the peak volume is visible in the system at any time.
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When an order is entered in the system, it is assigned ex officio a priority and unique number. The
priority of the orders entered on the exchange is as follows: 1) first priority – price; 2) second priority – time of
entry if the respective orders have the same price. Price priority means priority of: 1) buy orders with a higher
price in comparison to those with a lower price, respectively sell orders with a lower price than those with a
higher; 2) market orders before limit orders. The priority of the time of entry means priority of the orders
entered earlier if they have the same prices. Only the priority of time of entry applies to market orders.
The COBOS System
The Bulgarian Stock Exchange owns the intellectual property rights to its own internet-based
application for secure and authorised real-time access to the trading systems of the Unofficial Market, known
as the Client Order-Book Online System ("COBOS"). The system was put in operation in 2003. Orders for
trading in securities are submitted to the trading system through COBOS and are identical to all other orders.
Use of COBOS is restricted to investment intermediaries, their clients and the administrators of COBOS. In
2010 and 2011 the number of participants decreased significantly (as a result of their transfer to competitive
trading platforms of different investment intermediaries).
Settlement
Transactions executed on the Bulgarian Stock Exchange are considered closed after the securities
have been transferred and payment received. This is certified by a document issued by the Central Depositary.
Transactions are settled on a gross basis. Since June 2003, when the Real-Time Interbank Gross
Settlement System (known as "RINGS") was introduced, the settlement cycle has been operating on a T+2
basis by applying the principle "delivery versus payment" (DVP), which means that the transfer of securities
occurs concurrently with payment. The Bulgarian Stock Exchange maintains a fund in order to secure
payments relating to trades made on the Bulgarian Stock Exchange. This is funded by the members of the
Bulgarian Stock Exchange, as well as by the income realized by investing the raised funds. Every member of
the Bulgarian Stock Exchange is required to make an initial payment of 1000 levs and monthly payments of
0.005% of the average total value of the transactions executed by such member in the preceding calendar
month, excluding cross transactions and bonds transactions.
When the value of the fund reaches 0.5% of the total value of all the trades executed on the Bulgarian
Stock Exchange in the last twelve months, no further instalments are required to be made until the next
calendar year.
Indices
The first official index for the Bulgarian Stock Exchange was SOFIX. SOFIX was established on 20
October 2000 with an initial index value of 100. The SOFIX daily value is calculated as its base value is
multiplied by the ratio of the sum of the market capitalisation of all issues in the index portfolio as of the
current moment, adjusted by the divisor, the weight factor and by the free-float of each issue, towards the sum
of the market capitalisation adjusted by the weight factor and the free-float as of the base moment. The
commission on indices determines the free-float ratios.
The index includes the 15 issues, which meet the general criteria upon selection of issues, which
have the highest market value of free-float. To be included in the index, a company must meet certain
eligibility requirements:
 its shares must have been traded on a market, organized by the Stock Exchange for at least three
months prior to its inclusion in the index. If an issue has been traded in different segments, the initial
date of trading is assumed the first date of entry for trading;
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 the market capitalisation must be at least 40 000 000 levs (forty million) and the free-float must
be at least 25 (twenty-five) per cent of the issue value or the market value of the free float must be at
least 10 000 000 levs (ten million).

the number of shareholders must be at least 500 (five hundred);

the realized turnover in the last year must be at least 2,000,000 levs (two million);

the number of trades in the last year must be at least 750 (seven hundred and fifty).
From the beginning of 2011 by the end of the year, SOFIX marked a decrease by some 11% from
362.35 on the last trading day in 2010 to 322.11 on 30 December 2011.
On 1 February 2005 a second Bulgarian Stock Exchange index, BG40, was launched. It was also
established with an initial index value of 100. The index comprises the shares of the forty companies having
registered the highest number of trades in the previous six months. Unlike SOFIX, BG40 is price-weighted
index.
In addition to the general criteria to the inclusion of an issue in the calculation of BG 40, the
following additional criteria must be met: its shares must have been traded on a market, organized by the Stock
Exchange for at least 3 (three) months prior to its inclusion in the index. If an issue has been traded in different
segments, the initial date of trading is assumed to be the date of its first quote;
From the beginning of 2011 by its end, BG40 marked a decline by approximately 1% from 114,70 at
the end of December 2010 to 113,69 on 30 December 2011.
On 3 September 2007 the Stock Exchange launched the last two indices - BG TR30 and BG REIT.
The initial index value of BG TR30 is 1 000 and it comprises the shares of 30 companies. BG TR30 is an
index, based on the change in the prices of the shares included in it, as each one of the issues included is with
an equal weight
Issues included in the calculation of BG TR30 must meet the following criteria:

they must have market capitalisation of at least 10,000,000 levs (ten million);
 the free float (the total number of shares held by up to 5 % of the votes at the General Meeting of
the issuer) shall be at least 10% of the issue;

