AB KAUNO ENERGIJA

CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 PREPARED ACCORDING TO INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION PRESENTED TOGETHER WITH INDEPENDENT AUDITOR'S REPORT

EI FRNST & YOUNG

UAB "Ernst & Young Baltic" Subačiaus g. 7 LT-01127 Vilnius Lietuva Tel.: (8 5) 274 2200 Faks .: (85) 274 2333 [email protected] www.ev.com/It

Juridinio asmens kodas 110878442 PVM mokėtojo kodas LT108784411 Juridinių asmenų registras

Ernst & Young Baltic UAB Subačiaus St. 7 LT-01127 Vilnius Lithuania Tel .: +370 5 274 2200 Fax: +370 5 274 2333

[email protected]

www.ev.com/It

Code of legal entity 110878442 VAT paver code LT108784411 Register of Legal Entities

Independent auditor's report to the shareholders of AB Kauno Energija

Report on the Financial Statements

We have audited the accompanying 2008 financial statements of AB Kauno Energija, a public limited liability company registered in the Republic of Lithuania (hereinafter the Company), and the consolidated financial statements of AB Kauno Energija and subsidiary UAB Pastaty Priežiūros Paslaugos (hereinafter the Group), which comprise the balance sheets as of 31 December 2008, the statements of income, changes in equity and cash flows for the year then ended, and notes (comprising a summary of significant accounting policies and other explanatory notes).

Management's Responsibility for the Financial Statements

The Company's management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, as adopted by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as set forth by the International Federation of Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the rnal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well at no the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of AB Kauno Energija and the Group as of 31 December 2008, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Report on Other Legal and Regulatory Requirements

Furthermore, we have read the accompanying Consolidated Annual Report for the year ended 31 December 2008 and have not noted any material inconsistencies between the financial information included in it and the financial statements for the year ended 31 December 2008.

UAB ERNST & YOUNG BALTIC Audit company's licence No. 001335

Jonas Akelis Auditor's licence No. 000003 President

The audit was completed on 3 March 2009.

JSC "KAUNO ENERGIJA" CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008

1. Period under review for which consolidated annual report is prepared	5
2. Companies composing the group of companies and their contact data	5
3. The nature of the main activity of the companies composing the group of companies	5
4. The agreements of Issuer with finance broker companies and (or) credit institutions	5
5. Trade in securities of the companies, forming the group of companies, in regulated markets (the name of regulated market, the amount of securities included into trade)	6
6. Objective review of companies group state, activity and development, characterization of main risk types and indetermination with which there is confrontation	6
7. The analysis of the companies group financial activity results, information related to the
environment and personnel issues	9
8. References and additional explanations on the data presented in the annual financial report	11
9. Important events after the end of the previous financial year	11
10. The plans and forecasts of the activity of the companies group	11
11. Information on the companies group research and development activity	12
12. Information on Issuer acquired and own shares	13
13. Information on financial risk management aims, used insurance measures for main groups of foreseen agreements
for which accounting of insurance agreements is applied and scope of price risk, liguidity risk and money
flows risk of group of companies when group of companies uses financial means and when it is important in
evaluation of the property, own capital, obligations, financial state and activity results of the group of companies	13
14. Information on Issuer subsidiary and secondary enterprises	13
15. The share capital structure of the Issuer	13
16. Data on issues of the shares of the Issuer	14
17. Information about the shareholders of the Issuer	15
18. Employees	16
19. Order of changes of Regulations of the Issuer	17
20. Issuer bodies	18
21. Members of the collegiate bodies, the manager of the company, chief accountant	18
22. All important agreements of which would come into force, would change or end in case of
the change of Issuers control as well as their influence with the exception of cases of the nature of
agreements their revealing would cause damage to the Issuer	20
23. All agreements of the Issuer and members of its bodies or employees which would involve compensation in case of
their resignation or firing without grounding or if their work would end due to the changes in Issuers control	20
24. Information about major related party transactions	20
25. Information on the observance of the Governance code of the companies	21
26 Data about nuhlicly declarad information	01

(all amounts are in LTL thousand unless otherwise stated)

1. Period under review for which consolidated annual report is prepared

JSC "Kauno energija" consolidated annual report is prepared for the year 2008.

2. Companies composing the group of companies and their contact data

JSC "Kauno energija" (hereinafter - the Company or Issuer) prepares both the Company's and the consolidated financial accountability. The group (hereinafter - the Group) consists of the Company and subsidiary - closed-end company "Pastatu priežiūros paslaugos" in which the Company directly controls 100 % of the managed shares.

The main data about the Company:

Name of the company:	Joint stock company "Kauno energija"
Legal-organizational form:	Joint stock company
Address:	Raudondvario Rd. 84, 47179 Kaunas - 21
Code of the legal person:	235014830
Telephone number:	(+370 37) 30 56 50
E mail:	[email protected]
Webpage:	www.kaunoenergija.lt
Fax number:	(+370 37) 30 56 22
Registration date and place:	22 August 1997, Kaunas, Order No. 513
Register manager:	Kaunas branch of State enterprise Register Centre
VAT payer code:	LT350148314

On 17 December 2008 the registered authorized capital is LTL 119,510,292 (one hundred nineteen millions five hundred ten thousands two hundred ninely two) and is divided into 19,918,382 (nineteen millions nine hundred three hundred eighty two) ordinary registered shares of LTL 6 nominal value. 100 thousand units ordinary registered shares on 31 December 2008 are not paid.

Main data about the subsidiary:

Name of the company:	Closed-end company "Pastatų priežiūros paslaugos"
Legal - organizational form:	Closed-end company
Address:	Savanorių Ave. 347. 49423, Kaunas - 43
Telephone number:	(+370 37) 30 59 59
E-mail:	[email protected]
Webpage:	www.p-p-p.lt
Fax number:	(+370 37) 31 18 77
Registration date and place:	1 July, 2006, Kaunas
Code of the legal person:	300580563
Register manager:	Kaunas branch of State enterprise Register Centre
VAT payer code:	LT100002506015

Authorized capital amounts to LTL 6,518,000 and is divided into 65,180 ordinary registered shares of LTL 100 nominal value.

3. The nature of the main activity of the companies composing the group of companies

The nature of the main activity of the Group - production and services. JST "Kauno energija" is the parent company of the Group. The Company produces and sells heat energy to consumers in Kaunas and Jurbarkas cities and in part of Kaunas and Marijampole administrative districts. Also in small amount it produces electric energy in Kaunas city and Kaunas district. The Group and the Company caries out supervision of lodging heat and hot water supply systems, heating points equipment, carries out the supervision of building constructions and elements, cold water supply, leakage elimination and drainage systems, electricity supply system and performs maintenance works, provides services for natural and legal persons in the supervision of heat economy. The Group and the Company performs licensed activity in accordance with licenses held.

4. The agreements of Issuer with finance broker companies and (or) credit institutions

On 1 April 2003 the Issuer signed service agreement with joint stock company SEB Bankas (company code 1202123, Gedimino Ave. 12, Vilnius), represented by the Finance markets department.

5. Trade in securities of the companies, forming the group of companies, in regulated markets (the name of regulated market, the amount of securities included into trade)

The nominal value of Issuer's 19,718,382 units ordinary registered shares (VP ISIN code LT0000123010) is - LTL 118,310,292. They are included into NASDAQ OMX Vilnius Stock Exchange Baltic secondary trade list.

6. Objective review of companies group state, activity and development, characterization of main risk types and indetermination with which there is confrontation

At the end of 2008 the Group covered about 90 % of district heating market in Kaunas city, 95 % in Jurbarkas city and about 15 % of lodging heating and hot water supply systems and heat points equipment supervision market in Kaunas city. To the Company's heat supply integrated and local network were connected 2,333 enterprises, organizations and 115.939 thousand residents.

Picture 1

Distribution of the Company's heat consumers according to the groups is provided in Picture 1.

In 2008 the Group incurred LTL 4,235 thousand loss, the Company - LTL 4,343 thousand. The Group's income from the main activity amounted to LTL 205,974 thousand, the Company's – LTL 205,233 thousand. The major part of income was received from the sold heat energy: the Group's - 97.95 %, the Company's - 98.32 %.

In 2008 the Company's income from heat sale reached LTL 201,79 million and compared with 2007 increased, but this was determined by increased price. Data are provided in Chart 1.

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

Already today it can be stated that the Group's investments into the newest technologies (the automation of isolated network boiler houses, automated accounting of consumers system, distant data transfer and processing system, modern client servicing system - 'One call' principle), renewal and development of heat supply pipeline helps the Company to quickly adapt to the changes in the market and to become advanced company of heat energy supply and exploitation of engineering systems of buildings in Kaunas region.

In 2008 the Company invested LTL 27,401 thousand (from which LTL 8,592 thousand - funds from other resources commercial banks), from which LTL 2,627 thousand is allocated to connect 43 new consumers to the centralized heat supply networks, which sum capacity is 11,82 MW. In 2008 from investments funds 1.861 km new heat supply networks were laid and reconstruction and repair of 5.068 km heat supply networks was made. JSC "Kauno Energija" investments are provided in Chart 2.

Investments of JSC "Kauno Energija" in the period 2007-2008

Chart 2

(all amounts are in LTL thousand unless otherwise stated)

1. Total investments (funds from other financial resources in 2008 LTL 8,592 thousand, in 2007 LTL 10,883 thousand);
New construction and reconstruction of heat supply networks (funds from other financial resources in 2008 -2. LTL 6,155 thousand LTL, in 2007 - LTL 9,900 thousand);
1. Liquidation of group heat points (funds from other financial resources in 2008 LTL 3,964 thousand, in 2007 -LTL 3.994 thousand):
1. Production equipments (funds from other financial resources in 2008 LTL 1,199 thousand);
1. Branch "Jurbarko šilumos tinklai" (funds from other financial resources in 2008 LTL 1,200 thousand, in 2007 -LTL 982 thousand);
1. Connection of new consumers (funds from other financial resources in 2006 LTL 2,122 thousand, in 2007 -LTL 1,793 thousand).

The mission of the Company - profitable and competitive Kaunas region energy production, supply and distribution company with which its consumer will have no problems. The Company - modern, effective and friendly to the environment technology and management, positive public image of the Company.

The strategic aim of the Group is to maintain current position in the market and to expand it. Special attention to the consumer, high work quality are the main values and aims on which the Group's employees are based. In order to remain competitive in the market and to offer high quality services for the consumers it is required to constantly to improve quality and efficiency of services of heat supply and maintenance of buildings' engineering systems, to improve reliability of heat supply and to increase efficiency of energy generation.

External risk factors influencing the main activity of the Group are inflation, economical crisis, unfavourable governmental laws and orders, local self-government decisions, price policy.

Economic factors. The Company covers the main heat supplier position in the Kaunas region. In order to maintain it, it is important to adapt to the changing energy supply conditions, to further implement modern and efficient technologies, to provide quality service to the consumers.

The Company's sales depend on heat energy consumption, which directly depends on heat need, which is determined by average outdoor temperature of heating season, on consumers into heat saving and rational consumption and on the speed of heat market development. The dynamics of connections and disconnections is provided in Table 1.

Table .

Capacity, MW	2004	2005	2006	2007	2008	2004-2008
Consumers disconnections	7.31	5.09	2,457	1.46	1.94	18.73
Consumers connections	9.41	18.4	22.7	11,58 - 11,58	11.82	73.91

During the connection of new consumers, attention is paid to heat supply development possibilities. The reconstruction of buildings and their insulation reduce buildings heat needs and consumers for the rational heat consumption by controlling lodgings temperature can reduce heat consumption. Now economical situation of residents buying capacity, slowing of commercial and services sector development. Bigger worsening of economical situation would make influence on consumers' solvency and on general heat supply and buildings' supervision services activity results.

Natural gas is main fuel used for genergy. Increasing prices of the fuel influence the heat and electricity energy production cost and purchase price of heat energy purchased from the closed-end company Kauno Termofikacijos Elektrinė (Kaunas Power Plant).

The competition between other gas and electricity supply compand the Company is displayed by the disconnections of the consumers from the district heating system (during 2008 - 1.94 MW) and choosing alternalive heat sources (gas, electricity or other fuel). The fuel kind is regulated by the Kaunas city council decision 'Order of the heat consumers equipment reconnections from the heat supply system and lodgings or change of building heating'.

The Group's and the Company's management structure was changed in 2004.

The activity of the Group and the Company is cyclic. During heating season (October - April) the biggest income is rendered; during non-heating season the production facilities of the Group are used partially and during this period income is the lowest, but during it the Group and the Company have to prepare for the heating season (reconstruction and maintenance works are being implemented in the heat supply networks and boiler-houses, engineering systems of the buildings).

(all amounts are in LTL thousand unless otherwise stated)

Political factors. Kaunas city municipality has the controlling package of the Company's shares and, in accordance with the laws of the Republic of Lithuania, can set certain obligatory works, heat energy supply conditions and orders to the main activity of the Group and the Company. According to the heat energy price calculation project provided by the Company the base price of the Company's supplied heat energy is determined by the State Prices and Energy Control Commission. The base price can be recalculated twice per calendar year according to the activity efficiency increase index set for particular supplier and to the correction coefficients set by the Commission: inflation, fuel prices change in sold heat and other factors. If the recalculated heat price does not differ from the valid heat prices by more than 1 % then it is possible not to change the valid price. The main shareholder is responsible for the members of the Supervisory Board, which controls the management of the Company.

Social factors. The activity of the Group is significant to many residents and companies of the Group gets claims mostly for sum of payment billed for the provided services, insufficient attention to the customers.

Technical-technological factors. The most important inside risk is caused by the heat supply systems and their current condition. Insufficient automation level in the heat production infrastructure causes greater need of handwork. Heat supply systems maintained by the Company are reconstructed using the most advanced technologies (poliurethane-foam isolated pipes, for which there is no need for ferro-concrete channels, simpler drainage system) and equipments aiming to increase the efficiency of those systems.

The Country's valid standards and acts which are coordinated with the European Union standards and acts in the field of regulation of qualitative and technical data of heat supply systems oblige the Company to into modernization of Company's asset. The economical status of the Company still condition insufficient investments into reconstruction of heat supply networks, renovation and rehabilitation of the equipment of the Group and the Company.

