INDEPENDENT AUDITOR S REPORTS AND SEPARATE AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006

INDEPENDENT AUDITOR S REPORTS AND SEPARATE AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER

INDEPENDENT AUDITOR S REPORT AND SEPARATE FINANCIAL STATEMENTS (PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EU) For the year ended

INDEPENDENT AUDITOR S REPORT AND INTERNATIONAL FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER CONTENTS Page Independent Auditor's Report 1 Separate Financial Statements (presented in accordance with IFRS as adopted by the EU): Separate Balance Sheets 3 Separate Statements of Profit and Loss 4 Separate Statements of Changes in Equity 5 Separate Statements of Cash Flows 6 Notes to the Separate Financial Statements 7 35

Emphasis of matter 5. Without qualifying our opinion, we draw attention to Notes 1, 4 and 26 to the separate financial statements which includes information on the preparation of the separate financial statements, significant facts about the legal unbundling of the Company, the adoption of the revaluation model under IAS 16 Property, Plant and Equipment and regulatory issues which may impact the Company in the future. Bratislava, 21 March 2007 Deloitte Audit s.r.o. Licence SKAu No. 014 Ing. Wolda Kidan Grant, FCCA Responsible auditor Licence SKAu No. 921

SEPARATE BALANCE SHEETS and (SKK 000) ASSETS: Note NON-CURRENT ASSETS Property, plant and equipment 7 86 970 105 48 820 230 Investments in subsidiaries, joint ventures and associates 6a 92 543 550 3 299 168 Other financial assets 6b 902 238 916 450 Intangible and other assets 8 1 191 743 1 313 727 Restricted cash 3h 3 498 780 - Other non-current assets 522 418 Deferred tax asset 22.2-24 350 Total non-current assets 185 106 938 54 374 343 CURRENT ASSETS Inventories 9 8 506 449 8 712 351 Receivables and prepayments 10 10 259 347 10 214 572 Investments in securities 21 837 10 201 Other current assets 20 398 - Cash and cash equivalents 22 217 232 22 366 474 Total current assets 41 025 263 41 303 598 TOTAL ASSETS 226 132 201 95 677 941 EQUITY AND LIABILITIES: CAPITAL AND RESERVES Registered capital 16 52 287 322 52 287 322 Legal and other reserves 17 10 457 464 9 786 596 Revaluation reserves 17 50 621 397 - Retained earnings 85 684 555 19 246 031 Total equity 199 050 738 81 319 949 NON-CURRENT LIABILITIES Deferred income 12 105 1 376 114 Provisions for liabilities and charges 14 2 075 931 2 816 146 Retirement and other long-term employee benefits 13 78 444 230 641 Deferred tax liability 22.2 11 946 270 - Total non-current liabilities 14 100 750 4 422 901 CURRENT LIABILITIES Trade and other payables 15 11 511 817 8 957 964 Income tax payable 1 311 336 337 555 Other current liabilities 157 560 639 572 Total current liabilities 12 980 713 9 935 091 Total liabilities 27 081 463 14 357 992 TOTAL EQUITY AND LIABILITIES 226 132 201 95 677 941 The financial statements on pages 3 to 35 are signed on 21 March 2007 on behalf of the Board of Directors by: Dipl. Ing. Dipl. Kfm. Jan Massmann Chairman of the Board of Directors JUDr. Anton Novák Vice-Chairman of the Board of Directors The accompanying notes are an integral part of the separate financial statements. 3

SEPARATE STATEMENTS OF PROFIT AND LOSS and year ended (SKK 000) Note Revenues Gas distribution and supply 69 268 502 58 205 262 Gas transmission and other 24 018 785 25 873 004 Total revenues 93 287 287 84 078 266 Operating expenses Change in inventories 1 622 037 1 143 349 Own work capitalized 169 136 336 106 Purchases of natural gas and raw material and energy consumption (56 709 744) (44 675 305) Depreciation and amortization (5 717 054) (4 044 012) Storage of natural gas and other services (4 563 773) (5 686 059) Staff costs 18 (2 354 444) (3 354 422) Provision for bad and doubtful debts, obsolete and slow-moving inventory, net (171 360) (458 158) Provisions and impairment losses, net (2 832 362) (1 973 301) Other, net (406 705) (453 781) Total operating expenses (70 964 269) (59 165 583) Operating profit 22 323 018 24 912 683 Gain on contribution in kind to subsidiaries 1.3 4 501 040 - Income from investments 19 2 193 341 940 717 Finance income/(costs) 20 98 886 (401 415) Profit before income taxes 29 116 285 25 451 985 Income tax 22.1 (5 065 260) (5 021 335) NET PROFIT FOR THE PERIOD 24 051 025 20 430 650 Earnings per share (in SKK) 23 460 391 The accompanying notes are an integral part of the separate financial statements. 4

SEPARATE STATEMENTS OF CHANGES IN EQUITY and year ended (SKK 000) Registered capital Legal reserve fund Other funds Revaluation reserves (Accumulated loss)/retained earnings Total At 2004 52 287 322 7 627 257 4 796-20 269 045 80 188 420 Net profit for the period - - - - 20 430 650 20 430 650 Dividends paid - - - - (19 291 101) (19 291 101) Allocation of profit - 2 159 339 - - (2 159 339) - Other - - (4 796) - (3 224) (8 020) At 52 287 322 9 786 596 - - 19 246 031 81 319 949 Net profit for the period - - - - 24 051 025 24 051 025 Dividends paid - - - - (19 857 008) (19 857 008) Allocation of profit - 670 868 - - (670 868) - Increase in gas assets revaluation reserve - - - 126 269 667-126 269 667 Deferred tax liability arising on revaluation of gas assets - - - (12 505 500) - (12 505 500) Adjustment of revaluation reserve for contribution of assets to subsidiaries - - - (59 020 158) 59 020 158 - Realization of revaluation reserve (net of deferred tax) - - - (3 914 429) 3 914 429 - Decrease in revaluation reserve for changes in fair value (net of deferred tax) - - - (208 183) - (208 183) Other - - - - (19 212) (19 212) At 52 287 322 10 457 464-50 621 397 85 684 555 199 050 738 The accompanying notes are an integral part of the separate financial statements. 5

SEPARATE STATEMENTS OF CASH FLOWS and year ended (SKK 000) Note Operating activities Cash generated from operations 24 24 361 594 27 179 721 Interest paid (3 840) (46 304) Interest received 824 558 681 600 Income tax paid (4 588 557) (5 626 920) Net cash inflow from operating activities 20 593 755 22 188 097 Investing activities Proceeds/(acquisition) from investments in securities, net (12 925) 136 050 Purchase of property, plant and equipment (2 711 064) (3 088 605) Proceeds from sale of property, plant and equipment and intangibles 360 341 175 278 Dividends received 1 100 432 678 298 Net cash inflow/(outflow) from investing activities (1 263 216) (2 098 979) Financing activities Repayment of interest-bearing borrowings - (1 603 794) Dividends paid (19 857 008) (19 291 101) Other proceeds and expenses from financial activities, net 377 227 (63 538) Net cash outflow from financing activities (19 479 781) (20 958 433) Net increase/(decrease) in cash and cash equivalents (149 242) (869 315) Cash and cash equivalents at the beginning of the period 22 366 474 23 235 789 Cash and cash equivalents at the end of the period 22 217 232 22 366 474 The accompanying notes are an integral part of the separate financial statements. 6

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 1. GENERAL 1.1 General Information Based on a requirement of the Slovak Act on Accounting No. 431/2002 Col. (the Act), Slovenský plynárenský priemysel, a.s. ( SPP or the Company ) has changed its accounting policies on preparation of separate financial statements as of 1 January to comply with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The transition to IFRS is accounted for in accordance with IFRS 1 First-time Adoption of IFRS, with 1 January as the date of transition. The effects of the transition from previous accounting policies under Slovak accounting standards to IFRS on equity, profit and cash flows are presented in Note 29. The accounting policies as described in Note 3 were used in the preparation of the separate financial statements and were applied consistently to the amounts for the corresponding figures and the opening balance sheet as at 1 January, which is the date of transition to IFRS. The Company has prepared and issued consolidated financial statements under IFRS as adopted by the EU. The separate financial statements report investments in subsidiaries at costs (refer to Note 6). The consolidated financial statements are significantly different from the Company s separate financial statements. For a better understanding of the financial position of SPP as at and its financial performance and cash flows, the separate financial statements should be read in conjunction with SPP s consolidated financial statements for the year ended which have been issued separately. SPP (formerly Slovenský plynárenský priemysel, š. p.), was originally founded on 21 December 1988 by a Foundation Charter as a 100% state owned enterprise in the Slovak Republic. On 1 July 2001 SPP was transformed to a joint stock company (akciová spoločnosť), 100% owned by the Fund of National Property of the Slovak Republic. A consortium of strategic investors acquired a 49% share in SPP with management control effective 11 July 2002. Currently, SPP s shares are held by the Fund of National Property of SR (51%) and Slovak Gas Holding, B. V., Holland (49%) (jointly held indirectly by Gaz de France and E.ON Ruhrgas). 1.2 Principal Activities Until 30 June, SPP was organized into the following operating segments: gas distribution and gas supply and gas transmission. Since 1 July, following the legal unbundling process, SPP is involved in the sale of natural gas and the lease of gas-related assets to its subsidiary, SPP preprava, a.s.. Until 30 June, the distribution and supply segment included the purchasing, distribution and sale of natural gas through the distribution and gas trading division in a service area, which included the entire Slovak Republic. Until 30 June, the transmission segment represented the transit division, which was responsible for the transmission of natural gas from the Ukraine border to the western border of Slovakia. Since 1 July, SPP no longer performs distribution of natural gas or gas transmission as these activities are now performed by its subsidiaries, SPP - distribúcia, a.s. and SPP - preprava, a.s. respectively. The subsidiaries are required by law to provide non-discriminatory access to the distribution network and to the gas transmission pipelines. Prices charged by SPP - distribúcia, a.s. and SPP - preprava, a.s. for gas distribution and gas transmission are on a cost plus basis and benchmark principle respectively and are regulated by the Slovak Regulatory Office for Network Industries (RONI). 1.3 Restructuring During 2004, SPP established the following subsidiaries that are wholly owned by SPP: 1. SPP preprava, a.s. (gas transmission) 2. SPP distribúcia, a.s. (gas distribution) 3. SPP aktíva, a.s. (asset company) On 1 July, SPP completed its legal unbundling process that included transferring of certain activities to subsidiaries as at that date. SPP contributed part of its business including the assets and liabilities of the former transit division (excluding key assets used for gas transmission) to its subsidiary SPP preprava, a.s., and, at the same time, SPP leased the key assets used for gas transmission (gas pipelines, compressor stations) to its subsidiary under an operating lease agreement. Effective from 1 July, SPP preprava, a.s. has assumed the gas transmission business. These notes are an integral part of the separate financial statements. 7

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) SPP contributed part of its business including the assets (including gas distribution network) and the liabilities of the former gas distribution division to its subsidiary SPP distribúcia, a.s., which has assumed the gas distribution business in the Slovak Republic. SPP intended to contribute the Asset Division as part of business to its subsidiary SPP aktíva, a.s., however, the plan was cancelled in. There are no current plans to operate this subsidiary. SPP has remained a holding company and has continued with trading natural gas. At the same time, SPP conducts certain activities for its subsidiaries SPP preprava, a.s. and SPP distribúcia, a.s., including accounting, finance, human resources, information technologies and other centralised functions ( common services ). Under Slovak law, the individual assets and liabilities which form part of the business contributed to the registered capital of the subsidiaries are measured at their fair value in the financial statements of the subsidiaries. These assets and liabilities were re-measured to their fair value in their separate financial statements of SPP - preprava, a.s. and SPP - distribúcia, a.s. prepared in accordance with Slovak accounting standards. SPP has recorded its financial investment in subsidiaries at the fair value of the contribution in kind. The difference between the fair value of the contribution in kind and the carrying amount of the contributed assets and liabilities represents a gain on contribution for the amount of SKK 4 501 040 thousand which was recorded in the statement of profit and loss for the year ended 31 December. This gain resulted primarily from the difference in the carrying amounts of assets that have been contributed and were not subject to the revaluation model. The impact of the legal unbundling and contribution in kind to the registered capital of subsidiaries on the separate financial statements can be summarised as follows: SPP - preprava, a.s. SPP - distribúcia, a.s. Total Increase in Investment in subsidiaries, recognised at fair value of contribution in kind 5 763 492 83 456 758 89 220 250 Contribution in kind (carrying values) at 1 July (unaudited) Property, plant and equipment 200 300 80 043 599 80 243 899 Intangible and other assets 21 878 67 447 89 325 Inventories 239 984 1 633 178 1 873 162 Receivables and prepayments 4 739 867 18 172 4 758 039 Deferred income - (1 364 312) (1 364 312) Long-term employee benefits (55 060) (71 550) (126 610) Trade and other payables (272 660) (281 635) (554 295) Other current liabilities - (200 000) (200 000) Total 4 874 309 79 844 900 84 719 209 Gain on contribution in kind 889 183 3 611 857 4 501 040 The impact of the legal unbundling was fully eliminated in SPP s consolidated financial statements for the year ended. 1.4 Employees The average number of employees of SPP for the year ended was 3 321, thereof executive management: 7 ( : 4 949, thereof executive management: 9). 1.5 Registered address Mlynské Nivy 44/a 825 11 Bratislava Slovak Republic These notes are an integral part of the separate financial statements. 8

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 2. NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS AND CHANGES IN ESTIMATES 2.1 Adoption of New and Revised International Financial Reporting Standards In the current year, the Company has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and have been endorsed by the EU and effective for accounting periods beginning on 1 January. The adoption of these new and revised standards and interpretations had no effect on the changes in SPP s accounting policies. At the date of authorization of the separate financial statements, the following standards and interpretations or amendments to existing standards and interpretations were in issue but not yet effective: IFRS 7 Financial Instruments: Disclosures ; IFRS 8 Operating Segments IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies ; IFRIC 8 Scope of IFRS 2 ; IFRIC 9 Reassessment of Embedded Derivatives ; Amendment to IAS 1 Presentation of Financial Statements Capital Disclosures ; IFRIC 10 Interim Financial Reporting and Impairment ; IFRIC 11 Group and Treasury Share Transactions ; IFRIC 12 Service Concessions Arrangements. The Company anticipates that the adoption of these standards and interpretations in future periods will have no material impact on the separate financial statements of the Company. 2.2 Other changes in accounting policies and procedures Adoption of the revaluation model As of 1 January, SPP adopted the revaluation accounting model under IAS 16 Property, plant and equipment applicable to buildings, structures, plant and equipment within the Company s core business and used for natural gas transmission and distribution. These assets mainly include gas pipelines, gas fixtures, regulation stations, compressor stations, and cross-border acceptance and domestic transmission stations. SPP has chosen this model, as SPP believes that the resulting financial statements would provide more reliable and more relevant information on buildings, structures, plant and equipment used for natural gas transmission and distribution. The revaluation of the assets was recognised with no impacts on prior periods. The revaluation resulted in the increase of the value of property, plant and equipment by SKK 122 642 305 thousand and an increase in deferred tax liability by SKK 12 505 500 thousand and the creation of a revaluation reserve in equity. Additionally, SPP has revised the useful lives of these assets based on an independent expert s opinion. Refer to Note 7 for further details and to Note 1.3 for details on the subsequent contribution in kind to the registered capital of subsidiaries. 2.3 Change in Estimates During, SPP has extended the useful lives of property, plant and equipment used in the transmission and distribution of natural gas. Refer to Note 7. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Accounting The separate financial statements have been prepared in accordance with IFRS as adopted by the EU. IFRS as adopted by the EU do not currently differ from IFRS as issued by the International Accounting Standards Board (IASB), except for portfolio hedge accounting under IAS 39 which has not been approved by the EU. SPP has determined that portfolio hedge accounting under IAS 39 would not impact the separate financial statements had it been approved by the EU at the balance sheet date. The financial statements are prepared under the historical cost convention, except for specified categories of property, plant and equipment and certain financial instruments. The principal accounting policies adopted are set out below. The reporting currency of SPP is the Slovak Crown (SKK). The separate financial statements were prepared based on the going concern assumption. These notes are an integral part of the separate financial statements. 9

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) SPP has prepared and issued consolidated financial statements for the year ended that comply with IFRS as adopted by the EU. Such consolidated financial statements were issued separately and do not accompany these separate financial statements. For a better understanding of the Company s consolidated financial position and results of operations, reference should be made to the consolidated financial statements for the year ended, which were prepared on 21 March 2007. (b) Financial Instruments Financial assets and liabilities are recognized on the Company s balance sheet when the Company has become a party of the contractual provisions of the instrument. (c) Investments in Securities Investments in subsidiaries, joint-ventures and associates are measured at cost. Investments in securities are recognized on a trade date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Company has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortized cost, less any impairment loss recognized to reflect irrecoverable amounts. Investments other than held-to-maturity debt securities are classified as either investment held at fair value through profit and loss or available for sale, which are measured at reporting dates at fair value based on quoted market prices at the balance sheet date assuming there is an active market. Where securities are held at fair value through profit and loss, unrealised gains and losses are included in the statement of profit and loss. For available for sale investments, unrealised gains and losses are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized is included in the statement of profit and loss. (d) Derivative Financial Instruments Derivative financial instruments are initially recorded at cost and are re-measured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges are recognized in equity. Amounts deferred in equity are recognized in the statement of profit and loss in the same period in which the hedged firm commitment or forecasted transaction affects net profit or loss. At and the Company had no derivative financial instruments designated as cash-flow hedges. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in the statement of profit and loss. (e) Property, Plant and Equipment and Intangible Assets In, gas related property, plant and equipment used for gas transmission are disclosed on the face of the balance sheet at their revalued amount, i.e. the fair value as at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The first revaluation was performed as of 1 January. The revaluation was performed by independent valuation experts. The revaluations will be performed with a sufficient regularity (at least every five years) so that the carrying amount does not differ materially from that which would be disclosed using fair values at the balance sheet date. Any revaluation increase arising on the revaluation of such property, plant and equipment is credited to revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognized in the income statement, in which case the increase is credited to income statement to the extent of the decrease previously charged. A decrease in the carrying amount arising on the revaluation of such property plant and equipment is charged to the income statement to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued property, plant and equipment is charged to the income statement. Revaluation surplus is gradually released to retained earnings over the depreciable period of the related revalued assets. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. These notes are an integral part of the separate financial statements. 10