the number of shares of the issue shall be at least 250,000 (two hundred and fifty thousand)
From the beginning of 2011 by its end, BG TR30 marked a decline by approximately 13% from
303.51 at the end of December 2010 to 264.50 on 30 December 2011.
BG REIT is based on market capitalization, adjusted by the free-float of 7 real estate investment trust
for securitization of real properties or land. The index started with 100 base points and is the only one that
marked an increase by over 18% in the year and as at 30 December 2011 its value is 51.25 points.
INDEX - SOFIX
Beginning of the period
Period end
Highest value
Lowest value
INDEX - BG40
Period end
Highest value
Lowest value
2007
1,224.12
1,767.88
1,981.08
1,220.13
2007
200.08
506.16
638.89
200.08
2008
1,767.88
358.66
1,767.88
315.56
2008
517.80
109.65
516.43
92.48
2009
358.66
427.27
514.67
257.65
2009
107.81
117.08
137.21
84.30
2010
427.27
362.35
444.87
342.71
2010
117.16
114.70
120.53
102.60
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2011
362.35
322.11
451.56
301.01
2011
114.70
113.69
134.56
104.17
128
INDEX - BGREIT
Period end
Highest value
Lowest value
INDEX - BGTR
Period end
Highest value
Lowest value
2007
100.00
99.45
107.7
98.81
2007
1.000
1,097.48
1,235.64
1,001.51
2008
103.41
45.81
106.28
45.61
2008
1,097.48
272.82
1,097.99
250.98
Prospectus
2009
48.53
46.79
50.39
37.65
2009
272.82
334.84
377.36
184.96
2010
48.01
43.35
48.12
38.16
2010
334.84
303.51
340.49
272.01
2011
43.35
51.25
52.54
42.91
2011
303.51
264.50
365.72
242.97
Source: Bulgarian Stock Exchange
On 19.09.2011 a new index was introduced on the Bulgarian Stock Exchange. It is named CGIX
(Corporate Governance Index). Its base value is 100 points. The index comprises seven companies.
Suspension of trading on the stock exchange
Suspension of trading on the stock exchange by FSC
Pursuant to the provisions of art. 100u, paragraph 1, item 5 and 6 of the Law on Public Offering of
Securities, art.118, paragraph t 1, items 4 and 9 of the Law on Markets in Financial Instruments and art. 37,
paragraph t 1, item 2 of the Law on Market Abuse of Financial Instruments, FSC may suspend the trading on
the stock exchange for up to ten consecutive days or may terminate trading completely if it has sufficient
grounds to believe that the applicable laws have been violated (for example violations connected with
disclosure of information by the Company), as well as for the purpose of preventing or terminating the
violations, preventing FSC from exercising its supervisory activity or other situations, which infringe the
interests of the investors.
In the period between the approval of this Prospectus and the commencement of the trading in the
Shares on BSE, latest by the end of the next business day after the occurrence, respectively becoming aware of
a material new circumstance, a material error or inaccuracy connected with the information contained in the
Prospectus, which may influence the assessment of the Shares, the Company shall prepare an appendix to this
Prospectus and shall submit it to FSC for approval. The Financial Supervision Commission may refuse to
approve the appendix to the Prospectus in case that the requirements of the LPOS and its implementing
regulations are not complied with and in this case the supervisory authority may terminate in full the trading in
the Shares as provided by art. 212 of the LPOS.
Suspension of trading on the stock exchange by BSE
Trading in financial instruments, including the Shares may be also terminated by BSE in the event
of certain violations and other circumstances specified in the BSE Regulations if this measure will not cause
significant harm to the interests of the investors and will not prevent the correct market functioning (art. 91,
paragraph t 1 of the Law of Markets in Financial Instruments, chapter two of Part III related to art. 65 and
art.66 of Part IV of the BSE Regulations). Such circumstances may include: a) occurrence of an event
connected with the Shares or the Company, which may influence their price; b) in case of initiating of a
procedure for Company's transformation; c) in case of submission of an application to the Central Depository
for registration of a change in the par value of the financial instruments; d) when the Company has failed to
meet its obligation for disclosure of information; e) in case of failure to pay in due time the annual registration
fee as specified in the Tariff of the Stock Exchange Fees. In the cases of letters a to d, the executive director of
BSE may make decision for suspension of the trading for up to 3 (three) business days. The trading director of
BSE may make decision for suspension of trading for 1 (one) business day.
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Currency Legislation in Bulgaria
The Bulgarian Law on Currency of 1999 (last amended in December 2011) sets out the legal regime
for transactions and payments between local and foreign person, cross border transfers and payments and the
import and export of Bulgarian levs and foreign currency. The provisions of Regulation (EC) 1889/2005 of the
European Parliament and the Council apply in respect of imports and exports of cash. The discussion below
sets out those aspects of the legal regime relevant to foreign persons that invest in shares.
Pursuant to provisions of Regulation (EC) 1889/2005 (implemented by Ordinance No. H-1/ 2012 of
the Ministry of Finance), Bulgarian and foreign natural persons are allowed to import and export cash up to
10,000 Euro or their equivalence in other currency freely, without any obligation to declare the sums to the
customs authorities. Bulgarian and foreign natural persons are allowed to import and export to or from third
countries (non EU members) cash of or in excess of 10,000 Euro or their equivalence in other currency only
after declaration to the customs authorities. (by filling customs declaration). Bulgarian and foreign natural
persons are allowed to import and export to or from countries (EU members) cash of or in excess of 10,000
Euro or their equivalence in other currency with the obligation to declare the sums to the customs authorities
only on request.
In addition, any person who exports sum in excess of 30,000 levs or their equivalence in other
currency shall submit a tax clearance certificate issued by the relevant directorate of the National Revenue
Agency attesting that this person has no overdue tax liabilities. Such declaration is not required by foreign
persons who export cash not exceeding the cash, which they have declared to the customs authorities upon
their last entry in Bulgaria – in this case the persons declare in front of the customs authorities only the type
and the amount of the carried funds, whereas for evidencing the previously declared circumstances present in
front of the customs authorities also the declaration, submitted by them upon their last visit to the country.
A foreign natural person or legal entity transferring income (made up of capital gains and dividends)
specifies in front of the provider of payment services the remittance information. Besides, upon the
performance of a cross border transfer or payment to a third party of income to an amount, equal or exceeding
30,000 levs or the equivalence resulting from an investment in Bulgaria (including investments in shares and
other securities and derivatives over securities issued by Bulgarian companies) or from the sale of such an
investment shall present to the Bank effecting the transfer, proofs of the investment, its sale and the payment
of all due taxes thereon. Upon transfer of shares according to the Bulgarian law, no state fees are due.
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TAXATION
General information
The information set out in this section regarding certain taxes applicable in Republic of Bulgaria,
applies to the holders of Shares including tax residents and non-residents of Bulgaria.
Residents - natural persons are individuals, regardless of their citizenship, whose permanent
residence is Bulgaria or who reside in Bulgaria more than 183 days in each 12-month period. A resident is also
a person whose centre of life interests (which is determined by the family, the property, the place of activities
or the place of management of the property) is placed in Bulgaria, as well as a person, who is sent abroad by
the Bulgarian State, its bodies and/or organizations, Bulgarian enterprises, and the members of his/her family.
Residents - legal entities are legal entities and unincorporated entities, established according to the
Bulgarian law, as well as European joint-stock companies and cooperatives, established according to the EU
law (Regulation (EC) 2157/2001 and Regulation (EC) 1435/2003, which seat is in Bulgaria and which are
entered in a Bulgarian register.
The residents - legal entities and natural persons are jointly referred to as "Bulgarian Holders".
Non-residents (legal entities and natural persons) are persons, who do not comply with the above
definitions. Collectively they are referred to as "Non-Bulgarian Holders".
This summary is not exhaustive and is intended only as a general guide; therefore, it should not
be considered a legal or tax advice to any particular holder of Shares. Accordingly, it is recommended
that potential investors consult their own tax and legal advisers as to the overall tax implications,
including the taxation in Bulgaria of income related to the Shares and the tax regime of acquisition,
ownership and disposal of the Shares.
The information given below complies with the effective laws at the date of issuance of this
Prospectus and CEZ Electro Bulgaria AD shall not be liable for any subsequent amendments of the law and
regulations concerning the taxation of income from Shares.
Capital Gains
Pursuant to the Law on Natural Persons Income Taxation („LNPIT”), income from transactions in
shares and rights of public companies, concluded on a regulated Bulgarian market of financial instruments,
including those concluded under the conditions of public offering within the meaning of LPOS (Disposal of
Financial Instruments), received by Bulgarian natural persons or foreign natural persons, who are tax
residents of European Union Member States or any other state belonging to the European Economic Area, is
not subject to taxation (art. 13, paragraph t 1, item 3 related to §1, item 11 of the Additional Provisions of
LNPIT and art. 37, paragraph t 7 LNPIT).
Income from transactions in shares of the Company (capital gains) as well financial assets in general,
received by foreign natural persons from third countries other than those specified above, are subject to 10%
tax on the taxable income (art. 37, paragraph t 1 and art. 46, paragraph t 1 LNPIT).
The realized capital gains from transactions in shares and rights on the regulated market (including in
case of public offering) shall be deducted from the reported financial results upon determination of the taxable
base of the legal entities, which are subject to taxation pursuant to the Law on Corporate Income Taxation (art.
44, paragraph t 1 related to §1, item 21 of the Additional Provisions of the Law on Corporate Income
Taxation („LCIT”).
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However, please note that loss from transactions in shares and marketable share rights of the
Company realized on a regulated Bulgarian market of financial instruments is not recognized for tax purposes
and the financial result is transformed (increased) thereof (art. 44, paragraph t 2 LCIT).
Any capital gains with source from Bulgaria, realized by legal entities - non-residents are not subject
to withholding tax (art. 196 LCIT).
Tax exemptions concerning profit from transactions in Shares do not apply to transactions which are
not considered Disposal of Financial Instruments (for example sales of Shares, concluded on the over-thecounter market other than public offering, regardless of the fact that according to the stock exchange
regulations they are subject to registration/ disclosure on the Stock Exchange). Income from sale of Shares by
such transactions, realized in Bulgaria by non-residents, is subject to taxation in Bulgaria. Unless a double
taxation convention applies, such income is subject to 10% withholding tax on the positive margin between the
sale price of the Share and their acquisition price proven by a supporting documentation. Income from sales of
Shares upon such transactions, realized by Bulgarian holders, are subject to taxation pursuant to the general
rules of the LCIT and LNPIT.
Income from dividends
Dividends distributed by the Company to Bulgarian Holders (except for Bulgarian companies and
sole traders) and to Non-Bulgarian Holders (except for foreign legal entities - tax residents in any European
Union Member State or a state, which is a signatory to the European Economic Area Agreement) are subject to
a 5% withholding tax levied on the gross amount of the dividend (art. 38, paragraph t 1 related to art. 46,
paragraph t 3 LNPIT and art. 194, paragraph t 1 related to art. 200, paragraph t 1 LCIT).
Dividends, distributed to Bulgarian companies and sole traders are not recognized as income for tax
purposes and are deducted from the tax financial result of these Bulgarian Holders (art. 27, paragraph t 1, item
1 of LCIT).
Tax treatment of income from dividends paid in favour of foreign legal entities, which are tax
residents to an EU member state or a state, which is a signatory to European Economic Area Agreement shall
be settled in the law of the relevant European Union Member State or the state belonging to the European
Economic Area Agreement. Income of such persons is not subject to withholding tax in Bulgaria (art. 194,
paragraph t 3, item 3 of LCIT).
Double Taxation Avoidance Treaties
A Non-Bulgarian Holder may be subject to exemption, reimbursement or use of a tax credit of the
Bulgarian income tax or a part thereof if Bulgaria and the country of its residence have executed a double
taxation avoidance agreement („DTAA”).
The procedure for applying the tax concessions for foreign persons in accordance with valid DTAA
is set out in chapter sixteen, section III of the Code on Tax and Social Security Proceedings. Provided that the
total amount of income is in excess of 500 000 levs, the foreign person shall attest to the Bulgarian tax
authorities the existence of grounds to apply DTAA. A Non-Bulgarian Holder of Shares is entitled to use the
relevant tax concessions by submitting an application form, accompanied by evidence attesting that:
 it is a resident of the country with which Bulgaria has executed the relevant double taxation
avoidance agreement (by submitting a certificate issued by the tax authorities of the relevant country
or otherwise in compliance with the usual practice of the foreign tax administration);

that it is the beneficial owner of the income from the Shares (by submitting a tax return);
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 it has a permanent establishment or place of business on the territory of the Republic of Bulgaria
to which the income from dividends are actually connected (by submitting a tax return); and
 all applicable requirements of the relevant DTAA have been met (by submitting an official
document or another evidence in writing).
Further, additional documentation shall be submitted to the Bulgarian revenue authorities to attest the
type, the amount and the grounds for gaining the income; thus a resolution of the General Meeting of the
shareholders of the Company for allocation of dividend and a document attesting the number of shares held
(for example a depository receipt) may be submitted with regard to the income from dividends. The request for
applying the double taxation avoidance agreement, accompanied by the required documents, shall be
submitted to the Bulgarian revenue authorities for every Non-Bulgarian Holder immediately after a resolution
to approve the distribution of dividends has been passed by the General Meeting of the Shareholders of the
company. If the Bulgarian revenue authorities refuse tax exemption, the Company shall deduct the full amount
of the tax due for the paid dividends at the rate of 5%. The shareholder, which application for tax exemption
has been rejected, may appeal against the decision.
If the total amount of the dividends or any other form of income paid by the Issuer is less than 500
000 levs annually, the non-Bulgarian Holder is not required to submit a request for application of DTAA to the
Bulgarian revenue authorities. However it must attest to the Company the existence of the above
circumstances and must submit the above described documents attesting the grounds for applying DTAA on
the part of the Company.
The distribution of dividends in the form of new shares is not subject to taxation, i.e. no tax is due on
profit distribution in the form of additionally issued shares.
The issuer is responsible for the withholding taxes at the origin in all cases when the law imposes
such obligation on the issuer.
Other taxes
Inheritance tax
Pursuant to chapter two, Section II of the Law on Local Taxes and Fees, a heir shall pay tax on any
property inherited by law or by last will and testament. Tax is not due if the inheritor is the surviving spouse
or heirs of direct line of descent unlimitedly (children, grandchildren, parents, grandparents). Inherited
property (rights less obligations of the legator) is measured as at the time the inheritance comes into being and
in case that the inherited property includes securities, they are assessed at market value, and when the market
value may not be determined without incurring significant costs or difficulties, they are calculated by nominal.
Once measured, the hotchpot is divided into inheritable shares in accordance with the Law on Inheritance. The
amount of the tax due shall be determined for each heir or legatee individually as follows:
 for brothers and sisters of the legator and their children - from 0,4% to 0,8% for any inheritable
share exceeding 250,000 levs;

for other persons - from 3,3 to 6,6 % for any inheritable share exceeding 250,000 levs;
These tax rates are the maximum tax rates permissible according to the Law on Local Taxes and
Fees; every municipal council shall determine by regulation the particular size applicable to the relevant
municipality, within the above limits.
Tax on donation
Pursuant to chapter two, Section III of the Law on Local Taxes and Fees, a tax applies to the value of
the property, acquired by donation or otherwise free of charge. No tax is due if the property is acquired by
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Prospectus
donation between spouses or relatives of direct line of descent. The tax is due by donee on the value of the
acquired property; in case that these are securities they are measured at market value, and when the market
value may not be determined without incurring significant costs or difficulties, they are measured by nominal.
The tax is calculated on the determined value of the property as follows:

from 0,4 to 0,8 % - in case of donation between brothers and sisters and their children;