Ecological factors. The Group and the Company follow the requirements of the Helsinki Commission (HELCOM) and the Helsinki Convention for environmental limitations for the emissions of combustion products. The main pollution sources are the pollution of the atmosphere - organic fuel burning, water pollution. The Group and the Company pays taxes for the atmosphere and water pollution every quarter. According to the Lithuanian Republic laws fines are paid if the allowable norms of permitted pollutions and yearly limits have been exceeded. The main aims of the Company for the reduction of pollutants emission of the heat transfer losses through the installation of pipes with the poliurethane-foam insulation of the new technological equipment and improvement of existing ones, the use of more environmental friendly fuel and constant monitoring of the balance of the fuel natural gas dominates - 88 %, heavy fuel oil - 0.1 %, peat - 7 %, biogas - 3 %, wood residues - 2 %).

The repayment of the bank loans: Detailed in JSC "Kauno Energija" consolidated and the Company's financial statements for the year 2008, Note 12 in the explanatory notes. The Company repays loans in the determined time.

Trials: There are no trials influencing the activity of the Company.

7. The analysis of the companies group financial and non-financial activity results, information related to the environment and personnel issues

In 2008 the Company did not implement activity program because the changes of the planned activity results for the year 2008 were influenced by the decrease of sales amount caused heat demand, which was conditioned by the higher heating season average outdoor temperature. Larger conditioned by higher than forecast heat purchase price from independent producer closed-end company Kauno termofikacijos elektrine.

(all amounts are in LTL thousand unless otherwise stated)

							Table 2
No.	Index title	Company's 2006	Group's 2006	Company's 2007	Group's 2007	Company's 2008	Group's 2008
1	Net profitability, % (net profit /sales and services)*100	5.1	3.21	-5.1	-5.03	-2.1	-2.1
2	Return on tangible asset, % (net
	profit/average value of tangible
	asset)*100	4.5	2.9	-4.0	-4.1	-2.7	-2.6
3	Debt coefficient (liability /asset)	0.35	0.35	0.41	0.41	0.52	0.53
4	Debt - ownership coefficient (liability/ownership of the owners)	0.54	0.55	0.68	0.70	1.1	1.12
5	General liquidity coefficient (short term asset /short term liability)	1.0*	1.0	0.85	0.85	0.91	0.91
	The turnover of the asset (sales and
6	services /asset	0.87	0.89	0.77	0.79	0.84	0.86
	ETBITA (profit before interest, profit
	tax, depreciation and amortization)
7	LTL thousand	29,055	25,073	12,055	12,239	16,825	16,987
8	General profitability (general profit/sales and services)*100	0.8	1.1	-6.1	-6.0	-1.1	-1.4
	Profitability from main activity (activity
9	profit/ sales and services)*100	0.8	1.1	-6.1	-6.0	-1.1	-1.4
	Ownership change (ROE) percent (net profit/average ownership of
10	owners)*100	6.8	4.4	-6.6	-6.8	-3.7	-3.7
	Asset change (ROA) percent (net
11	profit/average asset)*100	4.4	2.9	-3.9	-4.0	-1.9	-1.9
	Urgent payment coefficient ((short term
12	asset- storages)/short term liabilities)	0.8	0.8	0.75	0.75	0.84	0.84
13	Payment in cash index (cash in account and cash/short term liabilities)	0.1	0.09	0.08	0.08	0.04	0.04
	Net profit per share (net profit/average
	weighted number of the shares in
14	turnover)	0.47	0.30	-0.43	-0.43	-0.22	-0.21
15	Net profit, LTL thousand	9,360	5,907	-8,621	-8,626	-4,343	-4,235
16	Asset, LTL thousand	211,350	207,154**	219,198	215,227**	244,782	240,520
17	The owners' ownership, LTL thousand	129,633	126,180	119,770	116,312	116,627	113,277

18	The owners' ownership per share, LTL	7.0	6.8	6.6	6.4	5.9	5.7
	P/E (last market price of year share/(net profit/number of shares at
	the end of the year) price-earnings
19	ratio	9.06	14.4	-8.01	-8.0	-9.17	-9.41
20	Sales and services, LTL thousand	183,224	183,734	168,003	169,528	205,233	205,974
20.1	Heat energy	166,172	166.172	162,017	162,017	201,793	201,760
20.2	Electric energy	2,005	2,005	2,694	2,694	506	506
	The supervision of building heating and
	hot water supply systems, heating
20.3	points equipment	6,893	7,403	3,277	4,802	2,934	3,708
21	Share capital, LTL thousand	118,310	118,310	118,310	118,310	119,510	119,510
22	Relation of share capital and asset	0.56	0.57	0.54	0.55	0.49	0.50

The comparison of financial rates for the year 2008 with 2007 and 2006 is presented in Table 2.

* for the asset contribution to the subsidiary.

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

Table 3 Index Company's Group's Company's Group's Company's Group's No. Index name characterisation 2006 2006 2007 2007 2008 2008 1. Produced and purchased energy: from it supplied thousand MWh 1,821.1 1,821.1 1,710.1 1,710.1 1,631.2 1,631.2 to network 1.1. Heat energy supplied to thousand MWh 1,804 1.804 1,692.3 1,692.3 1,607.1 1,607.1 the network 1.2. Electricity energy thousand MWh 17.1 17.1 17.8 17.8 2.3 2.3 2. Sold energy thousand MWh 1,438.3 1,437.9 1,340.3 1,340.1 1,280.7 1.280.5 2.1. thousand MWh Heat energy 1.423 1.422.6 1,324.4 1.324.2 1.278.4 1.278.2 2.2. Electricity energy thousand MWh 15.3 15.3 15.9 15.9 23 2.3 3 Reconstructed heat supply m route 5,499 5,499 3,793 3,793 5,068 5,068 4. New laid heat supply route 3,275 3,275 m 2.090 2,090 1,861 1,861

The comparison of non-financial data for the year 2007 and 2006 is presented in Table 3.

The influence of the environment on the activity. The Company's activity result can be influenced by the decrease in sales caused by decrease in heat demand, which is stipulated by the higher heating season average outdoor temperature, changes of fuel prices, heat purchase price from independent producers.

After the increase of fuel prices the costs of the Company fuel technology (used for the heat generation in production sources belonging to the Group and the Company by the right of ownership) for the sold 1 kWh of hear energy in 2007, compared with 2006, increased 0.26 ct (22.8 %) and amounts to 1.40 ct, in 2008, compared with 2007, increased 0.72 ct (51.4 %) and amounts 2.12 ct. Average price of purchased heat energy in 2008, compared with 2007, increased 1.51 ct (24 %) and amounts to 7.79 ct.

The management pays large attention to the increase of efficiency of work and improvement of the consumer service. The level of qualification of the management and specialists correspond their current duties and the length of service of other employees and the knowledge of subject practice permits their work in the change of the employees is not a significant problem in the Group and the Company but some need for the qualified specialists can be identified.

8. References and additional explanations on the data presented in the annual financial report

All main financial data is presented in the collection of financial statements for the year 2008 and its explanatory notes.

9. Important events after the end of the previous financial year

Since 2006, the audit of the Company is prepared by the independent audit company. In the general shareholders meeting on 28 April 2006 closed-end company "Ernst & Young Battic" (audit company certificate No. 0001335, Subačiaus Str. 7, LT = 01008 Vilnius) has been chosen for the preparation of the audit of financial activity audit of JSC "Kauno Energija" for the period of 2006-2008.

Audit was completed on 3 March 2009. It was carried out by the auditor's licence No 000003). Audited financial statements for the year 2008 and independent auditor's report are presented together with this annual report of the Company.

There were no other important events from the end of the previous financial year until the annual report confirmation.

10. The plans and forecasts of the activity of the companies group

In the future the Group in its activity plans to increase the efficiency of activity and to improve consumer service. According to the conclusions of the work "JSC "Kauno energija" technical-economical state evaluation", prepared by closed-end company "Energetikos linijos" and recommendations provided by closed-end company "Savvin" in work "JSC "Kauno energija" financial state and structure evaluation and further development recommendations", prepared in 2008 for the development of Company's activity in 2009 it is foreseen to optimize and to make the Company's activity more efficient by changing its management structure. In addition, the Group plans to implement supervision of buildings heating and hot water supply systems, heat points supervision and exploitation of underground collectors.

Investments create a strong potential for the business development and profitability. The aim of the Group's investment programme for the year 2009 is to further develop the Company's heat production, transmission and supply through increase of heat supply reliability, development engineering systems and improvement of services quality.

In 2009 for investments it is planned to allot LTL 46.446 million (the Company plans to invest LTL 17.056 million from its own funds and LTL 29.39 million it plans to borrow from commercial banks or to receive grant from EU structural funds). The largest investments in 2009 are planned to allot to the reconstruction and repair of the heat supply networks, laying of new networks, closing of the group heating substations. For the receiving of grants from structural funds, these projects are prepared: (i) The renewal of Kaunas city heat supply networks by implementation of modern technologies (Reconstruction of heat supply networks V. Kreves Ave. 82 A...118 H, Kaunas) unique No. 1997-2035-2018. Total investments sum LTL 15.46 million (excluding VAT), foreseen EU grant of LTL 6 million; (ii) The development of centralized heat supply by building new heat track (heat supply networks from A. Juozapavičiaus Ave. 90). Total investments amount to LTL 6.54 million (excluding VAT), foreseen EU grant of LTL 3.140 million; (ii) "Kaunas city main heat supply networks 6T (unique No.1998-4014-3019) in Kuršių Str. 49C, Jonavos Str. between NA-7 and networks over bridge through Neris in auto-highway Vilnius - Klaipeda above Kaunas, complex reconstruction for the increase of reliability by implementing modern technologies". Total investments amount to LTL 5.08 million (excluding VAT), foreseen EU grant of LTL 2.384 million; (iv) Reconstruction of Kaunas city integrated network Centre main (4T). Project value amounts to LTL 14.18 million (excluding VAT), foreseen EU grant of LTL 6 million; (v) Reconstruction of Kaunas city integrated network Žaliakalnis main (4Ž). Project value amounts to LTL 9.92 million (excluding VAT), foresen EU grant of LTL 4.8 million.

In addition, it is foreseen to develop project "Distant data gathering equipment implementation works for the current and new consumers", in 2009 by implement plans it is foreseen to finish heat metering equipment and pressure sensing elements distant data gathering and implementation, which was carried out in 2008 and futher to develop these systems by installing in heat points and also to implement the modernization of boilers, condensate economizer installation in the Company's branch "Jurbarko šilumos tinkla", the changing of heat metering equipments and other important works.

Implementation of these measures will allow to reduction and supply losses and to perform optimization of heat supply to the consumers.

Index title	Company's thousand LTL	Subsidiary's thousand LTL	Group's thousand LT
Total profit (loss)	13,358	-605	12,753
Sales income	312,608	2.260	312,903
Cost	299.250	2,865	300,150
Other activity result	315	120	435
Income	1,251	120	1,347
Cost	વેરૂલી તેમ જ દૂધની ડેરી જેવી સવલતો પ્રાપ્ય થયેલી છે. આ ગામનાં લોકોનો મુખ્ય વ્યવસાય ખેતી, ખેતમજૂરી તેમ જ પશુપાલન છે. આ ગામમાં મુખ્યત્વે ખેત-ઉત્પાદની તેમ જ પશુપાલન છે. આ ગામમા	0	912
Financial investment activity result	-2,786	-8	-2,794
Income	1,200	0	1,200
Cost	3.986	8	3,994
Total profit (loss)	10,887	-493	10,394

Planned activity indexes for 2009 are presented in Table 4.

11. Information on the companies group research and development activity

In 2007 the Company signed an agreement with Kaunas University of Technology for the feasibility study "Communal waste burning in Kaunas". Data used in this study used have been in accordance with work "Waste burning feasibility project documentation" performed by the Ministry of Environment and Environment Projects Management Agency. It is strategically important for the Company to find similar new heat source, also there emerges the opportunity in Kaunas city to use alternative fuel (communal waste) and to implement the conversion of used fuel. In March 2008 additional report of the research work "Communal waste burning possibilities project's documentation was prepared.

Also by the order of the Company Lithuanian energy institute has finished scientific work "JSC "Kauno energija" heat supply system development strategy for the period 2007-2020". According to the technical tasks prepared by the Company it was evaluated technical, economical state of the Company. Mentioned state evaluations are presented in work "Evaluation of JSC "Kauno energija" technical state" prepared by closed-end company "Energetikos linijos" and work "JSC "Kauno energija" financial state and structure evaluation for further development" prepared by closed-end company "SAVVIN".

(all amounts are in LTL thousand unless otherwise stated)

12. Information on Issuer acquired and own shares

(number and nominal value of the patronized company shares, belonging to the company, its subsidiaries or by their assignment, but by their name acting persons)

The Company did not acquire its own shares. Subsidiary also did not acquire the Company and its subsidiary during the reporting period did not buy or sell their shares.

Information on financial risk management aims, used insurance measures for main groups of foreseen agreements for which accounting of insurance agreements is applied and scope of price risk, credit risk, liquidity risk and money flows risk of group of companies when group of companies uses financial means and when it is important in evaluation of the property, own capital, obligations, financial state and activity results of the group of companies

All the information on this issue is presented in Notes 2.7, 2.8, 22, 25 of the explanatory notes to the financial statements.

14. Information on Issuer subsidiary and secondary enterprises

By the decision of the Company's management the Company "Jurbarko šilumos tinklal" was established and registered on 9 September 1997, address V. Kudirkos Str. 11, 4430 Jurbarkas. In the Company heat energy is produced and sold to the Jurbarkas city consumers.

On 17 October 2007 JSC "Lietuvos dujos" implement signed in 2006 by the JSC "Lietuvos dujos", Jurbarkas district municipality and the Company for the Jurbarkas city gasification and the Company's branch "Jurbarko šilumos tinkla" boiler-house adaptation for the burning of natural gas was finished, heat production and supply reliability was increased and heat production costs were reduced. The need to burn heavy fuel oil with high content of sulphur at the same time avoiding excess of permitted pollution of the atmosphere. In 2008 the construction of new boiler, burned by gas, was completed in the branch of the Company "Jurbarko šilumos tinklai".

At the end of 2008 there were 39 employees working in the Company's branch "Jurbarko šilumos tinklai".

On 1 July 2006 subsidiary of the Company "Pastaty priežiūros paslaugos" was established. Address of subsidiary is Savanoriy Ave. 347, 49423 Kaunas - 43, company code 300580563. Its share capital amounts to LTL 6,518,000 and is divided into 65,180 ordinary registered shares of LTL 100 par value each. JSC "Kauno energija" owns 65,180 units of closed-end company "Pastatų priežiūros paslaugos" ordinary registered shares.

The activity of closed-end company "Pastaty priežiūros paslaugos" is maintenance of heat and domestic hot water supply systems and equipment of heating substations, maintenance and service of constructional elements, cold water supply, drainage, electricity supply systems in the buildings.

At the end of the year 2008 there were 56 employees working in the subsidiary of the Company.