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Other property, plant and equipment and intangible assets are stated at acquisition cost less accumulated depreciation. Cost includes all costs directly attributable to bringing the asset to working condition for its intended use. Items of property, plant and equipment and intangible assets that are retired or otherwise disposed off are eliminated from the balance sheet, along with any corresponding accumulated depreciation. Any gain or loss resulting from such retirement or disposal is included in the statement of profit and loss. Other items of property, plant and equipment are depreciated on the straight-line basis over estimated useful lives. Depreciation is recorded by a charge to income computed so as to amortize the cost of the assets to their estimated residual values over their remaining useful lives. The useful lives used are as follows: Regulation stations 15 50 3 40 Compressor stations 25 55 3-40 Inlet and market delivery stations 15-50 4-40 Gas pipelines 60 30 Buildings 25 80 25 40 Plant and machinery 4 40 4 40 Other non-current assets 3 8 3 8 At revaluation of property, the appraiser determined useful lives of certain items of pipelines in range from 60 to 80 years. Land is not depreciated as it is deemed to have an infinite life. At each balance sheet date an assessment is made as to whether there is any indication that the recoverable amount of the Company s property, plant and equipment and intangible assets is less than the carrying amount. When there is such an indication, the recoverable amount of the asset, being the higher of the asset s net selling price and the present value of its net cash flows, is estimated. The resulting impairment loss is recognized in full in the statement of profit and loss in the year in which the impairment occurs. Provision for impairment of property, plant and equipment recognised for property, plant and equipment with positive revaluation reserve will primarily decrease the positive balance of revaluation reserve recognised in equity with only the excess of net book value of the revaluation reserve recognised through profit or loss. The discount rates used to calculate the net present value of the cash flows reflect current market assessments of the time value of money and the risks specific to the asset. In the event that a decision is made to abandon a construction project in progress or to significantly postpone its planned completion date, the carrying value of the asset is reviewed for potential impairment, and a provision recorded, if appropriate. Subsequent expenditure relating to an item of property, plant and equipment and intangible assets is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the original assessed standard of performance of the existing asset, will flow to the enterprise. All other subsequent expenditure is treated as repairs and maintenance and is expensed in the period in which it is incurred. (f) Inventories Inventories are stated at the lower of cost and net realizable value. The cost of natural gas stored underground and materials and supplies are calculated using the weighted average method. Cost of natural gas stored, materials and other inventory includes cost of acquisition and other costs related to acquisition and for own products materials, other direct costs and production overheads. Appropriate provision is made for obsolete and slow-moving inventories. (g) Trade Receivables Trade receivables are valued at expected realizable value, including provisions for bad and doubtful accounts. (h) Cash and Cash Equivalents Cash and cash equivalents consist of cash in hand and balances with banks, and highly liquid investments with insignificant risk of changes in value and original maturities of three months or less at the date of acquisition. As at, the Company had amounts deposited in a separate bank account for the cash collateral of its subsidiary. These funds are not recognized as part of cash and cash equivalents, and are recognized in non-current assets as restricted cash. Restricted cash may only be used under specific terms and conditions of the collateral agreement between SPP and its subsidiary. These notes are an integral part of the separate financial statements. 11

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) (i) Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. (j) Revenue Recognition Sales are recorded upon delivery of products or performance of services, net of value added tax and discounts. The Company records revenue from gas sales and transmission (for the period from 1 January until 30 June ) and other activities on the accruals basis which includes estimates of gas delivered but unbilled as of the balance sheet date. Revenues from natural gas acquired under transmission agreements for running of compressor stations were recorded when delivered. (k) Research and Development Research and development expenditure is recognized as an expense except those costs incurred on development projects that are recognized as development assets (intangible assets) to the extent that such expenditure is expected to have future economic benefits. However, development costs initially recognized as an expense are not recognized as an asset in a subsequent period. As of 1 July, research and development activities were assumed by SPP s subsidiaries (SPP preprava, a.s., and SPP distribúcia, a.s.). (l) Borrowing Costs Borrowing costs are recognized as an expense in the period in which they are incurred. As of and, SPP reported no borrowings. (m) Social Security and Pension Schemes The Company is required to make contributions to various obligatory Government insurance schemes, together with contributions by employees. The cost of social security payments is charged to the statement of profit and loss in the same period as the related salary cost. (n) Retirement and Other Long-Term Employee Benefits The Company operates un-funded defined long-term benefit programs comprising lump-sum postemployment, disability and jubilee benefits. According to IAS 19, the employee benefits costs are assessed using the projected unit credit method. Under this method, the cost of providing pensions is charged to the statement of profit and loss so as to spread the regular cost over the service lives of employees. The benefit obligation is measured as the present value of the estimated future cash outflows discounted by market yields on Slovak government bonds, which have terms to maturity approximating the terms of the related liability. All actuarial gains and losses are recognized immediately in the statement of profit and loss. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. (o) Government Grants Up until 30 June, transfers of gas equipment by municipalities to SPP are deemed to be nonmonetary grants and are recorded at fair value of assets received, which is also included in non-current liabilities as deferred income. This deferred income is credited to the statement of profit and loss on a straight-line basis over the useful lives of the assets transferred. As of 1 July, these assets were transferred to SPP distribúcia, a.s.. (p) Taxation Income taxes currently payable are provided on accounting profit as determined under Slovak accounting principles after adjustments for certain items for taxation purposes at a rate of 19%. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited to the statement of profit and loss, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also recorded in equity. The valid income tax rate from 1 January 2004 is 19%. The principal temporary differences arise from revaluation and depreciation on property, plant and equipment and various provisions. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. These notes are an integral part of the separate financial statements. 12

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. (q) Foreign Currencies Transactions in foreign currencies are initially recorded at the rates of exchange of National Bank of Slovakia (NBS) prevailing on the dates of the transactions. Monetary assets, receivables and liabilities denominated in foreign currencies are retranslated at the NBS exchange rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in the statement of profit and loss for the period. 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the process of applying the Company s accounting policies, which are described in note 3, SPP has made the following judgements concerning uncertainties and estimations that have significant effect on the amounts recognized in the financial statements. There is significant risk of material adjustments in future periods relating to such matters, including the following: Litigation SPP is involved in various legal proceedings for which management has assessed the probability of loss that will result in a cash outflow. In making this assessment, SPP has relied on the advice of external legal counsel, latest available information on the status of the court proceedings and an internal evaluation of the likely outcome. The final amount of any potential losses in relation to legal proceedings is not known and may result in a material adjustment to previous estimates. Details of the legal cases are included in Note 26. Revaluation of Property, Plant and Equipment As at 1 January, SPP has adopted the revaluation model under IAS 16 for its gas related property, plant and equipment used for natural gas transmission and distribution. The revaluation of assets at the Company was performed by independent appraisers using the depreciated replacement cost approach. The revaluation of gas related assets has resulted in an increase in the value of the assets and a corresponding increase in equity. The estimates used in the revaluation model are based upon an expert independent valuation report. The resulting reported amounts for these assets and the related revaluation reserve do not necessarily represent values at which these assets could or would be sold. SPP has also extended the useful lives of gas-related property, plant and equipment on the basis of an independent appraisal report. The useful lives of these assets now range from 40 to 80 years (until from 25 to 40 years) for gas-related assets and from 60 to 80 years for gas pipelines (until 30 years). The assessment of useful lives involves the judgment of the technical experts. There are inherent uncertainties about future business conditions, changes in technology and the competitive environment within the industry that could require future adjustments to estimated revalued amounts and assets lives which could potentially result in material changes in reported financial position, equity and profit. Refer to Note 7 for further details. Impairment of Property, Plant and Equipment The Company has calculated and recorded significant amounts for impairment of property, plant and equipment on the basis of an evaluation of their future use, planned liquidation or sale and on the basis of the report of the independent appraiser. For certain of these items, no final decision has yet been made and therefore the assumptions on use, liquidation or sale of assets may change. Refer to Note 7 for details on impairment of property, plant and equipment. Un-invoiced Gas Sales SPP records significant amounts as revenues for gas sales on the basis of estimates of gas consumption by small industrial customers and residential customers. SPP makes an estimate of such revenues by allocating actual measured gas consumption to the different categories of customers on the basis of past consumption trends and applying the applicable natural gas prices. Actual consumption by customers in the different categories may vary and therefore the amounts recorded as revenues may change given the price differences between categories of customers. These notes are an integral part of the separate financial statements. 13

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Environmental Provision The financial statements include significant amounts as environmental provision. The provision is based on estimates of the future costs of dismantling, restoration and re-cultivation and is also significantly impacted by the estimate of the timing of cash flows and the Company s estimate of the discount rate used. The provision takes into account costs estimated for dismantling old gas facilities and compressor stations, the decontamination of soil and for the restoration of sites to their original condition based on past costs for similar activities. Refer to Note 14 for further details. 5. FINANCIAL RISK MANAGEMENT (a) Financial Risk Factors The Company s activities expose it to a variety of financial risks, including the effects of changes in foreign currency exchange rates and loan interest rates and gas purchase prices. The Company s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company. During, the Company used derivative financial instruments such as forward and option foreign exchange contracts to manage certain exposures. Risk management is carried out by the Treasury department under policies approved by the Board of Directors. (1) Foreign Exchange Risk The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to US dollar and Euro. As a significant percentage of the Company s revenues, purchases and financing are denominated in US dollars and Euro, there is a certain level of natural hedging. During, the Company also used option and forward contracts to hedge a portion of their exposure to foreign currency risks in the local reporting currency for the specified dates of cash flows. As at, the Company had no forward and option contracts open to manage the exposure of the foreign exchange rate on income from transmission (as at, the Company had 18 forward and 12 option contracts open). However, these derivatives are accounted for as trading instruments with fair value adjustments reported in the statement of profit and loss. The Company has a number of investments in joint ventures and associated undertakings, whose net assets are exposed to currency translation risk. (2) Commodity Price Risk The Company is a party to framework agreements for the purchase of natural gas and other services and material. In addition, the Company enters into contracts for oil and natural gas sales and natural gas storage. Contracts for natural gas storage are at fixed prices. The Company is not involved in any significant commodity price risk hedging activities. (3) Interest Rate Risk The Company s operating income and operating cash flows are relatively independent of changes in market interest rates. As at and, SPP had significantly reduced its borrowings and is therefore not exposed to any significant fluctuations in market interest rates. (4) Credit Risk The Company has no significant concentrations of credit risk. The Company has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and that there is a limit on the amount of obligations due to individual financial institutions. Derivative counter-parties and cash transactions were limited to high credit quality financial institutions. (5) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash with adequate due date and marketable securities, the availability of funding through an adequate amount of committed credit lines and the ability to close out market positions. Due to the dynamic nature of the underlying business, Treasury management aims at maintaining flexibility by keeping committed credit lines available and synchronizing the maturity of financial assets with financial needs. These notes are an integral part of the separate financial statements. 14

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) (b) Fair Value Estimation The fair value of forward foreign exchange contracts was determined using forward exchange market rates at the balance sheet date. In assessing the fair value of non-traded derivatives and other financial instruments, the Company used a variety of methods and market assumptions that are based on market conditions existing at the balance sheet date. Other techniques, mainly estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Company for similar financial instruments. 6. INVESTMENTS IN SECURITIES a) Subsidiaries, joint ventures and associates Subsidiaries Joint ventures and associates As at As at Opening net book value 1 621 836 1 677 332 3 299 168 3 484 169 Contribution in kind (Note 1.3) 89 220 250-89 220 250 - Acquisitions 24 132-24 132 Disposals - - - - Impairment - - - (185 001) Closing net book value 90 866 218 1 677 332 92 543 550 3 299 168 Cost 91 223 805 1 677 332 92 901 137 3 663 963 Impairment (357 587) - (357 587) (364 795) Closing net book value 90 866 218 1 677 332 92 543 550 3 299 168 Details of SPP s subsidiaries at are as follows: Company Country of incorporation Effective ownership % Principal activity SPP preprava, a.s. Slovakia 100.00 Gas transmission SPP distribúcia, a.s. Slovakia 100.00 Gas distribution NAFTA, a.s. Slovakia 56.15 Gas storage and hydrocarbon exploration and production GEOTERM KOŠICE, a.s. Slovakia 95.82 Utilization of geothermal energy Nadácia SPP Slovakia 100.00 Foundation InfoGas, a. s. Slovakia 100.00 IT services SPP aktíva, a.s. Slovakia 100.00 No activities in current period Details of SPP s joint ventures at are as follows: Company Country of incorporation Effective ownership % Principal activity POZAGAS, a. s. Slovakia 35.00 Gas storage InterKVET, s. r. o. Slovakia 50.00 Management of cogeneration plants P R O B U G A S, a. s. Slovakia 50.00 LPG retail SPP Bohemia, a. s. Czech republic 50.00 Gas storage Details of SPP s associates at are as follows: Company Country of incorporation Effective ownership % Principal activity SLOVGEOTERM, a. s. Slovakia 50.00 Geothermal energy These notes are an integral part of the separate financial statements. 15

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) (b) Other Financial Assets Other non-current financial assets comprise the following: Shares Other As at As at Cost 887 401 14 837 902 238 916 450 Impairment - - - - Closing net book value 887 401 14 837 902 238 916 450 Investments in shares comprise of the following subsidiaries and other shareholdings: Company Country of incorporation Effective ownership % Principal activity Other shareholdings Energotel, a. s. Slovakia 16.66 Telecommunication services Severomoravská plynárenská, a. s. (1) Czech republic 8.52 Gas distribution Východočeská plynárenská, a. s. (1) Czech republic 10.00 Gas distribution GALANTATERM, spol. s r. o. Slovakia 17.50 Geothermal energy Fond energetickej efektívnosti Slovakia 100.00 Non-investment fund (1) listed companies SPP did not determine the fair value of investments in listed companies as the market does not reflect the fair value of these investments, and the amount of transactions is immaterial compared to the Company s ownership interests. These notes are an integral part of the separate financial statements. 16

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 7. PROPERTY, PLANT AND EQUIPMENT Regulation stations Compressor stations In-let and market delivery stations Pipelines Land, buildings and structures Plant, machinery and equipment Other noncurrent assets Capital work in progress Total Opening net book value 1 591 292 9 390 085 768 421 30 160 620 5 332 098 919 175 383 471 3 120 397 51 665 559 Additions - - - - - - - 2 816 638 2 816 638 Taken into use 160 687 795 943 69 422 1 134 445 309 504 86 218 189 212 (2 745 431) - Reclassifications (63 007) 3 163 (509) (25 923) 225 435 (99 069) (393 826) (685 000) (1 038 736) Disposals (10 166) (36 110) (2 693) (9 874) (66 662) (497) (1) (68 816) (194 819) Depreciation charge (250 392) (1 474 527) (130 824) (1 785 964) (353 759) (126 598) (154 958) - (4 277 022) Change of provisions (7 518) (25 585) (1 869) (6 645) (51 383) - - (58 390) (151 390) Closing net book value 1 420 896 8 652 969 701 948 29 466 659 5 395 233 779 229 23 898 2 379 398 48 820 230 At Cost 4 607 545 22 957 943 1 401 348 59 513 368 9 826 618 4 224 197 470 281 2 653 604 105 654 904 Provision and accumulated depreciation (3 186 649) (14 304 974) (699 400) (30 046 709) (4 431 385) (3 444 968) (446 383) (274 206) (56 834 674) Net book value 1 420 896 8 652 969 701 948 29 466 659 5 395 233 779 229 23 898 2 379 398 48 820 230 Opening net book value 1 420 896 8 652 969 701 948 29 466 659 5 395 233 779 229 23 898 2 379 398 48 820 230 Revaluation 2 697 822 15 512 945 852 423 103 579 115 - - - - 122 642 305 Additions 527 - - 2 563 766 - - 2 020 374 2 024 230 Taken into use 175 797 221 811 27 911 765 297 286 745 476 231 14 872 (1 968 664) - Reclassifications (14 800) (42 589) 53 474 (3 147) (17 862) (5 305) 7 (19 731) (49 953) Increase in revaluation reserve - (253 060) - (1 092) (1 241) - - - (255 393) Disposal due to contribution (4 165 214) - - (74 865 896) (9 476) (263 236) (15 508) (924 569) (80 243 899) Disposals (154) (156) - (6 822) (365 514) (9 354) (50) (104 894) (486 944) Depreciation charge (114 874) (1 965 092) (100 279) (2 697 919) (345 477) (287 874) (4 604) - ( 5 516 119) Change of provisions - 6 633-345 (15 773) (283) - 44 726 35 648 Closing net book value - 22 133 461 1 535 477 56 239 103 4 927 401 689 408 18 615 1 426 640 86 970 105 Cost - 24 486 426 1 658 849 57 957 107 9 289 798 2 513 251 281 560 1 625 060 97 812 051 Provision and accumulated depreciation - (2 352 965) (123 372) (1 718 004) (4 362 397) (1 823 843) (262 945) (198 420) (10 841 946) Net book value - 22 133 461 1 535 477 56 239 103 4 927 401 689 408 18 615 1 426 640 86 970 105 Net book value at, on historical cost basis - 8 434 106 690 969 9 450 061 4 927 401 689 408 18 615 1 426 640 25 637 200 These notes are an integral part of the separate financial statements. 17

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Revaluation of Assets Held for Use in Gas Transmission and Distribution: Ústav súdneho inžinierstva, Žilina, (ÚSI Žilina) independent appraiser, revalued as of 1 January property, plant and equipment held for use in gas transmission and distribution. Their revaluation was based on the observed asset conditions and asset replacement cost by reference to market evidence of recent transactions for similar properties and replacement cost estimation methodologies. Replacement costs estimates are based on estimated costs of Equivalent Assets (EA) and estimating the residual asset value from the EA cost, useful life and age of existing assets (Depreciated Replacement Cost methodology). Assets held for use in gas transmission and distribution include land, buildings and structures, machines, tools and equipment. As of 1 July, the gas distribution assets were contributed to a subsidiary SPP distribúcia, a.s.. As at fully depreciated non-current assets (includes also software classified in intangible assets), which are still in use amount to SKK 5 339 462 thousand ( : SKK 25 395 684 thousand) at cost. 8. INTANGIBLE AND OTHER ASSETS Development costs Software Other noncurrent intangible assets Assets in the course of construction Total Cost At 1 January 1 988-32 188 4 546 38 722 Additions - - - 213 998 213 998 Taken into use 888 15 671 19 915 (36 474) - Disposals - (295 808) (30 049) (44 274) (370 131) Reclassification - 2 074 264 167 130 726 320 2 967 714 At 2 876 1 794 127 189 184 864 116 2 850 303 Amortization At 1 January (1 963) - - - (1 963) Amortization (64) (6 602) (21 967) - (28 633) Provision and impairment loss - - - (74 388) (74 388) Disposals - 295 808 29 385-325 193 Reclassification - (1 631 834) (122 911) (2 040) (1 756 785) At (2 027) (1 342 628) (115 493) (76 428) (1 536 576) Carrying amount At 1 January 25-32 188 4 546 36 759 At 849 451 499 73 691 787 688 1 313 727 Development costs Software Other noncurrent intangible assets Assets in the course of construction Total Cost At 1 January 2 876 1 794 127 189 184 864 116 2 850 303 Additions - - - 269 743 269 743 Taken into use 19 573 757 452 36 192 (813 217) - Disposals (1 073) (11 506) (36 897) (88 222) (137 698) Disposal due to contribution (19 475) (45 567) (55 338) (28 084) (148 464) Reclassification - - - - - At 1 901 2 494 506 133 141 204 336 2 833 884 Amortization At 1 January (2 027) (1 342 628) (115 493) (76 428) (1 536 576) Amortization (513) (219 268) (35 920) - (255 701) Provision and impairment loss - - (548) 42 653 42 105 Disposals 1 073 11 008 36 811-48 892 Disposal due to contribution 325 32 933 25 881 59 139 Reclassification - - - - - At (1 142) (1 517 955) (89 269) (33 775) (1 642 141) Carrying amount At 1 January 849 451 499 73 691 787 688 1 313 727 At 759 976 551 43 872 170 561 1 191 743 These notes are an integral part of the separate financial statements. 18