from 3,3 to 6,6 % - in case of donation between persons other than those specified above;
These tax rates are the maximum tax rates permissible according to the Law on Local Taxes and
Fees; every municipal council shall determine by regulation the particular size applicable to the relevant
municipality, within the above limits.
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OFFERING TERMS AND CONDITIONS
Introduction
The State Consolidation Company, owned entirely by the Ministry of Economy, Energy and Tourism
of Republic of Bulgaria, through the Privatisation and Post-privatisation Control Agency („Selling
Shareholder”) offers for sale 1 650 ordinary registered book-entry shares at par value of 10 levs each, issued
from the share capital of the Company, ISIN BG1100024113 („Offered Shares”), representing 33% of all
Shares issued as at the date of the Prospectus. Offered Shares are of one class and have the same
characteristics and they grant the same rights as the other Shares.
Offered Shares shall be offered in Bulgaria under the public offering based on this Prospectus,
however some limited marketing activities may be undertaken addressed to certain Qualified Investors ("the
Offering"). No public offering shall be made in any jurisdiction outside Bulgaria, and any possible limited
marketing activities mentioned above shall be consistent with the local law of any country (including the
Implementing Regulation S of the U.S. Securities Acc) and shall not be considered public offering in the said
country.
Public offering in Bulgaria is addressed to all categories and groups of investors, including individual
investors and Qualified Investors. Offering is not divided into tranches. None of the investors will have any
pre-emptive rights concerning Offered Shares, which will be subject to the Offering.
Any deals for acquisition of the Offered Shares shall be concluded on the Privatisation market of
BSE and the allocation of Offered Shares (ranking the successful shares for acquisition of Offered Shares) and
determination of the sell price for each transaction in Offered Shares will be made by the BSE trading system
based on the "combined auction by tender" method.
All cash related to Offering shall be denominated in levs.
Orders for acquisition of Offered Shares may be entered by all residents and non-residents unless this
is in breach of any applicable law. Foreign investors, which are not residents and intend to acquire Offered
Shares shall become acquainted with the laws and regulations in their jurisdictions applicable to their potential
participation in the Offering. For information concerning the restrictions to sale relevant to the Offered Shares
please see Section "Restrictions to Sale".
Mandate Agreement
Pursuant to the conditions contained in the Mandate Agreement for the public offering of shares,
executed on 19 July 2011 by and between the Privatisation and Post-privatisation Control Agency, in the
capacity of and with the authorities of a body, authorized by the Bulgarian state based on the Law on
Privatisation and Post-privatisation Control („Mandate Agreement”), Central Cooperative Bank received a
mandate to be a offering manager („Offering manager” or „Manager”).
The Offering manager undertakes to render its best efforts, by performing active marketing for the
needs of the public offering, to place the Offered Shares i.e. to attract investors to acquire the Offered Shares at
a price, which may not be lower than the minimum price announced by the Selling Shareholder. The Manager
or any other person will not be considered making any firm commitment nor guaranteeing completely or
partially the sale of the Offered Shares.
The Selling Shareholder and the Offering manager have agreed that the Mandate Agreement will
contain, inter alia, the following basic provisions:
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1. The Offering manager shall sell the Offered Shares via the BSE trading system pursuant to the
LPOS, LMFI and the Stock Exchange Regulations by listing the Offered Shares on the Privatisation
Market of BSE.
2. In any case the first and minimum sale price of one Offered Share shall be determined by the
Selling Shareholder by an instruction to the Offering manager.
3. The Offering manager shall offer for sale the Offered Shares at the initial sale price determined
in the instruction by the Selling Shareholder.
4. The Offering manager may decrease the initial sale price under the previous paragraph 3 without
the consent of the Selling Shareholder only if the price of the Offered Shares will not be lower than
the minimum sale price, determined by the Selling Shareholder.
5. The Selling Shareholder shall determine all parameters of the public offering including but not
limited to, the number of Offered Shares, initial and minimum sale price, commencement date and
closing date of the Offering and these may be amended only by an instruction in writing to the
Offering manager.
6. The Selling Shareholder shall pay to the Offering manager remuneration related to the Offering,
calculated as a percentage of the price of the sold Offered Shares. In any cases the offered
remuneration may not exceed the amount of 1 200 000 levs (One million and two hundred thousand),
VAT included.
7. Any expenses related to the public offering of the Offered Shares, including but not limited to
fees and commissions, collected by CD, BSE, FSC, as well as other costs related to the delivery of
certificates to the persons having purchased the Shares, including but not limited to costs related to
the preparation of the Offered Shares for public offering, will be on the account of the Offering
manager.
8. The Mandate Agreement shall be amended only by mutual consent of the parties, expressed in
writing. The Offering manager may not terminate unilaterally this agreement. The Selling
Shareholder may terminate unilaterally the Mandate Agreement by a notice in writing to the Offering
manager and such termination shall become effective on the date of receipt of the notice in writing.
In case of such unilateral termination of the Agreement by the Selling Shareholder, the Offering
manager is entitled to full reimbursement of any expenses incurred in connection with the Offering
until that time subject to submission of the relevant supporting documentation, however not
exceeding 50 000 levs (Fifty thousand).
Estimated Schedule of the Offering
You will find below information about the Estimated Schedule of the Offering:
Publication of this Prospectus and the Offering Announcement pursuant
to art. 92а of LPOS in State Gazette and in Capital Daily (1)
on or about 5 October 2012
Publication of the initial and minimum price of an Offered Share,
determined by the Selling Shareholder
Commencement date for entering buy orders for the Offered Shares by
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investors
First day of the auction on the Privatisation Segment of the Primary
Market of BSE
Crediting the investors' accounts with the Offered Shares purchased on
day one of the auction (2)
Last day of the auction on the Privatisation Segment of the Primary
Market of BSE
on or about 15 November 2012
Crediting the investors' accounts with the Offered Shares purchased on
the last day of the auction (2)
on or about 19 November 2012
Commencement of the trade in shares on the Primary market of BSE
___________
(1)
At least 7 days prior to the start of the entering of buy orders for the Offered Shares.
(2)
Settlement on Т+2 basis.
The above schedule is only indicative and is subject to change. Some of the events included in the
schedule are beyond the control of the Selling Shareholder and the Company. The Selling Shareholder may
make changes to the above Schedule of the Offering subject to consultations with the Offering manager.
Information about any changes in the Estimated Schedule of the Offering shall be disclosed by Public
Announcement (see below Disclosure of Offering - related Information)
Any change in the estimated Schedule of the Offering and the disclosure of such amended dates, if
any, shall be made latest on the date preceding the relevant original dates unless there is an exception and then
such change and the disclosure of such changed dates will take place on the relevant original dates.
Sales prices of the offered shares
As at the date of the prospectus no information can be provided about the final sales price of the
offered shares. The price, at which the offered shares are proposed for sale, is determined by the selling
shareholder according to the below specified rules.
The initial price, at which the offered shares are proposed for sale on a regulated market by the
Manager of the offering, is determined by the selling shareholder, based on an analysis provided by the
Manager of the offering on determining the value of the shares offered for sale. The investors will be able to
enter orders for purchase at a price equal or higher than the initial sales price.
The minimum price, at which the shares will be offered for sale on the regulated market by the
Manager of the offering, is determined by the selling shareholder, based on an analysis provided by the
Manager of the offering on determining the value of the shares of the company, offered for sale. The investors
will not be able to submit orders for purchase at a price lower than the minimum sales price.
The methods that are used in the analysis upon determining the value of the shares offered for sale
are the method of discounting the net cash income for a future period and the method of the market analogues.
The end value of the proposed shares will be determined upon applying certain weights to the obtained values
according to the two methods.
The initial and the minimum sales price may coincide, but not always. It is possible in keeping with
the above specified rules the selling shareholder to determine a minimum price, lower than the initial price, in
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Prospectus
which case the shares will be offered initially at the initial price, and upon the lack of investors‟ interest – the
Manager of the offering will be entitled to decrease the initial sales price without the consent of the selling
shareholder, only in case the price of the offered shares is not lower than the minimum sales price, determined
in advance by the selling shareholder.
Disclosure of Offering-related information
Unless otherwise provided in this section „Terms and Conditions of the Offering”, information about
any changes in the above schedule of the Offering, as well as any changes in circumstances related to the
Offering, which are subject to public disclosure according to this Prospectus or according to the applicable
law, shall be published by an announcement on the Company's website (www.cez.bg) and/or on the website of
the Offering manager (www.ccbank.bg) („Public announcement”). Any other normative or regulatory
requirements concerning notification and/ or publication of such information, if any, shall be duly observed.
The initial and minimum price per Offered Share, determined by the Selling Shareholder, shall be
published by the Offering manager as a public announcement, will be announced in the Official Bulletin of
BSE, via a notification for admission to trade at the Privatisation segment of the stock exchange of the shares,
subject of the offering.
After closing of each auction on the BSE Privatisation market, the Stock Exchange will publish
information about the auction according to its Rules.
See below „Publishing the results from the Offering”.
Number of Offered Shares
The Selling Shareholder offers for sale by this Offering all its stake in the Company comprising
1,650 Shares. As at the date of this Prospectus no decrease in the number of Offered Shares is expected. If the
Selling Shareholder subsequently decides to decrease the number of the Offered Shares, information about that
shall be published in a Public Announcement, which shall be published on the Company's website
(www.cez.bg) and/ or on the website of the Offering manager (www.ccbank.bg) (see “Disclosure of Offeringrelated Information” above) and concurrently it will be provided to FSC and BSE.
Submission of buy orders for the Offered Shares
General information
Buy orders for the Offered Shares (hereinafter referred to as “Buy Orders” or only “Orders”), shall
be accepted by the Offering manager in the period commencing on the first business day following the
expiration of 7 days after the publication of announcement for the public offering in the Sate Gazette and in
Capital Daily pursuant to art. 92a of the LPOS (“Offering Announcement”) – the commencement date for
accepting Orders is expected to be on or about 15 October 2012.
The Offering Announcement and the subsequent Public Announcements, if any, shall specify the
business hours during which the Offering manager will accept Orders, and any other parameters and
circumstances related to the Offering.
The initial term of the offering is one month (initial term: on or about 15 October 2012; deadline: on
or about 15 November 2012). By decision of the Selling Shareholder, following consultation with the
Manager, the term for acceptance of Orders may be extended by up to 60 days. Such extension of the term for
acceptance of Orders shall be notified immediately to FSC and the relevant Public Announcement shall be
made.
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Investors may submit Buy Orders in person or by proxy directly to the Manager in its offices listed
below, see. “Acceptance of orders by the Offering manager”. Orders may be submitted through other
investment intermediaries too. Submission and execution of Buy Orders shall take place according to the terms
and conditions of the specific agreement with the Offering manager or with the investment intermediary,
through which the potential investor submits an order.
Orders may be submitted under equal terms by all categories of national investors, and by foreign
investors to the extent the submission of such orders and generally the activities of the relevant foreign
investors related to the Offering are not in breach (or it may be reasonably assumed that they are not in breach)
of any applicable law in any relevant jurisdiction (see section Restrictions to Sale). The participation of all
investors "under equal terms" means that: (1) The Selling Shareholder, the Company and the Offering manager
have not determined in advance any proportions, or tranches and/ or volumes of Shares to be allocated among
any individual categories and types of investors; and (2) no provisions are made for any financial and/ or price
or other preferences concerning individual groups of investors, including concerning individuals who are
members of the management and/ or employees of the Company or its related parties; and (3) all investors are
equal as regards the terms and conditions for submission of Orders.
All investors shall take part under equal terms in the Offering, notwithstanding they have submitted
Orders directly through the Offering manager, through local investment intermediaries or through foreign
similar financial institutions. The Majority Shareholder may take part in the Offering under the same terms and
conditions as the other investors. None of the investors will have any pre-emptive rights concerning Offered
Shares.
Buy Orders shall be unconditional and irrevocable. A submitted order shall be binding for the person
placing it from the date of its submission until the registration of the purchased Offered Shares to the securities
account of such person except as provided in section "Terms and Conditions of the Offering". Any
consequences resulting from incorrect or incomplete filling in of Buy Orders will be on the account of the
investors having submitted such Orders.
Investors are not subject to restrictions concerning the number of Orders, which they may submit
within the term for acceptance of orders, and further they may submit Orders through different investment
intermediaries. There are no minimum or maximum limits concerning the number of Offered Shares, which a
person may buy, nor concerning the amount, which a person may invest in the Offered Shares (provided that a
market Order may not be less than the Minimum price per Offered Share).
Institutions that operate assets on behalf of third parties, may submit one common Buy Order on the
account of several clients and they shall attach to such order a list of those clients, containing data in
compliance with the instructions of the Offering manager.
Any submission of a Buy Order shall be considered confirmation that the investor:

has read and understood the Prospectus and agrees with the terms and conditions of the Offering;
 is willing to buy a number of Offered Shares, which is less or equal to the number indicated in
the submitted Buy Order; is willing to buy the Offered shares for the preliminary specified amount;
 agrees to pay an amount equal to the number of the purchased Offered Shares multiplied by their
purchase price as determined by the BSE trading system, used upon the execution of transactions on
the BSE Privatisation market („BSE System"), along with all fees and commissions connected with
the Offering, according to the terms and conditions of the Offering;

agrees that the transfer of Shares will be made as specified in this Prospectus;
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Prospectus
 agrees that if the purchased Shares are not paid in compliance with the requirements of the
applicable procedures, rules and regulations, the Shares will not become property of the investors and
the latter may not lay any claims in this regard to the Offering manager, the Selling Shareholder and
the Issuer.
Investors' right to withdraw Buy Orders
Before the execution of the sale transactions in the Offered Shares on the BSE Privatisation Market,
investors may withdraw their Buy Orders by submission of the relevant application in this meaning within: (а)
two Business Days after the date of publication of an addendum to this Prospectus (pursuant to art. 85,
paragraph t 6 of LPOS), or (а) seven Business Days after the publication of a Public Announcement for
cancellation of the Offering.
Required data and documents upon Order submission
Buy Orders for Shares (filled in and signed by the investor) may be submitted, including through
another licensed investment intermediary, which will execute the submitted orders by the order of their
submission and consistent with their terms, within the terms for submission of Orders, specified in this
Prospectus.
Types of orders, which will be admitted

Limit order - a buy order for a specified number of Offered Shares subject to a specified limit
price or a better price. The price of the limit order may not be less than the minimum price, specified
by the Selling Shareholder. The priorities of the limited orders are: first priority – price (this means
that the orders for purchase, containing a higher price than those with a lower price, have an
advantage); second priority – time of entry (means an advantage for the earlier entered orders
compared to the later entered orders, if they have equal prices).

Market order – buy order for the Offered Shares for an amount predefined by the investor at
a price determined by the BSE system. A priority of the market orders is only the time of entry.
Content of the Orders
Orders shall include at least the following: (а) full name, personal number, permanent address,
respectively firm/ name, BULSTAT identification code, tax number, head office and registered address of the
investor and its representative, and if the investor is a foreign person - the same identification data, including
personal/ social security number of a natural person and a registration number or equivalent number of a legal
entity; (b) issuer (“CEZ Electro Bulgaria AD) and ISIN code of the Shares; (c) in case of a limit order - the
offered price per Share, number of Shares and the total value of the Order; in case of market order - the total
value of the Order; (d) nomination of an investment intermediary or trustee, through which the purchased
Shares will be paid; (e) date and place of Order submission; (f) a signature of the person submitting the Order,
or their legal representative or proxy.
Enclosed documents
Any Order shall be accompanied at least by the documents listed below according to the instructions
of the Offering manager and the investment intermediaries, through which Orders shall be submitted:
 by Bulgarian legal entities – a certificate of good standing or another registration (and copies of
documents concerning identification number (BULSTAT), if it is not evident by the registration
documents, verified as true copies by their legal representatives);
 by foreign legal entities – a copy of the deed of incorporation (or any other equivalent document
attesting the existence/ the incorporation of the entity) in the relevant foreign language, showing the
full name of the legal entity, the issue date and the address of the legal entity; names of the persons
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Prospectus
authorized to represent it, accompanied by a translation of these documents in Bulgarian or in
English;

by Bulgarian natural persons – a true copy of their identity document;
 by foreign natural person - a copy of the pages of the passport, containing information about the
full name; passport number; issue date (if any); validity date (if any); nationality; address (if any) and
copies of those pages of the passport, which contain other information and a photo of the persons, as
well as translation of those documents into Bulgarian or English.
The Order may by also submitted by a proxy, who shall produce their identity card if a natural person
or a certificate of good standing, a deed of incorporation or other equivalent documents (depending on whether
it is a local or a foreign legal entity) and shall produce a special power of attorney, accompanied by the
relevant documents about the investor - an authorizer, as listed above.
The Order may be also submitted through a licensed investment intermediary, which client is the
investor willing to purchase Offered Shares. In such case the relevant investment intermediary shall execute
the Order signed by the client in compliance with the order of its submission.
Investors shall be warned that the Manager and the investment intermediaries that will submit the
Orders in compliance with the applicable normative acts, their general terms and conditions and practice, may
request by them to provide the cash necessary to purchase the Shares subject to the Order and to cover other
purchase-related costs, concurrently with the submission of the Order or to prove that they have these funds
available.
The Offering manager and the investment intermediaries, through which Orders shall be submitted,
in compliance with the applicable regulatory acts, their general terms and conditions and practice, may prepare
and require filling in specific order forms, including additional data, as well as submission of additional
documents pursuant to the law and their internal rules, as well as they may refuse accepting Orders unless they
are satisfied with the type, form, validity and other circumstances related to the presented documents. The
Manager and the investment agents may, in certain cases, accept Orders, which are not accompanied by all
required documents, provided that the information, which would be ascertained by the missing document, is
made available to them by another source and they have no grounds to doubt the reliability of such
information.
Acceptance of Orders by the Offering manager
Central Cooperative Bank will accept Orders from investors in the below listed offices (as well as in
other offices, designated subsequently for that purpose and listed on its website):
City
Asenovgrad
Blagoevgrad
Burgas
Varna
Veliko Tarnovo
Vidin
Vratsa
Gabrovo
Dobrich.
Kostenets
Kardzhali
Lovech
Address
Asenovgrad, 8, Rechna Str.
Blagoevgrad, 13, Vassil Levski Str.
Burgas, 4, Kont Androvanti Str.
Varna, 58A, Saborni Blvd.
V. Tarnovo, 4, N. Gabrovski Str.
Vidin, 4, Acad. St. Mladenov Str.
Vratsa, 5, Lukashov Str.
Gabrovo, 54, Bryanska Str.
Dobrich, 1, Bulgaria Blvd.
Kostenets, 11A, Targovska Str.
Kardzhali, 47, Republikanska Str.
Lovech, 10, Prof. Ishirkov Str.
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141
Montana
Nesebar
Pazardzhik
Pleven
Plovdiv
Plovdiv - Maritsa
Razgrad
Ruse
Svishtov
Sevlievo
Silistra
Sliven
Smolyan
Sofia - Zapad
city of Sofia
Sofia - Chimimport
Sofia - Yug
Sofia - Dondukov
Sofia - Darvenitsa
Sofia - Central
Sofia - Vazrazhdane
Sofia - Stamboloyski
Sofia - Hadzhi Dimitar
Stara Zagora
Troyan
Targovishte
Haskovo
Shumen
Yambol
Prospectus
Montana, 59, Treti Mart Blvd.
Nesebar, 23, Struma Str.
Pazardzhik, 7, Esperanto Str.
Pleven 150, Vassil Levski Str.
Plovdiv 5, Bethoven Str.
Plovdiv 44, Yanko Sakazov Str.
Razgrad, 7, St. Karadzha Str.
Ruse, 1, Han Kubrat Sq.
Svishtov, 5A, Tsar Osvoboditel Str.
Sevlievo, 4, Stoyan Bachvarov Str.
Silistra, 1, Rakovski Str.
Sliven, 1, Al. Stamboliyski Sq.
Smolyan, 11, Bulgaria Blvd.
Sofia, P. Vladigerov Blvd., bl. 442
Sofia, 103, Rakovski Str.
Sofia, 2, Stefan Karadzha Str.
Sofia, 23, Emine Str.
Sofia, 7B, Knyaz Al. Dondukov Blvd.
Sofia, 7, St. Kliment Ohridski Blvd.
Sofia, 18, Gurgulyat Str.
Sofia 3, Vazrazhdane Sq.
Sofia, 47, Stamboliyski Blvd.
Sofia, 51, Macgahan Str.
Stara Zagora, 54, Kolyo Ganchev Str.
Troyan, 44, G. S. Rakovski Str.
Targovishte, 5, V. Levski Str.
Haskovo, 1, Skopje Str.
Shumen, 13A, Slavyanski Blvd.
Yambol, 7, Osvobozhdenie Sq.
Execution of the sales transactions in the Offered Shares
The buy deals in the Offered Shares shall be executed on the BSE Privatisation market, and the
determination of the sale price and the allocation of the Offered Shares shall be carried out by the BSE Trading
system under the conditions of the adopted method of "combined auction by tender".
The mixed closed auction passes through the following stages:

Announcing the date of the auction, the number of securities, offered for sale and announcing the
minimum and initial sales price;

Entry of the orders for purchase by the market participants;
On the auction date, as announced by BSE, investment intermediaries - members of the Stock
Exchange (including the Offering manager) may enter unlimited number of limit and market orders for
purchase of Offered Shares. Every investment intermediary will see only orders that they have entered and not
those entered by other stock exchange members. The investment intermediary that operates on the account of
the Selling Shareholder is the Offering manager.