15. The share capital structure of the Issuer

In the Enterprises register of the Republic of Lithuania the registered share capital of the Company is LTL 119,510,292.

The share capital structure of JSC "Kauno energija" according to the type of shares is presented in Table 5.

Type of shares	Number of shares, units	Par value, LTL	Total nominal . value, L.TL	Municipalities portion in the share capital, % ------------------------------------------------------------------------------------------------	Private shareholders portion in the share capital. %
Ordinary registered shares	19,918,382	6	119,510,292	96.42	3.58
Total	19.918.382*		119.510.292	96.42	3.58

Tahla 5

* 100 thousand units of ordinary shares were not paid for as of 31 December 2008.

(all amounts are in LTL thousand unless otherwise stated)

16. Data on issues of the shares of the Issuer

On 17 December 2008 the registered authorized capital is LTL 119,510,292 (one hundred nineteen millions five hundred ten thousands two hundred ninety two) and is divided into 19,918,382 (nineteen millions nine hundred three hundred eighty two) ordinary registered shares of LTL 6 nominal value. 100 thousand units of ordinary registered shares are not paid for as of 31 December 2008.

There are no restrictions for transfer of securities.

16.1. Basic characteristics of shares issued into public circulation of securities
No. of registration of stock	A01031430
Number of shares	19,718,382 ORS
Nominal value	LTL 6
Total nominal value of shares	LTL 118,310,292

The Company's security trading history is presented in Table 6.

					ിവിട ഗ
PRICE	2005	2006	2007	2008	2009
Open	1.96	4.18	4.58	3.50	2.00
High	6.30	4.67	4.95	3.80	2.00
LOW	2.01	3.05	3.10	1.70	1.41
Last	4.18	4.30	3.50	2.00	1.41
Traded, units	870,151	183,008	138,163	82,775	8,203
Turnover, million	4.19	0.70	0.55	0.261	0.01
Capitalisation, million	79.29	81.56	66.39	37.94	27.80

Share prices and turnover history is presented in Chart 2.

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

17. Information about the shareholders of the Issuer

As of 31 December 2008 total number of JSC "Kauno energija" shareholders is 353 shareholders.

Shareholders of the Issuer, who owned more than 5 % of authorized Company's capital (19,918,382 ORS), registered on 17 December 2008, as of 31 December 2008 are presented in Table 7. Table 7

The name of shareholder, surname name of the company, type, address, code)	The number of ordinary registered shares belonging to the shareholder, units	The portion 61 authorized capital, %	The portion of votes given by the ownership right belonging shares, %
Kaunas city municipality administration Laisvės Ave. 96, 44251 Kaunas Company code 188764867	16,954,892	85.12	85.12
Kaunas district municipality administration Savanorių Ave. 371, 49500 Kaunas Company code 188756386	1.606.168	8.07	8.07
Other shareholders	713,512	3.58	3.58
Jurbarkas district municipality administration Dariaus ir Girėno Str. 96, 74187 Jurbarkas Company code 188713933	643.810	3.23	3.23
Total	19,918,382	100	100

(all amounts are in LTL thousand unless otherwise stated)

17.1. Shareholders who on 31 December 2008 owned more than 5 % of shares of the Company (18,968,382 ORS) released into public circulation of securities (registration No. A01031430) are presented in Table 8.

No shareholders of the Issuer have any special control rights. Rights of all shareholders are equal, which are determined in 4 clause of Law on joint stock companies of the Republic of Lithuania. Number of shares, which grant votes during general meeting of shareholders of the Company, is 19,918,382 units.

The Company is not informed about voting rights limitation and about any shareholders mutual agreements for which could be limited the transfer of securities and (or) voting rights.

Tahlo R

Sine the establishment of the Issuer there were no dividends allotted to pay.

The name	Type of shares	Number of shares, units	Total value of shares, LTL	Amount of shares (%) from total number of released into public circulation	Share of authorized capital (%)
Kaunas city municipality administration Laisvės 96, 3000 Kaunas Company's register code 188764867	Ordinary registered shares	16 954 892	101 729 352	85,98	85,12
Kaunas district municipality administration Savanorių 371, 3042 Kaunas Company's register code 188603668	Ordinary registered shares	1 606 168	9 637 008	8,15	8.07
Other shareholders	Ordinary registered shares	713 512	4 281 072	3,62	3,58
Jurbarkas district municipality administration Dariaus ir Girėno Str. 96, 74187 Jurbarkas Company's register code 188713933	Ordinary registered shares	443 810	2 662 860	2,25	3,23
		19 718 382	118 310 292	100	100

* Number of shares of JSC "Kauno energija" released to public circulation and part of share capital in percent differs from number of shares of Isuer registered in State enterprise Register centre and from part of shares, issued into public circulation, because on 17 December 2008 100 thousand units of ordinary shares of JSC "Kauno energija" registered share capital are not paid.

18. Employees

According to the data as of 31 December 2008, there were 654 employees in the Group. The employees' number in 2008 is presented in Table 9.

						lable
Listed number of employees	Company's 31-12-2006	Group's 31-12-2006	Company's 31-12-2007	Group's 31-12-2007	Company's 31-12-2008	Group's 31-12-2008
Total	630	735	615	705	598	654
Here: managers		10		9
specialists	284	308	294	319	295	314
workers	342	417	317	377	299	334

The education of employees of the Company at the end of the period

							laure Tu
No.	Educational level	Company's 31-12-2006	Group's 31-12-2006	Company's 31-12-2007	Group's 31-12-2007	Company's 31-12-2008	Group's 31-12-2008
	Not finished secondary	27	ব	24	30	23	27
	Secondary	273	321	253	290	241	270
	College	117	132	114	135	105	110
	Higher	213	241	224	250	229	247
	Total	630	735	615	705	598	654

Average conditional number of employees and average monthly salary
(including taxes at the end of 2008)

			lable il
No.	Employees	Company	Group
1.1.	Average conditional number of managers		8
1.2.	Average monthly salary of managers	9,461.9	6,741.8
2.1.	Average conditional number of specialists	280	303
2.2.	Average monthly salary of specialists	2,731.9	2,691.5
3.1.	Average conditional number of workers	292	338
3.2.	Average monthly salary of workers	1.964.1	1.937.8

Salary of Issuer employees consists of constant salary part, extra pay and bonuses paid according to Work code of the Republic of Lithuania and other laws. Bonuses are paid from net profit if the general shareholders meeting allots profit part to pay bonuses to the Company's employees. Until 2009 the general shareholders meeting has not allotted profit part to pay bonuses to the Issuer employees.

Special rights and duties of employees of the Issuer or their part as laid in collective agreements

According to collective agreement currently effective in the Company:

For continuous record of service in the Company employees are granted with additional paid vacations:
. for worked 5 years
- 1 calendar day; 2 calendar days;
· from 6 till 10 years
· for more than 10 years 3 calendar days; 1 calendar day; . fore each further 5 years
· Record of service is treated as continuous (additional vacation days are granted) in case of employees who have been working in the companies of Lithuanian energy system and transferred into Company on the basis of employers' agreement, i.e. when transfer happened with Work Law Code or Work Contract Law in effect.
1. Employees have a right to receive additional paid vacation days:
· in case of marriage
3 calendar days; . in case of the death of close person (one of the parents of husband or wife, husband or wife, brother,
sister, daughter, son or legal foster-child) - 3 calendar days;
in case of childbirth by the wife 1 calendar day;
in case of marriage of employee's daughter, sun or legal foster-child 3 calendar days.

1. Emplover is obliged:
· to assure conditions for preventive of health of employees and in case of the need ansen rehabilitation treatment, to provide free services in health centre of the Company;
in case of employee to pay grant of two last month average salaries size, free transport or the transport. The grant is to be paid for the person who was responsible for the burial;
in case of the death of close person of employee (father, mother or husband or wife), to pay grant of one last month average Company's or branch salary size, free transport or to cover expenses for the transport;
· in case of one or more children to pay grant for employee of 50 % last month average Company or branch salary size for each child born;
in case of marriage of employee to pay grant for employee of 50 % last month average Company or branch salary size;
. for employees who are raising three or more children younger than 16 years, widower (widow) or lonely parents who are raising one or more children till 19 years old (if they are attending secondary school) or 21 year old (if they are full-time students of high school) or are caring for other members of the family with heavy or medium level of disability or lower than 55 % level of working capacity or family members of old-age pension age who have, according to the laws, appointed large or average special demand level, to pay once a year grant for employee of 50% last month average Company or branch salary size according to the date of appeal presentation;
. for employees who reached 50, 60 (in case of women even 55) years and taking into account their continuous record of service in the Company, to pay gift of last month average Company or branch salary size: for those with record of service from 1 to 10 years - 25 %, from 10 to 15 years - 37.5 %, from 15 to 20 years 50 %, and for more than 20 years - 75 %;
· in all other cases when material support is required (due to experienced casualies from other reasons independent on the employee) to pay grant up to LTL 2,000 on the agreement of the sides who signed Collective agreement;
in case of heavy sickness of employee or in case of heavy disaster, to pay grant of five last month average Company's or branch salaries size on the agreement of the sides who signed Collective agreement.

19. Order of changes of Regulations of the Issuer

The Regulations of JSC "Kauno energija" foresee that general meeting of JSC "Kauno energija" have special right to change Regulations of the Company with exceptions set in Law on stock corporations of the Republic of Lithuania. When making decision on changes of the Regulations 2/3 of votes of shareholders participating in general meeting of shareholders are required.

(all amounts are in LTL thousand unless otherwise stated)

20. Issuer bodies

According to the Regulations of JSC "Kauno energija", the management bodies of the Company are General Meeting of Shareholders, collegiate supervisory Board, collegiate management body -Management Board and individual management body - General Manager.

The decisions of the shareholders meeting made on the shareholders meeting's competence issues foreseen in the Regulations of the Company are obligatory to the shareholders, Supervisory Board, Management Board and General Manager and for other employees of the Company.

In the General Meeting of Shareholders or repeated General Meeting of Shareholders persons who at the end of the accountability day were Company's shareholders, personally, exception foreseen in the laws or their authorized persons with whom the agreement of voting right transfer are made have the right to participate and to vote. The registration day of the Company's meeting is the fifth workday before the General Meeting of Shareholders or fifth workday till repeated General Meeting of Shareholders. Person participating in the shareholders meeting and having the right to vote has to provide document testifying the identity of person. Person who is not shareholder together with document testifying the identity of person has to provide the document confirming the right to vote in the shareholders meeting.

The collegiate supervisory body - the Supervisory Board is elected by the General Meeting of Shareholders in compliance with the order foreseen in the Law on stock corporations. The Supervisory Board consists of 7 (seven) Supervisory Board members. Supervisory Board members are elected for the 4 (four) year period. Supervisory Board elects the Chairman of the Supervisory Board from its members. The General Meeting of Shareholders can recall all Supervisory Board or its members before their term of office expires. If the individual members of the Supervisory Board are elected only for the current Supervisory Board term of office.

Supervisory Board elects and recalls from their duties the members of the Management Board, supervises the activity of the Management Board and General Manager, presents opinions and suggestions for the General Meeting on the Company's activity strategy, annual financial accountability, profit and Company's annual report, also on the activity of the Management Board and General Manager, provides suggestions for the Management Board and the General Manager to recall their decisions which contradict with the laws and other legal acts, Company's Regulations or decisions of the General Meeting of Shareholders, decides on other issues which are ascribed by the General Meeting of Shareholders to the competence of Supervisory Board, Company's and its Management Bodies activity supervision issues. Supervisory Board has no right to charge or transfer its functions foreseen in the Law on stock corporations to other bodies of the Company.

Management Board is collegiate company's management body, which consists of 7 Management Board members. The Management Board for the 4 (four) years period is elected by the Supervisory Board can recall all Management Board or individual its members before their term of office expires. If the individual members are elected, they are elected only for the current Management Board term of office. The Management Board elects the Chairman of the Board from its members.

The Management Board elects and recalls the General Manager of the Company, determines his salay, other work conditions, confirms duty regulations, motivates or assigns penalties.

General Manager is the manager of the Manager of the Company is individual management body of the Company who organizes the activity of the Company's administration members and their responsibility is determined by the order of the General Manager.

21. Members of the collegiate bodies, the manager of the company, chief accountant

(duties, names and surnames, data about participation in the issuer authorized capital, term of office beginning and end of every person, information about calculated money sums of issuer per other transferred asset and provided guarantees for these persons, total and average amounts for one member of collegiate body, manager of the company, chief accountant)

21.1. Data about the members of the Company's supervisory board:

21.1.1. The members of the Company's supervisory board who's term of office begins on 30-07-2011

Jonas Koryzna. Doctor of Technical sciences. Member of Kaunas city Municipality Council. Member of City Committees of Economy and Energy. Chairman of Privatization Commision. Chairman of the Company's Supervisory Board. Vice-resident of Kaunas Hall of Commerce, Industry and Craft, member of Kaunas Rotary club. Has no shares of the Company. Has shares of FMI "Kapitalo srautai" and FMI "Baltijos vertybiniai popieriai".

Bronislovas Kutinskas. Member of Kaunas city Municipality Council, Member of City Committees of Economy, Energy and Control. Deputy Chairman of the Company's Supervisory Board. Director of Vilnius University's public institution "Regioniniy Projektų Valdymo Centras" (Regional projects management centre). Has no shares of the Company. Does not participate in the capital of other companies.

Jadze Bartašiene. Teacher-expert of physics in J. Urbšys secondary school, independent expert of Ministry of Education and Science. Has no shares of the Company. Does not participate in the capital of other companies.

(all amounts are in LTL thousand unless otherwise stated)

Pranas Paškevičius. Member of Kaunas city Municipality Council. Member of Culture, Development of Communities and Self-governance. Member of Committee of Control. Deputy Director of closed-end company "Neogena". Responsible secretary of Lithuanian Movement "Cernobilis". Has no shares of the Company. Has no shares of the Company. Has shares of closed-end companies "Siroma", "Neogena", "Nida".

Rimas Antanas Ručys. Member of Kaunas city Municipality Council, member of collegue. Deputy Chairman of Commitee of City Economy and Energy. Director of closed-end company "Ručenta". Has no shares of closed-end company "Ručenta", joint stock company "Stumbras" and joint stock company "Biofuture".

Stasys Zirgulis. Member of Kaunas city Municipality Council. Chairman of Commission for Names Conception and Memory Memorialization. Member of Anti-corruption Committee of Culture, Development of Communities and Self-governance. Teacher at Vilnius Art Academy's Kaunas Faculty. Member of Lithuanian Union of Paminters, member of Lithuanian association of Art. Has no shares of the Company. Does not participate in the companies.