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) The research and development activities were transferred to SPP preprava, a.s. and SPP distribúcia, a.s. through the contribution of part of business as of 1 July. During, on the basis of a detailed analysis, the Company included the software previously classified in property, plant and equipment in intangibles. 9. INVENTORIES At At Natural gas 8 319 591 8 405 042 Raw materials and other inventories 346 314 486 554 Provision (159 456) (179 245) Total 8 506 449 8 712 351 At and, no provision was necessary, or recorded in respect of an adjustment to reduce the cost of natural gas to its net realizable value. 10. RECEIVABLES AND PREPAYMENTS At At Trade receivables from transmission activities 7 701 2 448 113 Trade receivables from gas sales 3 488 715 7 335 703 Amounts due from Group undertakings 6 575 702 190 303 Financial derivatives (Note 27) - 69 976 Prepayments and other receivables 187 229 170 477 Total 10 259 347 10 214 572 All amounts are receivable within one year. Trade receivables from gas sales are shown net and include all receivables, billed and unbilled gas deliveries accrued. Trade receivables and prepayments are shown after provisions for bad and doubtful accounts of SKK 5 193 593 thousand ( : SKK 5 778 161 thousand). Amounts due from group undertakings include receivables due from SPP - preprava, a.s. (SKK 3 498 269 thousand) and SPP - distribúcia, a.s. (SKK 3 008 463 thousand). The amounts due from SPP - preprava, a.s. represent receivables for the lease of the transmission pipelines and receivables relating to cash pooling arrangements. The amounts due from SPP - distribúcia, a.s. represent receivables for the sale of natural gas used by SPP - distribúcia, a.s. for its operations, receivables relating to cash pooling arrangements and receivable from paid collateral for distribution services. 11. INTEREST-BEARING BORROWINGS All loans outstanding at 2004 were repaid in. SPP does not have any loans at. 12. DEFERRED INCOME Opening net book value 1 376 114 1 602 696 Contribution in kind (1 366 198) - Assets acquired during period 2 563 6 427 Amortization for the period (12 374) (233 009) Closing net book value 105 1 376 114 These notes are an integral part of the separate financial statements. 19

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Gas equipment was obtained free of charge from municipal and local authorities. Until 30 June, these equipment were recorded as property, plant and equipment at the cost incurred by the municipal and local authorities with a corresponding amount recorded as deferred income. This deferred income is released to the statement of profit and loss in line with the depreciation of the related non-current assets. As of 1 July, deferred income of SKK 1 366 198 thousand was contributed as part of business into SPP distribúcia, a.s.. 13. RETIREMENT AND OTHER LONG-TERM EMPLOYEE BENEFITS The long-term employee benefits program at SPP was originally launched in 1995. This is a defined benefit program, under which the employees are entitled to a lump-sum payment upon old age or disability retirement and, subject to vesting conditions and jubilee payments. In, SPP signed a new collective agreement under which employees are entitled to a retirement benefit based upon the number of years with SPP at the date of retirement. The benefits range from one month to six months average salary. As at and, the provision for retirement and other longterm employee benefits was calculated on the basis of this new agreement. As of there were 1 856 ( : 4 927) employees at SPP covered by this program. To date it has been an un-funded program, with no separately allocated assets to cover the program s liabilities. As of 1 July, the employee benefits payable of SKK 130 617 thousand was contributed as part of business into SPP preprava, a.s. and SPP distribúcia, a.s.. Movements in the net liability recognized in the balance sheet for the year ended are as follows: Long-term benefits Postemployment benefits Total benefits at Total benefits at Net liability at 1 January 48 244 188 525 236 769 208 069 Contribution in kind (28 430) (102 187) (130 617) - Net expense for the period (2 516) (17 803) (20 319) 35 038 Benefits paid (3 182) (1 808) (4 990) (6 338) Net liability at 14 116 66 727 80 843 236 769 Current liabilities (included in other current liabilities) Non-current liabilities Total At 6 128 230 641 236 769 At 2 399 78 444 80 843 Key assumptions used in actuarial valuation: At At Market yield on government bonds 4.15% 3.80% Annual future real rate of salary increases 2.00% 2.00% Annual employee turnover 1.44% 1.44% Morbidity Czech population morbidity 1997 Czech population morbidity 1997 Mortality Slovak population mortality 2000 Slovak population mortality 2000 Retirement ages (male and female) 62 for male and from 60 for female 62 for male and from 60 for female These notes are an integral part of the separate financial statements. 20

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 14. PROVISIONS FOR LIABILITIES AND CHARGES Movements in the provisions are summarized as follows: Environmental provisions Other provisions Total provisions at Total provisions at Balance at 1 January 306 537 3 149 182 3 455 719 2 334 682 Contribution in kind - (200 000) (200 000) - Accretion of interest (20 422) - (20 422) 14 156 Creation of provision - 383 614 383 614 1 956 263 Utilisation of provision (87 594) (226 807) (314 401) (647 718) Reversal of provision (10 686) (1 060 492) (1 071 178) (201 664) Closing balance 187 835 2 045 497 2 233 332 3 455 719 The provisions are included in liabilities as follows: Current liabilities (included in other current liabilities) Non-current liabilities Total At 639 573 2 816 146 3 455 719 At 157 401 2 075 931 2 233 332 (a) Environmental Provisions SPP currently has assessed that there is soil contamination at 15 locations including 5 compressor stations (: 6 compressor stations) and 10 old gas facilities powered by coke. SPP has estimated the provision for decontamination and restoration using existing technology at current prices adjusted for expected future inflation and discounted using a discount rate which reflects current market assessment of the time value of money and risks specific to the liability (approximately 4.4%). These costs are expected to be incurred between and 2010. (b) Other Provisions Other provisions include an amount of SKK 1 995 248 thousand ( : SKK 2 839 182 thousand) for various litigation and potential disputes. Refer also to Note 26. 15. TRADE AND OTHER PAYABLES Payables from gas purchases and supplies 3 907 519 5 189 423 Other trade payables and accruals 1 199 513 2 325 500 Amounts due to Group undertakings 5 495 667 297 439 Social security and other taxes 909 118 1 145 602 Total 11 511 817 8 957 964 As of 1 July, certain payables were contributed as part of business into SPP preprava, a.s. and SPP distribúcia, a.s., SPP s subsidiaries. As of, amounts due to group undertakings include trade payables to SPP - distribúcia, a.s. (SKK 1 550 695 thousand) and SPP - preprava, a.s. (SKK 3 887 721 thousand). The amounts payable to SPP - distribúcia, a.s. represent mainly distribution and transmission fees. The amounts payable to SPP - preprava, a.s. represent mainly the amount for a cash collateral deposited by SPP - preprava, a.s. to secure SPP s receivables from SPP - preprava, a.s. for the lease of assets. 16. REGISTERED CAPITAL At and, share capital represented a total number of 52 287 322 fully paid shares (with a nominal amount of SKK 1 000) held by the Fund of National Property of the Slovak Republic (51%) and Slovak Gas Holding B. V., Holland (49%). Share capital is registered in full amount. In accordance with the Articles of Association, the General Assembly passes decisions with at least a voting majority of 52%. Certain cases as defined by both Slovak law and the Articles of Association require a two-thirds voting majority. These notes are an integral part of the separate financial statements. 21

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 17. NON-DISTRIBUTABLE RESERVES Since 1 January, SPP is required to prepare only financial statements in accordance with IFRS as adopted by the EU (both separate and consolidated). Distributable retained earnings represent retained earnings only per the amount included in the separate financial statements. The Legal reserve fund in amount of SKK 10 457 464 thousand ( : SKK 9 786 596 thousand) is recorded in accordance with Slovak law and is not distributable to the shareholders. The reserve is created from retained earnings to cover possible future losses or increases of share capital. Transfers in the amount of at least 10% of current year profit have to be made from retained earnings until the reserve is equal to at least 20% of share capital. The Company has assessed that there are no clear rules or legislation on the potential distribution of amounts included in the revaluation reserve. The Company has taken the view that the revaluation reserve is not immediately available for distribution to the Company s shareholders. Portions of the revaluation reserve are transferred to retained earnings for the difference between the revalued amounts and the original costs of the assets over the depreciable lives of the related assets. The revaluation reserve is also transferred to retained earnings if the related asset is disposed of, contributed in kind or sold. Such transfers to retained earnings become distributable. Other funds and reserves in equity are not distributable to the Company s shareholders. 18. STAFF COSTS Wages, salaries and bonuses 1 516 921 2 360 741 Social security costs (Note 25) 837 523 993 681 Total staff costs 2 354 444 3 354 422 19. INCOME FROM INVESTMENTS Interest income 854 357 646 028 Profit/(Loss) on disposal of investments (144 224) - Derivatives 372 148 (395 589) Dividends 1 111 060 690 278 Total income from investments 2 193 341 940 717 20. FINANCE COSTS Interest expense 4 154 52 508 Foreign exchange rate differences loss/(gain)(note 21) 47 959 85 145 Other (150 999) 263 762 Total finance costs/(revenues) (98 886) 401 415 21. FOREIGN EXCHANGE RATE DIFFERENCES Foreign exchange rate losses (gains) arising from: - Operating activities (92 833) 293 277 - Financing activities (Note 20) 47 959 85 145 Total foreign exchange rate losses (gains) (44 874) 378 422 These notes are an integral part of the separate financial statements. 22

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 22. TAXATION 22.1 Income Tax Expense The income tax charge comprises the following: Current tax charge 5 552 928 5 003 724 Deferred tax charge (Note 22.2): - current year (487 668) 17 611 Total 5 065 260 5 021 335 The reconciliation between the reported income tax expense and the theoretical amount that would arise using the standard tax rates is as follows: Profit before taxation 29 116 285 25 451 985 Income tax at 19% 5 532 094 4 835 877 Tax effect of: - non-taxable income (1 214 667) (588 120) - expenses not deductible for tax purposes 747 833 744 079 Other adjustments - 29 499 Effect of change in tax rate on deferred tax - - Income tax charge for the year 5 065 260 5 021 335 Expenses not deductible for tax purposes and income not taxable include primarily provisions for various litigation and provisions for assets. The financial years from 2001 to are still open to inspection by the tax authorities. 22.2 Deferred Income Tax The following are the major deferred tax liabilities and assets recognized by the Company, and the movements thereon, during the current and prior reporting periods: At 1 January Debit to equity for the period (Charge)/credit to profit for the period Difference between tax and accounting depreciation (437 417) - (36 721) (474 138) Unrealised foreign exchange gains and losses (56 411) - 55 060 (1 351) Change in fair value (65 003) 63 090 (1 913) Items adjusting tax base only when paid (9 735) - (16 173) (25 908) Provisions 184 028 - (19 627) 164 401 Provisions to receivables 332 250 - (98 850) 233 400 Impairment loss 60 334-35 468 95 802 Other 33 915-142 34 057 Total 41 961 - (17 611) 24 350 These notes are an integral part of the separate financial statements. 23

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) At 1 January Debit to equity for the period (Charge)/ credit to profit for the period Difference between tax and accounting depreciation (474 138) - (232 042) (706 180) Revaluation of properties - (12 505 500) 795 204 (11 710 296) Unrealised foreign exchange gains and losses (1 351) - 1 351 - Change in fair value (1 913) 1 913 - Items adjusting tax base only when paid (25 908) - 7 251 (18 657) Provisions 164 401 - (51 377) 113 024 Provisions to receivables 233 400 - (15 088) 218 312 Impairment loss 95 802 47 212 (15 784) 127 230 Other 34 057 - (3 760) 30 297 Total 24 350 (12 458 288) 487 668 (11 946 270) In accordance with the accounting policy of the Company, certain deferred tax assets and liabilities were mutually offset. The following table shows the amounts of deferred tax recognised on the face of the balance sheet: Deferred tax asset - 24 350 Deferred tax liability (11 946 270) - Total (11 946 270) 24 350 23. EARNINGS PER SHARE Earnings per share are calculated using net profit attributable to shareholders of SPP divided by the weighted average number of shares issued and outstanding during the accounting period. During a dividend of SKK 380 per share was approved for the year (in : SKK 369 per share for the year 2004). 24. CASH GENERATED FROM OPERATIONS Profit before tax 29 116 285 25 451 985 Adjustments for: Depreciation and amortization 5 717 054 4 044 012 Gain on contribution in kind (4 501 040) - Interest income, net (850 203) (593 520) Income from financial investments (966 836) (690 278) FX differences (121 335) 339 526 Derivatives (372 147) 395 589 Provisions and other non-cash items (832 482) 2 378 687 Impairment losses 3 627 362 - Loss from sale of property 136 746 (334) (Increase)/decrease in receivables and prepayments (5 072 950) (6 931 728) (Increase)/decrease in inventories (1 667 432) (1 176 421) (Increase)/decrease in short-term financial assets - 2 457 748 Increase/(decrease) in trade and other payables 148 572 1 504 455 Cash generated from operations 24 361 594 27 179 721 Non-cash transactions Main non-cash items include mainly provisions to receivables, provisions for legal cases and disputes and write off of receivables. These notes are an integral part of the separate financial statements. 24

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 25. GOVERNMENT SOCIAL SECURITY AND PENSION SCHEMES The Company is required to make contributions, amounting to 35.2% of salary bases as determined by the Law, up to a maximum amount ranging from SKK 20 40 thousand per employee depending on the type of insurance. The employees contribute a further 13.4% of the relevant base up to the above limits. 26. COMMITMENTS AND CONTINGENCIES Capital expenditure commitments At, capital expenditure of SKK 1 197 368 thousand ( : SKK 108 946 thousand) had been committed under contractual arrangements but not recognized in the financial statements. Operating lease arrangements As described in Note 1.3, SPP is a lessor of its international transmission pipeline to the subsidiary SPP - preprava, a.s. under a six year agreement. The agreement does not contain a renewal option at the end of the lease term. The lessee does not have an option to purchase the property at the end of the lease period. The property rental income (since unbundling) earned by SPP amounts to SKK 6 997 560 thousand for the six months ending. The future non-cancellable operating lease receivables amount to: Period Not longer than 1 year 13 995 119 Longer than 1 year and not longer than 5 years 55 980 477 Longer than 5 years 6 997 560 Total 76 973 156 Gas Supply and Transmission More than ninety nine percent (99%) of the Company s natural gas supply comes from the Russian Federation. During 1997, SPP signed a long-term agreement for the supply (with take or pay conditions) and transmission of natural gas (with ship or pay conditions) through the Slovak Republic with the Russian exporter of natural gas, Gazprom export. This contract secures the utilization of SPP s pipelines in accordance with the transmission capacity needed by Gazprom export for its long-term export contracts already concluded with Central and West European buyers. As of 1 July, the rights and obligations resulting from the natural gas transmission agreement were transferred to SPP preprava, a.s.. The price for the purchase of natural gas is determined based on a formula which includes a base price, with adjustments made based on movements in the market price of competing hydrocarbon products. During, both SPP and Gazprom export requested a renegotiation of the price formula. As of the date of these separate financial statements, no agreement has yet been made in this respect and the final resolution of this matter cannot be predicted and the impact on these financial statements cannot be reasonably estimated. Gas Transmission and Distribution Contracts Prior to completion of the legal unbundling process at 1 July, the Company was involved in international transmission of natural gas, that were subject to long-term contracts (with ship or pay conditions). In principle, there were two types of contracts (as explained below) in which the Company acted as a carrier for Gazprom export s sales and deliveries of natural gas to East, Central and West European buyers under long-term contracts: a) The terms of contract between Gazprom export (a subsidiary of Gazprom) and foreign buyers specify the Slovak/Ukraine border as point of delivery. In this case the Company entered into an agreement with and received transmission fees directly from the foreign buyer. These notes are an integral part of the separate financial statements. 25

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) b) The terms of contracts between Gazprom export and foreign buyers specify points of delivery that are located on or beyond the western border of Slovakia. In this case the Company entered into a contract with Gazprom export for transmission of natural gas and the Company received its transmission fees directly from OOO Gazprom export. This type of contract represents the major portion of gas transmission revenues before 1 July. Under the gas transmission agreements, customers were required to supply SPP with natural gas to compensate (among other things), for energy costs at compressor stations. SPP recorded the total amount for natural gas received, net of natural losses, as other revenues. Since 1 July, all activities related to transmission of gas were assumed by SPP - preprava, a.s.. As of 1 July, all rights and obligations under the agreements with Gazprom export in relation to gas transmission were transferred to SPP - preprava, a.s.. SPP - preprava, a.s. currently invoices Gazprom export directly for all transmission fees, however this invoice is settled through natural gas supplies by Gazprom export to SPP. The receivables due from Gazprom export to SPP - preprava, a.s. are settled through the agreement on receivables collection signed between SPP and SPP - preprava, a.s.. The excess in terms of the value of natural gas delivered against transmission fees due to SPP - preprava, a.s. is paid by SPP in cash to Gazprom export. Gas Storage Contracts The Company stores natural gas at three storage locations in Slovakia and the Czech Republic. The gas storage facilities are operated by NAFTA, a subsidiary and related parties for injection and extraction of natural gas based on seasonal demand. Storage fees are agreed up to final maturity of the contracts. The storage fee is primarily based on rented capacity per year and annual price indices. Gas Sales Contracts Sales of natural gas to large industrial customers with sales volume over 15 million m 3 are subject to both short and long-term contracts (with fixed capacity payment conditions). Taxation The Company has significant transactions with a number of its subsidiaries, associates, shareholders and other related parties. The tax environment under which the Company operates in the Slovak Republic is dependent on the prevailing tax legislation and practice, which are relatively undeveloped and with little existing precedent. As the tax authorities are reluctant to provide official interpretations with respect to the tax legislation, there is an inherent risk that the taxation authorities may require, for example, transfer pricing or other adjustments of the corporate income tax base. The Tax Authorities in the Slovak Republic have broad powers of interpretation of tax laws which could result in unexpected results of tax examinations. The amount of any potential tax liabilities related to these risks cannot be estimated. Litigation and Potential Losses The Company is involved in a number of legal cases including: disputed bills of exchange, alleged breaches of contracts and purchase of securities for significant amounts. In addition to the bills of exchange and legal cases described below, the Company is also involved in other litigation arising in the normal course of business that is not expected, either individually or in the aggregate, to have a significant adverse effect on the accompanying financial statements. Bills of exchange Management of the Company became aware of bills of exchange that were allegedly signed by a former General Director of SPP in periods prior to 1999. SPP has announced publicly that it will challenge any such bills signed by the former General Director in a court of law on the grounds that such bills represent fraudulent acts and are not related to any contractual agreements to which SPP is a party. Fourteen (14) bills of exchange in the total amount of SKK 4 867 million are currently in various stages of legal proceedings at courts in the Slovak and Czech Republics. In two of these cases, involving a total amount of SKK 1 520 million for two bills of exchange, the court has announced a ruling in SPP s favour. The other parties have appealed this ruling. The other cases for the remaining 12 bills of exchange have not yet been decided by the courts. These notes are an integral part of the separate financial statements. 26