Terminating the process of the entry of the orders for purchase;
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
Prospectus
Announcing the price of the limited order for sale (cutting price) and performance of the auction, in
the course of which the transactions for purchase and sale are concluded.
The cutting price (the limited price of the order for sale), which is equal to any of the prices of the
limited orders for purchase. The orders with lower prices are excluded from the auction. In this way,
announcing the cutting price determines the quantity of limited orders, which participate in the auction.

Arrangement of the transactions (see below)
The full text of the Methodology for the mixed closed auction is accessible on the web site of the Stock
Exchange in section Regulatory framework.
Ranking the orders entered by the BSE System and determining the transaction price of the
Offered Shares
In case that the total volume of the limit orders at maximum price, together with the volume of the
market orders which may be executed at the maximum price exceed the volume of the Offered Shares
In this case the BSE System shall accept as a cut-off price the highest price of the limit buy orders.
The Cut-off Price is considered also a sell order price and transactions for the Offered Shares shall be executed
at this price only. Considering the priority of execution of the orders, based on the time of entry, a given buy
order may be partially executed. Limit buy orders at prices less than the cut-off price shall not be executed and
no transactions at such prices shall be made.
In case that the total volume of the limit orders at maximum price, together with the volume of the
market orders, which may be executed at the maximum price, is below the volume of the Offered Shares
The BSE System shall sort the submitted limit buy orders in a descending order by price and then in
ascending order by time of entry. The BSE System shall determine as a cut-off price that price of the limit
orders at which the volume of the limit orders with a price not less than the cut-off price together with the
volume of the market orders executable at the cut-off price would not exceed the volume of the Offered
Shares.
All limit orders at a price not less than the cut-off price will be executed at the price specified therein
(i.e. transactions shall be made at the prices specified in these buy orders). Market orders shall be executed
(and transactions shall be made) at the average weighted price of the executed limit orders. Limit buy orders at
prices less than the cut-off price shall not be executed and no transactions at such prices shall be made.
Any Offered Shares that have remained unsold once the auction is closed, will be transferred to the
following day.
Other considerations
Investors that take part in the Offering via an investment intermediary or another equivalent foreign
financial institution must be warned that in certain cases it is possible that such investment intermediaries or
financial institutions would perform particular allocation of the Shares concerning the individual investors their clients within the volume of Offered Shares generally allocated to these investment intermediaries or
financial institutions on the basis of the ranked summarized buy orders for these Offered Shares, submitted by
the relevant investment intermediaries or financial institutions. The Offering manager, the Selling Shareholder
and the Company will not be liable to the investor if no allocation is made to it from the purchased Shares at
all or the allocation is made in a manner, which deviates from the manner set out herein or in the agreements
between the investor and the relevant financial institution.
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Payment for the purchased Shares and other costs
The investors, on behalf of which have been made the transactions for purchase of Offered Shares on
BSE Privatisation market, shall pay the related amounts to the Offering manager or to the other investment
intermediaries to which they have submitted Buy Orders in compliance with the specific agreements and the
applicable regulatory acts, rules and procedures. The Manager and the other investment intermediaries shall
pay the Offered Shares purchased for their client and/ or on their own account under the conditions of
"delivery versus payment" - see "Settlement of Share Transactions - Clearing and Settlement Procedure
related to the Offering".
No fees or expenses will be paid by or on the account of persons that purchase Shares in the Offering
except the usual bank fees for cash transfers, the agreed fees and commissions with investment intermediaries
related to the Offering, including the standard fees of BSE on the transfer of the Offered Shares, fees of the
Central Depository, fees for opening of a securities account and a bank account (if applicable), as well as the
relevant currency exchange fees, if the investor wishes to make a payment in foreign currency and may be
required to pay the relevant exchange fees. The purchase of Offered Shares is not subject to taxation according
to the Bulgarian law, see also section Taxation.
Provided that not all of the ordered Offered Shares or not Offered Shares at all have been purchased
on behalf of investors (including because of invalid Orders or the price indicated in such orders is below the
cut-off price determined by BSE), then such investors will be reimbursed all overpaid amounts, if any, to their
bank account as agreed with the investment intermediaries through which the investors have submitted their
Buy Orders. Any overpaid and other amounts will be reimbursed net of interests and costs (if any), incurred by
the investors with regard to the submission of the Orders.
Pursuant to the requirements of the Law on Measures against Money Laundering the Offering
manager, the investment intermediaries, as well as the banks and the other financial institutions, receiving and
making cash transfers shall or in certain circumstances are entitled to identify the investors and collect, record
or disclose to the relevant state authorities information concerning cash transfers and origin of cash in
compliance with the requirements of law and their internal applicable rules.
Public announcement of the results from the Offering
Within 7 days after the Offering ends, a public announcement concerning the results from the
Offering (including the number of sold Shares and pricing data about the concluded deals) shall be published
on the Company's website (www.cez.bg) and/ or on the website of the Offering manager (www.ccbank.bg)
(see „Disclosure of Offering-related Information” above) and concurrently it will be provided to FSC and
BSE.
Admission of Shares for Trading on BSE
As at the date of this Prospectus the Shares of the Company are not admitted for trading on a
regulated market of securities.
The Company will submit application to BSE for admission of the Shares for trading on the main
market (Standard segment), notwithstanding the Offering has been successful, cancelled or postponed (see
below „Cancellation and Postponement of the Offering”).
After the approval of this prospectus by FSC and subject to the applicable regulatory requirements,
the Company and/or the Offering manager shall submit application to the Bulgarian Stock Exchange for
admission of all 5000 (five thousand) Shares for trading on the Stock Exchange. Trading in Shares shall
commence on the date determined by the BSE Board of Directors.
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A decision for admission to trading is expected to be taken on or about 4 October 2012 and the trade
in the Shares on BSE shall start on or about 15 October 2012 (however without any guarantee as at the date of
this Prospectus that the Shares will be admitted to trading on the stock exchange).
Following their admission to trading on BSE, the trade in Shares may be suspended or terminated in
case of breach of the applicable regulatory acts, as well as in other cases, see for details „Information about the
Bulgarian market of securities - Suspension of stock exchange dealing ”.
Cancellation or Suspension of the Offering
Cancellation of the Offering
At any time prior to the commencement of the period for submission of Buy Orders by the investors,
the Selling Shareholder may cancel the Offering without giving reasons about that.
Once the term for submission of Buy Orders by investors starts, the Selling Shareholder, after
consultation with the Offering manager, may cancel the Offering but only for reasons, which at the discretion
of the Selling Shareholders are material and which may include: (а) occurrence of sudden and unforeseen
change in the economic and political situation in Bulgaria, Europe or worldwide, which may affect adversely
the financial markets or the Offering (including but not limited to acts of terrorism, war, natural disasters or
floods); (b) insufficient level of interest; or (c) upon termination of the Mandate Agreement.
Offering may also be cancelled as a result of actions of the relevant authorities, including but not
limited to in case that FSC resolves on cancellation of the Offering as a result of refusal to approve an
appendix to the Prospectus.
The information about the cancellation of the Offering will be published as a public announcement
on the Company's website (www.cez.bg) and/or on the website of the Offering manager (www.ccbank.bg).
Upon cancellation of the Offering all Buy Orders, received for the Offered Shares, shall be considered invalid,
and all payments made shall be reimbursed, net of interest or compensation, not later than 14 days after
announcing that the Offering is cancelled.
Suspension of the Offering
At any time before the commencement of the term for submission of Buy Orders by investors, the
Selling Shareholder may resolve on suspension of the Offering without stating any reasons about that. After
the commencement of the period for submission of Buy Orders by investors until completion of the
transactions for purchase of the Offered Shares on the BSE Privatisation Market, the Selling Shareholder, after
consultation with the Offering manager, may resolve on suspension of the Offering only for reasons, which at
the discretion of the Selling Shareholder, are material and which may include, inter alia, any event that may
affect adversely the Offering or may result in increase in the investment risks for the buyers of the Offered
Shares. The resolution for suspension of the Offering may be made without specifying at that time a new
schedule for the Offering, and such schedule may be specified later.
Offering may be also suspended as a result of actions of the relevant authorities, including but not
limited to FSC making a decision (applying a coercive administrative measure) concerning the suspension of
the Offering, including but not limited to the Company and/ of the Offering manager fail to act in compliance
with the decisions of FSC or their activities endanger the interests of the investors.
Information about the suspension of the Offering will be published as a public announcement on the
Company's website (www.cez.bg) and/or on the website of the Offering manager (www.ccbank.bg).
The decision for terminating the offering is effective from now on and does not repeal the already
concluded transactions for the purchase of the offered shares. If the decision for suspension of the Offering is
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made after the commencement date for submission of buy orders by investors and before completion of the
buy transactions for Offered Shares on the BSE Privatisation market, then all Buy Orders that have been
entered and all effected payments, will be considered valid, however the investors may cancel the Buy Orders
by submitting the relevant statement in this meaning within seven Business Days after the publishing of the
Public Announcement about the suspension of the Offering. If the decision for terminating the offering is
taken after the beginning of the term for submitting orders, the orders, for which the auction is already over
(although the settlement is not over), are irrevocable, the transactions for the sale of the respective offered
shares are considered concluded and are subject to performance by the general procedures.
Other information concerning the Offering
Lock-up Agreements
There are no arrangements between the Issuer, the Selling Shareholder and the Offering manager
which prohibit the disposal of Shares, referred to as “lock-up agreements”
Stabilization and other similar arrangements related to the Offering
The company, the Selling Shareholder and the Offering manager do not contemplate any stabilization
transactions.
Also, there are no arrangements for exceeding the amount of the Offered shares and/or the “green
shoe” option.
Statement of intent by certain persons to take part in the Offering
The Majority Shareholder has not stated its intention to the Company to buy the Offered Shares. The
Majority Shareholder may take part in the Offering under equal terms with the other investors.
To the best of the Company's knowledge, as at the date of issuing this Prospectus none of the
members of the Management Board or the Supervisory Board intends to take part in the Offering and to
acquire Offered Shares or they haven't decided yet.
To the best of the Company's knowledge no investor intends to buy 5% or more of the Offered
Shares in this Offering.
Persons involved in the Offering
The Offering manager, authorized by PPCA, inter alia, to market the Offering and to organize the
sale of the Offered Shares, is Central Cooperative Bank AD, having its head office and registered address in
Republic of Bulgaria, city of Sofia, Oborishte region, 103, G. S. Rakovski Str.
CCB is a licensed investment broker, entered in the Register of FSC pursuant to art. 30, paragraph t
1, item 2 of the LFSC, by Report No. 34/18.06.1997 of the Commission on Securities and Stock Exchanges
(FSC). CCB is a holder of a license for a commercial bank, issued by BNB (updated by Order No. RD222256/16.11.2009 by the Governor of BNB). CCB is a full member of the Association of the Banks in Bulgaria.
The Offering manager is not an underwriter to the Offering and shall make its best efforts to market
the Offered Shares.
The fee of the Offering manager depends on the revenues from the sale of the Offered Shares. See
above „Mandate Agreement”.
Except the interests disclosed above there are no other interests (including conflicts of interests) of
organizations or natural persons, which are material to the Offering.
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Payment agents and other agreements concerning the Offering.
The Company does not intend to engage payment agents for the Offering.
No other financial institutions except the Offering manager will be involved on behalf of the Selling
Shareholder, to take part in the Offering and no division or separation of any volume of the Offered Shares to
be offered and/ or allocated to such institutions is envisaged.
There are no engagements, related to the Offering, which provide for reimbursement of cash or other
benefits (the so called claw-backs).
With a view to the Offering, the Lead Managed may also act as an investor on its own account and
may buy Offered Shares within the Offering, and subsequently hold them or sell them or otherwise dispose of
them. The Manager shall provide information about the Offered Shares, purchased on its own account, to the
extent this is required by the applicable law.
Dilution
The Offering will not result in any dilution of the shareholder‟s stakes in the Company and the total
number of votes which each shareholder may exercise at the General Meeting shall not change.
Market maker upon trading in Shares on BSE
The Company does not intend to engage investment intermediaries to act as market makers with
regard to trading in the Shares on BSE.
Other issues of securities
The company does not intend to issue and /or offer shares of the same or another class or other
securities via a subscription or private placement, at the same time or almost at the same time with the present