Gediminas Zukauskas. Member of Kaunas city Municipality Council, Chairman of Committee of City Economy and Energy. Chief-engineer in closed-end company "Kauno vandenys". Chairman of Panemunity Center. Has no shares of the Company. Does not participate in the capital of other companies.

During the reporting period there were no count in of money sums, transfers and no guarantees given for the members of the Supervisory Board.

21.2. Data about the members of the management board

Data about the members of the management board :

Vytautas Mikaila. Doctor of Technical sciences. Director of closed-end company "MVE group". From 16 December, 2008 Chairman of the Company's management board. From 02-02-2009 Consultant of General Manager on Strategy at Company. Has no shares of the Company. Has 55 % of closed-end company "MVE group" shares.

During the reporting period the member of the Management board did not receive any payments (salary, bonuses) or guaranties, no property transfers were made or occurred.

The beginning of the term of Office 03-12-2008, end 30-04-2011.

Raminas Gatautis. Doctor of Technical sciences, Lithuanian Energy Institute, Laboratory of Energetics complex research. 01-08-2008 - 30-01-2009 - Consultant of General Manager on Strategy at Company. From 02-02-2009 -Deputy of Administration Director, Kaunas city municipality. Chaiman of the Management Board at Company till 15-12-2008. Member of International energy economists association. Has no shares of the Company. Does not participate in the capital of other companies.

During the reporting period for the member of Management board there was counted payment (salary) amounting to LTL 40 thousand, no bonuses or guarantees granted, no property transfers were made or occurred. The beginning of term of office 27-11-2007, end 30-04-2011.

Algirdas Vaitiekūnas. Head of Energy Sector Department, City Economy Department, Kaunas city municipality. Deputy Chairman of the Management Board of Company. Has no shares of the Company. Does not participate in the capital of other companies.

During the reporting period the member of the Management board did not receive any payments (salary, bonuses) or guaranties, no property transfers were made or occurred.

The beginning of term of office 30-04-2004, end 30-04-2011.

Mantas Raila. Director of closed-end company RP Reklama. Chairman Sail association. Shareholder of closedend company RP reklama, has 50 units of shares, which make 50 % of authorized capital. Has no shares of the Company. During the reporting period the member of the Management board did not receive any payments (salary, bonuses) or guaranties, no property transfers were made or occurred.

The beginning of term of office 27-11-2007, end 27-01-2009.

Vykintas Suksteris. Doctor of Technical sciences. Director of closed-end company AF-terma. Member of International energy economists association, member of Lithuanian Thermotechnical Engineers Society, President of Energy Consultants. Has no shares of the Company. Does not participate in the capital of other companies.

During the reporting period the member of the Management board did not receive any payments (salary, bonuses) or guaranties, no property transfers were made or occurred.

The beginning of term of office 27-11-2007 end 30-04-2011.

(all amounts are in LTL thousand unless otherwise stated)

Eugenijus Ušpuras. Director of Lithuanian Energy Institute, professor of Thermal and Nuclear Energy, member-correspondent of Lithuanian Science Academy. Has no shares of the Company. Does not participate in the capital of other companies.

During the reporting period the member of the Management board did not receive any payments (salary, bonuses) or guaranties, no property transfers were made or occurred.

The beginning of term of office 27-11-2007, end 30-04-2011.

Juozas Marcalis. Assistant of member of Seimas of the Republic of Lithuania H. Žukauskas, engineer-supervisor of closedend company "Kauno vandenys". Has no shares of the Company. Does not participate in the capital of other companies. During the reporting period the member of the Management board did not receive any payments (salary, bonuses) or quaranties, no property transfers were made or occurred. The beginning of term of office 27-11-2007, end 30-04-2011.

Kestutis Jonatis. Lawyer, Office of Lawyer N. Katilius. Has 1,100 units of shares of closed-end company "Technobilis", which make 54.03 % of authorized capital. Has no shares of the Company.

During the reporting period the member of the Management board did not receive any payments (salary, bonuses) or guaranties, no property transfers were made or occurred.

The beginning of term of office 27-11-2007, end 01-12-2008.

21.3. Data about the Manager and Chief accountant of the Company

Rimantas Bakas. Doctor of Technical sciences. General manager of the Company from 24-11-2008. Education - higher, Kaunas university of technology, 1985, engineer of industry heat energy. Working places during last 10 years and positions held - 01-199-02-2001 company "Terma ir KO" (from 2000 closed-end company "AF - Terma"), 10-2001-02-2003 vicepresident and executive director, Lithuanian bioenergetics and energy saving association: 03-01-2001 Head of Strategy department at Company. Has no shares of the Company. Does not participate in the companies.

Aleksandras Sigitas Matelionis. General Manager of the Company during the period 27-07-2004 - 18-11-2008. Education higher, Kaunas University of Technology, 1984, heat, gas supply and cooling, profession - civil engineer. Working places during 10 years and positions held - Kaunas district heating network exploitation department - Deputy Head (02-05-1994), Company's subsidiary Kaunas district network Deputy of Director for heat supply (05-08-1997), Company's subsidiary Kaunas district network Deputy Director for heat supply (01-02-2000). Has no shares of the Company. Does not participate in the capital of other companies.

Violeta Staškūnienė. Chief financier of the Company since 27-07-2000, chief accountant since 16-01-2003. Education higher, Vilniaus University, 1984, work economy, profession - economist. Working places during 10 years and positions held: Chief Accountant of the Company's subsidiary "Kauno energijos paslaugos" (22-06-1998), Company's Deputy Chief Accountant (10-01-2000). Closed end company "Itviziia" chief accountant (1998 till 2004-04), closed-end company "Energios realizacijos centras" chief accountant (01-2003 till 06-2004). Has 2,641 units of the Company's shares, which make less than 5 % of the authorized capital. Does not participate in the capital of other companies.

During 2008 total remuneration for the General Manager and Chief Accountant amounted to LTL 355,9 thousand, average per person - LTL 177,9 thousand; no other assets have been transferred, no guarantees provided.

22. All important agreements of which Issuer is a part and which would come into force, would change or end in case of the change of Issuers control as well as their influence with the exception of cases when because of the nature of agreements their revealing would cause damage to the Issuer

None.

All agreements of the Issuer and members of its bodies or employees which would involve compensation in case of their resignation or firing without grounding or if their work would end due to the changes in Issuers control

None.

24. Information about major related party transactions

There have been no distinct major transactions. Detailed information is presented in Note 20 of explanatory notes to the financial statements.

(all amounts are in LTL thousand unless otherwise stated)

25. Information on the observance of the Governance code of the companies

Information on the observance of the Governance code of the companies is presented in Annex 1 of the annual report.

26. Data about publicly declared information

During the last 12 months, the Issuer declared information presented bellow through OMX news publication system in all European Union as it is the Issuers duty according market of securities. This information has also been put into the internet website of the Issuer. All information can be received through Vilnius Stock Exchange internet website (http://www.baltic.omxgroup.com/?id=3304) and internet site of the Issuer (http://www.kel.lt/lt/?id=348).

Information declared during 2008:

29-01-2008 Preliminary results of JSC "Kauno energija" activity for the year 2007;
07-03-2008 JSC "Kauno energija" general shareholders meeting;
· 20-03-2008 Annual report, financial statements and draft resolutions of the ordinary general meeting to be held on 28 April 2008 ;
28-03-2008 The change of JSC "Kauno energija" general shareholders meeting agenda;
16-04-2008 The modification in agenda of JSC "Kauno energija" general shareholders meeting;
29-04-2008 The Decisions of the general shareholders meeting;
29-04-2008 I quarter activity results of the year 2008 and intermediate Financial statements for the I quarter;
23-05-2008 Concerning basic prices of district heating;
23-05-2008 Convention of JSC "Kauno energija" uncommon shareholders meeting and decisions projects;
· 28-06-2008 The Decisions of the uncommon shareholders meeting of the JSC "Kauno energija":
In the uncommon general shareholders meeting of JSC "Kauno energija" on 26 June 2008 the following decisions were taken:
1. Agenda question Concerning the increase of JSC "Kauno energija" share capital by additional monetary contributions. To increase the share capital of joint stock company "Kauno energija" up to LTL 1,200,000 (from LTL 118,310,292 up to LTL 119,510,292) by additional monetary contribution made by Jurbarkas district municipality (code 111106276, Darius and Girenas str. 96, 74187 Jurbarkas), paying by it 200,000 (two hundred thousand) units issued ordinary named LTL 6 par value shares of the Company, which emission price is equal to the shares nominal value.
1. Agenda question Concerning the cancellation of priority right for all shareholders to acquire newly issued shares of JSC "Kauno energija". To cancel the priority right for all shareholders to acquire newly issued 200,000 (two hundred thousand) units ordinary named LTL 6 (six) nominal value shares of the JSC "Kauno energija", aiming to increase the investments of JSC "Kauno energija" branch "Jurbarko šilumos tinklai", by giving the right to acquire these shares for the budget institution Jurbarkas district municipality, code 111106276, Darius and Girenas.
1. Agenda question Concerning the change of JSC "Kauno energjia" regulations and the authorization to sign them. To change the regulations of the JSC "Kauno energija" and to authorize general director A. S. Matelionis of the JSC "Kauno energija" to sign the changed text of JSC "Kauno energija" regulations.
29-07-2008 intermediate information on JSC "Kauno energija" activity 6 months, 2008 and information on district heating prices: The validation of JSC "Kauno energija" centralized supplied heat price, determined by the Council of Kaunas city municipality on 19 July 2007 decision No. T-398, is expanded till the coming into force day of JSC "Kauno energija" new heat base price, coordinated at State prices and energy control commission.
27-10-2008 9 months activity results of the year 2008.
30-10-2008 information on JSC "Kauno energilia" supplied heat price determination and application: JSC "Kauno energija" management board following the decision No. 03-164 on 30 October 2008 of State prices and energy control commission and protocol decision determined heat prices without value added tax:
1. monomial heat price for the used heat amount, when heat is supplied from individual heat points belonging to residents (heat consumers) - 24.29 ct/kWh,
monomial heat price for the used heat amount, when heat is supplied from the group or individual heat points 2. belonging to supplier - 25.46 ct/kWh.
These prices are applied starting from 1 December 2008.
· 17-11-2008 information on the resignation of the management board member Kestutis Jonaitis, lawyer, Lawyer N.Katilius office. On 14 November, 2008 Kestutis Jonaitis provided the statement "For the resignation from the members of JSC "Kauno energija" Management board": Kestutis resigns from the members of the Management board from 1 December 2008.
18-11-2008 information on Company's general manager. Management board of JSC "Kauno energija" decided to recall Aleksandras Sigitas Matelionis from position of general director on 21® November, 2008 and elected Rimantas Bakas, doctor of Technical sciences, as general manager of JSC "Kauno energija" from 24 November 2008.

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

· 05-12-2008 information on the election of management body and planned activity results: JSC "Kauno energija" Supervisory board elected Vytautas Mikaila as member of JSC "Kauno energija" management board. For the factual difference in fuel and purchased heat pices the planned activity result of the year 2008 is LTL 3,719 thousand loss.
. 18-12-2008 information on the registration of the new JSC "Kauno energija" bylaws and of the chairman of the Management board. Register of Legal Persons of the Republic of Lithuania has registered new wording of JSC "Kauno energija" bylaws, confirmed on 26 June 2008 by the shareholders meeting. On 15 December 2008 JSC "Kauno energija" management board from its members elected Vytautas Mikaila as new chairman of the Management board.
13-01-2009 Information on the resignation of the Management board member Mantas Raila, Director of closed-end company RP Reklama, on 13 January 2009, presented the request to the Company on the resignation from the members of Management board: Mantas Raila resigns from the members of the Management board from 27 January 2009.
30-01-2009 Preliminary result of JSC "Kauno energija" activity of the year 2008.

General Manager of JSC "Kauno energija"

Rimantas Bakas

JSC "Kauno energija" report on the compliance with the Governance Code for the companies listed on the Stock Exchange NASDAQ OMX Vilnius

JSC "Kauno energija", following Article 21 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 20.5 of the Trading Rules of the Villias Stock Exchange, discloses its compliance with the Governance Code, approved by the Stock Exchange NASDAQ OMX, Vilnius, for the companies listed on the environment and its specific provisions.

PRINCIPLES / RECOMMENDATIONS		YES/NO COMMENT APPLI- CABLE
Principle I: Basic Provisions The overriding objective of a company should be to operate in common interests of all the shareholders by optimizing over time shareholder value.
1.1. A company should adopt and make public the company's development strategy and objectives by clearly declaring how the company intends to meet the interests of its shareholders and optimize shareholder value.		Company prepares and revises the strategy of production annually. The provisions of the Company's strategy in which there are no confidential information and the process of decisions making publicly is placed on the website and presented in the annual report.
1.2. All management bodies of a company should act in furtherance of the declared strategic objectives in view of the need to optimize shareholder value.	Yes
1.3. The Company's supervisory and management bodies should act in close co-operation in order to attain maximum benefit for the company and its shareholders.		Yes All the bodies of the Company (Manager, the Management board and the Supervisory to implement this board) aim recommendation, mutual meetings of the Management board and the Supervisory board are organized.
1.4. The Company's supervisory and management bodies should ensure that the rights and interests of persons other than the company's shareholders (e.g. employees, creditors, suppliers, clients, local community), participating in or connected with the company's operation, are duly respected.	Yes
Principle II: The corporate governance framework The corporate governance framework should ensure the strategic guidance of the effective oversight of the company's management bodies, an appropriate balance and distribution of functions between the company's bodies, protection of the shareholders' interests.
Bodies of the Company are the general shareholders meeting, Supervisory board, the Management board and the Manager.
2.2. A collegial management body is responsible for the strategic management of the company and performs other key functions of corporate governance. A collegial supervisory body is responsible for the effective supervision of the company's management bodies.	Yes	A collegial management body of the Company - the Management board is responsible for the strategic management of the Company and performs other key functions of the Company management. A collegial supervisory body - the Supervisory board is responsible for the effective supervision of the Company's management bodies' activity.
2.3. Where a company chooses to form only one collegial body, it is Not recommended that it should be a supervisory body, i.e. the supervisory board. In such a case, the supervisory board is responsible for the effective monitoring of the functions performed by the company's chief executive officer.	appli- cable	There are the Supervisory board and the Management board in the Company.
2.4. The collegial supervisory body to be elected by the general shareholders' meeting should be set up and should act in the manner defined in Principles III and IV. Where a company should decide not to set up a collegial supervisory body but rather a collegial management body, i.e. the board, Principles III and IV should apply to the board as long as that does not contradict the essence and purpose of this body.	Yes
2.5. Company's management and supervisory bodies should comprise such number of board (executive directors) and supervisory (non- executive directors) board members that no individual or small group of individuals can dominate decision-making on the part of these bodies.	Yes	According to the statutes of the Company the Supervisory board from 7 (seven) members is elected and the Supervisory board elects the Management board from 7 (seven) members.
2.6. Non-executive directors or members of the supervisory board should be appointed for specified terms subject to individual re-election,	Yes	The Supervisory board of the Company is elected for the 4 (four) years and according

