Current Report No. 45/2016

Date of preparation: 30 November 2016

Subject: Consent given by the ENERGA SA Supervisory Board to sign a long-term coal supply agreement with PGG

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

In reference to current report no. 36/2016 dated 14 October 2016, the Management Board of ENERGA SA (“Company”, “ENERGA”) reports that on 30 November 2016 the Company’s Supervisory Board gave consent to incur a liability through entering into a Long-Term Coal Supply Agreement (“Agreement”) by subsidiary Elektrownia Ostrołęka SA with Polska Grupa Górnicza Sp. z o.o. (“PGG”).

The initialed Agreement provides for supply of the base volume of approx. 2 million tons p.a. to the planned Ostrołęka C power plant by PGG. The Agreement has a 10-year term, starting from the date of commencement of operations of the aforementioned power plant. According to the provisions of the document, there is a possibility of extending it for the next 10 years with the consent of the Parties.

In accordance with the initialed Agreement, the pricing formula for the coal purchased for the Ostrołęka C power plant will depend on profitability of the Ostrołęka C project, ensuring its economic optimization. The formula links the cost of coal to a specified rate of return on the investment and provides for an appropriate mechanism for sharing the future benefits from the capacity market and potential award of free CO₂ emission rights.

The Agreement will be performed according to the prices calculated in accordance with the formula for each quarter, but for the needs of estimation of the value of the Agreement for its 10-year term, the price was calculated according to the average value of the Polish Steam Coal Market Index (PSCMI1) from September 2016 and the volume of supplies of 2 million tons per annum; the value of the Agreement at real prices from September amounts to PLN 3.9 billion.

The effective date and performance of the Ostrołęka C coal supply agreement will depend on fulfillment, among others, of the following conditions precedent:

1. Issue of an instruction to the General Contractor to commence the works
2. Financial closing, i.e. confirmation by Elektrownia Ostrołęka SA, of conclusion of all agreements required to finance the construction and commencement of operation, and fulfillment or waiver of all conditions precedent for commencement of the use of the funds under such agreements.

The next step will involve execution of the Long-Term Agreement by the subsidiary Elektrownia Ostrołęka SA and PGG.