offering.
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SETTLEMENT OF TRANSACTIONS IN SHARES
Offering-related Clearing and Settlement
Delivery of the purchased Offered Shares
Any transfers of Offered Shares by the Selling Shareholder to the Investor on the behalf of which the
Offered Shares have been purchased on the BSE Privatisation Market shall be carried out as described in this
section below. Any further trading in the Shares shall take place consistent with the rules and the operating
procedures of BSE and the Central Depository, described below in the section title "Secondary Trading in the
Shares"
The investor on behalf of which Offered Shares have been purchased on the BSE Privatisation
market, shall instruct the investment intermediary, through which the investor has submitted Buy Order for the
Offered Shares on whether the Shares purchased on the investor's behalf (if any) shall be registered upon the
settlement: (а) to an investor's sub-account with the Central Depository, to the account of the investment
intermediary - a member of the Central Depository, through which the order has been submitted; or (b) to the
account of a global or a local trustee, nominated by the investor (“Trustee”) with the Central Depository,
which trustee will hold these Shares on behalf of the investor. The investor shall instruct the nominated
Trustee to undertake any actions that may be required for the successful settlement of the allocated Shares on
behalf of the investor in compliance with the rules and operating procedures of the relevant Trustee, Manager
or Investment Intermediary, through which the investor has submitted the Buy Order for the Offered Shares
and the Central Depository.
Provided that no special instructions are given, any Shares purchased in the Offering most probably
will be delivered (allocated) to an investor's sub-account with the Offering manager or with the relevant
investment intermediary, through which the investor has submitted the Buy Order for the Offered Shares.
The settlement of the transactions, concluded on the BSE Privatisation market with the Offered
Shares shall be made on the principle "delivery versus payment” and these will be transferred to the accounts
with the Central Depository of the relevant investors and Trustees on T+2 day, where T is the date of
registration of the transaction on the BSE System.
The transfers and the settlements of the sale transactions of the Offered Shares shall be made in
compliance with the applicable rules of the Central Depository. No guarantees are provided that the Offered
Shares shall be delivered in compliance with the above described procedures in this section of the Prospectus.
Every investor shall preliminary verify and clarify that both the investor and the nominated Trustee will act
successfully according to the applicable rules and procedures and the instructions of the Offering manager.
Notices and Certification Documents for the purchased Offered Shares
Notices for certification of the securities accounts of the investors with the Offered Shares shall be
delivered to the investors according to the rules of the relevant investment intermediaries, through which the
Buy Orders have been submitted and/ or manage the relevant securities account of the investor.
The investors may apply for obtaining certification documents for the Shares that they have
purchased from the Offering (depositary receipts, issued by the Central Depository) with the investment
intermediaries, through which they have submitted Orders and where they have clients' sub-accounts,
respectively with the Trustees, through which the settlement of the transactions with the Shares has been
carried out as provided by the Regulation of the Central Depository. Investors may receive for their Shares,
excerpts from their clients' accounts, kept by the investment intermediaries, including from Trustees.
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Any transactions in the Offered Shares before the commencement of the official trading in the Shares
on BSE will be only at the risk of the relevant investor, notwithstanding the said investor has been informed
about the number of Offered Shares that have been delivered (allocated) to it.
Secondary Trading of the Shares
Sales and settlement
The transactions with shares, issued by a public company, registered in Bulgaria, are settled in details
in the Public Offering of Securities Act of 1999, the Law on Markets in Financial Instruments of 2007 and
their implementing regulations, the BSE Regulations and the Regulations of the Central Depository.
After admission for trading, the transactions in shares shall be made both on the regulated market
operated by BSE and on the unregulated market, and the settlement shall be made through the Central
Depository. The price of Shares shall be determined in Bulgarian levs and generally the settlement shall be
made on T+2 basis.
If the seller and the buyer are clients of the same Trustee, the transaction may be accomplished and
the settlement may be carried out through the said common Trustee.
Investment Intermediaries
Investors may take part in the trading in Shares on BSE only through a bank or an investment
intermediary, holding the required license. The role of the intermediary is to receive a buy or sell order from
the investor, to execute it on the BSE (if possible) and to register the transaction with the Central Depository,
which carry out settlement. Transfer of securities resulting from donation or inheritance is made by registration
in the Central Depository and the settlement is carried out through the Central Depository with the assistance
of an Investment Intermediary acting as a registration agent. Investment Intermediaries are required to provide
their clients with information about the types of orders that may be placed on the BSE, the details of any active
orders or executed transactions made on behalf of that client, and the expenses, fees and commissions payable
to that intermediary, to the BSE or to the Central Depository (if applicable), as well as any other information,
which they are required to provide according to the requirements of the law.
Clearing system
The Central Depository, which is the Bulgarian central clearing institution and a depository for
securities, with registered address on 10, Tri Ushi Str., Sofia 1303, Bulgaria, was incorporated as a joint stock
company in August 1997 on the grounds of a special provision of the Bulgarian law concerning securities.
BNB and the Bulgarian Ministry of Finance hold total of 41.9% of the share capital of the Central Depository.
The remaining part of the share capital is allocated among Bulgarian commercial banks and investment
intermediaries, as well as other legal entities. The operations of the Central Depository are supervised and
regulated by the Financial Supervision Commission, BNB and the Bulgarian Ministry of Finance. Settlement
of securities through the Central Depository can only be effected through a member of the Central Depository.
Only banks, investment intermediaries, management companies, regulated markets (respectively market
operators), as well as foreign depository and clearing institutions may become members of the Central
Depository.
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SALES RESTRICTIONS
This document represents a Prospectus in the meaning of the Prospectus Directive and the Law on
Public Offering of Securities (transposing the Prospectus Directives into the Bulgarian law) regarding the
disclosure of information in respect of the Company and the Shares it intends to offer according to this
Prospectus as necessary to enable the potential investors making their informed evaluation of the assets and
liabilities, the financial position, the profit and loss as well as the business prospects of the company.
The Selling shareholder may proceed to public offering in Bulgaria after the FSC validates the
Prospectus and after publication of the Prospectus pursuant to the provisions of the Law on Public Offering of
Securities and the deeds associated with the application thereof.
The Company, the Selling shareholder or the Offering manager have not and will not undertake any
actions in any other jurisdiction save from Bulgaria, which will enable the public offering of the Offered
shares or otherwise the holding or the distribution of the Prospectus or other Offering material related to the
Company or to the Offered shares in any jurisdiction where such actions need to be undertaken for the said
purpose. Accordingly, the Offered shares may not be offered or sold either directly or indirectly, neither may
this Prospectus or other material or advertising in connection with the Offering be distributed or otherwise
published in or by any other state unless in compliance with the effective laws in such state.
The distribution of this Prospectus in some jurisdictions may be restricted by law. Consequently,
those who have access to the Prospectus should be informed and comply with these restrictions on the
distribution of this Prospectus and the Public offering, including the restrictions set out in the following
paragraphs. Any failure to comply with the said restrictions may constitute a violation of the securities law in
relevant jurisdiction.
This Prospectus does not constitute an offer for subscription or purchase of the Offered Shares by
residents of any jurisdiction where the making of such offer or invitation to such residents would be illegal.
European Economic Area
The Offering manager has, in respect of any member-state applying the Prospectus Directive
(hereinafter referred to as the Relevant member-state), declared to the Company and to the Selling
shareholder that the Offering manager will not make offers regarding the Offered shares to the public in the
relevant member-state, except where the Offering manager may offer shares in the relevant member-state
which to be deemed to be an offering to the public in the relevant member-state but only under the exceptions
provided in the Prospectus Directive and provided also that the said exceptions make part of the laws of such
relevant member-state:
 the offering is made to legal entities holding a license or otherwise being regulated in respect of
their business on the financial markets or, provided that these conditions are not met – legal entities
whose main object is investment in securities;
 the offering is made to any legal entity, which meets two or more of the following criteria: (1) an
average headcount of staff during the last financial year is at least 250 people; (2) book value of
assets exceeding € 43,000,000; and (3) net annual sales exceeding € 50,000,000 as evidenced by the
last annual or consolidated reports thereof.
 The offering is addressed to less than 100 natural persons or legal entities in the relevant
member-state or less than 100 natural persons or legal entities in all member-states depending on the
method of calculation as provided by the effective regulations in the relevant member-states; and
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In any other circumstances whereby article 3 (2) of the Prospectus Directive applies.
provided that: (A) such offering of the Offered shares will not entail the need for publication by the
Company or the Offering manager of Prospectus under article 3 of the Prospectus Directive; and (B) (a) the
natural person or legal entity (hereinafter referred to as the Eligible investor) will acquire the Offered shares
for its own account and not for resale or placement thereof within the territory of the relevant member-state
(unless to other Eligible investors) or otherwise for account of other Eligible investors, or (b) an Eligible
investor will acquire the Offered shares under the Offering for account of others however taking the
investment decisions entirely at its own discretion.
It shall be deemed that any investor acquiring Offered shares in the relevant member-state shall have
represented and warranted to the Company and to the Offering manager that he is an Eligible investor and
meets any other restrictions applicable to the relevant member-state.
For the purpose of this Prospectus the term “Public offering of Offered shares” in connection with
any Offered shares in any relevant member-state shall mean the disclosure under any form and in any way of
sufficient information in respect of the terms and conditions of the Offering and the Offered shares thus
enabling the investor making a decision for purchase of the Offered shares; this definition may be modified in
the relevant member-state subject to the measures taken thereof for implementation of the Prospectus
Directive.
Neither this Prospectus nor any other material related to the Offering is made public according to the
approval procedures of the Financial Services Authority in Great Britain. Moreover, this Prospectus may be
distributed in Great Britain and may target only: (1) persons who have the expertise on the investment issues
and to whom article 19(5) of the Order of 2005 issued on the grounds of the British Financial Services and
Markets Act of 2000 (Financial promotion), as amended, applies (hereinafter referred to as the Order); or (2)
persons who possess high net worth assets/income to whom article 49(2)(a) through (d) applies; or (3) persons
to whom this Prospectus may be otherwise made available in any lawful way (hereinafter referred to as the
Relevant persons).
In member-states other than Great Britain there may be additional rules and regulations in respect of
the Offered shares or the distribution and publication of this Prospectus or other material or advertising of the
Offering. The persons having access to this Prospectus should inform themselves and observe any restrictions
on the distribution of the Prospectus and the offering of the Offered shares applicable in the relevant memberstate.
Great Britain
This Prospectus is distributed among and targets only the Relevant persons. Other persons in Great
Britain who are not Relevant persons should not act based on or otherwise rely upon this document. Any
investment or investment activity subject to this Prospectus shall only be possible in Great Britain to the
Relevant persons and shall only be made by such persons.
Switzerland
The shares may not and shall not be offered publicly, sold or otherwise advertised either directly or
indirectly in or from Switzerland. Neither this Prospectus nor any other marketing material in connection with
the Shares shall be a prospectus as defined in article 652a of the Swiss Federal Law on Obligations or be a
listing prospectus as defined in the listing rules of SIX Swiss Exchange Ltd; neither this Prospectus nor any
other marketing material in connection with the Shares may be publicly disclosed or made otherwise available
to the public in Switzerland.
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USA
The Offered shares have not been and will not be registered under the US Securities Act or any other
securities regulatory authority in a state or other jurisdiction of the USA and, subject to certain exemptions,
may not be offered for sold on the territory of the United States of America, except for some transactions
exempt from or being not subject to the registration requirements under the US Securities Act. The Offered
shares are offered and sold outside the United States of America according to Regulation S. Notwithstanding
the foregoing the Company may place Offered shares to certain investors through private placement subject to
the effective exemption from the registration requirement under the US Securities Act.
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INCORPORATION BY REFERENCE. DOCUMENTS AVAILABLE FOR REVIEW
Incorporation by reference
This Prospectus refers to (incorporates by reference according to article 28 of Commission Regulation
(EC) 809/2004 implementing Directive 2003/71/EC on the prospectus to be published) the following
documents, which are regarded to be part thereof.
1. Audited annual financial statements of CEZ Electro for 2011, including:

Independent auditor’s report;

Statement of the comprehensive income as of 31 December 2011;

Statement of the financial position as of 31 December 2011;

Statement of changes in equity as of 31 December 2011;

Statement of cash flows as of 31 December 2011;

Notes to the financial statements.
2. Audited annual financial statements of CEZ Electro for 2010, including:






3. Audited financial statements of CEZ Electro for 2009, including:






4. Articles of association of CEZ Electro
Any statement contained in a document incorporated by reference herein shall be deemed to be
amended or cancelled insofar as necessary by a statement contained in this document or otherwise by a
statement in a more recent document also incorporated by reference in this Prospectus.
Documents available for review
The copies of this Prospectus and the documents specified above in the “Incorporation by reference”
section will be made available for review during the usual working hours of the week (Saturdays, Sundays and
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public holidays excepted) at the office of Central Cooperative Bank Plc, 2 Stefan Karadja st, Sofia, Bulgaria,
as well as on the Bank website at: www.ccbank.bg , as from the date of publication of the Prospectus up until
the date of validity thereof; the other documents will be made available for a time not shorter than the
deadlines set forth by the law.
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GENERAL INFORMATION
CEZ Electro
CEZ Electro Bulgaria AD is a company joint stock company with limited lieability, duly organized
and existing according to the laws of Republic of Bulgaria and not limited to term. The registered office and
principal place of business of the Company is located in the city of Sofia, 140, G.S. Rakovski Street. The
contact phone numbers and the web site of the company are: tel. (+359 2) 89 58 389, fax: (+359 2) 987 18 52,
www.cez.bg
The Company founders are CEZ a.s., the Czech republic and the State Consolidation Company
pursuant to the Decision of the Council of ministers N o 569 dated 28.07.2006 on the participation of the state
in a joint stock company. The Company is first registered by Ruling No 1 dated 29.08.2006 of Sofia City
Court of Justice under company case No 10140 of the list for 2006, file No 107837, register 1, volume 1453,
page 116 and is further re-registered with the Trade register to the Registration agency on 04.02.2008 under
company identification number 175133827.
The company is established in pursuance of the obligation under §17, paragraph 2 of the Transitional
& Final Provisions of the Energy Law on the legal and organisational partitioning of the business activities
related to the distribution of the electric energy and operational management of distribution grids from the
supply of electric energy and the other activities of electricity distribution companies. CEZ Electro is the legal
successor of the relations related to the “public supply” of electric energy performed by Electrorazpredelenie
Stolichno AD, Electrorazpredelenie Sofia Oblast AD and Electrorazpredelenie Pleven AD, which are taken
over by CEZ Electro as a result of reorganization of the three companies. In pursuance of the obligation under
§17 of the Energy Law the three electricity distribution companies were reorganised pursuant to the provisions
of article 262c, paragraphs 1 and 2 in respect of the first offering as defined by the Law on Commerce through
allocation of some of their assets related to the public supply business and their further acquisition by the
already established takeover company CEZ Electro. This reorganization is entered with the Trade register
under the file of the takeover company by Ruling No 2 of 05.01.2007 of the Sofia City Court on company case
No. 10140/2006.
Statutory acts referring to the Company and its shareholders
The following statutory acts refer to the organisation and the business of CEZ Electro, namely: the
provisions of the Law on Commerce, the Energy Law, the Renewable Energy Sources Law, the Energy
Efficiency Law, the Consumer Protection Law, the Law on Corporate Income Tax etc. The following statutory
acts set forth some important issues of investors‟ interest regarding the public offering of CEZ Electro shares:
the Law on Public Offering of Securities, the Law on Markets in Financial Instruments, the Law on Measures
against Abuse of Financial Instruments, the regulations of the FSC on the application of the laws in the field of
investment business, including Regulation No 2 dated 17.09.2003 on public offering prospectus and admission
to trading on the regulated market of securities and disclosure of information on public companies and other
issuers of securities, Regulation 809/2004/ЕС of the European commission regarding the application of
Directive 2003/71/ЕС on prospectus. The provisions of Section I of Chapter eleven of the LPOS and
Regulation No 39 dated 21.11.2007 on the disclosure of share interest in a public company define the
requirements regarding the disclosure of substantial shareholding of the Issuer. The Issuer‟s transactions with
its own shares are regulated in article 111, paragraphs 2 and 5 of the LPOS and in the Law on Commerce. The
mandatory tender offers are regulated in articles 149, 150 – 157 of the LPOS, Regulation No 41 dated
11.06.2008 on the requirements to the underlying principles for calculation of the prices of shares of publicly
traded company, including the application of evaluation methods in case of reorganization, contract for joint
venture company and tender offer, as well as in Regulation No 13 dated 22.12.2003 on the tender offer for
___________________________________________________________________________________
155
Prospectus
purchase and exchange of shares. The terms applicable to Issuer‟s writing-off from the Public Companies
Register and the other issuers of securities under article 30 paragraph 1 item 3 of the Law on Financial
Supervision Commission are set forth in article 119 of the LPOS and in Regulation No 22 dated 29.07.2005 of
the FSC on the terms and conditions for registration and writing-off publicly trade companies, other issuers of
securities and issues of securities in the Register of the FSC.
Proposals by third persons for obligatory takeover / merger or for the purchase of the control
package of shares
As at the date of this Prospectus the Company does not have information:
(а) about the presence of proposals for obligatory takeover /merger and/ or rules for enforced
purchase or sale with regard to the shares;
(b) about proposals by third persons for the public purchase of the control package of the
shareholders‟ equity of the company, made during the last financial year 2011 and the current 2012.
Subsidiaries and associate companies
As of the date of this Prospectus CEZ Electro does not have any interest in subsidiaries and associate
companies.
Real estate properties, plant and equipment
The company does not have any real estate properties, plant and equipment.
Investments (capital expenditures)
CEZ Electro has no investments in long-term tangible assets. According to the audited annual
financial statements for 2011, 2010 and 2009, the intangible assets of the company from the group patents and
licenses are at the total value of BGN 8 thousand as at 31 December 2011, respectively BGN 10 thousand as at
31 December 2010 and BGN 11 thousand as at 31 December 2009. The Issuer has no investments in progress.
As of the date of this Prospectus the management bodies of the Company have not undertaken any
commitments in respect of prospective investments.
Research and Development
CEZ Electro is not involved in any research and development activity.
Intellectual property
The Company has no rights on trademarks or other intellectual property objects.
Material contracts
There is no information available as to the existence of material contracts the Company or a member
of the Group is a party to differing from those signed during the usual course of business over the two years
immediately preceding the publication of this document or otherwise giving rise to any obligation or right of
material significance for the Company or a member of the Group as of the date hereof.
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156
Prospectus
Significant changes
Save as disclosed to the Manager and PPCA, as at the date of the Prospectus there has been no
significant change in the financial, trade or economic state of CEZ Electro or the Group of CEZ in Bulgaria
after 31 December 2011.
At the Extraordinary General Meeting of the Shareholders that took place on 26 April 2012 (after the
date of the Prospectus), Dimitar Kyumdzhiev was released as a member of the Supervisory Board and Boyko
Valkov was appointed on his place.
Auditor
The auditor of CEZ Electro is the specialized auditing company Ernst & Young Audit Ltd, having its
registered office and principal place of business in the city of Sofia 1124, Sredets borough, Poligraphia Office
Centre, 47A, Tsarigradsko shosse, 4th floor, entered with the Trade register of the Registration agency to the
Minister of justice under company identification number 130972874. The auditor has audited the financial
statements of CEZ Electro for the years ending on 31 December 2011 and 31 December 2010 via the certified
auditor Ivaylo Kolev (diploma № 703 of BICA), and 31 December 2009, via the certified auditor Filip Liapov
(diploma № 537 of BICA).
The professional association the auditor is a member of is the Bulgarian Institute of Chartered
Accountants (BICA). Ernst & Young Audit Ltd. is entered under No 108 of the BICA list of chartered
accounting companies.
Within the period from 1 January 2009 to the dated of this Prospectus the auditing company has not
resigned neither was dismissed or reappointed.
Preparation of financial statements
The financial statements of CEZ Electro over the last three financial years were prepared by Ivaylo
Stoyanov Stoyanov - the Finance and Accounting Directorate of CEZ Electro.