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania consolidated annual Report for the year 2008

at maximum intervals provided for in the Lithuanian legislation with a view to ensuring necessary development of professional experience and sufficiently frequent reconfirmation of their status. A possibility to remove them should also be stipulated however this procedure should not be easier than the removal procedure for an executive director or a member of the management board.		to the statutes of the Company and practice it is not forbidden to re-elect the members of the Supervisory Board for the new term.
2.7. Chairman of the collegial body elected by the general shareholders' meeting may be a person whose current or past office constitutes no obstacle to conduct independent and impartial supervision. Where a company should decide not to set up a supervisory board but rather the board, it is recommended that the chairman of the board and chief executive officer of the company should be a different person. Former company's chief executive officer should not be immediately nominated as the chairman of the collegial body elected by the general shareholders' meeting. When a company chooses to departure from these recommendations, it should furnish information on the measures it has taken to ensure impartiality of the supervision.	Yes	Company's of the Chairman The Supervisory board haven't been the Manager of the Company.
Principle III: The order of the formation of a collegial body to be elected by a general shareholders' meeting
The order of the formation a collegial body to be elected by a general shareholders' meeting should ensure representation of minority shareholders, accountability of this body to the shareholders and oblective monitoring of
the company's operation and its management bodies.
3.1. The mechanism of the formation of a collegial body to be elected by a general shareholders' meeting (hereinafter in this Principle referred to as the 'collegial body') should ensure objective and fair monitoring of the company's management bodies as well as representation of minority shareholders.	Yes	These recommendations the Company carries out by using voting mechanism by which help for the small shareholders there is an opportunity to have their representative in the collegial body.
3.2. Names and surnames of the candidates to become members of a collegial body, information about their education, qualification, professional background, positions taken and potential conflicts of interest should be disclosed early enough before the general shareholders' meeting so that the shareholders would have sufficient time to make an informed voting decision. All factors affecting the candidate's independence, the sample list of which is set out in Recommendation 3.7, should be also disclosed. The collegial body should also be informed on any subsequent changes in the provided information. The collegial body should, on yearly basis, collect data provided in this item on its members and disclose this in the company's annual report.	Yes	In the work regulations of the Supervisory board it is foreseen that every member of the body has to inform the chairman of the Supervisory board about his data change.
3.3. Should a person be nominated for members of a collegial body, such nomination should be followed by the disclosure of information on candidate's particular competences relevant to his/her service on the collegial body. In order shareholders and investors are able to ascertain whether member's competence is further relevant, the collegial body should, in its annual report, disclose the information on its composition and particular competences of individual members which are relevant to their service on the collegial body.	No	publishes The Company only the information, which is provided by the members of the collegial body and which is presented in the annual report (data on the participation in the issuers share capital, data on the participation in the activity of the other companies, institutions and organizations (the name of the company, institution and organization and position), information on more than 5 % other companies capital and votes, in %).
3.4. In order to maintain a proper balance in terms of the current qualifications possessed by its members, the collegial body should determine its desired composition with regard to the company's structure and activities, and have this periodically evaluated. The collegial body should ensure that it is composed of members who, as a whole, have the required diversity of knowledge, judgment and experience to complete their tasks properly. The members of the audit committee, collectively, should have a recent knowledge and relevant experience in the fields of finance, accounting and/or audit for the stock exchange listed companies.	No	The Company does not influence the composition of the collegial body because the candidatures to the members of the collegial body are offered by the main shareholder.
3.5. All new members of the collegial body should be offered a tailored program focused on introducing a member with his/her duties, corporate organization and activities. The collegial body should conduct an annual review to identify fields where its members need to update their skills and knowledge.	No	Till now in the practice of the Company all the members of the Supervisory board with the Company and its activity were introduced jointly and there was no annual review of the Supervisory board members, because there is no such need.

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania consolidated annual REPORT FOR THE YEAR 2008

3.6. In order to ensure that all material conflicts of interest related with a member of the collegial body are resolved properly, the collegial body should comprise a sufficient number of independent members.	No	The Company does not influence the composition of the collegial body because the candidatures to the members of the Company's collegial body are offered by the main shareholder. For this reason we did not follow the recommendations.
3.7. A member of the collegial body should be considered to be independent only if he is free of any business, family or other relationship with the company, its controlling shareholder or the management of either, that creates a conflict of interest such as to impair his judgment. Since all cases when member of the collegial body is likely to become dependant are impossible to list, moreover, relationships and circumstances associated with the determination of independence may vary amongst companies and the best practices of solving this problem are yet to evolve in the course of time, assessment of independence of a member of the collegial body should be based on the contents of the relationship and circumstances rather than their form. The key criteria for identifying whether a member of the collegial body can be considered to be independent are the following: 1) He/she is not an executive director or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) of the company or any associated company and has not been such during the last five years; 2) He/she is not an employee of the company or some any company and has not been such during the last three years, except for cases when a member of the collegial body does not belong to the senior management and was elected to the collegial body as a representative of the employees; 3) He/she is not receiving or has been not receiving significant additional remuneration from the company or associated company other than remuneration for the office in the collegial body. Such additional remuneration includes participation in share options or some other performance based pay systems; it does not include compensation payments for the previous office in the company (provided that such payment is no way related with later position) as per pension plans (inclusive of deferred compensations); 4) He/she is not a controlling shareholder or representative of such shareholder (control as defined in the Council Directive 83/349/EEC Article 1 Part 1); 5) He/she does not have and did not have any material business relations with the company or associated company within the past year directly or as a partner, shareholder, director or superior employee of the subject having such relationship. A subject is considered to have business relations when it is a major supplier or service provider (inclusive of financial, legal, counselling and consulting services), major client or organization receiving significant payments from the company or its group; 6) He/she is not and has not been, during the last three years, partner or employee of the current or former external audit company of the company or associated company; 7) He/she is not an executive director or member of the board in some other company where executive director of the company or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) is non-executive director or	No	The Company does not follow this recommendation because the majority of the Supervisory board members (six members) represent the controlling shareholder having 85.12 % of votes.
member of the supervisory board, he/she may not also have any other material relationships with executive directors of the company that arise from their participation in activities of other companies or bodies: 8) He/she has not been in the position of a member of the collegial
body for over than 12 years; 9) He/she is not a close relative to an executive director or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) or to any person listed in above items 1 to 8. Close relative is considered to be a spouse (common- law spouse), children and parents.

3.8. The determination of what constitutes independence is fundamentally an issue for the collegial body itself to determine. The collegial body may decide that, despite a particular member meets all the criteria of independence laid down in this Code, he cannot be considered independent due to special personal or company-related circumstances.
3.9. Necessary information on conclusions the collegial body has come to in its determination of whether a particular member of the body should be considered to be independent should be disclosed. When a person is nominated to become a member of the collegial body, the company should disclose whether it considers the person to be independent. When a particular member of the collegial body does not meet one or more criteria of independence set out in this Code, the company should disclose its reasons for nevertheless considering the member to be independent. In addition, the company should annually disclose which members of the collegial body it considers to be independent.	No	now there was no practice of consideration independence of the board members Supervisory and announcement. In the future the Company will strive to realize this provision.
3.10. When one or more criteria of independence set out in this Code has not been met throughout the year, the company should disclose its reasons for considering a particular member of the collegial body to be independent. To ensure accuracy of the information disclosed in relation with the independence of the members of the collegial body, the company should require independent members to have their independence periodically re-confirmed.	No	Till now there was no consideration of the Supervisory board members independence, because the majority of the Supervisory board members (six members) represent the controlling shareholder having 85, 99 % of votes.
3.11. In order to remunerate members of a collegial body for their work Not and participation in the meetings of the collegial body, they may be remunerated from the company's funds. The general shareholders' meeting should approve the amount of such remuneration.	appli- cable	The members of the Supervisory board are not remunerated from the Company's funds.
Principle IV: The duties and liabilities of a collegial body elected by the general shareholders' meeting The corporate governance framework should ensure proper and effective functioning of the collegial body elected by the general shareholders' meeting, and the powers granted to the collegial body should ensure effective monitoring of the company's management bodies and protection of interests of all the company's shareholders.
4.1. The collegial body elected by the general shareholders' meeting Yes The Supervisory board elected in the (hereinafter in this Principle referred to as the 'collegial body') should ensure integrity and transparency of the company's financial statements and the control system. The collegial body should issue recommendations to the company's management bodies and monitor and control the company's management performance.		Company presents the general shareholders meeting opinions and proposals about the Company's annual financial accountability, profit allocation project, the Company's annual report, the activity of the Company's manager and the management board, also carries out other the Company's and its management bodies activity supervision functions allotted to the Supervisory board competence.
4.2. Members of the collegial body should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders with due regard to the interests of employees and public welfare. Independent members of the collegial body should (a) under all circumstances maintain independence of their analysis, decision-making and actions (b) do not seek and accept any unjustified privileges that might compromise their independence, and (c) clearly express their objections should a member consider that decision of the collegial body is against the interests of the company. Should a collegial body have passed decisions independent member has serious doubts about, the member should make adequate conclusions. Should an independent member resign from his office, he should explain the reasons in a letter addressed to the collegial body or audit committee	Yes	By the data of the Company all the members of the Supervisory board are acting in good faith in the interests of the Company following the Company's but not the interests of the third persons.
and, if necessary, respective company-not-pertaining body (institution).

4.4. Where decisions of a collegial body may have a different effect on the company's shareholders, the collegial body should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed on the company's affairs, strategies, risk management and resolution of conflicts of interest. The company should have a clearly established role of members of the collegial body when communicating with and committing to shareholders.	Yes
4.5. It is recommended that transactions (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions), concluded between the company and its shareholders, members of the supervisory or managing bodies or other natural or legal persons that exert or may exert influence on the company's management should be subject to approval of the collegial body. The decision concerning approval of such transactions should be deemed adopted only provided the majority of the independent members of the collegial body voted for such a decision.	Yes
4.6. The collegial body should be independent in passing decisions that are significant for the company's operations and strategy. Taken separately, the collegial body should be independent of the company's management bodies. Members of the collegial body should act and pass decisions without an outside influence from the persons who have elected it. Companies should ensure that the collegial body and its committees are provided with sufficient administrative and financial resources to discharge their duties, including the nght to obtain, in particular from employees of the company, all the necessary information or to seek independent legal, accounting or any other advice on issues pertaining to the competence of the collegial body and its committees.	No	Six members of the Company's Supervisory board are representatives of the main shareholder - members of the Kaunas City Council. By the opinion of the Company the collegial management body is provided by the sufficient resources, except financial, because the remuneration for the Supervisory board and the Management board is not paid and it is determined only by the shareholders meeting but till now was not allotted.
4.7. Activities of the collegial body should be organized in a manner that independent members of the collegial body could have major influence in relevant areas where chances of occurrence of conflicts of interest are very high. Such areas to be considered as highly relevant are issues of nomination of company's directors, determination of directors' remuneration and control and assessment of company's audit. Therefore when the mentioned issues are attributable to the competence of the collegial body, it is recommended that the collegial body should establish nomination, remuneration, and audit committees. Companies should ensure that the functions attributable to the nomination, remuneration, and audit committees are carried out. However they may decide to merge these functions and set up less than three committees. In such case a company should explain in detail reasons behind the selection of alternative approach and how the selected approach complies with the objectives set forth for the three different committees. Should the collegial body of the company comprise small number of members, the functions assigned to the three committees may be performed by the collegial body itself, provided that it meets composition requirements advocated for the committees and that adequate information is provided in this respect. In such case provisions of this Code relating to the committees of the collegial body (in particular with respect to their role, operation, and transparency) should apply, where relevant, to the collegial body as a whole.	No	There was no committee's formation practice at the Company because there was no need of it at the Company. Till now there were no any committees in the Company, but till the general shareholders meeting of the year 2009 it is planned to compose audit committee.
4.8. The key objective of the committees is to increase efficiency of the activities of the collegial body by ensuring that decisions are based on due consideration, and to help organize its work with a view to ensuring that the decisions it takes are free of material conflicts of	No	There was no formation of the committees from the members of the Supervisory board.
interest. Committees should present the collegial body with recommendations concerning the decisions of the collegial body. Nevertheless the final decision shall be adopted by the collegial body. The recommendation on creation of committees is not intended, in principle, to constrict the competence of the collegial body or to remove the matters considered from the purview of the collegial body itself, which remains fully responsible for the decisions taken in its field of competence.
4.9. Committees established by the collegial body should normally be composed of at least three members. In companies with small number of members of the collegial body, they could exceptionally be	No	Company does not follow I he this recommendation because there was no committee formation practice at the