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Management of SPP, on the advice of legal counsel, is determined to defend the Company in these cases to the final instance of the law. SPP has recorded a provision for potential loss in relation to certain bills of exchange. The amount of the provision has not been separately disclosed as Management of SPP believes this could seriously prejudice the position of SPP in the dispute. These financial statements do not include any other provision for potential loss in relation to bills of exchange, if any, as the final outcome of the remaining cases is uncertain and cannot be currently predicted. Other legal cases and disputes SPP is a defendant in other legal cases or disputes in respect of the following: 1. Alleged breaches of contracts for significant amounts 2. A legal case for a significant claim for damages allegedly suffered in relation to purchase of shares 3. A legal case relating to repayment of a loan by a subsidiary The financial statements include a provision for certain of these cases that has been calculated using available information and assumptions for the possible outcome of the respective legal cases or disputes. The final amount of any potential losses in relation to the legal cases for which SPP has created a provision is not known and may result in a material adjustment to previous estimates. In respect of legal cases and disputes for which SPP has not created a provision, Management of SPP on the advice of legal counsel believes that the final outcome is uncertain and therefore the financial statements do not include a provision for potential losses, if any, in respect of such legal cases or disputes. The amounts of the provisions and other information relating to these individual legal cases and disputes have not been separately disclosed as Management of SPP believes this could seriously prejudice the position of SPP in the disputes. During, a dispute with a transmission customer was finalised and during, one legal case for damages suffered in relation to purchase of shares was finalized. During, another dispute related to indemnity was finalized through an out of court settlement. SPP had previously created a provision in relation to these cases. Liberalization of the Slovak Energy Sector Regulation framework on the natural gas market in Slovak republic The Slovak Republic issued a new energy law became effective 1 January. Under this original energy law, the market for natural gas is substantially liberalized so that there may be new suppliers of natural gas and companies in Slovakia will be able to freely choose their supplier of natural gas. Under the original energy law, households should be able to choose their own supplier of natural gas from July 2007. According to this law, SPP carried out its legal unbundling process. Since 1 July, SPP - preprava, a.s. and SPP - distribúcia, a.s. as the transmission system and distribution system operators are obliged to allow non-discriminatory access to any natural gas supplier or shipper in Slovakia. The tariffs for access and distribution and transmission of natural gas are subject to price regulation from the Regulatory Office for Network Industries (RONI). The Company believes that currently there are uncertainties caused by the absence of historical market data in a liberalized environment in Slovakia. The impact of the new energy sector liberalization on the Company is not yet known, except for the impact of the legal unbundling process as described in Note 1.3. Changes in the regulatory laws and policy In February 2007, the Parliament of the Slovak Republic passed an amendment of the Act on regulation in network industries, that would be effective since 15 March 2007. The amendment significantly changes the authority and execution of regulation in network industries by regulator (RONI). A draft Decree of RONI on the price regulation in the industry, on the method of execution, the scope and structure of eligible costs, the determination of a fair profit margin and on supporting documents for tariff setting is in the review process currently. The Company is currently analyzing the possible impact of the new legislation. Unbundling See Note 1.3 on the SPP s restructuring process. These notes are an integral part of the separate financial statements. 27

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Emission Rights During, the European Union-wide greenhouse gas emission rights trading scheme came into effect together with the Act on Emission Rights Trading passed by the Slovak Parliament in order to implement the related EU Directive in Slovakia. In February, the Company has received emission rights for the compliance period. During the first half of the Company sold a portion of its emission rights. As at 1 July, the remaining portion of emission rights was contributed as part of business into SPP preprava, a.s. As of, SPP is no longer required to deliver emission rights to the Slovak Environmental Office to offset actual greenhouse gas emissions. This obligation was assumed by SPP preprava, a.s.. 27. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments comprise the following: Nonqualifying hedges Deferred tax Total, net Balance at 1 January 564 572 (65 003) 499 569 Movement recorded in the statement of profit and loss (554 502) 63 090 (491 412) Purchase options 48 644-48 644 Balance at 58 714 (1 913) 56 801 Movement recorded in the statement of profit and loss (63 084) 1 913 (61 171) Movement recorded in the equity - - - Purchased options 4 370-4 370 Balance at - - - Included in balance sheet: Other current assets - Other current liability - Balance at - - Unrecognised Embedded Derivative Instruments Prior to 1 July, SPP had executed long-term contracts for the transmission of natural gas denominated in both USD and EUR. As at 1 July, the rights and obligations resulting from these contracts were transferred to SPP preprava, a.s. Transmission contracts denominated in EUR represented the currency of the primary economic environment in which a substantial party to the contracts operate and therefore such contracts were not regarded as a host contract with an embedded foreign currency derivative under the requirements of IAS 39. Hence, in accordance with IAS 39 (as revised in December 2003), the Company did not recognize the embedded derivatives separately from the host contract. Transmission contracts denominated in USD represented the currency that is commonly used in contracts to purchase or sell non-financial items in the economic environment of the Slovak Republic in respect of business relations with external parties. Hence, in accordance with IAS 39 (as revised in December 2003), the Company did not recognize the embedded derivatives separately from the host contract. The Company executed a long-term contract for purchases of natural gas denominated in USD. USD is the currency commonly used in international commerce for trading in natural gas. Both the economic characteristics and risks of embedded forward (USD to SKK) derivative instruments, and natural gas prices are generally believed to be closely related with the economic characteristics and risks of the underlying purchase agreements. Hence, in accordance with IAS 39 (as revised in December 2003), SPP does not recognize the embedded derivatives separately from the host contract. The Company has assessed all other significant contracts and agreements for embedded derivatives that should be recorded. The Company has concluded that there are no embedded derivatives in these contracts and agreements that are required to be valued and recorded as at and under the requirements of IAS 39 (as revised in December 2003). Hedges Accounted for as Trading Instruments During, the Company utilized the following financial derivatives to decrease risks resulting from fluctuations in both foreign currency exchange rates and interest rates: These notes are an integral part of the separate financial statements. 28

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Forward and option currency contracts Forward and option currency contracts were executed to hedge risks from fluctuations in foreign currency exchange rates with regard to particular transactions. SPP executed such contracts to manage risks arising from ordinary business transactions. As at there were no outstanding forward or option currency contracts reported on the Company s balance sheet ( : SKK 69 976 thousand in receivables and prepayments made, and SKK 11 263 thousand in other current payables). These notes are an integral part of the separate financial statements. 29

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 28. RELATED PARTY TRANSACTIONS Slovak Gas Holding (an indirect joint venture between Gaz de France and E.ON Ruhrgas) exercises management control over SPP with a 49% shareholding. SPP is ultimately owned by the Slovak Fund of National Property with a 51% shareholding. During the year, the Company entered into the following transactions with related parties: Sales Creation/ (reversal) of provisions for receivables Purchases Dividends Other Amounts owed by related parties Provisions for receivables Amounts owed to related parties Slovak Gas Holding - - - 9 729 933 - - - - Fund of National Property - - - 10 127 075 - - - - SPP s subsidiaries 12 269 777-9 609 599-60 277 6 575 434-5 504 646 Associates 25-60 - - - - 15 Joint ventures 512 223-844 446-737 81-39 456 Other related parties 3 611 350-578 280-107 667 489 999 473 321 61 722 Management considers the transactions with related parties have been conducted on normal commercial terms. Transactions with Slovak Gas Holding and the Fund of National Property represent dividend payments. Transactions with joint ventures represent services related to natural gas. Transactions with company subsidiaries, associates and other related parties represent mainly services related to purchases, sales and transmission of natural gas, lease of property, plant and equipment, management advisory services and other services. During, transactions with subsidiaries also included the legal unbundling process and the contribution in kind made by SPP to the registered capital of SPP - distribúcia, a.s. and SPP - preprava, a.s. (refer to Note 1.3) Sales Creation/ (reversal) of provisions for receivables Purchases Dividends Other Amounts owed by related parties Provisions for receivables Amounts owed to related parties Slovak Gas Holding - - - 9 452 639 - - - - Fund of National Property - - - 9 838 462 - - - - Company subsidiaries 1 269 367-2 637 863-3 515 182 073-190 483 Associates 14-60 - - - - 36 Joint ventures 443 905-1 407 342-645 8 613-114 042 Other related parties 2 014 768-393 292-324 924 525 875 492 521 80 171 These notes are an integral part of the separate financial statements. 30

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) Compensation of directors and other members of executive management during the year was as follows: Remuneration for services as members of Board of Directors, Supervisory Board and executive management 119 220 105 932 Benefits in kind as members of board of Directors and executive management 2 592 2 412 29. RECONCILIATION OF SEPARATE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH PREVIOUS ACCOUNTING POLICIES VALID IN THE SLOVAK REPUBLIC AND SEPARATE FINANCIAL STATEMENTS PREPARED UNDER IFRS AS ADOPTED BY THE EU Reconciliation of net profit for the year ending is as follows: Net profit as per separate financial statements prepared in accordance with previous accounting policies valid in the Slovak Republic 20 562 736 Unrealised FX differences (54 953) Donated and other property adjustments 340 824 Deferred and income taxes 56 322 Profit share of employees (142 951) Derivatives (332 052) Other 723 Net profit per separate financial statements prepared under IFRS 20 430 650 Reconciliation of equity as at 1 January and is as follows: 1 January Equity as per separate financial statements prepared in accordance with previous accounting policies valid in the Slovak Republic 82 952 923 82 086 049 Unrealised fx differences (226 145) (171 192) Donated and other property adjustments (1 414 007) (1 748 309) Deferred and income taxes 7 178 13 946 Profit share of employees - - Derivatives - - Other - 7 926 Equity per separate financial statements prepared under IFRS 81 319 949 80 188 420 Reconciliation of the Cash Flow Statement for the year ending is as follows: Separate financial statements under previous GAAP Separate financial statements under IFRS as adopted by EU Difference Net cash inflow from operating activities 22 188 097 22 188 097 - Net cash inflow/(outflow) from investing activities (2 098 979) (2 098 979) - Net cash outflow from financing activities (20 958 433) (20 958 433) - NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (869 315) (869 315) - CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23 235 789 23 235 789 - CASH AND CASH EQUIVALENTS AT END OF PERIOD 22 366 474 22 366 474 - These notes are an integral part of the separate financial statements. 31

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) 30. SUPPLEMENTAL INFORMATION TO COMPLY WITH OTHER STATUTORY REQUIREMENTS FOR SEPARATE FINANCIAL STATEMENTS (a) General Information Identification number (IČO) 35 815 256 Tax identification number (DIČ) 2020259802 (b) Employees Refer to Note 1.4. (c) Unlimited guarantee The Company has not provided unlimited guarantee to any company. (d) Legal basis for preparing financial statements These financial statements represent the separate financial statements of SPP. They were prepared for the accounting period from 1 January to according to IFRS as adopted by the EU. (e) Approval of the Separate Financial Statements On 16 May, the General Meeting approved the separate financial statements of SPP. These notes are an integral part of the separate financial statements. 32

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) (f) Members of the Company s bodies Body Function Name Board of Directors Chairman Ing. Philippe Boucly from 01.01. until 30.06. chairman, from 01.07. member Chairman Dipl. Ing. Dipl. Kfm. Jan Massmann from 01.07. chairman, from 01.01. until 30.06. member Vice-Chairman Ing. Štefan Czucz Member Ing. Juraj Horváth Member Ing. Rastislav Kupka until 16.01. Member Dipl. Econom Bernd Wagner Member Ing. Robert Zadora Member Ing. Miloš Kyselica from 16.01. Supervisory Board Chairman Prof. Ing. Peter Baláž PhD. until 16.01. Chairman RNDr. Miloslav Jelenský from 16.01. Vice-Chairman Dr. Ulrich Schöler until 30.06. Vice-Chairman Ing. Jean-François Carriére from 01.07. Member Ing. Rudolf Kvetán until 16.01. Member Doc. Ing. Nikolaj Ponevský PhD until 16.01. Member Ing. Jozef Kojda Member Ing. Pavol Hric Member József Solymos Member Ing. Eva Michalová Member Ing. Peter Kováč Member Alena Bakanová Member Mgr. Július Kázsmér Member Ing. Richard Vadkerty Member PaedDr. Jaroslav Suchý from 16.01. Member Mgr. Juraj Krišťák from 16.01. Executive Management General Director Ing. Miroslav Lapuník Director of Transit Division Ing. Pavol Janočko until 30.06. Director of Distribution Division Ing. Kazimír Kmeť, CSc. until 30.06. Director of Gas Trade Division Ing. Dušan Randuška MBA Director of Economy & Finance Ing. Libor Briška Division Director of Human Resources JUDr. Viera Ottová Division Director of Information Technology Ing. Stanislav Hodek Division Director of Services and Central Ing. Vladimír Kostelný Functions Division Director of Asset Division Ing. Rastislav Bráblik (g) Compensation and benefits in kind of members of statutory, supervisory and other bodies of SPP Refer to Note 28. (h) Consolidated financial statements SPP submits consolidated financial information as a consolidated reporting entity to both E.ON Ruhrgas International AG with its seat at Huttropstrase 60, 45138 Essen, Germany, and to Gaz de France with its seat at 23, rue Philibert Delorme, 75840 Paris Cedex 17, France. SPP also prepares consolidated financial statements for its group of companies. Refer to Note 6 for details on these affiliated companies. Summary financial information of SPP from its separate and consolidated financial statements is published in the Slovak Commercial Journal. The separate and consolidated financial statements of SPP are available at its seat in Bratislava, Mlynské Nivy 44/a, and are filed with the Commercial Register of Bratislava 1 District Court, Záhradnícka 10, 811 07 Bratislava. The separate and consolidated financial statements of subsidiaries, joint ventures and associated undertakings are available at the relevant Court Registers based on their official address. These notes are an integral part of the separate financial statements. 33

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) (i) Type and amount of insurance for property, plant and equipment and intangible assets Insured object Buildings, halls, structures, machines, equipment, fittings & fixtures, lowvalue TFA, other TFA, works of art, inventories Movables, assets, inventories Motor vehicles Type of insurance Net book value of insured assets Insurance of assets 33 120 555 39 575 637 Insurance of assets 679 000 679 000 Motor vehicle insurance against damage, destruction, theft Name and seat of the insurance company Allianz-Slovenská poisťovňa, a.s. Kooperativa, a.s., ČSOB Poisťovňa, a.s. Allianz-Slovenská poisťovňa, a.s. Kooperativa, a.s., ČSOB Poisťovňa, a.s. 1 702 500 1 891 593 Allianz-Slovenská poisťovňa, a.s. (j) Property, plant and equipment not registered in the land registry The Company records property, plant and equipment in use, but not yet registered in the land registry, in the amount of SKK 14 343 thousand. (k) Structure of non-current financial assets For more detail information in relation to the structure of non-current financial assets, see Note 6. Additional information on subsidiaries, joint ventures and associates: Name and seat of the Company Equity Profit/(loss) SPP - preprava, a.s. Seat: Mlynské nivy 42, Bratislava 6 802 179 1 054 3 778 319 (34) SPP - distribúcia, a.s. Seat: Mlynské nivy 44/b, Bratislava 73 207 949 1 054 2 445 099 (34) NAFTA, a.s. (1) Seat: Naftárska 965, Gbely 23 383 000 22 274 000 2 203 000 1 391 000 GEOTERM KOŠICE, a.s. Seat: Moldavská 12, Košice 371 835 372 141 (306) (349) InfoGas, a.s. Seat: Kozia 17, Bratislava, 17 147 21 827 2 618 4 025 SPP - aktíva, a.s. Seat: Votrubova 11, Bratislava 1 019 1 043 (24) (45) Nadácia SPP Seat: Mlynské nivy 44/a, Bratislava not available 52 291 not available (13 431) PROBUGAS, a.s. Seat: Lieskovská cesta č. 3, Bratislava 211 152 249 782 35 231 37 581 InterKVET s.r.o. Seat: Mlynské nivy 44/a, Bratislava 6 532 6 725 2 409 2 626 SPP Bohemia, a.s. (1) Seat: Vinohradská 1511/230, Praha, Czech Republic 11 713 416 thousand CZK 10 271 172 thousand CZK 2 247 265 thousand CZK 1 776 167 thousand CZK POZAGAS, a.s. Seat: Malé námestie 1, Malacky 2 419 684 2 371 231 266 860 242 881 SLOVGEOTERM, a.s. Seat: Palisády 39, Bratislava 7 426 7 420 6 5 (1) Financial results for the group of consolidated entities (l) Liabilities secured by lien or by other form of guarantee Tatra banka, a.s., issued a bank guarantee to SPP totalling SKK 10 000 thousand for liabilities to customs offices. These notes are an integral part of the separate financial statements. 34

NOTES TO THE SEPARATE FINANCIAL STATEMENTS (SKK 000) (m) Social Fund payables Amount Opening balance as at 1 January 31 350 Total creation: 18 706 from expenses 18 706 Total drawing: (9 475) disability benefits (100) personal jubilee benefits (900) employment jubilee benefits (2 282) catering allowance (6 193) Contribution in kind: (9 819) Closing balance as at 30 762 (n) Payables within and after maturity As at, SPP records payables within maturity in the amount of SKK 11 511 817 thousand, no payables after maturity are registered. As at SPP recorded payables within maturity in the amount of SKK 8 866 673 thousand and payables after maturity presented the amount of SKK 91 291 thousand. (o) Equity Refer to Note 16. (p) Distribution of profit Refer to the Statements of changes in Equity. 31. POST BALANCE SHEET EVENTS Refer to Note 26 on changes in energy legislation in Slovakia. Prepared on: 21 March 2007 Signature of a member of the statutory body of the reporting enterprise or a natural person acting as a reporting enterprise: Signature of the person responsible for the preparation of the financial statements: Signature of the person responsible for bookkeeping: Approved on: 29 May 2007 Dipl. Ing. Dipl. Kfm. Jan Massmann Chairman of Board of Directors Ing. Libor Briška Director of Economics and Finance Division Ing. Miroslav Jankovič Director of Accounting and Taxes Section JUDr. Anton Novák Vice-Chairman of Board of Directors These notes are an integral part of the separate financial statements. 35

INDEPENDENT AUDITOR S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS (PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION) For the year ended

INDEPENDENT AUDITOR S REPORT AND INTERNATIONAL CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER CONTENTS Page Independent Auditor's Report 1 Consolidated financial statements (presented in accordance with IFRS as adopted by the EU): Consolidated Balance Sheets 3 Consolidated Statements of Profit and Loss 4 Consolidated Statements of Changes in Equity 5 Consolidated Statements of Cash Flows 6 Notes to the Consolidated Financial Statements 7 37

Opinion 5. In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the matter described in paragraph 4, the consolidated financial statements present fairly, in all material respects, the financial position of Slovenský plynárenský priemysel, a.s. and its subsidiaries as of, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and Slovak Act on Accounting. Emphasis of matter 6. Without further qualifying our opinion, we draw attention to Notes 1.3, 2.2, and 28 concerning significant facts about the legal unbundling of the Company and the adoption of the revaluation model under IAS 16 Property, Plant and Equipment and regulatory issues which may impact the Company in the future. Bratislava 21 March 2007 Deloitte Audit s.r.o. Licence SKAu No. 014 Ing. Wolda Kidan Grant, FCCA Responsible auditor Licence SKAu No. 921

CONSOLIDATED BALANCE SHEETS and (Millions of Sk) ASSETS: Note NON-CURRENT ASSETS Property, plant and equipment 9 190 416 53 056 Investments accounted for using equity method 7 7 926 5 442 Available for sale Investments 8 910 943 Intangible and other assets 10 1 319 1 349 Deferred tax asset 24.2-682 Total non-current assets 200 571 61 472 CURRENT ASSETS Inventories 11 11 094 8 911 Receivables and prepayments 12 9 060 10 776 Investments in securities 15 10 Other current assets 21 - Cash and cash equivalents 32 024 24 503 Total current assets 52 214 44 200 TOTAL ASSETS 252 785 105 672 EQUITY AND LIABILITIES: CAPITAL AND RESERVES Registered capital 18 52 287 52 287 Legal and other reserves 19 11 246 10 238 Revaluation reserves 19 108 505 - Retained earnings 31 230 23 403 Equity attributable to equity holders of SPP 203 268 85 928 Minority interests of other owners of subsidiaries 9 597 2 340 Total equity 212 865 88 268 NON-CURRENT LIABILITIES Deferred income 14 1 355 1 376 Provisions for liabilities and charges 16 3 366 4 127 Retirement and other long-term employee benefits 15 246 256 Deferred tax liability 24.2 25 759 335 Other non-current liabilities - 1 Total non-current liabilities 30 726 6 095 CURRENT LIABILITIES Trade and other payables 17 6 880 9 302 Income tax payable 1 219 499 Other current liabilities 1 095 1 508 Total current liabilities 9 194 11 309 Total liabilities 39 920 17 404 TOTAL EQUITY AND LIABILITIES 252 785 105 672 The financial statements on pages 3 to 37 are signed on 21 March 2007 on behalf of the Board of Directors by: Dipl. Ing. Dipl. Kfm. Jan Massmann Chairman of the Board of Directors JUDr. Anton Novák Vice-Chairman of the Board of Directors The accompanying notes are an integral part of the consolidated financial statements. 3

