Current Report No. 36/2016

Subject: Definition of terms of coal supply from PGG to the Ostrołęka power plants

Date of preparation: 14.10.2016

Legal basis: Article 17 Section 1 of the Market Abuse Regulation – confidential information

The Management Board of ENERGA SA (Company) hereby reports, in connection with current report no. 34/2016 of 19 September 2016, that on 14 October 2016, the Company has been informed of signing of a document entitled General Terms and Conditions of Cooperation (GTCC) by Polska Grupa Górnicza Sp. z o.o. defining the rules governing the supply of coal to the planned Ostrołęka C power plant. The final contract in this matter is to be signed this November. Simultaneously the conditions for the supply of coal for the existing Ostrołęka B power plant are negotiated.

It is the intention of the parties set forth in GTCC to enter into a contract to supply the Ostrołęka C power plant with approximately 2 million tons of coal annually for a period up to the year 2055.

The pricing formula for the coal purchased for the Ostrołęka C power plant will be based on a margin calculated at variable electricity production costs in the Ostrołęka C power plant and the level of such variable costs.

The Company believes that coal pricing based on a specific margin level ensures economic optimization and profitability of the Ostrołęka C project. The formula provides for a wide price range, linking the cost of coal to a specified rate of return; it will also enable the parties to share the future benefits from the capacity market or the potentially awarded free carbon emission rights.

The pricing formula for the potential coal purchased for the Ostrołęka B power plant will be based on coal prices in ARA ports and margins earned on electricity generation by producers using 200 MW coal-fired units.

The effective date and performance of the Ostrołęka C coal supply contract will depend on fulfillment of the following conditions precedent:

1. the Capacity Market (or another support scheme) is launched and Ostrołęka C is covered by that support scheme;
2. ensure the financing of the Ostrołęka C.