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

composed of two members. Majority of the members of each committee should be constituted from independent members of the collegial body. In cases when the company chooses not to set up a supervisory board, remuneration and audit committees should be entirely comprised of non-executive directors. Chairmanship and membership of the committees should be decided with due regard to the need to ensure that committee membership is refreshed and that undue reliance is not placed on particular individuals.		Company. In the future Company plans to follow this recommendation.
4.10. Authority of each of the committees should be determined by the collegial body. Committees should perform their duties in line with authority delegated to them and inform the collegial body on their activities and performance on regular basis. Authority of every committee stipulating the role and rights and duties of the committee should be made public at least once a year (as part of the information disclosed by the company annually on its corporate governance structures and practices). Companies should also make public annually a statement by existing committees on their composition, number of meetings and attendance over the year, and their main activities. Audit committee should confirm that it is satisfied with the independence of the audit process and describe briefly the actions it has taken to reach this conclusion.	No	Company does not follow The this recommendation because there was no committee formation practice at the Company. In the future Company plans to follow this recommendation.
4.11. In order to ensure independence and impartiality of the committees, members of the collegial body that are not members of the committee should commonly have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or demand participation in the meeting of particular officers or experts. Chairman of each of the committees should have a possibility to maintain direct communication with the shareholders. Events when such are to be performed should be specified in the regulations for committee activities.	No	Company does The not follow this recommendation because there was no committee formation practice at the Company.
4.12. Nomination Committee. 4.12.1. Key functions of the nomination committee should be the following: 1) Identify and recommend, for the approval of the collegial body, candidates to fill board vacancies. The nomination committee should evaluate the balance of skills, knowledge and experience on the management body, prepare a description of the roles and capabilities required to assume a particular office, and assess the time commitment expected. Nomination committee can also consider candidates to members of the collegial body delegated by the shareholders of the company; 2) Assess on regular basis the structure, size, composition and performance of the supervisory and management bodies, and make recommendations to the collegial body regarding the means of achieving necessary changes; 3) Assess on regular basis the skills, knowledge and experience of individual directors and report on this to the collegial body; 4) Properly consider issues related to succession planning; 5) Review the policy of the management bodies for selection and appointment of senior management. 4.12.2. Nomination committee should consider proposals by other parties, including management and shareholders. When dealing with issues related to executive directors or members of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) and senior management, chief executive officer of the company should be consulted by, and entitled to submit proposals to the nomination committee.	No	There is no formation of the committee which would be obligated to carry out functions which allotted to carry out for the Nomination committee.
4.13. Remuneration Committee. 4.13.1. Key functions of the remuneration committee should be the following: 1) Make proposals, for the approval of the collegial body, on the remuneration policy for members of management bodies and executive directors. Such policy should address all forms of compensation, including the fixed remuneration, performance-based remuneration schemes, pension arrangements, and termination payments. Proposals considering performance-based remuneration schemes should be accompanied with recommendations on the related objectives and	Not appli- cable	There is no formation of the committee which would be obligated to carry out functions allotted to carry out for the Remuneration committee, because for the determination of Company's managers, their deputies and chief accountant salaries it is used order schedule of work payment for managers, their deputies and chief accountants of the municipality companies and companies (joint stock and closed-end),

evaluation criteria, with a view to properly aligning the pay of executive director and members of the management bodies with the long-term interests of the shareholders and the objectives set by the collegial		controlled by municipality, confirmed by Kaunas city municipality.
body; 2) Make proposals to the collegial body on the individual remuneration for executive directors and member of management bodies in order their remunerations are consistent with company's remuneration policy
and the evaluation of the performance of these persons concerned. In doing so, the committee should be properly informed on the total compensation obtained by executive directors and members of the
management bodies from the affiliated companies; 3) Make proposals to the collegial body on suitable forms of contracts for executive directors and members of the management bodies;
· Assist the collegial body in overseeing how the company complies with applicable provisions regarding the remuneration-related information disclosure (in particular the remuneration policy applied and
individual remuneration of directors); 4) Make general recommendations to the executive directors and members of the management bodies on the level and structure of
remuneration for senior management (as defined by the collegial body) with regard to the respective information provided by the executive directors and members of the management bodies.
4.13.2. With respect to stock options and other share-based incentives which may be granted to directors or other employees, the committee should: 1) Consider general policy regarding the granting of the above
mentioned schemes, in particular stock options, and make any related proposals to the collegial body; 2) Examine the related information that is given in the company's
annual report and documents intended for the use during the shareholders meeting; 3) Make proposals to the collegial body regarding the choice between
granting options to subscribe shares or granting options to purchase shares, specifying the reasons for its choice as well as the consequences that this choice has.
4.13.3. Upon resolution of the issues attributable to the competence of the remuneration committee, the committee should at least address the chairman of the collegial body and/or chief executive officer of the
company for their opinion on the remuneration of other executive directors or members of the management bodies.
4.14. Audit Committee. 4.14.1. Key functions of the audit committee should be the following:	No	There is no formation of the committee which would be obligated to carry out
1) Observe the integrity of the financial information provided by the		functions allotted to carry out for the Audit
company, in particular by reviewing the relevance and consistency of		committee, but in 2009 it is planned to
the accounting methods used by the company and its group (including the criteria for the consolidation of the accounts of companies in the		compose Audit committee from 3 members,
group);		which term of the office would correspond to the term of office of the Supervisory board.
2) At least once a year review the systems of internal control and risk
management to ensure that the key risks (inclusive of the risks in relation with compliance with existing laws and regulations) are properly
identified, managed and reflected in the information provided;
3) Ensure the efficiency of the internal audit function, among other
things, by making recommendations on the selection, appointment, reappointment and removal of the head of the internal audit department
and on the budget of the department, and by monitoring the
responsiveness of the management to its findings and recommendations. Should there be no internal audit authority in the
company, the need for one should be reviewed at least annually;
4) Make recommendations to the collegial body related with selection,
appointment, reappointment and removal of the external auditor (to be done by the general shareholders' meeting) and with the terms and
conditions of his engagement. The committee should investigate
situations that lead to a resignation of the audit company or auditor and
make recommendations on required actions in such situations; 5) Monitor independence and impartiality of the external auditor, in
particular by reviewing the audit company's compliance with applicable
guidance relating to the rotation of audit partners, the level of fees paid

by the company, and similar issues. In order to prevent occurrence of material conflicts of interest, the committee, based on the auditor's disclosed inter alia data on all remunerations paid by the company to the auditor and network, should at all times monitor nature and extent of the non-audit services. Having regard to the principals and guidelines established in the 16 May 2002 Commission Recommendation 2002/590/EC, the committee should determine and apply a formal policy establishing types of non-audit services that are (a) excluded, (b) permissible only after review by the committee, and (c) permissible without referral to the committee; 6) Review efficiency of the external audit process and responsiveness of management to recommendations made in the external auditor's management letter. 4.14.2. All members of the committee should be furnished with complete information on particulars of accounting, financial and other operations of the company. Company's management should inform the audit committee of the methods used to account for significant and unusual transactions where the accounting treatment may be open to different approaches. In such case a special consideration should be given to company's operations in offshore centers and/or activities
carried out through special purpose vehicles (organizations) and
justification of such operations.
4.14.3. The audit committee should decide whether participation of the chairman of the collegial body, chief executive officer of the company, chief financial officer (or superior employees in charge of finances,
treasury and accounting), or internal and external auditors in the
meetings of the committee is required (if required, when). The
committee should be entitled, when needed, to meet with any relevant
person without executive directors and members of the management
bodies present.
4.14.4. Internal and external auditors should be secured with not only
effective working relationship with management, but also with free
access to the collegial body. For this purpose the audit committee
should act as the principal contact person for the internal and external
auditors.
4.14.5. The audit committee should be informed of the intemal auditor's
work program, and should be furnished with internal audit reports or
periodic summaries. The audit committee should also be informed of
the work program of the external auditor and should be fumished with
report disclosing all relationships between the independent auditor and
the company and its group. The committee should be timely furnished
information on all issues arising from the audit.
4.14.6. The audit committee should examine whether the company is
following applicable provisions regarding the possibility for employees
to report alleged significant irregularities in the company, by way of
complaints or through anonymous submissions (normally to an independent member of the collegial body), and should ensure that
there is a procedure established for proportionate and independent
investigation of these issues and for appropriate follow-up action.
4.14.7. The audit committee should report on its activities to the
collegial body at least once in every six months, at the time the yearly
and half-yearly statements are approved.
4.15. Every year the collegial body should conduct the assessment of	No	There is no assessment of the Supervisory
its activities. The assessment should include evaluation of collegial		board activity and/or information about that
body's structure, work organization and ability to act as a group,		practice. In the future the Company will
evaluation of each of the collegial body member's and committee's		strive to realize this provision.
competence and work efficiency and assessment whether the collegial
body has achieved its objectives. The collegial body should, at least
once a year, make public (as part of the information the company
annually discloses on its management structures and practices)
respective information on its internal organization and working
procedures, and specify what material changes were made as a result
of the assessment of the collegial body of its own activities.

Principle V: The working procedure of the company's collegial bodies The working procedure of supervisory and management bodies established in the company should ensure efficient
operation of these bodies and decision-making and encourage active co-operation between the company's bodies.
5.1. The company's supervisory and management bodies (hereinafter in this Principle the concept 'collegial bodies' covers both the collegial bodies of supervision and the collegial bodies of management) should be chaired by chairpersons of these bodies. The chairperson of a collegial body is responsible for proper convocation of the collegial body meetings. The chairperson should ensure that information about the meeting being convened and its agenda are communicated to all members of the body. The chairperson of a collegial body should ensure appropriate conducting of the meetings of the collegial body. The chairperson should ensure order and working atmosphere during the meeting.		Yes The Company's Supervisory board and the Management board realize ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- this recommendation.
5.2. It is recommended that meetings of the company's collegial bodies should be carried out according to the schedule approved in advance at certain intervals of time. Each company is free to decide how often to convene meetings of the collegial bodies, but it is recommended that these meetings should be convened at such intervals, which would guarantee an interrupted resolution of the essential corporate governance issues. Meetings of the company's supervisory board should be convened at least once in a quarter, and the company's board should meet at least once a month.	Yes
5.3. Members of a collegial body should be notified about the meeting being convened in advance in order to allow sufficient time for proper preparation for the issues on the agenda of the meeting and to ensure fruitful discussion and adoption of appropriate decisions. Alongside with the notice about the meeting being convened, all the documents relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body are present or certain issues of great importance to the company require immediate resolution.	Yes	The Company follows the order foreseen in the work regulations of the Supervisory board and the Management board and the information about the convened meeting is presented in advance together with all the information related to the meeting agenda.
5.4. In order to co-ordinate operation of the company's collegial bodies and ensure effective decision-making process, chairpersons of the company's collegial bodies of supervision and management should closely co-operate by co-coordinating dates of the meetings, their agendas and resolving other issues of corporate governance. Members of the company's board should be free to attend meetings of the company's supervisory board, especially where issues concerning removal of the board members, their liability or remuneration are discussed.	Yes
Principle VI: The equitable treatment of shareholders and shareholder rights
The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. The corporate governance framework should protect the rights of the shareholders.
6.1. It is recommended that the company's capital should consist only Yes The ordinary registered shares which make of the shares that grant the same rights to voting, ownership, dividend and other rights to all their holders.		the authorized capital of the Company for all shares owners give equal rights.
6.2. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares.	Yes
6.3. Transactions that are important to the company and its shareholders, such as transfer, investment, and pledge of the company's assets or any other type of encumbrance should be subject to approval of the general shareholders' meeting. All shareholders should be furnished with equal opportunity to familiarize with and participate in the decision-making process when significant corporate issues, including approval of transactions referred to above, are discussed.	No	In compliance with the law on the Joint stock companies and the Company's statutes in this recommendation foreseen transactions confirmation issues are ascribed to the competence of the Management board but in individual cases for the asset transmission transactions the Company applies to the shareholders meeting.
6.4. Procedures of convening and conducting a general shareholders' meeting should ensure equal opportunities for the shareholders to effectively participate at the meetings and should not prejudice the rights and interests of the shareholders. The venue, date, and time of the shareholders' meeting should not hinder wide attendance of the shareholders. Prior to the shareholders' meeting, the company's	Yes

supervisory and management bodies should enable the shareholders to lodge questions on issues on the agenda of the general shareholders' meeting and receive answers to them.
6.5. It is recommended that documents on the course of the general shareholders' meeting, including draft resolutions of the meeting, should be placed on the publicly accessible website of the company in advance. It is recommended that the minutes of the general shareholders' meeting after signing them and/or adopted resolutions should be also placed on the publicly accessible website of the company. Seeking to ensure the right of foreigners to familiarize with the information, whenever feasible, documents referred to in this recommendation should be published in English and/or other foreign languages. Documents referred to in this recommendation may be published on the publicly accessible website of the company to the extent that publishing of these documents is not detrimental to the company or the company's commercial secrets are not revealed.	Yes	Information about the a shareholders decisions projects and the decisions taken by the shareholders meeting Company publicly places on the Company's website and disseminates it through the Stock Exchange NASDAQ OMX, Vilnius, used information dissemination system, as foreseen in the law on the Joint stock companies.
6.6. Shareholders should be furnished with the opportunity to vote in the general shareholders' meeting in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot.	Yes	The shareholders of the Company can implement the right to participate in the general shareholders meeting in person and through the representative if the person has proper authorization or holds the voting right transmission agreement in compliance with the legal acts order, also the Company makes conditions for the shareholders to vote by completing the general voting ballot as foreseen by the law on the Joint stock companies.
6.7. With a view to increasing the shareholders' opportunities to participate effectively at shareholders' meetings, the companies are recommended to expand use of modern technologies in voting processes by allowing the shareholders to vote in general meetings via terminal equipment of telecommunications. In such cases security of telecommunication equipment, text protection and a possibility to identify the signature of the voting person should be guaranteed. Moreover, companies could furnish its shareholders, especially foreigners, with the opportunity to watch shareholder meetings by means of modern technologies.	Not appli- cable	According to the order of the Company's shareholders meeting and the lists of shareholders till now there was no need to implement this recommendation in the Company.
Principle VII: The avoidance of conflicts of Interest and their disclosure
The corporate governance framework should encourage members of the corporate bodies to avoid conflicts of interest and assure transparent and effective mechanism of conflicts of interest regarding members of
the corporate bodies.
7.1. Any member of the company's supervisory and management body	Yes
should avoid a situation, in which his personal interests are in conflict or may be in conflict with the company's interests. In case such a situation
did occur, a member of the company's supervisory and management
body should, within reasonable time, inform other members of the same collegial body or the company's body that has elected him/her, or to the
company's shareholders about a situation of a conflict of interest,
indicate the nature of the conflict and value, where possible. 7.2. Any member of the company's supervisory and management body	Yes
may not mix the company's assets, the use of which has not been
mutually agreed upon, with his personal assets or use them or the information which he/she learns by virtue of his position as a member of
a corporate body for his/her personal benefit or for the benefit of any
third person without a prior agreement of the general shareholders' meeting or any other corporate body authorized by the meeting.
7.3. Any member of the company's supervisory and management body	Yes
may conclude a transaction with the company, a member of which corporate body he/she is. Such a transaction (except insignificant ones
due to their low value or concluded when carrying out routine
operations in the company under usual conditions) must be immediately
reported in writing or orally, by recording this in the minutes of the meeting, to other members of the same corporate body or to the
corporate body that has elected him/her or to the company's
shareholders. Transactions specified in this recommendation are also subject to recommendation 4.5.