CONSOLIDATED STATEMENTS OF PROFIT AND LOSS and year ended (Millions of Sk) Note Revenues Gas distribution and supply 66 792 59 090 Gas transmission, storage, exploration and other 32 036 27 939 Total revenues 98 828 87 029 Operating expenses Change in inventories 2 283 1 117 Own work capitalized 377 432 Purchases of natural gas and raw material and energy consumption (53 343) (44 953) Depreciation and amortization (7 831) (4 695) Storage of natural gas and other services (4 654) (4 552) Staff costs 20 (3 894) (3 921) Provision for bad and doubtful debts, obsolete and slow-moving inventory, net (163) (481) Provisions and impairment losses, net (3 042) (2 303) Other, net (866) (821) Total operating expenses (71 133) (60 177) Operating profit 27 695 26 852 Income from investments 21 1 835 353 Share of profit of associates and joint ventures 7 1 344 1 230 Finance costs 22 43 (293) Profit before income taxes 30 917 28 142 Income tax 24.1 (5 826) (6 263) NET PROFIT FOR THE PERIOD 25 091 21 879 Profit attributable to: Shareholders of SPP 24 146 21 277 Minority interests of other owners of subsidiaries 945 602 Total 25 091 21 879 Earnings per share (in Sk) 25 462 407 The accompanying notes are an integral part of the consolidated financial statements. 4

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY and year ended (Millions of Sk) Capital Legal Reserve Other funds Hedging and Foreign currency translation reserve Revaluation reserves Retained earnings Equity attributable to shareholders of SPP Minority Interests of other owners of subsidiaries Total At 2004 52 287 7 626 6 95-23 433 83 447 1 929 85 376 Net profit for the period - - - - - 21 277 21 277 602 21 879 Dividends paid - - - - - (19 291) (19 291) (191) (19 482) Allocation of profit - 2 209 - - - (2 209) - - - Derecognition of negative goodwill at joint venture under IFRS 3 - - - - - 183 183-183 Movement in foreign currency translation reserve - - - 95 - - 95-95 Other - - 207 - - 10 217-217 At 52 287 9 835 213 190-23 403 85 928 2 340 88 268 Net profit for the period - - - - - 24 146 24 146 945 25 091 Dividends paid - - - - - (19 857) (19 857) (505) (20 362) Allocation of profit - 1 264 - - - (1 264) - - - Movement in foreign currency translation reserve - - - (193) - - (193) (3) (196) Transferred to income statement upon sale of foreign subsidiary - - - (162) - - (162) (14) (176) Increase in gas assets revaluation reserve - - - - 140 228-140 228 8 931 149 159 Deferred tax liability arising on revaluation of gas assets - - - - (26 658) - (26 658) (1 765) (28 423) Realisation of revaluation reserve (net of deferred tax) - - - - (4 806) 4 806 - - - Decrease in revaluation reserve for changes in fair value (net of deferred tax) - - - - (259) - (259) (40) (299) Other - - 99 - - (4) 95 (292) (197) At 52 287 11 099 312 (165) 108 505 31 230 203 268 9 597 212 865 The accompanying notes are an integral part of the consolidated financial statements. 5

CONSOLIDATED STATEMENTS OF CASH FLOWS and year ended (Millions of Sk) Note Operating activities Cash generated from operations 26 35 673 27 203 Interest paid - (135) Interest received 883 679 Income tax paid (6 087) (6 035) Net cash inflow from operating activities 30 469 21 712 Investing activities Proceeds from investments in securities, net 321 2 545 Purchase of property, plant and equipment (4 226) (3 375) Proceeds from sale of property, plant and equipment and intangibles 954 305 Proceeds from disposal of subsidiary - - Dividends received 532 493 Net cash inflow/(outflow) from investing activities (2 419) (32) Financing activities Repayment of interest-bearing borrowings - (2 299) Dividends paid (20 362) (19 482) Minority interest (167) - Net cash outflow from financing activities (20 529) (21 781) Net increase/(decrease) in cash and cash equivalents 7 521 (101) Cash and cash equivalents at the beginning of the period 24 503 24 604 Cash and cash equivalents at the end of the period 32 024 24 503 The accompanying notes are an integral part of the consolidated financial statements. 6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 1. GENERAL 1.1 General Information These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union ( EU ) for the year ended by Slovenský plynárenský priemysel, a.s. ( SPP ) and its subsidiaries, associated and joint venture undertakings (together the Group ). The reporting currency of the Group is the Slovak Crown (Sk). The consolidated financial statements were prepared based on the going concern assumption. SPP (formerly Slovenský plynárenský priemysel, š. p.), was originally founded on 21 December 1988 by a Foundation Charter as a 100% state owned enterprise in the Slovak Republic. On 1 July 2001 SPP was transformed to a joint stock company (akciová spoločnosť), 100% owned by the Fund of National Property of the Slovak Republic. A consortium of strategic investors acquired a 49% share in SPP with management control effective 11 July 2002. Currently, SPP s shares are held by the Fund of National Property of SR (51%) and Slovak Gas Holding, B. V., Holland (49%) (jointly held indirectly by Gaz de France and E.ON Ruhrgas). 1.2 Principal Activities The Group is organized into the following operating segments: gas distribution and gas supply, gas transmission, gas storage and gas and crude oil exploration. The distribution segment includes distribution of natural gas in a service area, which includes the entire Slovak Republic. SPP currently distributes and sells natural gas for prices determined on a cost plus basis. The proposed prices are subject to review and approval by the Regulatory Office. As of 1 January, the Regulatory Office has ceased to regulate the price of natural gas sales to all customers, except residential customers. The transmission segment is responsible for the transmission of natural gas from the Ukrainian border to the western borders of Slovakia and to virtual domestic point in Slovakia. The storage segment includes underground storage facilities located in the Slovak and Czech Republics. The exploration segment includes exploration and sale of natural gas and crude oil in the Slovak Republic. 1.3 Restructuring During 2004, SPP established the following subsidiaries that are wholly owned by SPP: 1. SPP preprava, a.s. (international gas transmission) 2. SPP distribúcia, a.s. (gas distribution) 3. SPP aktíva, a.s. (asset company) On 1 July, SPP completed its legal unbundling process that included transferring of certain activities to subsidiaries as at the date. As the result of this process, the Group decided to split gas distribution and gas sale into separate segments. SPP contributed part of business including the assets and liabilities of the former transit division (these excluding key assets designed for gas transmission) to its subsidiary SPP preprava, a.s., and, at the same time, SPP leased key assets designed for gas transmission (gas pipelines, compressor stations) to its subsidiary under an operating lease contract. Effective from 1 July, SPP preprava, a.s., assumed the business related to international gas transmission. SPP contributed part of business including assets (including the gas distribution network) and liabilities of the former gas distribution division to its subsidiary SPP distribúcia, a.s., which assumed the business related to gas distribution in the Slovak Republic. Under Slovak law, the individual assets and liabilities which form part of the business contributed to subsidiaries, shall be measured at fair value in the financial statements of the subsidiaries. These assets and liabilities are presented in these consolidated financial statements of SPP at their original carrying amounts, reflecting the adoption of the revaluation model under IAS 16 for core gas assets, without any adjustments for fair value resulting from the valuation of part of the business contributed to the subsidiaries. SPP intended to contribute the Asset Division as part of business to its subsidiary SPP aktíva, a.s., however, the plan was cancelled in. There are no current plans to operate this subsidiary. These notes are an integral part of the consolidated financial statements. 7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) SPP remained a holding company and continued with trading in natural gas. At the same time, SPP conducts some activities for its subsidiaries SPP preprava, a.s. and SPP distribúcia, a.s., including accounting, finance, human resources, information technologies, and centralised functions ( common services ). SPP s subsidiary NAFTA, a.s., ( NAFTA ) also underwent a restructuring process, including the merger of NAFTA with its 100% subsidiaries Nafta Storage & Production a.s. and Slovenská vrtná spoločnosť, a.s., effective from 1 July. Effective from 30 June, NAFTA, a.s. and Slovenská vrtná spoločnosť, a.s., were dissolved without liquidation and their assets and liabilities were assumed by the successor company, Nafta Storage & Production, a. s. which, effective from 1 July assumed the trade name NAFTA a. s. These transactions had no significant impact on these consolidated financial statements. In October, NAFTA disposed its 81% shareholding in its subsidiary, JSC ANACO (refer also to Note 5). 1.4 Employees The average number of employees of the Group for the year ended was 5 628, thereof executive management: 15 ( : 6 004, thereof executive management: 15). 1.5 Registered address Mlynské Nivy 44/a 825 11 Bratislava Slovak Republic 2. NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS AND CHANGES IN ESTIMATES 2.1 Adoption of New and Revised International Financial Reporting Standards In the current year, the Group has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and have been endorsed by the EU and effective for accounting periods beginning on 1 January. The adoption of these new and revised standards and interpretations had no effect on the changes in Group s accounting policies. As at 1 January, the Group adopted all new and revised standards and interpretations, which resulted in changes in the Group s accounting procedures in the following areas that have affected the amounts reported in the prior period: Goodwill (IFRS 3 Business Combinations ); Excess of acquirer s interest in the net fair value of acquiree s identifiable assets, liabilities and contingent liabilities over cost of acquisition (previously known as negative goodwill) (IFRS 3 Business Combinations ); IAS 32 Financial Instruments: Disclosure and Presentation (revised 2003); and IAS 39 Financial Instruments: Recognition and Measurement (revised 2003). The impact of these changes in accounting policies is discussed below. IAS 24, 32 and 39 The Group adopted the requirements of IAS 39 Financial Instruments: Recognition and Measurement and 32 Financial Instruments: Disclosure and Presentation as revised in 2003. The Group has also adopted the requirements of IAS 24 Related Party Disclosures as revised in 2003. These revised standards are applicable for annual periods beginning on or after 1 January. These notes are an integral part of the consolidated financial statements. 8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) IFRS 3 IFRS 3 Business Combinations has been adopted for business combinations for which the agreement date is on or after 31 March 2004. The option of limited retrospective application of the Standard has not been taken up, thus avoiding the need to restate past business combinations. The SPP Group had no acquisitions during the and accounting period. After initial recognition, IFRS 3 requires goodwill acquired in a business combination to be carried at cost less any accumulated impairment losses. Under IAS 36 Impairment of Assets (as revised in 2004), impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. Previously, under IAS 22 Business Combinations, SPP carried goodwill in its balance sheet at cost less accumulated amortization and accumulated impairment losses. Amortization was charged over the estimated useful life of the goodwill. In accordance with the transitional rule of IFRS 3, SPP has applied the revised policy for goodwill prospectively from the first annual period beginning on or after 31 March 2004, i.e. 1 January, to goodwill acquired in business combinations for which the agreement date was before 31 March 2004. Therefore, from 1 January, SPP has discontinued amortising such goodwill and has tested the goodwill for impairment in accordance with IAS 36 Impairment of Assets. At 1 January, the carrying amount of amortisation or impairment losses accumulated before that date of Sk 978 million has been eliminated, with a corresponding decrease in goodwill. Standards and interpretations not yet effective: At the date of authorization of these financial statements, the following standards and interpretations or amendments to standards and interpretations were in issue but not yet effective IFRS 7 Financial Instruments: Disclosures ; IFRS 8 Operating Segments ; IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies ; and IFRIC 8 Scope of IFRS 2, IFRIC 9 Reassessment of Embedded Derivatives ; IFRIC 10 Interim Financial Reporting and Impairment IFRIC 11 IFRS 2: Group and Treasury Share Transactions IFRIC 12 Service Concessions Arrangements ; Amendments to IAS 1 Presentation of Financial Statements regarding disclosures on capital. SPP anticipates that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group. 2.2 Changes in accounting policies Adoption of the revaluation model As at 1 January, SPP adopted the revaluation accounting model under IAS 16 Property, plant and equipment applicable to buildings, structures, plant and equipment within the Group s core business, and used for gas transmission, distribution, and storage. The assets mainly include gas pipelines, gas fixtures, regulation stations, compressor stations, and gas storage wells. SPP has chosen this model, as SPP believes that the resulting consolidated financial statements would provide more reliable and more relevant information on property, plant and equipment used for gas transmission, distribution and storage. The revaluation of the assets was posted to accounting without having any impact on prior periods. The revaluation resulted in the increased value of property, plant and equipment by Sk 142 703 million and increased deferred tax liability by Sk 27 114 million. Additionally, SPP revised useful lives of the assets based on an independent expert s opinion. For details see Note 9. 2.3 Change in Estimates During, NAFTA and during, SPP have extended the useful lives of property, plant and equipment used in the transmission, distribution and storage of natural gas. Refer to Note 9. These notes are an integral part of the consolidated financial statements. 9

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Accounting The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (the EU ). IFRS as adopted by the EU do not currently differ from IFRS as issued by the International Accounting Standards Board (IASB), except for portfolio hedge accounting under IAS 39 which has not been approved by the EU. SPP has determined that portfolio hedge accounting under IAS 39 would not impact the consolidated financial statements had it been approved by the EU at the balance sheet date. The consolidated financial statements are prepared under the historical cost convention, except for specified categories of property, plant and equipment and certain financial instruments. The principal accounting policies adopted are set out below. The accompanying consolidated financial statements reflect certain adjustments and reclassifications not recorded in the accounting records of certain Group companies in order to conform the Slovak statutory and other financial statements to financial statements prepared in accordance with IFRS as adopted by the EU. Certain comparatives have been reclassified to conform to current year presentation. (b) Business Combinations (1) Subsidiary Undertakings Those business undertakings in which SPP, directly or indirectly, has an interest of usually more than one half of the voting rights or otherwise has power to exercise control over the operations, are defined as subsidiary undertakings ( subsidiaries ) and have been fully consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to SPP and are no longer consolidated from the date when such control ceases. The acquisition of subsidiaries is accounted for using the purchase method. Goodwill arising on consolidation is recognised as an asset and represents the excess of the cost of the business combination over the SPP Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the SPP Group s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination at acquisition date, the excess is recognized immediately in the profit and loss. Goodwill is initially recorded at cost and is subsequently measured at cost less accumulated impairment losses. Goodwill is tested for impairment annually, or more frequently if there is an indication that it may be impaired. An impairment loss recognised for goodwill is not reversed in a subsequent period. All transactions, balances and unrealised profits and losses on transactions within the Group have been eliminated upon consolidation. Minority interest of other investors in the net assets of consolidated subsidiaries is identified separately from the SPP Group s equity therein. Minority interests represent the other investors proportionate share of the fair value at the acquisition date of the assets and liabilities of the relevant subsidiary, adjusted for the minorities' share of subsequent profits and losses. Losses applicable to minority interests in excess of the minorities interest in the subsidiary s equity are allocated against the interests of the SPP Group. Minority interest is presented as a separate item in equity. Certain subsidiaries have not been consolidated as their impact on consolidation has been assessed as not material. (2) Investments in Associated Undertakings and Joint Ventures Investments in associated undertakings and joint ventures are accounted for using the equity method. Associated undertakings are entities over which SPP has between 20% and 50% of the voting rights, and over which SPP has the power to exercise significant influence, but which it does not control. Joint ventures are entities in which the Group has a jointly controlled interest. Provisions are recorded for impairment in value. These notes are an integral part of the consolidated financial statements. 10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Equity accounting involves recognizing in the statement of profit and loss the Group s share of the associates and joint ventures profit or loss and tax charge for the year. The interest of the Group in associated undertakings and joint ventures is stated in the balance sheet at an amount that reflects its share of the net assets of the associates and joint ventures and includes goodwill on acquisition. (c) Financial Instruments Financial assets and liabilities are recognized on the Group s balance sheet when the Group has become a party of the contractual provisions of the instrument. (d) Investments in Securities Investments in securities are recognized on a trade date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortized cost, less any impairment loss recognized to reflect irrecoverable amounts. Investments other than held-to-maturity debt securities are classified as either investments held at fair value through profit and loss or available for sale, which are measured at reporting dates at fair value based on quoted market prices at the balance sheet date assuming there is an active market. Where securities are held at fair value through profit and loss, unrealised gains and losses are included in the statement of profit and loss. For available for sale investments, unrealised gains and losses are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized is included in the statement of profit and loss. (e) Derivative Financial Instruments Derivative financial instruments are initially recorded at cost and are re-measured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges are recognized in equity. Amounts deferred in equity are recognized in the statement of profit and loss in the same period in which the hedged firm commitment or forecasted transaction affects net profit or loss. At and the Group had no derivative financial instruments designated as cash-flow hedges. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in the statement of profit and loss. (f) Property, Plant and Equipment and Intangible Assets In, property, plant and equipment held for use in gas transmission, distribution and storage are disclosed on the face of the balance sheet at their revalued amount, i.e. the fair value as at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The first revaluation was performed as of 1 January and/or 30 September (the Nafta Group). The revaluation was performed by independent valuation experts. The revalued amounts may differ from the market value in the case of a partial or complete sale of assets, and the difference could be material. The revaluations will be performed with a sufficient regularity (at least every five years) so that the carrying amount does not differ materially from that which would be disclosed using fair values at the balance sheet date. Any revaluation increase arising on the revaluation of such property, plant and equipment is credited to revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognized in the income statement, in which case the increase is credited to income statement to the extent of the decrease previously charged. A decrease in the carrying amount arising on the revaluation of such property plant and equipment is charged to the income statement to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to the income statement. Revaluation surplus from property revaluation is gradually released to the retained earnings over the depreciation period of related property. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to retained earnings. These notes are an integral part of the consolidated financial statements. 11