Approval of this Prospectus
This document is adopted by the Management Board of Central Cooperative Bank and by the
Management Board of the Privatization and Post-privatization Control Agency.
All consents, approvals, authorizations and other arrangements required by the Articles of association
of CEZ Electro or the effective laws of Bulgaria have been duly granted and received in respect of the Public
offering, subscribing and sale of the Shares.
The Public offering is made on the grounds of Decision 3220-I of 03.05.2011 of the Privatisation and
Post-privatisation Control Agency for the sale of the shares of State Consolidation Company in the capital of
CEZ Electro through a Public offering.
Miscellaneous
This Prospectus does not contain information ensuing from expert opinions or reports.
The total expected costs, fees and expenditures in respect of the Public offering and the admission of
the Shares to trading on the stock exchange are estimated to amount to about 3,524 levs.
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157
Institution
Financial supervision commission
Financial supervision commission
“Central Depository” AD
State Gazette and one central newspaper
"Bulgarian Stock Exchange – Sofia " AD
"Bulgarian Stock Exchange – Sofia " AD
Expense
Fee for issuing a confirmation of a Prospectus
Prospectus
Amount /BGN/
Oneff
Annual
900
Fee for annual general financial control by FSC
Fee for issuing ISIN code
Fee for depositing all shares of the capital
Annual fee for maintaining the registration of the
issue at CD
Expenses for publishing and promulgating the
notification about the public offering /forecast /
Fee for admitting the issue to trading on the main
market of BSE
Annual fee for maintaining the registration of the
issue on the main market of BSE /forecast /
Total expenses /forecast /
450
72
752
600
1 200
600
3 000
3 524
4 050
All one-off expenses, with regard to the admission of the shares to trading, are at the expense of the
manager of the offering, in his capacity as a person, who wants the admission of the securities to trading on a
regulated market. The above expenses amount to BGN 0.70 per share or a total of BGN 3,524.
The specified annual expenses to the amount of BGN 4,050 are paid every year and are entirely at
the expense of the company. These expenses may change in time (with changes in the tariffs on the fees of the
specified institutions), whereas the specified amounts are valid as at the date of the Prospectus.
The investors may obtain information on the prices and amount of the stock exchange transactions
involving Shares of CEZ Electro, for the prices and amounts of demand and offer of the Shares and other
investment-related information by the licensed investment intermediaries. Such information may also be
obtained from the bulletin of the BSE on BSE webpage www.bse-sofia.bg, the financial press and other
similar sources.
The Company will publish notices to convene the general meetings, the financial statements
(prepared after the date of this Prospectus), insider information and other regulated information through the
special media agency X3 News (www.X3news.com).
This Prospectus is prepared according to the Bulgarian law. The terms which are not defined herein
will have the meaning ensuing from effective Bulgarian law. Should any provision in this Prospectus,
including provision related to the Public Offering, be in contradiction with the then effective Bulgarian law or
regulation, then the latter will prevail without need to amend the Prospectus (if practicable).
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158
Prospectus
DEFINITIONS AND TERMS SPECIFIC FOR POWER ENGINEERING
Unless the context requires otherwise the terms defined below are used throughout this document in
the meaning set out opposite to them (in all genders, in singular and plural, where applicable):
“Listing agent”
“Central Cooperative Bank” AD, acting as a person that wants
the admission of the shares to trading at BSE
Shares
The shares of CEZ Electro Bulgaria AD, issued and registered
with the Central Depository (common shares with a par value
of 10 levs each)
PPCA
Privatisation and Post-privatisation Control Agency of Republic
of Bulgaria, acting in the offering (at the expense of the State
Consolidation Company) as an offerer of the offered shares
GDP
Gross domestic product
BNB
Bulgarian National Bank
BSE, Bulgarian Stock Exchange or the
Exchange
Bulgarian Stock Exchange – Sofia EAD
Manager
Central Cooperative Bank AD, acting as a manager of the
offering
Directors
The members of the Management Board and Supervisory board
of Issuer
SCC
“State Consolidation Company” EAD, (UIC 121031861) with
sole owner of the capital the Ministry of the economy and
energy of the Republic of Bulgaria
SEWRC
State Energy and Water Regulatory Commission of Republic of
Bulgaria
Admission to trading
See “Acceptance for trading”
The Company
CEZ Electro Bulgaria AD
The Issuer
EU
European Union
Energy Law or EL
The Energy Law
LFSC
The Law on the Financial Supervision Commission
LMMAFI
The Bulgarian Law on Measures Against Market Abuse of
Financial Instruments (The Gazette, No 84 dated 17 October
2006, as amended)
___________________________________________________________________________________
159
Prospectus
LPOS or Law on Public Offering of
Securities
The Bulgarian Law on Public Offering of Securities (The
Gazette, No 114 dated 30 December 1999, as amended)
LMFI
The Bulgarian Law on Markets in Financial Instruments (The
Gazette, No 52 dated 29 July 2007, as amended)
Financial Supervision Commission or FSC
The Bulgarian Financial Supervision Commission
“Listing“
See. “Acceptance for trade”
Majority shareholder
CEZ, a.s., the Czech Republic
IMF
International Monetary Fund
IAS
International Accounting Standards
IFRS
International Financial Reporting Standards
Supervisory Board or SB
The Supervisory Board of CEZ Electro
NSI
The National Statistical Institute of Republic of Bulgaria
General Meeting or GMS
The General Meeting of Shareholders of CEZ Electro
Public Offering
Offering for sale of 1650 Offered Shares, within the public
offering in Bulgaria based on this Memorandum, whereby some
restricted marketing activities addressed to specific Qualified
Investors might be undertaken, such marketing activities,
however, will not represent a public offering outside the
territory of Republic of Bulgaria
Offered shares
1 650 shares with a par value of 10 levs each, owned by
Republic of Bulgaria
Admission to trading
Admission of the Shares to trading on the Unofficial market of
the Bulgarian Stock Exchange
Selling shareholder
The State Consolidation Company through the Privatisation and
Post-privatisation Control Agency
Law on Commerce
The Bulgarian Law on Commerce (The Gazette, No 48 dated
18 June 1991, as amended)
Management board or MB
The Management board of CEZ Electro
Financial statements
The audited annual financial statements of CEZ Electro for
2011, 2010 and 2009, prepared on individual basis
Central Depository
The Central Depository AD, city of Sofia, a company which by
operation of the law is bound to keep the national register of
book-entry securities in Republic of Bulgaria and to perform,
among others, services in respect of the clearing and settlement
of operations with book-entry securities
___________________________________________________________________________________
160
Prospectus
Central Cooperative Bank or CCB
The Central Cooperative Bank AD – the Public Offering
Manager
CEZ Group
The majority shareholder CEZ a.s., the Czech Republic and its
subsidiaries
CEZ Electro
You will find below clarifications of some terms used in the power energy sector and frequently found in this
Memorandum.
Balancing market
A segment of the electricity market whereby the trade
is made by way of balancing the real-time demand of
electric energy and the production thereof within the
frameworks of the national power system.
Watt (W)
The Watt is a unit of power. One Watt is the energy
spent for 1 second by constant electric current of 1 A
through electric conductor with potential difference of
1 Volt at both ends;
1 kilowatt (kW) is equal to 1 000 Watts;
1 Megawatt (MW) is equal to 1 000 000 Watts.
Gigawatt (GW)
A unit of electrical capacity; 1 GW = 1 000 000 000
Watts
Capacity
The maximal useful power that a machine or a system
is capable to produce safely. Usually expressed in
kilowatts or Megawatts.
Kilowatt-hour (kWh)
The kilowatt-hour is the total amount of energy used by
an electric system with power rating of 1 Watt for one
hour. This is a unit to measure the consumption of
electric energy by users.
1 kilowatt-hour is equal to 1000 Watt-hours;
1 Megawatt-hour (mWh) is equal to 1 000 000 Watthours.
Terawatt-hour (TWh)
1 ТWh = 1 000 000 000 kilowatt-hours
Unless the context requires otherwise the words of any gender in this Memorandum will imply all
other genders.
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161
Prospectus
STATEMENT OF LIABILITY
We, the undersigned, in our capacity of representatives of Central Cooperative Bank and PPCA respectively,
do hereby confirm by our signatures the circumstances detailed in section “Liability for the Prospectus” on
page vii above.
________________
Sava Stoynov,
Executive Director of Central Cooperative Bank Plc
________________
Ivailo Donchev,
Executive Director of Central Cooperative Bank Plc
________________
Emil Karanikolov,
Executive Director of the Agency for Privatization and Post-privatization Control
___________________________________________________________________________________
162
Prospectus
HEAD OFFICE OF CEZ ELECTRO
140, Georgi Sava Rakovski Strеet
Sofia 1000
Bulgaria
PUBLIC OFFERING MANAGER
Central Cooperative Bank AD
103, G. S. Rakovski Street
Sofia 1000
Bulgaria
AUDITOR OF CEZ ELECTRO
Ernst & Young Audit Ltd
47A, Tsarigradslo shosse Blvd., 4th floor
Poligraphia Office Centre
Sofia 1124
Bulgaria
___________________________________________________________________________________
163

CEZ ELECTRO BULGARIA AD

Transcription

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