7.4. Any member of the company's supervisory and management body Yes should abstain from voting when decisions concerning transactions or
other issues of personal or business interest are voted on.
Principle VIII: Company's remuneration policy Remuneration policy and procedure for approval, revision and disclosure of directors' remuneration established in the company should prevent potential conflicts of interest and abuse in determining remuneration of directors, in addition it should ensure publicity and transparency both of company's remuneration of directors.
8.1. A company should make a public statement of the company's remuneration policy (hereinafter the remuneration statement). This statement should be part of the company's annual accounts. Remuneration statement should also be posted on the company's website.	No	The Company does not announce the report on the Company's remuneration policy. The remuneration policy as provided in this recommendation is not confirmed in the Company because this is not demanded by the legal acts. The remuneration for the Supervisory board and the Management board of the Company is determined by the shareholders meeting and till now there were no payments. The remuneration for the Manager of the Company is determined by the Management board in compliance with Lithuanian Republic Government the decision "For the state enterprises and joint stock, closed-end companies controlled by the state administration managers, their and chief accountants' deputies remuneration". According to this there was no need to prepare separate remuneration policy. Nevertheless in compliance with the legal acts orders, the Company publicly the information announces on the termination payments and loans for the members of the Supervisory board, the Management board and administration (Manager, Chief accountant) in the annual report.
8.2. Remuneration statement should mainly focus on directors' remuneration policy for the following year and, if appropriate, the subsequent years. The statement should contain a summary of the implementation of the remuneration policy in the previous financial year. Special attention should be given to any significant changes in company's remuneration policy as compared to the previous financial year.	No	the reasons foreseen in the For 8.1. Recommendation the remuneration policy according to which would be prepared the report on remuneration is not confirmed in the Company.
8.3. Remuneration statement should leastwise include the following information: 1) Explanation of the relative importance of the variable and non- variable components of directors' remuneration; 2) Sufficient information on performance criteria that entitles directors to share options, shares or vanable components of remuneration; 3) Sufficient information on the linkage between the remuneration and performance; 4) The main parameters and rationale for any annual bonus scheme and any other non-cash benefits; 5) A description of the main characteristics of supplementary pension or early retirement schemes for directors.	No	For the reasons foreseen in the 8.1. Recommendation the remuneration policy according to which would be prepared the report on remuneration is not confirmed in the Company.
8.4. Remuneration statement should also summarize and explain company's policy regarding the terms of the contracts executed with executive directors and members of the management bodies. It should include, inter alia, information on the duration of contracts with executive directors and members of the management bodies, the applicable notice periods and details of provisions for termination payments linked to early termination under contracts for executive directors and members of the management bodies.	No	For the reasons foreseen in the 8.1. Recommendation the remuneration policy according to which would be prepared the report on remuneration is not confirmed in the Company, but the information on the termination and other payments is publicly announced in the Company's annual report.
8.5. The information on preparatory and decision-making processes, during which a policy of remuneration of directors is being established, should also be disclosed. Information should include data, if applicable, on authorities and composition of the remuneration committee, names	No	For the reasons foreseen in the 8.1. Recommendation the remuneration policy according to which would be prepared the report on remuneration is not confirmed

and surnames of external consultants whose services have been used in the Company. in determination of the remuneration policy as well as the role of shareholders' annual general meeting. 8.6. Without prejudice to the role and organization of the relevant No the reasons For foreseen in the bodies responsible for setting directors' remunerations, the 8.1. Recommendation the remuneration remuneration policy or any other significant change in remuneration policy according to which would be prepared policy should be included into the agenda of the shareholders' annual the report on remuneration is not confirmed general meeting. Remuneration statement should be put for voting in in the Company. shareholders' annual general meeting. The vote may be either mandatory or advisory. 8.7. Remuneration statement should also contain detailed information the reasons foreseen No For in the on the entire amount of remuneration, inclusive of other benefits, that 8.1. Recommendation the remuneration was paid to individual directors over the relevant financial year. This policy according to which would be prepared document should list at least the information set out in items 8.7.1 to the report on remuneration is not confirmed in the Company. Nevertheless in the annual 8.7.4 for each person who has served as a director of the company at any time during the relevant financial year. reports prepared and publicly announced by 8.7.1. The following remuneration and/or emoluments-related the Company in compliance with the legal information should be disclosed: acts orders, the Company announces 1) The total amount of remuneration paid or due to the director for information about the remuneration for the members of the Supervisory board, services performed during the relevant financial year, inclusive of, Management where relevant, attendance fees fixed by the annual general board, administration shareholders meeting; (Manager, Chief accountant). 2) The remuneration and advantages received from any undertaking belonging to the same group; 3) The remuneration paid in the form of profit sharing and/or bonus payments and the reasons why such bonus payments and/or profit sharing were granted; 4) If permissible by the law, any significant additional remuneration paid to directors for special services outside the scope of the usual functions of a director: 5) Compensation receivable or paid to each former executive director or member of the management body as a result of his resignation from the office during the previous financial year; 6) Total estimated value of non-cash benefits considered as remuneration, other than the items covered in the above points. 8.7.2. As regards shares and/or rights to acquire share options and/or all other share-incentive schemes, the following information should be disclosed: 1) The number of share options offered or shares granted by the company during the relevant financial year and their conditions of application; 2) The number of shares options exercised during the relevant financial year and, for each of them, the number of shares involved and the exercise price or the value of the interest in the share incentive scheme at the end of the financial year; 3) The number of share options unexercised at the end of the financial year; their exercise price, the exercise date and the main conditions for the exercise of the rights; 4) All changes in the terms and conditions of existing share options occurring during the financial year. 8.7.3. The following supplementary pension schemes-related information should be disclosed: 1) When the pension scheme is a defined-benefit scheme, changes in the directors' accrued benefits under that scheme during the relevant financial year; 2) When the pension scheme is defined-contribution scheme, detailed information on contributions paid or payable by the company in respect of that director during the relevant financial year. 8.7.4. The statement should also state amounts that the company or any subsidiary company or entity included in the consolidated annual financial statements of the company has paid to each person who has served as a director in the company at any time during the relevant financial year in the form of loans, advance payments or guarantees,



	including the amount outstanding and the interest rate.

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

8.8. Schemes anticipating remuneration of directors in shares, share options or any other right to purchase shares or be remunerated on the basis of share price movements should be subject to the prior approval of shareholders' annual general meeting by way of a resolution prior to their adoption. The approval of scheme should be

related with the scheme itself and not to the grant of such sharebased benefits under that scheme to individual directors. All significant changes in scheme provisions should also be subject to shareholders' approval prior to their adoption; the approval decision should be made in shareholders' annual general meeting. In such case shareholders should be notified on all terms of suggested changes and get an explanation on the impact of the suggested changes.

8.9. The following issues should be subject to approval by the shareholders' annual general meeting:

1) Grant of share-based schemes, including share options, to directors:

2) Determination of maximum number of shares and main conditions of share granting;

3) The term within which options can be exercised;

4) The conditions for any subsequent change in the exercise of the options, if permissible by law;

5) All other long-term incentive schemes for which directors are eligible and which are not available to other employees of the company under similar terms. Annual general meeting should also set the deadline within which the body responsible for remuneration of directors may award compensations listed in this article to individual directors.

8.10. Should national law or company's Articles of Association allow, any discounted option arrangement under which any rights are granted to subscribe to shares at a price lower than the market value of the share prevailing on the day of the price determination, or the average of the market values over a number of days preceding the date when the exercise price is determined, should also be subject to the shareholders' approval.

8.11. Provisions of Articles 8.8 and 8.9 should not be applicable to schemes allowing for participation under similar conditions to company's employees or employees of any subsidiary company whose employees are eligible to participate in the scheme and which has been approved in the shareholders' annual general meeting.

8.12. Prior to the annual general meeting that is intended to consider decision stipulated in Article 8.8, the shareholders must be provided an opportunity to familiarize with draft resolution and project-related notice (the documents should be posted on the company's website). The notice should contain the full text of the share-based remuneration schemes or a description of their key terms, as well as full names of the participants in the schemes. Notice should also specify the relationship of the schemes and the overall remuneration policy of the directors. Draft resolution must have a clear reference to the scheme itself or to the summary of its key terms. Shareholders must also be presented with information on how the company intends to provide for the shares required to meet its obligations under incentive schemes. It should be clearly stated whether the company intends to buy shares in the market, hold the shares in reserve or issue new ones. There should also be a summary on scheme-related expenses the company will suffer due to the anticipated application of the scheme. All information given in this article must be posted on the company's website.

The Company does not use schemes anticipating remuneration of directors in shares, share options or any other right to purchase shares or be remunerated on the basis of share price movements.

CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008

Principle IX: The role of stakeholders in corporate governance
The corporate governance framework should recognize the rights of stakeholders as established by law and
encourage active co-operation between companies and stakeholders in creating the company value, jobs and
financial sustainability. For the purposes of this Principle, the concept "stakeholders" includes investors,
employees, creditors, suppliers, clients, local community and other persons having certain interest in the company concerned.
9.1. The corporate governance framework should assure that the rights
of stakeholders that are protected by law are respected.	Yes	The Company follows all the orders foreseen in the laws for the stakeholders'
		opportunities to participate in the
9.2. The corporate governance framework should create conditions for		management of the Company, but at this
the stakeholders to participate in corporate governance in the manner prescribed by law. Examples of mechanisms of stakeholder		moment no any stakeholders group, having
participation in corporate governance include: employee participation in		the right determined by the laws to
adoption of certain key decisions for the company; consulting the		participate in the management of the
employees on corporate governance and other important issues;		Company, is not realized by the order
employee participation in the company's share capital; creditor		determined in the law.
involvement in governance in the context of the company's insolvency,
etc.
9.3. Where stakeholders participate in the corporate governance
process, they should have access to relevant information.
Principle X: Information disclosure and transparency
The corporate governance framework should ensure that timely and accurate is made on all material
information regarding the company, including the financial situation, performance of the company.
10.1. The company should disclose information on:	Yes	Information. provided in this
1) The financial and operating results of the company;		recommendation, Company announces
2) Company objectives; 3) Persons holding by the right of ownership or in control of a block of		through the Stock Exchange NASDAQ Vilnius. information OMX. used
shares in the company;		dissemination system and places on the
4) Members of the company's supervisory and management bodies,		Company's website, daily newsletter "Kauno
chief executive officer of the company and their remuneration;		diena", specialized zone of Baltic News
5) Material foreseeable risk factors;		Service (BNS).
6) Transactions between the company and connected persons, as well
as transactions concluded outside the course of the company's regular
operations;
7) Material issues regarding employees and other stakeholders;
8) Governance structures and strategy.
This list should be deemed as a minimum recommendation, while the
companies are encouraged not to limit themselves to disclosure of the
information specified in this list.
10.2. It is recommended that consolidated results of the whole group to which the company belongs should be disclosed when information
specified in item 1 of Recommendation 10.1 is under disclosure.
10.3. It is recommended that information on the professional
background, qualifications of the members of supervisory and
management bodies, chief executive officer of the company should be
disclosed as well as potential conflicts of interest that may have an
effect on their decisions when information specified in item 4 of
Recommendation 10.1 about the members of the company's
supervisory and management bodies is under disclosure. It is also
recommended that information about the amount of remuneration
received from the company and other income should be disclosed with
regard to members of the company's supervisory and management
bodies and chief executive officer as per Principle VIII. 10.4. It is recommended that information about the links between the
company and its stakeholders, including employees, creditors,
suppliers, local community, as well as the company's policy with regard
to human resources, employee participation schemes in the company's
share capital, etc. should be disclosed when information specified in
item 7 of Recommendation 10.1 is under disclosure.
10.5. Information should be disclosed in such a way that neither	Yes	The Company information through the Stock
shareholders nor investors are discriminated with regard to the manner		Exchange NASDAQ OMX, Vilnius, used
or scope of access to information. Information should be disclosed to all		information dissemination system presents
simultaneously. It is recommended that notices about material events		simultaneously in Lithuanian and English
should be announced before or after a trading session on the Vilnius		languages as it possible. The received
Stock Exchange, so that all the company's shareholders and investors		information Stock Exchange places on its
should have equal access to the information and make informed		website and trading system assuring
investing decisions.		simultaneous presentation র্তা this

		information to all. The Company strives to announce the information before or after a trading session on the Vilnius Stock Exchange and at the same time to present it to all the markets in which there is trade in the Company's stocks. The Company does not provide the information which can have influence on the price of its issued stocks on comments, interview and other ways till this information is publicly announced through the Stock Exchange information system.
10.6. Channels for disseminating information should provide for fair, timely and cost-efficient access to relevant information by users. It is recommended that information technologies should be employed for wider dissemination of information, for instance, by placing the information on the company's website. It is recommended that information should be published and placed on the company's website not only in Lithuanian, but also in English, and, whenever possible and necessary, in other languages as well.		Yes The Company disseminates information by placing it on the Company's website in Lithuanian language.
10.7. It is recommended that the company's annual reports and other periodical accounts prepared by the company should be placed on the company's website. It is recommended that the company should announce information about material events and changes in the price of the company's shares on the Stock Exchange on the company's website too.	Yes	information provided the All in this recommendation ાંડ placed on the Company's website, except the information on the changes in the price of the Company's shares on the Stock Exchange because this information is publicly placed on the Stock Exchange NASDAQ OMX, Vilnius, website and it can be reached by all the interested persons.
Principle XI: The selection of the company's auditor The mechanism of the selection of the company's auditor should ensure independence of the firm of auditor's conclusion and opinion.
11.1. An annual audit of the company's financial statements and report should be conducted by an independent firm of auditors in order to provide an external and objective opinion on the company's financial statements.	Yes
11.2. It is recommended that the company's supervisory board and, where it is not set up, the company's board should propose a candidate firm of auditors to the general shareholders' meeting.	No	The candidature of the Company's audit company for the shareholders meeting if offered by the Management board in compliance with the results of the public competition.
11.3. It is recommended that the company should disclose to its shareholders the level of fees paid to the firm of auditors for non-audit services rendered to the company. This information should be also known to the company's supervisory board and, where it is not formed, the company's board upon their consideration which firm of auditors to propose for the general shareholders' meeting.	Not appli- cable	information The provided in the recommendation was not presented to the shareholders because after the confirmation of the Code there was no shareholders meeting in which the audit company would be elected which would provide audit services to the Company. In the shareholders meeting on 26 April, 2006 the audit company which would make the financial accountability audit for the 2006- 2008 period was confirmed.