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Other property, plant and equipment and intangible assets are stated at acquisition cost less accumulated depreciation. Cost includes all costs directly attributable to bringing the asset to working condition for its intended use, and in respect of exploration and storage wells, the estimated cost of dismantling and removing the asset and restoring the site ( dismantling asset ). Expenditures related to hydrocarbon deposits exploration are accounted for in accordance with the successful efforts method. Under this method, exploration expenditures (exploration wells) are capitalized under assets in the course of construction when incurred and certain expenditures, such as geological and geophysical exploration costs, are expensed. A review is carried out at least annually, on a field-by-field basis, to ascertain whether proven reserves have been confirmed. When proven reserves are determined and production commenced, the relevant expenditures are transferred from assets in the course of construction to the relevant category of property, plant and equipment. Expenditures related to efforts deemed to be unsuccessful, are provided for. Items of property, plant and equipment and intangible assets that are retired or otherwise disposed off are eliminated from the balance sheet, along with any corresponding accumulated depreciation. Any gain or loss resulting from such retirement or disposal is included in the statement of profit and loss. Dismantling assets are depreciated over the life of the proved developed reserves on a unit-ofproduction basis. Production wells and related centres are depreciated over the life of the proved developed reserves on a unit-of-production basis. Other items of property, plant and equipment are depreciated on the straight-line basis over estimated useful lives. Depreciation is recorded by a charge to income computed so as to amortize the cost of the assets to their estimated residual values over their remaining useful lives. The useful lives used are as follows: Buildings and gas storage facilities 25 80 25 80 Compressor stations 25-55 3-40 Regulation stations 15-50 3-40 Inlet and market delivery stations 15-50 4-40 Gas pipelines 60 30 Plant and machinery 4 40 4 40 Other fixed assets and intangible assets 3 8 3 8 At revaluation of property, the appraiser determined useful lives of certain items of pipelines in range from 60 to 80 years. Land is not depreciated as it is deemed to have an infinite life. At each balance sheet date an assessment is made as to whether there is any indication that the recoverable amount of the Group s property, plant and equipment and intangible assets is less than the carrying amount. When there is such an indication, the recoverable amount of the asset, being the higher of the asset s net selling price and the present value of its net cash flows, is estimated. Any resulting impairment loss is recognized in full in the statement of profit and loss in the year in which the impairment occurs. The discount rates used to calculate the net present value of the cash flows reflect current market assessments of the time value of money and the risks specific to the asset. In the event that a decision is made to abandon a construction project in progress or to significantly postpone its planned completion date, the carrying value of the asset is reviewed for potential impairment, and a provision recorded, if appropriate. The Group s pipeline network and associated buildings and plant and equipment in the distribution, gas supply and transmission segments are assessed by reference to their value in use, based on future cash flow forecasts for each of the segments. Subsequent expenditure relating to an item of property, plant and equipment and intangible assets is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the original assessed standard of performance of the existing asset, will flow to the enterprise. All other subsequent expenditure is treated as repairs and maintenance and is expensed in the period in which it is incurred. (g) Inventories Inventories are stated at the lower of cost and net realizable value. The cost of natural gas stored underground and materials and supplies are calculated using the weighted average method. Cost of natural gas stored, materials and other inventory includes cost of acquisition and other costs related to acquisition and for own products materials, other direct costs and production overheads. Appropriate provision is made for obsolete and slow-moving inventories. These notes are an integral part of the consolidated financial statements. 12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) (h) Trade Receivables Trade receivables are valued at expected realizable value, including provisions for bad and doubtful accounts. (i) Cash and Cash Equivalents Cash and cash equivalents consist of cash in hand and balances with banks, and highly liquid investments with insignificant risk of changes in value and original maturities of three months or less at the date of acquisition. (j) Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. (k) Revenue Recognition Sales are recorded upon delivery of products or performance of services, net of value added tax and discounts. The Group records revenue from gas sales, transmission and storage services and other activities on the accruals basis which includes estimates of gas delivered but unbilled as of the balance sheet date. Revenues from natural gas acquired under transmission agreements for running of compressor stations are recorded when delivered. (l) Research and Development Research and development expenditure is recognized as an expense except those costs incurred on development projects that are recognized as development assets (intangible assets) to the extent that such expenditure is expected to have future economic benefits. However, development costs initially recognized as an expense are not recognized as an asset in a subsequent period. (m) Borrowing Costs Borrowing costs are recognized as an expense in the period in which they are incurred. (n) Social Security and Pension Schemes The Group is required to make contributions to various obligatory Government insurance schemes, together with contributions by employees. The cost of social security payments is charged to the statement of profit and loss in the same period as the related salary cost. (o) Retirement and Other Long-Term Employee Benefits The Group operates un-funded defined long-term benefit programs comprising lump-sum postemployment, long-term loyalty and jubilee benefits. According to IAS 19, the employee benefits costs are assessed using the projected unit credit method. Under this method, the cost of providing pensions is charged to the statement of profit and loss so as to spread the regular cost over the service lives of employees. The benefit obligation is measured as the present value of the estimated future cash outflows discounted by market yields on Slovak government bonds, which have terms to maturity approximating the terms of the related liability. All actuarial gains and losses are recognized immediately in the statement of profit and loss. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. (p) Government Grants Transfers of gas equipment by municipalities to the Group are deemed to be non-monetary grants and are recorded at fair value of assets received, which is also included in non-current liabilities as deferred income. This deferred income is credited to the statement of profit and loss on a straight-line basis over the useful lives of the assets transferred. (q) Taxation Income taxes currently payable are provided on accounting profit as determined under Slovak accounting principles after adjustments for certain items for taxation purposes at a rate of 19%. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited to the statement of profit and loss, except These notes are an integral part of the consolidated financial statements. 13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) when it relates to items credited or charged directly to equity, in which case the deferred tax is also recorded in equity. The valid income tax rate from 1 January 2004 is 19%. The principal temporary differences arise from revaluation and depreciation on property, plant and equipment, various provisions. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. (r) Foreign Currencies Transactions in foreign currencies are initially recorded at the rates of exchange of National Bank of Slovakia (NBS) prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the NBS exchange rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in the statement of profit and loss for the period. On consolidation, the assets and liabilities of the Group s foreign subsidiaries are translated at NBS exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group s translation reserve. Such translation differences are recognized as income or as expenses in the period in which the financial investment in subsidiary is disposed of. 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the process of applying the Group s accounting policies, which are described in note 3, SPP has made the following judgements concerning uncertainties and estimations that have significant effect on the amounts recognized in the financial statements. There is significant risk of material adjustments in future periods relating to such matters, including the following: Litigation SPP is involved in various legal proceedings for which management has assessed the probability of loss that will result in a cash outflow. In making this assessment, SPP has relied on the advice of external legal counsel, latest available information on the status of the court proceedings and an internal evaluation of the likely outcome. The final amount of any potential losses in relation to legal proceedings is not known and may result in a material adjustment to previous estimates. Details of the legal cases are included in Note 28. Revaluation of Property, Plant and Equipment The primary operating assets of SPP represent its gas transmission, distribution and storage assets. Previously, SPP accounted for these assets using historical costs as shown in the consolidated financial statements. As at 1 January SPP has adopted the revaluation model under IAS 16 for property, plant and equipment used in the transmission, distribution and storage of natural gas. The revaluation of assets at the Group was performed by independent appraisers using the depreciated replacement cost approach. The gas storage assets at joint ventures (recorded under the equity method of accounting) were revalued on the basis of the Group s estimates under the discounted cash flow method. The revaluation of the gas transmission, distribution and storage assets has resulted in an increase in the value of the assets and a corresponding increase in equity. The estimates used in the revaluation model are based upon an experts independent valuation reports. The resulting reported amounts for these assets and the related revaluation reserve do not necessarily represent values at which these assets could or would be sold. There are inherent uncertainties about future business conditions, changes in technology and the competitive environment within the industry that could require future adjustments to estimated revalued amounts and assets lives which could potentially result in material changes in reported financial position, equity and profit. Refer to Notes 9 for further details. Impairment of Property, Plant and Equipment The Group has calculated and recorded significant amounts for impairment of property, plant and equipment on the basis of an evaluation of their future use, planned liquidation or sale. For certain of these items, no final decision has yet been made and therefore the assumptions on use, liquidation or sale of assets may change. Refer to Note 9 for details on impairment of property, plant and equipment. These notes are an integral part of the consolidated financial statements. 14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Useful Lives of Certain Property, Plant and Equipment SPP has extended the useful lives of gas pipelines and gas storage assets on the basis of an independent appraisal report. The useful lives of these assets now range from 40 to 80 years (until 31.12.2004 from 25 to 40 years) for gas storage assets and from 60 to 80 years (until 31.12. 30 years) for gas pipelines. The assessment of useful lives involves the judgment of the technical experts. There are inherent uncertainties about future business conditions, changes in technology and the competitive environment within the industry that could require future adjustments to estimated assets lives which could potentially result in material changes in reported financial position, equity and profit. Refer to Note 9 for further details. Un-invoiced Gas Sales SPP records significant amounts as revenues for gas sales on the basis of estimates of gas consumption for small industrial customers and residential customers. SPP makes an estimate of such revenues by allocating actual measured gas consumption to the different categories of customers on the basis of past consumption trends and applying the applicable natural gas prices. Actual consumption by customers in the different categories may vary and therefore the amounts recorded as revenues may change given the price differences between categories of customers. Environmental Provision The consolidated financial statements include significant amounts as environmental provision. The provision is based on estimates of the future costs of dismantling, restoration and re-cultivation and is also significantly impacted by the estimate of the timing of cash flows and the Group s estimate of the discount rate used. The provision takes into account costs estimated for the abandonment of production and storage wells at a subsidiary, the costs for dismantling old gas facilities and compressor stations, the decontamination of soil and for the restoration of sites to their original condition based on past costs for similar activities. Refer to Note 16 for further details. Unaudited Subsidiaries, Joint Ventures and Associates As at and, certain subsidiaries, associated and joint venture companies included in these consolidated financial statements have not been audited. The unaudited subsidiaries represented less than 1% of total consolidated assets, liabilities, revenues and expenses. The investments in the unaudited joint venture and associated companies are accounted for using the equity method and SPP s share of their equity represents less than 3% of SPP s total assets. There is a risk, that these companies could have significant unrecorded liabilities. SPP believes that there are no additional significant liabilities or other obligations that should have been recorded or disclosed in these consolidated financial statements or that would significantly impact the amount recorded under the equity method for these unaudited companies. These notes are an integral part of the consolidated financial statements. 15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 5. STRUCTURE OF THE GROUP Consolidated Subsidiaries The consolidated subsidiaries at and are as follows: Name Seat Effective ownership % Principal activity Subsidiaries SPP preprava, a.s. SPP distribúcia, a.s. NAFTA, a.s. Mlynské nivy 42, Bratislava, Slovakia Mlynské nivy 44/b, Bratislava, Slovakia Naftárska 965, Gbely, Slovakia Nafta Storage & Production, a.s. (1) Naftárska 965, Gbely, Slovakia Naftárska leasingová spoločnosť, a. s. (1) Zastávka 2103, Gbely, Slovakia (1), (2) Zastávka 2103, Gbely, Slovenská vrtná spoločnosť, a. s. Slovakia Velkomoravská Karotáž a cementace, s. r. o. (3) 2606/83, Hodonín, Czech Republic JSC Anaco (4) Atyrau, ul. Kulmangazy 6, Kazakhstan GEOTERM KOŠICE, a. s. (3) Moldavská č. 12, Košice, Slovakia PRVÁ PAROPLYNOVÁ SPOLOČNOSŤ, a. s. Mlynské nivy 48, (3) v likvidácii (in liquidation) Bratislava, Slovakia 100.00 100.00 56.15 56.15 Transmission pipeline operation Distribution pipeline operation Gas storage and hydrocarbon exploration and production Mining and geological activities 56.15 Finance leasing 56.15 Drilling and underground wells repair 28.64 Logging and cementation 45.48 Oil production 95.82 100.00 Utilization of geothermal energy Design of cogeneration plants (1) (2) (3) (4) 100% shareholding held directly by NAFTA, a.s. up until the merger with NAFTA, a.s. Subsidiary incorporated as a result of merger of NAFTA VÝCHOD, a.s into NAFTA ZÁHORIE, a.s. and subsequently renamed to Slovenská vrtná spoločnosť, a.s. This subsidiary was merged with NAFTA, a.s. during Unaudited subsidiary for the year ended and which represent less than 1% of total consolidated assets, liabilities, shareholders equity, revenues and expenses. Subsidiary disposed of during In, NAFTA established a 100% subsidiary Nafta Storage & Production a.s. with its registered capital of Sk 1 000 thousand for the purpose of restructuring of the Nafta Group (see Note 1.3). In October, NAFTA disposed its 81% owned subsidiary JSC ANACO operating in oil exploration and production segment in Kazakhstan. 6. FINANCIAL RISK MANAGEMENT (a) Financial Risk Factors The Group s activities expose it to a variety of financial risks, including the effects of changes in foreign currency exchange rates and loan interest rates and gas purchase prices. The Group s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as forward and option foreign exchange contracts and to a lesser extent commodity hedge instruments and interest rate swaps to manage certain exposures. Risk management is decentralized and carried out by the Treasury departments under policies approved by the Board of Directors or management of each company in the Group. (1) Foreign Exchange Risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to US dollar and Euro. As a significant percentage of the Group s revenues, purchases and financing are denominated in US dollars and Euro, there is a certain level of natural hedging. The Group also uses swap, option and forward contracts to hedge a portion of their exposure to foreign currency risks in the local reporting currency for the specified dates of cash flows. As at, the Group had 14 forward contracts open to manage the exposure of the foreign exchange rate on These notes are an integral part of the consolidated financial statements. 16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) income from transmission (as at, the Group had 18 forward and 12 option contracts open). However, these derivatives are accounted for as trading instruments with fair value adjustments reported in the statement of profit and loss. The Group has a number of investments in foreign subsidiaries, joint ventures and associated undertakings, whose net assets are exposed to currency translation risk. (2) Commodity Price Risk The Group is a party to framework agreements for the purchase of natural gas and other services and material including purchases for gas storage facilities and natural gas and oil production. In addition, the Group enters into contracts for oil and natural gas sales and natural gas storage. The Group covers a portion of the risks related to changes in oil and natural gas prices by commodity derivative instruments. Contracts for natural gas storage are at fixed prices. The Group is not involved in any significant commodity price risk hedging activities. (3) Interest Rate Risk The Group s operating income and operating cash flows are relatively independent of changes in market interest rates. As at and, SPP had significantly reduced its borrowings and is therefore not exposed to any significant fluctuations in market interest rates. (4) Credit Risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and that there is a limit on the amount of obligations due to individual financial institutions. Derivative counter-parties and cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution. (5) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash with adequate due date and marketable securities, the availability of funding through an adequate amount of committed credit lines and the ability to close out market positions. Due to the dynamic nature of the underlying business, Group Treasury management aims at maintaining flexibility by keeping committed credit lines available and synchronizing the maturity of financial assets with financial needs. (b) Fair Value Estimation The fair value of investments held at fair value through profit and loss and available-for-sale securities is based on quoted market prices at the balance sheet date. The fair value of interest swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. In assessing the fair value of non-traded derivatives and other financial instruments, the Group uses a variety of methods and market assumptions that are based on market conditions existing at the balance sheet date. Other techniques, mainly estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. 7. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD Joint venture undertakings Associated undertakings Cost of investment 1 693 1 1 694 1 694 Share of post-acquisition profit, net of dividends received 6 230 2 6 232 3 748 Net book value 7 923 3 7 926 5 442 These notes are an integral part of the consolidated financial statements. 17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Details of the Group s associated undertakings at are as follows: Name Seat Effective ownership% Principal activity Equity value at SLOVGEOTERM, a. s. Palisády 39, Bratislava, Slovakia 50.00 Geothermal energy 3 Details of the Group s joint ventures as of are as follows: Name Seat Effective ownership % Principal activity Equity value at POZAGAS, a. s. (1) Malé námestie 1, 54.65 Gas storage Malacky, Slovakia 2 156 InterKVET, s. r. o. Mlynské Nivy 44/a, Management of 50.00 Bratislava, Slovakia cogeneration plants 3 SLOVRUSGAS, a. s. v Ďumbierska 50.00 Trading with gas likvidácii (in liquidation) 32,Bratislava, Slovakia 2 P R O B U G A S, a. s. Lieskovská cesta 3, 50.00 LPG retail Bratislava, Slovakia 106 SPP Bohemia, a. s. Vinohradská 1511/230, 50.00 Gas storage Praha, Czech Republic 5 656 Total 7 923 (1) Shareholding held directly by SPP, a. s. (35%), NAFTA, a.s. (35%) and Gaz de France (30%) As at 1 January, property, plant and equipment used for storage of natural gas at POZAGAS a.s. and SPP Bohemia, a.s. (joint ventures recorded under the equity method) were revalued to fair value using an expert estimate derived from a discounted cash flow calculation. The future cash flows related to such property, plant and equipment were discounted using an estimated discount rate which the SPP believes approximate the time value of money, represented by the current market risk free rate of interest and the price for bearing the uncertainty and risks inherent in the asset. The discount rate was estimated to be 10%. The SPP Group s share of the resulting revaluation reserve at represents an amount of Sk 1 843 million net of deferred tax. SPP s share of non-current assets as at would be Sk 6 895 million if such assets were not revalued. The following amounts represent the Group s share of the assets, liabilities, revenues and expenses of joint ventures: Property, plant and equipment 9 248 7 861 Investments in Securities 1 665 1 412 Long-term receivables 146 142 Current assets 4 229 3 812 Total assets 15 288 13 227 Minority interest (2 662) (2 518) Non-current interest bearing borrowings (1 147) (1 659) Provisions (1 580) (1 591) Other long-term liabilities (934) (604) Current liabilities (1 042) (1 233) Total liabilities (7 365) (7 605) Net assets 7 923 5 622 Sales 4 093 3 918 Profit before tax 1 785 1 769 Income tax including deferred tax (509) (468) Profit after tax 1 276 1 301 These notes are an integral part of the consolidated financial statements. 18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) The amounts included in above table are based on audited financial statements of POZAGAS, a.s. and unaudited financial statements of the other joint ventures. Included in the table above are the following amounts for the Group s share of the assets, liabilities and net assets of joint ventures that are unaudited: Total assets 12 695 303 Total liabilities (6 854) (175) Net assets 5 841 128 Profit after tax 1 159 18 SPP Bohemia, a.s. represents more than 97% of the amounts in the table above. 8. INVESTMENTS IN SECURITIES (a) Non-Current Available for Sale Investments Non-current available for sale investments comprise the following: Shares Other At At Cost 2 441 15 2 456 2 537 Diminution in value (1 546) - (1 546) (1 594) Closing net book value 895 15 910 943 Investments in shares comprise of the following unconsolidated subsidiaries and other shareholdings: Name Seat Effective ownership % Principal activity Unconsolidated subsidiaries Nadácia SPP Mlynské nivy 44/a, Bratislava, Slovakia 100.00 Foundation InfoGas, a. s. Kozia 17, Bratislava, Slovakia 100.00 IT services SPP aktíva, a.s. Votrubova 11, Bratislava, Slovakia 100.00 No current activities Fond energetickej efektívnosti Mlynské Nivy 44/a, Bratislava, Slovakia 100.00 Non-investment fund Blacktown Limited, Dublin (1) Dublin, Ireland 56.15 Dormant AUTOKAC, s. r. o., Hodonín (1) Velkomoravská 83, Hodonín, Czech Republic 28.64 Dormant Route des Dragons 9 Vernard Eurographia, S.A., in liquidation, Lausanne (1) Bel-Air. CHESEAUX S/LAUSANNE, Switzerland 56.15 Dormant, in liquidation Name Seat Effective ownership % Principal activity Other shareholdings Energotel, a. s. Miletičova 7, Bratislava, 16.66 Telecommunication services Slovakia Severomoravská plynárenská, a. s. ul. Plynární 2478/6, Ostrava, 8.52 Gas distribution (2) Czech Republic Vychodočeská plynárenská, a. s. (2) Pražská 702, Hradec Králové, 10.00 Gas distribution Czech Republic GALANTATERM, spol. s r. o. Vodárenská ul. č. 1608/1, 17.50 Geothermal energy Galanta, Slovakia START AUTOMATION, spol. s r. o. Radlinského 2751, Malacky, 28.08 Services (1) Slovakia AG Banka, a. s. v konkurze (in Coboriho 2, Nitra, Slovakia 21.90 Dormant, in bankruptcy bankruptcy) (1) THERMO-SHIELD EUROPA, a. s. (1) Koprivnická 36,Bratislava, Slovakia 16.85 Dormant (1) shareholding held by NAFTA, a.s. (2) quoted equity investments These notes are an integral part of the consolidated financial statements. 19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Subsidiaries, which are not consolidated at and are considered immaterial as the impact of their consolidation has been determined to be less than 1% on the total consolidated assets, equity and revenues of the Group. These investments are carried at cost less any provision for impairment. Quoted equity investments have not been re-measured to fair value as SPP has determined that the market does not reflect the fair value of such investments as the volume of trading of these investments is insignificant compared to SPP s ownership interest. NAFTA has presently estimated that the ultimate recovery of the investment in Blacktown Limited, Dublin, in the amount of Sk 1 173 million is uncertain. Therefore a 100% provision was created to reflect its net realizable value as at and. Subsidiary NAFTA MONTAKO-TEKU, s. r. o., (in liquidation), went into liquidation in. Subsidiary NAFTAPETROL spol. s r.o. Michalovce (in bankruptcy) has been liquidated in. In, the Company sold shareholdings in APOLLO zdravotná poisťovňa, a. s. During, shareholdings in ČKD PRAHA HOLDING, a.s. were disposed due to a squeeze out of minority shareholders. These notes are an integral part of the consolidated financial statements. 20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 9. PROPERTY, PLANT AND EQUIPMENT Regulation stations Compressor stations Inlet and market delivery stations Pipelines Gas storage facility Land, buildings and structures Plant, machinery and equipment Other fixed assets Capital work in progress Total Opening net book value 1 591 9 390 768 30 161 2 596 6 194 980 449 4 001 56 130 Additions - - - - 95 - - 77 3 199 3 371 Taken into use 161 796 69 1 135 852 444 178 174 (3 809) - Reclassifications (63) 3 - (26) 2 193 (116) (378) (681) (1 066) Disposals (10) (36) (2) (10) - (217) 3 (1) (249) (522) Depreciation charge (250) (1 475) (131) (1 786) (143) (581) (305) (230) - (4 901) Change of provisions (8) (25) (2) (7) 3 (10) 17-60 28 Exchange rate difference - - - - - 5 2 9-16 Closing net book value 1 421 8 653 702 29 467 3 405 6 028 759 100 2 521 53 056 At Cost 4 608 22 958 1 401 59 513 6 421 13 095 6 340 1 548 3 845 119 729 Provisions and accumulated (3 187) (14 305) (699) (30 046) (3 016) (7 067) (5 581) (1 448) (1 324) (66 673) depreciation Net book value 1 421 8 653 702 29 467 3 405 6 028 759 100 2 521 53 056 Opening net book value 1 421 8 653 702 29 467 3 405 6 028 759 100 2 521 53 056 Revaluation 2 698 15 513 852 103 579 20 061 - - - - 142 703 Additions 1 - - 3-1 (9) 14 3 873 3 883 Taken into use 213 222 28 1 100 61 376 571 9 (2 580) - Reclassifications (19) (42) 53 (4) - (26) 3 (3) (20) (58) Disposal of subsidiary - - - - - (23) (4) - (15) (42) Disposals - (1) - (7) (619) (414) (68) - (100) (1 209) Depreciation charge (207) (1 965) (100) (3 620) (787) (535) (395) (39) - (7 648) Change of provisions - 7 - - (2) 34 132 (1) (73) 97 Change in revaluation surplus - (253) - (1) (111) (1) - - - (366) Closing net book value 4 107 22 134 1 535 130 517 22 008 5 440 989 80 3 606 190 416 Cost 4 367 24 487 1 659 134 044 22 744 12 103 6 016 1 341 4 973 211 734 Provisions and accumulated (260) (2 353) (124) (3 527) (736) (6 663) (5 027) (1 261) (1 367) (21 318) depreciation Net book value 4 107 22 134 1 535 130 517 22 008 5 440 989 80 3 606 190 416 Historical net book value at, had revaluation not been performed 1 535 8 434 691 29 935 3 245 5 440 989 80 3 606 53 955 These notes are an integral part of the consolidated financial statements. 21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Revaluation of Assets Held for Use in Gas Transmission, Distribution, and Storage: Arthur D. Little and Ústav súdneho inžinierstva, Žilina, (ÚSI Žilina) independent valuers, revalued gas storage assets and property, plant and equipment held for use in gas transmission and distribution as recorded at 1 January. Their revaluation was based on the observed asset conditions and asset replacement cost by reference to market evidence of recent transactions for similar properties and replacement cost estimation methodologies. Replacement costs estimates are based on estimated costs of Equivalent Assets (EA) and estimating the residual asset value from the EA cost, useful life and age of existing assets (Depreciated Replacement Cost methodology). Assets held for use in gas transmission, distribution, and storage include land, buildings and structures, machines, tools and equipment and dismantled assets. These assets are disclosed separately as regulation stations, compressor stations, inlet and market delivery stations, pipelines and assets used for gas storage. Exploratory wells are recorded in land, buildings and structures and a provision is created in the event that the success of the wells is uncertain or otherwise impaired. As at and, NAFTA has reassessed the impairment of property, plant and equipment in accordance with IAS 36 Impairment of Assets on the basis of an evaluation of future use, liquidation or sale. NAFTA has determined the amount of the provision on the basis of expert valuations, liquidation plan, or the estimated sale price of different assets. As at fully depreciated non-current assets (includes also software classified in intangible assets), which are still in use amount to Sk 5 508 million ( : Sk 27 006 million) at cost. Property, plant and equipment which are temporarily not in use amount to Sk 125 million ( : Sk 144 million) at net book value for which a provision of Sk 125 million is recorded ( : Sk 144 million), resulting in a zero net reported balance at and. 10. INTANGIBLE AND OTHER ASSETS Development costs Software Other long-term intangible assets Assets in the course of construction Other assets Total Cost At 1 January 714 2 525 - - 9 3 248 Additions - - - 299-299 Taken into use 20 758 37 (815) - - Disposals (1) (17) (37) (88) (4) (147) Reclassification (351) (703) 190 864 - - At 382 2 563 190 260 5 3 400 Amortization At 1 January (522) (1 377) - - - (1 899) Amortization (2) (228) (39) - - (269) Provision and impairment loss - - 9 28-37 Disposals 1 12 37 - - 50 Reclassification 161 31 (126) (66) - - At (362) (1 562) (119) (38) - (2 081) Carrying amount At 1 January 192 1 148 - - 9 1 349 At 20 1 001 71 222 5 1 319 The Group is involved in development projects: utilization of geothermal energy in eastern Slovakia (geothermal project), utilization of natural gas in co-generation units, implementation of active anticorrosion protection of distribution network, establishment of universal communication interface for comprehensive monitoring and management of distribution network, and development of daily consumption curves for the need of distribution network evaluation. The Group has also carried out research activities reflected in these consolidated financial statements. Costs related to research are expensed immediately when incurred. No significant research costs were incurred during and. These notes are an integral part of the consolidated financial statements. 22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) During, on the basis of a detailed analysis, the Group included the software previously classified in property, plant and equipment in intangibles. 11. INVENTORIES At At Natural gas 10 761 8 478 Raw materials and other inventories 507 687 Provision (174) (254) Total 11 094 8 911 At and, no provision was necessary, or recorded in respect of an adjustment to reduce the cost of natural gas to its net realizable value. 12. RECEIVABLES AND PREPAYMENTS At At Trade receivables from transmission activities 3 990 2 448 Trade receivables from gas sales 3 509 7 336 Receivables from storage and other activities 97 132 Amounts due from Group undertakings 1 564 Other taxes 911 - Derivative contracts (Note 29) 34 70 Prepayments and other receivables 518 226 Total 9 060 10 776 All amounts are receivable within one year. Trade receivables from transmission activities include an amount of SKK 3 640 million (: SKK 2 064 million) in respect of amounts due from a transmission customer that was involved in a dispute with SPP. The customer made payments to a special bank account belonging to the customer. In January 2007, the dispute was finalized and all outstanding receivables were settled. Trade receivables from gas sales are shown net and include all receivables, billed and unbilled gas deliveries accrued. Trade receivables and prepayments are shown after provisions for bad and doubtful accounts of SKK 6 591 million ( : Sk 6 632 million). 13. INTEREST-BEARING BORROWINGS All loans outstanding at 2004 were repaid in. SPP does not have any loans at. 14. DEFERRED INCOME Opening net book value 1 376 1 603 assets acquired during period 2 6 Amortization of transferred equipment for the period (23) (233) Closing net book value 1 355 1 376 Gas equipment was obtained free of charge from municipal and local authorities. This equipment is recorded as property, plant and equipment at the cost incurred by the municipal and local authorities with a corresponding amount recorded as deferred income. This deferred income is released to the statement of profit and loss in line with the depreciation of the related fixed assets. These notes are an integral part of the consolidated financial statements. 23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 15. RETIREMENT AND OTHER LONG-TERM EMPLOYEE BENEFITS The long-term employee benefits program at SPP was originally launched in 1995. This is a defined benefit program, under which the employees are entitled to a lump-sum payment upon old age or disability retirement and, subject to vesting conditions and to jubilee payments. In, SPP signed a new collective agreement under which employees are entitled to a retirement benefit based upon the number of years with SPP at the date of retirement. The benefits range from one month to six months average salary. As at and, the provision for retirement and other long-term employee benefits was calculated on the basis of this new agreement. As of there were 4 666 ( : 4 927) employees at SPP covered by this program. To date it has been an un-funded program, with no separately allocated assets to cover the program s liabilities. The long-term employee benefits program at the NAFTA group is a defined benefit program, under which the employees are entitled to a lump-sum payment upon old age or disability retirement as a multiple of the employee s average salary and, subject to vesting conditions, to periodic loyalty and jubilee payments. As of there were 808 ( : 967) employees at the NAFTA group covered by this program. To date it has been an un-funded program, with no separately allocated assets to cover the program s liabilities. Movements in the net liability recognized in the balance sheet for the year ended are as follows: Long-term benefits Postemploymen t benefits Total benefits at Total benefits at Net liability at 1 January 48 214 262 251 Net expense for the period 1 (1) - 24 Benefits paid (5) (4) (9) (7) Decrease on deconsolidation of subsidiaries - - - (6) Net liability at 44 209 253 262 Current liabilities (included in other current liabilities) Non-current liabilities Total At 6 256 262 At 7 246 253 Key assumptions used in actuarial valuation: At At Market yield on government bonds 4.15% 3.80% Annual future real rate of salary increases 2.00% 2.00% Annual employee turnover 1.44% 1.44% Morbidity Czech population morbidity 1997 Czech population morbidity 1997 Mortality Slovak population mortality 2000 Slovak population mortality 2000 Retirement ages (male and female) 62 for male and from 60 for female 62 for male and from 60 for female 16. PROVISIONS FOR LIABILITIES AND CHARGES Movements in the provisions are summarized as follows: Environmental provisions Other provisions Total provisions at Total provisions at Balance at 1 January 2 250 3 379 5 629 4 118 Accretion of interest 38-38 82 Creation of provision - 447 447 2 403 Utilisation of provision (204) (227) (431) (773) Reversal of provision (162) (1 062) (1 224) (201) Closing balance 1 922 2 537 4 459 5 629 These notes are an integral part of the consolidated financial statements. 24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) The provisions are included in liabilities as follows: Current liabilities (included in other current liabilities) Non-current liabilities Total At 1 502 4 127 5 629 At 1 093 3 366 4 459 (a) Environmental Provisions Provisions in the amount of Sk 1 922 million as at are recorded in respect of decontamination of contaminated soil, liquidation of exploration and storage wells, re-cultivation and restoration of sites to their original condition. SPP has obligations in respect of decontamination of contaminated soil caused by compressor stations and old natural gas facilities powered by coal. NAFTA has obligations in respect of liquidation of exploration and storage wells, re-cultivation and restoration of sites and the dismantling of a distillation unit. Obligations of SPP SPP currently has assessed that there is soil contamination at 15 locations including 5 compressor stations (: 6 compressor stations) and 10 old gas facilities powered by coke. SPP has estimated the provision for decontamination and restoration using existing technology at current prices adjusted for expected future inflation and discounted using a discount rate which reflects current market assessment of the time value of money and risks specific to the liability (approximately 4.4%). These costs are expected to be incurred between and 2010. Obligations of NAFTA NAFTA currently has 187 production wells in addition to 251 storage wells. Production wells that are currently producing or are being used for other purposes are expected to be abandoned after reserves have been fully produced or when it has been determined that the wells will not be used for other purposes. Storage wells are expected to be abandoned after the end of their useful lives. NAFTA has the obligation to dismantle the production and storage wells, decontaminate contaminated soil, restore the area and restore the site to its original condition to the extent as stipulated by law. The provision for abandonment and restoration has been estimated using existing technology and reflects expected future inflation. The present value of these costs was calculated using a discount rate which reflects current market assessment of the time value of money and risks specific to the liability (approximately 4.2%). The provision takes into account costs estimated for the abandonment of production and storage wells and for the restoration of the site to its original condition based on past abandonment and restoration costs for similar wells. These costs are expected to be incurred between and 2083. (b) Other Provisions Other provisions include an amount of Sk 2 498 million ( : Sk 3 069 million) for various litigation and potential disputes. Refer also to Note 28. 17. TRADE AND OTHER PAYABLES Payables for gas purchases 3 065 5 190 Other trade payables and accruals 2 689 2 837 Amounts due to Group undertakings 102 115 Social security and other taxes 1 024 1 160 Total 6 880 9 302 18. REGISTERED CAPITAL At and, share capital represented a total number of 52 287 322 fully paid shares (with a nominal amount of Sk 1 000) held by the Fund of National Property of the Slovak Republic (51%) and Slovak Gas Holding B. V., Holland (49%). Share capital is registered in full amount. These notes are an integral part of the consolidated financial statements. 25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) In accordance with the Articles of Association, the General Assembly passes decisions with at least a voting majority of 52%. Certain cases as defined by both Slovak law and the Articles of Association require a two-thirds voting majority. 19. NON-DISTRIBUTABLE RESERVES Since 1 January, SPP is required to prepare only IFRS financial statements (both separate and consolidated). Distributable retained earnings represent retained earnings only per the separate financial statements. The Legal reserve fund in amount of Sk 11 099 million ( : Sk 9 835 million) is recorded in accordance with Slovak law and is not distributable to the shareholders. The reserve is created from retained earnings to cover possible future losses or increases of share capital. Transfers in the amount of at least 10% of current year profit (as presented in the Slovak statutory financial statements) have to be made from retained earnings until the reserve is equal to at least 20% of share capital. SPP has assessed that there are no clear rules or legislation on the potential distribution of amounts included in the revaluation reserve. SPP has taken the view that the revaluation reserve is not immediately available for distribution to the SPP s shareholders. Portions of the revaluation reserve are transferred to retained earnings for the difference between the revalued amounts and the original costs of the assets over the depreciable useful lives of the related assets. The revaluation reserve is also transferred to retained earnings if the related asset is disposed of or sold. Such transfers to retained earnings become distributable. Other funds and reserves in equity are not distributable to the SPP s shareholders. 20. STAFF COSTS Wages, salaries and bonuses 2 585 2 777 Social security costs (Note 27) 784 868 Other social security expenses and termination fee 525 276 Total staff costs 3 894 3 921 21. INCOME FROM INVESTMENTS Interest income 1 015 673 Profit/(Loss) on disposal of investments 253 (30) Derivatives 439 (394) Dividends 128 104 Other - - Total income from investments 1 835 353 22. FINANCE COSTS Interest from discounting environmental provisions 58 157 Foreign exchange rate differences loss/(gain) (Note 23) 48 85 Other (149) 51 Total finance costs/ (income) (43) 293 These notes are an integral part of the consolidated financial statements. 26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 23. FOREIGN EXCHANGE RATE DIFFERENCES Foreign exchange rate losses (gains) arising from: - Operating activities 398 293 - Financing activities (Note 22) 48 85 Total foreign exchange rate losses (gains) 446 378 24. TAXATION 24.1 Income Tax Expense The income tax charge comprises the following: Current tax charge 6 892 5 493 Share of taxation attributable to associates and joint ventures 561 488 Deferred tax charge (Note 24.2): - current year (1 627) 282 - effect of change in tax rate - - Total 5 826 6 263 The reconciliation between the reported income tax expense and the theoretical amount that would arise using the standard tax rates is as follows: Profit before taxation 30 917 28 142 Income tax at 19% 5 874 5 347 Tax effect of: - non-taxable income (262) (433) - expenses not deductible for tax purposes 151 1 005 Other adjustments 63 344 Effect of change in tax rate on deferred tax - - Income tax charge for the year 5 826 6 263 Expenses not deductible for tax purposes and income not taxable include primarily provisions for various litigation and provisions for assets. The financial years from 2001 to are still open to inspection by the tax authorities. 24.2 Deferred Income Tax The following are the major deferred tax liabilities and assets recognized by the Group, and the movements thereon, during the current and prior reporting periods: These notes are an integral part of the consolidated financial statements. 27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) At 1 January Debit to equity for the period (Charge) credit to profit for the period Difference between tax and accounting depreciation (518) - (274) (792) Unrealised foreign exchange gains and losses (56) - 55 (1) Items adjusting tax base only when paid (64) - 14 (50) Provisions 475-26 501 Provisions to receivables 447 - (189) 258 Impairment loss 360-23 383 Other (15) - 63 48 Total 629 - (282) 347 At 1 January Debit to equity for the period (Charge) credit to profit for the period Difference between tax and accounting depreciation (792) - 508 (284) Revaluation of properties - (27 780) 1 188 (26 592) Unrealised foreign exchange gains and losses (1) - 1 - Items adjusting tax base only when paid (50) - 31 (19) Provisions 501 - (30) 471 Provisions to receivables 258-100 358 Impairment loss 383 47 (225) 205 Other 48-89 102 Total 347 (27 733) 1 627 (25 759) Compliant to the accounting policy of the group, certain deferred tax assets and liabilities were mutually offset. Following table shows the amounts of deferred tax recognised on balance sheet: Deferred tax asset - 682 Deferred tax liability (25 759) (335) Total (25 759) 347 25. EARNINGS PER SHARE Earnings per share are calculated using net profit attributable to shareholders of SPP divided by the weighted average number of shares issued and outstanding during the accounting period. During a dividend of SKK 380 per share was approved for the year (in : SKK 369 per share for the year 2004). 26. CASH GENERATED FROM OPERATIONS Operating profit 27 695 26 852 Adjustments for: Depreciation and amortization 7 831 4 695 Provisions and other non-cash items (723) 2 715 Impairment loss 3 540 (49) Release of deferred income (12) (233) Profit/(loss) from sale of financial investment (375) - Profit/(loss) from sale of property (36) 231 (Increase)/decrease in receivables and prepayments 2 001 (7 864) (Increase)/decrease in inventories (2 170) (1 105) Increase/(decrease) in trade and other payables (2 078) 1 961 Cash generated from operations 35 673 27 203 These notes are an integral part of the consolidated financial statements. 28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Non-cash transactions Main non-cash items include depreciation and amortization, provisions for legal cases and disputes, unrealised foreign exchange differences from translation of balances denominated in foreign currencies at the balance sheet date and write off of receivables. 27. GOVERNMENT SOCIAL SECURITY AND PENSION SCHEMES The Group is required to make contributions, amounting to 35.2% of salary bases as determined by the Law, up to a maximum amount ranging from Sk 20 40 thousand per employee depending on the type of insurance. The employees contribute a further 13.4% of the relevant base up to the above limits. 28. COMMITMENTS AND CONTINGENCIES Capital expenditure commitments At, capital expenditure of Sk 2 269 million ( : Sk 114 million) had been committed under contractual arrangements but not recognized in the consolidated financial statements. Gas Supply and Transmission More than ninety nine percent (99%) of the Group s natural gas supply comes from the Russian Federation. During 1997, SPP signed a long-term agreement for the supply (with take or pay conditions) and transmission of natural gas (with ship or pay conditions) through the Slovak Republic with the Russian exporter of natural gas, Gazprom export. This contract secures the utilization of SPP s pipelines in accordance with the transmission capacity needed by Gazprom export for its long-term export contracts already concluded with Central and West European buyers. The price for the purchase of natural gas is determined based on a formula which includes a base price, with adjustments made based on movements in the market price of competing hydrocarbon products. During, both SPP and Gazprom export requested a renegotiation of the price formula. As of the date of these consolidated financial statements, no agreement has yet been made in this respect and the final resolution of this matter cannot be predicted and the impact on these financial statements cannot be reasonably estimated. Gas Transmission Contracts All international transmission of natural gas by the Group is subject to long-term contracts (with ship or pay conditions). In principle, there are two types of contracts (as explained below) in which the Group acts as a carrier for Gazprom export s sales and deliveries of natural gas to East, Central and West European buyers under long-term contracts: a) The terms of contract between Gazprom export (a subsidiary of Gazprom) and foreign buyers specify the Slovak/Ukraine border as point of delivery. In this case the Group enters into an agreement with and receives transmission fees directly from the foreign buyer. b) The terms of contracts between Gazprom export and foreign buyers specify points of delivery that are located on or beyond the western border of Slovakia. In this case the Group enters into a contract with Gazprom export for transmission of natural gas and the Group receives its transmission fees directly from Gazprom export. This type of contract represents the major portion of gas transmission revenues. Receivables due from Gazprom export are netted off with liabilities for the natural gas purchased for domestic sales. The excess in terms of the value of natural gas delivered against fees due to the Group is paid in cash. Under the gas transmission agreements, customers are required to supply SPP with natural gas to compensate (among other things), for energy costs at compressor stations. SPP records the total amount for natural gas received, net of natural losses, as other revenues. These notes are an integral part of the consolidated financial statements. 29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Gas Storage Contracts The Group stores natural gas at three storage locations in Slovakia and the Czech Republic. The gas storage facilities are operated by NAFTA and related parties for injection and extraction of natural gas based on seasonal demand. Storage fees are agreed up to final maturity of the contracts. The storage fee is primarily based on rented capacity per year and annual price indices. Gas Sales Contracts Sales of natural gas to large industrial customers with sales volume over 15 million m 3 are subject to both short and long-term contracts (with fixed capacity payment conditions). Taxation The Group has significant transactions with a number of its subsidiaries, associates, shareholders and other related parties. The tax environment under which the Group operates in the Slovak Republic is dependent on the prevailing tax legislation and practice, which are relatively undeveloped and with little existing precedent. As the tax authorities are reluctant to provide official interpretations with respect to the tax legislation, there is an inherent risk that the taxation authorities may require, for example, transfer pricing or other adjustments of the corporate income tax base. Corporate income tax in Slovakia is levied on each individual legal entity and, as a consequence, there is no concept of Group taxation or relief. The Tax Authorities in the Slovak Republic have broad powers of interpretation of tax laws which could result in unexpected results of tax examinations. The amount of any potential tax liabilities related to these risks cannot be estimated. Litigation and Potential Losses The Group is involved in a number of legal cases including: disputed bills of exchange, alleged breaches of contracts and purchase of securities for significant amounts. In addition to the bills of exchange and legal cases described below, the Group is also involved in other litigation arising in the normal course of business that is not expected, either individually or in the aggregate, to have a significant adverse effect on the accompanying consolidated financial statements. Bills of exchange Management of the Group became aware of bills of exchange that were allegedly signed by a former General Director of SPP. SPP has announced publicly that it will challenge any such bills signed by the former General Director in a court of law on the grounds that such bills represent fraudulent acts and are not related to any contractual agreements to which SPP is a party. Fourteen (14) bills of exchange in the total amount of Sk 4 867 million are currently in various stages of legal proceedings at courts in the Slovak and Czech Republics. In two of these cases, involving a total amount of Sk 1 520 million for two bills of exchange, the court has announced a ruling in SPP s favour. The other parties have appealed this ruling. The other cases for the remaining 12 bills of exchange have not yet been decided by the courts. Management of SPP, on the advice of legal counsel, is determined to defend the Group in these cases to the final instance of the law. SPP has recorded a provision for potential loss in relation to certain bills of exchange. The amount of the provision has not been separately disclosed as Management of SPP believes this could seriously prejudice the position of SPP in the dispute. These consolidated financial statements do not include any other provision for potential loss in relation to bills of exchange, if any, as the final outcome of the remaining cases is uncertain and cannot be currently predicted. Other legal cases and disputes SPP is a defendant in other legal cases or disputes in respect of the following: 1. Alleged breaches of contracts for significant amounts, 2. A legal case for a significant claim for damages allegedly suffered in relation to purchase of shares, 3. A legal case relating to loan repayments of a subsidiary. The consolidated financial statements include a provision for certain of these cases that has been calculated using available information and assumptions for the possible outcome of the respective legal cases or disputes. The final amount of any potential losses in relation to the legal cases for which SPP has created a provision is not known and may result in a material adjustment to previous estimates. In respect of legal cases and disputes for which SPP has not created a provision, Management of SPP on the advice of legal counsel believes that the final outcome is uncertain and therefore the consolidated financial statements do not include a provision for potential losses, if any, in respect of such legal cases or disputes. These notes are an integral part of the consolidated financial statements. 30

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) The amounts of the provisions and other information relating to these individual legal cases and disputes have not been separately disclosed as Management of SPP believes this could seriously prejudice the position of SPP in the disputes. During, a dispute with a transmission customer was finalized and during, a legal case for damages suffered in relation to purchase of shares was finalized. During, another dispute related to indemnity was finalized through an out of court settlement. SPP had previously created a provision in relation to these cases. Liberalization of the Slovak Energy Sector Regulation framework on the natural gas market in Slovak Republic The Slovak Republic issued a new energy law became effective 1 January. Under this original energy law, the market for natural gas is substantially liberalized so that there may be new suppliers of natural gas and companies in Slovakia will be able to freely choose their supplier of natural gas. Under the original energy law, households should be able to choose their own supplier of natural gas from July 2007. According to this law, SPP carried out its legal unbundling process. Since 1 July, SPP - preprava, a.s. and SPP - distribúcia, a.s. as the transmission system and distribution system operators are obliged to allow non-discriminatory access to any natural gas supplier or shipper in Slovakia. The tariffs for access and distribution and transmission of natural gas are subject to price regulation from the Regulatory Office for Network Industries (RONI). SPP believes that currently there are uncertainties caused by the absence of historical market data in a liberalized environment in Slovakia. The impact of the new energy sector liberalization on the Group is not yet known, except for the impact of the legal unbundling process as described in Note 1.3. Changes in the regulatory laws and policy In February 2007, the Parliament of the Slovak Republic passed an amendment of the Act on regulation in network industries, that would be effective since 15 March 2007. The amendment significantly changes the authority and execution of regulation in network industries by regulator (RONI). A draft Decree of RONI on the price regulation in the industry, on the method of execution, the scope and structure of eligible costs, the determination of a fair profit margin and on supporting documents for tariff setting is in the review process currently. The draft Decree also deals with the regulation for the access and distribution of gas for regulated entities with the volume of off-take points greater than 100 000 m3. SPP is currently analyzing the possible impact of the new legislation. Unbundling Refer to Note 1.3 on the SPP s restructuring process. Emission Rights During, the European Union-wide greenhouse gas emission rights trading scheme came into effect together with the Act on Emission Rights Trading passed by the Slovak Parliament in order to implement the related EU Directive in Slovakia. Under this legislation, SPP is required to deliver emission rights to the Slovak Environmental Office to offset actual greenhouse gas emissions. SPP has opted to record emission rights received at a nominal amount and does not record any liability for actual emissions on the basis that SPP has received adequate emission rights to cover its actual emissions. SPP has an obligation to deliver emission rights for actual emissions. This obligation was satisfied by delivering emission rights by 30 April for the compliance period. SPP has received emission rights in February for the compliance period. During, SPP sold a portion of its of emission rights. These notes are an integral part of the consolidated financial statements. 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 29. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments comprise the following: Non-qualifying hedges Deferred tax Total, net Balance at 1 January 565 (65) 500 Movement recorded in the statement of profit and loss (555) 63 (492) Purchase options 49-49 Balance at 59 (2) 57 Movement recorded in the statement of profit and loss (31) (4) (35) Movement recorded in the equity - - - Purchased options 4-4 Balance at 32 (6) 26 Included in balance sheet: Other current assets 34 Other current liability (2) Balance at 32 Unrecognised Embedded Derivative Instruments SPP executed long-term contracts for the transmission of natural gas denominated in both USD and EUR. Transmission contracts denominated in EUR represent the currency of the primary economic environment in which a substantial party to the contracts operate and therefore such contracts are not regarded as a host contract with an embedded foreign currency derivative under the requirements of IAS 39. Hence, in accordance with IAS 39 (as revised in December 2003), the Group does not recognize the embedded derivatives separately from the host contract. Transmission contracts denominated in USD represent the currency that is commonly used in contracts to purchase or sell non-financial items in the economic environment of the Slovak Republic in respect of business relations with external parties. Hence, in accordance with IAS 39 (as revised in December 2003), the Group does not recognize the embedded derivatives separately from the host contract. The Group executed a long-term contract for purchases of natural gas denominated in USD. USD is the currency commonly used in international commerce for trading in natural gas. Both the economic characteristics and risks of embedded forward (USD to Sk) derivative instruments, and natural gas prices are generally believed to be closely related with the economic characteristics and risks of the underlying purchase agreements. Hence, in accordance with IAS 39 (as revised in December 2003), SPP does not recognize the embedded derivatives separately from the host contract. The Group has assessed all other significant contracts and agreements for embedded derivatives that should be recorded. The Group has concluded that there are no embedded derivatives in these contracts and agreements that are required to be valued and recorded as at and under the requirements of IAS 39 (as revised in December 2003). Hedges Accounted for as Trading Instruments To decrease risks resulting from fluctuations in both foreign currency exchange rates and interest rates, the Group uses the following financial derivatives: Forward and option currency contracts Forward and option currency contracts were executed to hedge risks from fluctuations in foreign currency exchange rates with regard to particular transactions. SPP executes such contracts to manage risks arising from ordinary business transactions. As at the fair value of the open forward currency contracts and the option currency contracts was recorded in receivables and prepayments in the amount of Sk 34 million and in other current liabilities in amount of Sk 2 million ( : Sk 70 million in receivables and prepayments and Sk 11 million in other current liabilities) with a corresponding entry in income from other investments. Commodity swaps Commodity swaps are concluded to hedge the risk of future changes in natural gas prices. Non classified hedging includes commodity derivatives that are designated to hedge commodity risk of oil and gas. There were no open commodity swap derivative contracts as at and. These notes are an integral part of the consolidated financial statements. 32

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 30. RELATED PARTY TRANSACTIONS Slovak Gas Holding (an indirect joint venture between Gaz de France and E.ON Ruhrgas) exercises management control over SPP with a 49% shareholding. SPP is ultimately owned by the Slovak Fund of National Property with a 51% shareholding. During the year, the Group entered into the following transactions with related parties who are not consolidated entities in the consolidated financial statements: Sales Creation/ (reversal) of provisions for receivables Purchases Dividends Other Amounts owed by related parties Provisions for receivables Amounts owed to related parties Slovak Gas Holding - - - 9 730 - - - - Fund of National Property - - - 10 127 - - - - Unconsolidated subsidiaries 8-75 - 30 - - 11 Associates - - - - - - - - Joint ventures 374-1 247-1 49 13 118 Other related parties 6 538-1 128-230 500 482 95 Management considers the transactions with related parties have been conducted on normal commercial terms. Transactions with Slovak Gas Holding and the Fund of National Property represent dividend payments. Transactions with joint ventures represent services related to natural gas. Transactions with unconsolidated subsidiaries, associates and other related parties represent mainly services related to purchases and sales of natural gas, management advisory services and other services. Sales Creation/ (reversal) of provisions for receivables Purchases Dividends Other Amounts owed by related parties Provisions for receivables Amounts owed to related parties Slovak Gas Holding - - - 9 453 - - - - Fund of National Property - - - 9 838 - - - - Unconsolidated subsidiaries 8-100 - 4 222 222 9 Associates - - - - - - - - Joint ventures 287-1 407-1 69 13 114 Other related parties 2 924-744 - 542 1 147 500 228 These notes are an integral part of the consolidated financial statements. 33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) Compensation of directors and other members of executive management during the year was as follows: Remuneration for services as members of Board of Directors, Supervisory Board and executive management 180 143 Benefits in kind as members of Board of Directors and executive management 3 2 31. SUPPLEMENTAL INFORMATION TO COMPLY WITH OTHER STATUTORY REQUIREMENTS FOR CONSOLIDATED FINANCIAL STATEMENTS (a) General information Identification number (IČO) 35 815 256 Tax identification number (DIČ) 2020259802 For principal activities refer to Note 1. (b) Unlimited guarantee SPP has not provided any unlimited guarantee to any other company. (c) Legal basis for preparing consolidated financial statements These consolidated financial statements of SPP as at are prepared in accordance with Article 22 of Act 431/2002 Coll. on Accounting as amended. They were prepared for the accounting period from 1 January to. (d) Employees For details, see Note 1.4. (e) Consolidated financial statements SPP submits consolidated financial information as a consolidated reporting entity to both E.ON Ruhrgas International AG with its seat at Huttropstrase 60, 45138 Essen, Germany, and to Gaz de France with its seat at 23, rue Philibert Delorme, 75840 Paris Cedex 17, France. SPP also prepares consolidated financial statements for its group of companies. Refer to Note 7 and 8 for details on these affiliated companies. Summary financial information of SPP from its separate and consolidated financial statements is published in the Slovak Commercial Journal. The separate and consolidated financial statements of SPP are available at its seat in Bratislava, Mlynské Nivy 44/a, and are filed with the Commercial Register of Bratislava 1 District Court, Záhradnícka 10, 811 07 Bratislava. The separate and consolidated financial statements of subsidiaries, joint ventures and associated undertakings are available at the relevant Court Registers based on their official address. For more details on the group structure refer to Notes 1, 5 and 7. For information on entities, in which SPP has a majority ownership interest that have not been consolidated, refer to Note 8. These notes are an integral part of the consolidated financial statements. 34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) (f) Members of the Company s bodies Body Function Name Board of Directors Chairman Ing. Philippe Boucly from 01.01. until 30.06. chairman, from 01.07. member Chairman Dipl. Ing. Dipl. Kfm. Jan Massmann from 01.07. chairman, from 01.01. until 30.06. member Vice-Chairman Ing. Štefan Czucz Member Ing. Juraj Horváth Member Ing. Rastislav Kupka until 16.01. Member Dipl. Econom Bernd Wagner Member Ing. Robert Zadora Member Ing. Miloš Kyselica from 16.01. Supervisory Board Chairman Prof. Ing. Peter Baláž PhD. until 16.01. Chairman RNDr. Miloslav Jelenský from 16.01. Vice-Chairman Dr. Ulrich Schöler until 30.06. Vice-Chairman Ing. Jean-François Carriére from 01.07. Member Ing. Rudolf Kvetán until 16.01. Member Doc. Ing. Nikolaj Ponevský PhD until 16.01. Member Ing. Jozef Kojda Member Ing. Pavol Hric Member József Solymos Member Ing. Eva Michalová Member Ing. Peter Kováč Member Alena Bakanová Member Mgr. Július Kázsmér Member Ing. Richard Vadkerty Member PaedDr. Jaroslav Suchý from 16.01. Member Mgr. Juraj Krišťák from 16.01. Executive Management General Director Ing. Miroslav Lapuník Director of Transit Division Ing. Pavol Janočko until 30.06. Director of Distribution Division Ing. Kazimír Kmeť, CSc. until 30.06. Director of Gas Trade Division Ing. Dušan Randuška MBA Director of Economy & Finance Ing. Libor Briška Division Director of Human Resources JuDr. Viera Ottová Division Director of Information Technology Division Ing. Stanislav Hodek Director of Services and Central Ing. Vladimír Kostelný Functions Division Director of Asset Division Ing. Rastislav Bráblik (g) Shareholders structure and their shares in registered capital Refer to Note 18. (h) Compensation and benefits in kind of members of statutory, supervisory and other bodies of the company Refer to Note 30. These notes are an integral part of the consolidated financial statements. 35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) (i) Type and amount of insurance for property, plant and equipment and intangible assets Insured object Buildings, halls, structures, machines, equipment, fittings & fixtures, lowvalue TFA, other TFA, works of art, inventories Movables, assets, inventories Motor vehicles Type of insurance Net book value of insured assets Insurance of assets 46 876 51 078 Insurance of assets 679 679 Motor vehicle insurance against damage, destruction, theft Name and seat of the insurance company Allianz-Slovenská poisťovňa, a.s. Kooperativa, a.s., ČSOB Poisťovňa, a.s. Allianz-Slovenská poisťovňa, a.s. Kooperativa, a.s., ČSOB Poisťovňa, a.s. 1 806 1 892 Allianz-Slovenská poisťovňa, a.s. (j) Property, plant and equipment not registered in the land register The Group records property, plant and equipment in use, but not yet registered in the Slovak land register, in the amount of SKK 14 343 thousand (data only for SPP a.s.). (k) Liabilities secured by lien or by other form of guarantee Tatra banka, a.s., issued a bank guarantees totalling Sk 10 000 thousand for other liabilities to customs offices (data only for SPP a.s.). (l) Social Fund payables Amount Opening balance as at 1 January 33 Total creation: 35 from expenses 31 from profit 4 Total drawing: (21) disability benefits - personal jubilee benefits (1) employment jubilee benefits (4) catering allowance (10) Other (6) Closing balance as at 47 (m) Payables within and after maturity As at, group records payables within maturity of SKK 6 771 million and payables after due date are in the amount of SKK 109 million. (n) Equity For more details refer to Note 18. These notes are an integral part of the consolidated financial statements. 36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Millions of Sk) 32. POST BALANCE SHEET EVENTS (a) Changes in energy legislation Refer to Note 28 for further details on changes in the energy legislation in Slovakia. Prepared on: 21 March 2007 Signature of a member of the statutory body of the reporting enterprise or a natural person acting as a reporting enterprise: Signature of the person responsible for the preparation of the financial statements: Signature of the person responsible for bookkeeping: Approved on: 29 May 2007 Dipl. Ing. Dipl. Kfm. Jan Massmann Chairman of Board of Directors Ing. Libor Briška Director of Economics and Finance Division Ing. Miroslav Jankovič Director of Accounting and Taxes Section JUDr. Anton Novák Vice-Chairman of Board of Directors These notes are an integral part of the consolidated financial statements. 37

SPP, a. s., 2007 SPP, a. s., Mlynské nivy 44/a, 825 11 Bratislava, Slovak Republic, www.spp.sk Design: Mayer/McCann Erickson, s. r. o.