Balance sheets

		Group		Company
	Notes	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
			(restated)*		(restated)*
ASSETS
Non-current assets
Intangible assets	4	1,783	2,511	1,683	2,448
Property, plant and equipment	5
Land and buildings		30,692	30,494	29,108	28,851
Structures and machinery		117,555	110,756	117,525	110,718
Vehicles		1,109	1,357	937	1,121
Equipments and tools		7,062	8,040	6,966	7,941
Construction in progress and prepayments		8,681	8,204	8,681	8,204
Total property, plant and equipment		165,099	158,851	163,217	156,835
Non-current financial assets
Investments into subsidiaries	1			6,053	6,518
Non-current accounts receivable	6	65	117	65	117
Deferred tax asset	23	88
Other financial assets	7	433	433	433	433
Total non-current financial assets		586	550	6,551	7,068
Total non-current assets		167,468	161,912	171,451	166,351
Current assets
Inventories and prepayments
Inventories	8	5,581	6,531	5,541	6,364
Prepayments		511	463	499	446
Total inventories and prepayments		6,092	6,994	6,040	6,810
Current accounts receivable	9
Trade receivables		54.797	37,884	55,032	37,606
Other receivables		8,547	3,551	8,655	3,567
Total accounts receivable		63,344	41,435	63,687	41,173
Cash and cash equivalents	10	3,616	4,886	3,604	4,864
Total current assets		73,052	53,315	73,331	52,847

Total assets		240,520	215,227	244,782	219,198

The accompanying notes are an integral part of these financial statements.

(cont'd on the next page)

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

Balance sheets (cont'd)

		Group		Company
	Notes	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
			(restated)*		(restated)*
EQUITY AND LIABILITIES
Equity
Share capital	1	119,510	118,310	119,510	118,310
Legal reserve	11	3,041	11,373	2,808	11,323
Other reserve	11		163
Retained earnings (deficit)
Net profit (loss) for the current year		(4,235)	(8,626)	(4,343)	(8,621)
Net profit (loss) for the previous years		(5,039)	(4,908)	(1,348)	(1,242)
Total retained earnings (deficit)		(9,274)	(13,534)	(5,691)	(9,863)
Total equity		113,277	116,312	116,627	119,770
Liabilities
Non-current liabilities
Non-current borrowings	12	33,921	23,039	. 33,921	23,039
Financial lease obligations	13	95	181		37
Deferred tax liability	23		572	805	1,241
Grants (deferred income)	14	10,253	10,503	10,253	10,503
Employee benefit liability	15	1,612	1,392	1,612	1,392
Other non-current liabilities		824	824	824	824
Total non-current liabilities		46,705	36,511	47,415	37,036
Current liabilities
Current portion of non-current borrowings and
financial lease	12, 13	8,834	8,772	8,785	8,726
Current borrowings	12	15,720	21,020	15,720	21,020
Trade payables	16	50,929	28,181	51,361	28,424
Payroll-related liabilities		2,054	2,087	1,933	1,936
Advances received		932	753	920	753
Taxes payable		775	994	727	936
Derivative financial instruments	17	567		567
Other current liabilities		727	597	727	597
Total current liabilities		80,538	62,404	80,740	62,392
Total liabilities		127,243	98,915	128,155	99,428
Total equity and liabilities		240,520	215,227	244,782	219,198

The accompanying notes are an integral part of these financial statements.

General Manager	Rimantas Bakas		3 March 2009
Chief Accountant	Violeta Staškūnienė	" lecele	3 March 2009

Income statements

		Group		Company
	Notes	2008	2007	2008	2007
			(restated)*		(restated)*
Operating income
Sales income	18	205,974	169,528	205,233	168,003
Other operating income	20	1,337	1,319	1,322	1,370
Total operating income		207,311	170,847	206,555	169,373
Operating expenses
Fuel and heat acquired		(137,604)	(112,195)	(137,604)	(112,195)
Salaries and social security		(24,999)	(23,121)	(22,396)	(20,098)
Depreciation and amortisation		(18,982)	(20,540)	(18,784)	(20,389)
Repairs and maintenance		(5,160)	(2,807)	(5,181)	(2,804)
Taxes other than income tax		(3,462)	(3,409)	(3,402)	(3,354)
Electricity		(2,891)	(3,976)	(2,863)	(3,956)
Materials		(2,404)	(2,356)	(1,991)	(2,013)
Petrašiūnai power plant operator expenses	1	(2,184)	(2,193)	(2,184)	(2,193)
Water		(517)	(801)	(502)	(787)
Write-offs and change in allowance for accounts receivable		1	1,133	1	1.133
Change in allowance for inventories		181	8	181	8
Maintenance of heating systems	1			(2,485)	(2,801)
Other expenses	19	(10,760)	(9,363)	(10,248)	(8,791)
Other activities expenses	20	(1,363)	(1,025)	(1,357)	(986)
Total operating expenses		(210,144)	(180,645)	(208,815)	(179,226)
Operating profit (loss)		(2,833)	(9,798)	(2,260)	(9,853)
Finance income	21	1,281	1,314	1,281	1,364
Finance costs	22	(3,343)	(2,008)	(3,800)	(2,003)
Profit (loss) before tax		(4,895)	(10,492)	(4,779)	(10,492)
Income tax	23	660	1,866	436	1,871
Net profit (loss)		(4,235)	(8,626)	(4,343)	(8,621)
Basic and diluted (loss) per share (litas)	24	(0.21)	(0.44)

The accompanying notes are an integral part of these financial statements.

General Manager	Rimantas Bakas	3 March 2009
Chief Accountant	Violeta Staškūnienė	3 March 2009

Statements of changes in equity

Group	Notes	Share capital	Legal reserve	Other reserve	Retained (deficit)	Total
Balance as of 31 December 2006
(as originally reported)		118.310	3.634	1	4,236	126,180
Correction of an error					(1,242)	(1,242)
Balance as of 31 December 2006
(restated)*		118,310	3,634		2,994	124,938
Transferred to reserves	11		7,739	163	(7,902)
Net (loss) for the year					(8,626)	(8,626)
Balance as of 31 December 2007 (restated)*		118,310	11,373	163	(13,534)	116,312
Increase in share capital	1	1,200				1,200
Transferred from reserves
	11		(8,332)	(163)	8,495
Net (loss) for the year					(4,235)	(4,235)
Balance as of 31 December 2008		119,510	3,041		(9,274)	113,277

Company	Notes	Share capital	Legal reserve	Retained (deficit)	Total

Balance as of 31 December 2006 (as originally reported)		118,310	3,634	7,689	129,633
Correction of an error				(1,242)	(1,242)
Balance as of 31 December 2006 (restated)*		118,310	3,634	6,447	128,391
Transferred to reserves	11		7,689	(7,689)
Net (loss) for the year				(8,621)	(8,621)
Balance as of 31 December 2007 (restated)*		118,310	11,323	(9,863)	119,770
Increase in share capital	1	1,200			1,200
Transferred from reserves	11		(8,515)	8,515
Net (loss) for the year				(4,343)	(4,343)
Balance as of 31 December 2008		119,510	2,808	(5,691)	116,627

The accompanying notes are an integral part of these financial statements.

General Manager	Rimantas Bakas	3 March 2009
Chief Accountant	Violeta Staškūnienė	3 March 2009

Cash flow statements

	Group		Company
	2008	2007	2008	2007
		(restated)*		(restated)*
Cash flows from (to) operating activities
Net (loss)	(4,235)	(8,626)	(4,343)	(8,621)
Adjustments for non-cash items:
Depreciation and amortisation	20.278	21,544	20,000	21,365
Write-offs and change in allowance for accounts receivable	(1)	(1,133)	(1)	(1,133)
Loss from sale and write-off of property, plant and
equipment	313		318
Change in allowance for inventories	(181)	(8)	(181)	(8)
Income tax (income)	(660)	(1,871)	(436)	(1,871)
Accruals	(23)	241	(42)	232
Employee benefit liability	220	38	220	38
(Amortisation) of grants	(1,139)	(802)	(1,139)	(802)
Impairment of investment in subsidiary			465
Derivative financial instruments	567		567
Interest expenses	2,772	1,989	2,764	1,984
Elimination of other financial and investing activity results	(1,277)	(1,295)	(1,277)	(1,345)
	16,634	10,039	16,915	9,801
Changes in working capital:
Decrease in inventories	1,131	2,122	1,004	2,212
(Increase) in prepayments	(48)	(12)	(23)	(10)
(Increase) in trade receivables	(16,726)	(2,220)	(17,239)	(2,235)
(Increase) decrease in other receivables	(4,583)	1,946	(4,674)	1,946
Increase in other non-current liabilities		824		824
Increase in current trade payables and advances received	22,927	2,023	23,104	1,901
Increase in payroll-related liabilities	(10)	129	39	ਤਰ
(Decrease) in other liabilities to budget	(219)	(920)	(209)	(782)
Increase in other current liabilities	35	183	35	272
Net cash flows from operating activities	19,141	14,152	18,922	14,006

(cont'd on the next page)

The accompanying notes are an integral part of these financial statements.

Cash flow statements (cont'd)

	Group		Company
	2008	2007	2008	2007
	(restated)*		(restated)*
Cash flows from investing activities
(Acquisition) of tangible and intangible assets	(25,426)	(26,078)	(25,279)	(26,028)
Proceeds from sale of tangible assets	203	23	232	24
Penalty interest and fines received	1,230	1,301	1,230	1,301
Dividends received				50
Increase in cash flows from non-current accounts receivable	52	139	52	139
Interest received	51	13	51	13
Net cash flows from investing activities	(23,890)	(24,602)	(23,714)	(24,501)
Cash flows from financing activities
Proceeds from loans	18,887	18,301	18,887	18,301
(Repayment) of loans	(13,245)	(5,432)	(13,245)	(5,432)
Interest (paid)	(2,675)	(1,928)	(2,669)	(1,924)
Financial lease (payments)	(84)	(52)	(37)	(3)
Penalty interest and fines (paid)	(4)	(19)	(4)	(19)
Proceeds from capital issue	600		600
Net cash flows from financing activities	3,479	10,870	3,532	10,923
Net (decrease) increase in cash and cash equivalents	(1,270)	420	(1,260)	428
Cash and cash equivalents at the beginning of the year	4,886	4,466	4,864	4,436
Cash and cash equivalents at the end of the year	3,616	4,886	3.604	4,864

The accompanying notes are an integral part of these financial statements.

* Certain numbers shown here do not correspond to the 2007 financial statements and reflect adjustments made as detailed in Note 3.

General Manager Rimantas Bakas Chief Accountant

Violeta Staškūnienė

3 March 2009 3 March 2009

Notes to the financial statements

General information 1

AB Kauno Energija (hereinafter the Company) is a public limited liability company registered in the Republic of Lithuania. The address of its registered office is as follows:

Raudondvario Rd. 84. Kaunas, Lithuania.

AB Kauno Energija consists of the Company's head office and the branch of Jurbarko Silumos Tinklai.

The Company is involved in heat, electricity generation and maintenance of the heating and hot water systems. The Company was registered on 1 July 1997 after the reorganisation of AB Lietuvos Energija. The Company's shares are traded on the Baltic Secondary List of the NASDAQ OMX Vilnius.

As of 31 December 2008 and 2007 the shareholders of the Company were as follows:

	As of 31 December 2008			As of 31 December 2007
	Number shares owned ownership	ofPercentage	Of	Number shares owned ownership	ofercentage	O
Kaunas city municipality	16.954.892	85.12		16,954,892	85.99
Kaunas district municipality	1.606.168	8.07		1,606,168	8.14
Jurbarkas district municipality council	643,810	3.23		443.810	2.25
Other minor shareholders	713.512	3.58		713,512	3.62
	19,918,382	100.00		19,718,382	100.00

All the shares with a par value of LTL 6 each are ordinary shares. The Company did not hold its own shares in 2008 and 2007.

On 26 June 2008 in the Company's shareholders meeting it was decided to increase the share capital by issuing 200,000 ordinary shares with the par value LTL 6 each. Priority right to acquire issued shares was granted to Jurbarkas district municipality council. The issue price of shares is equal to their nominal value. 100,000 from 200,000 shares were not paid as of 31 December 2008. All shares were fully paid as of 31 December 2007.

The Company is also involved in maintenance of heating systems. On 1 July 2006 on the basis of Kaunas Energy Services Department AB Kauno Energija established the subsidiary UAB Pastatų Priežiūros Paslaugos (hereinafter the Subsidiary). The main activity of the Subsidiation and maintenance of building heating network and heating consumption equipment, internal engineering networks as well as building structures. After establishing of subsidiary the employees of the Company working at Kaunas Energy Services Department were dismissed from the Company and hired by UAB Pastaty Priežiūros Paslaugos. From 1 July 2006 the Company is contracting UAB Pastaty Priežiūros Paslaugos for permanent technical maintenance of heating and hot water supply systems.

The Group consists of AB Kauno Energija and subsidiary UAB Pastatų Priežiūros Paslaugos (hereinafter the Group):

Company	Registration address	Share of the stock held by Cost the Group	investment period	Profit (loss) for of the reporting Total		equity - Main activities
UAB Pastatu Paslaugos	Priežiūros Savanoriai Ave. 347.	100 %	6.518	(716)	6.053	Maintenance of heating systems

As of 31 December 2008 impairment loss of investment in UAB Pastaty Priežiūros Paslaugos in amount of LTL 465 thousand was recognised in the Parent's financial statements.

General information (cont'd) 1

Operations of AB Kauno Energija are regulated by the Heating Law No. IX-1565 of 20 May 2003 of the Republic of Lithuania. Starting 1 January 2008, the Law amending the Heating Law No. X-1329 of 20 November 2007 of the Republic of Lithuania came in to force.

According to the Heating Law of the Republic of Lithuania, the Company's activities are licensed and regulated by the State Price Regulation Commission of Energy Resources (hereinafter the Commission). On 26 February 2004 the Commission granted the Company the heat distribution license has indefinite maturity, but is subject to meeting certain requirements and may be revoked based on the respective decision of the Commission. The Commission also sets price cap for the heat supply. On 12 September 2008 by the decision of the territory in which the Company can provide heat distribution activity was re-defined, as the Company sold Paliai boiler house in Marijampolé district.

In 2003 the Company sold part of the subdivision Kauno Elektrinė to UAB Kauno Termofikacijos Elektrine (hereinafter KTE) and committed to purchase at least 80 % of the integrated heating network in Kaunas from this company. The contract is valid for 15 years from the sales agreement date. The contract established that the purchase price of heat energy from KTE would not increase during the first 5 years from the date of signing the contract. New heat sale price for KTE and the Company was approved by the Commission and became effective starting 1 December 2008. As described in Note 26, the Company participates as a third party in administrative litigation between KTE and the Commission.

On 8 June 2006 AB Kauno Energija signed the agreement with UAB Energjios Sistemy Servisas regarding the operation of Petrasiunai power plant and its assets located at Jegaines Str. 12, Kaunas. The contract is valid for a period of three years. Starting from 4 July 2006, UAB Energilos Sistemy Servisas started to provide operation services of Petrašiūnai power plant. The employees of the Company that used to work at a subdivision of Petrašiūnai power plant were dismissed from the Company and hired by UAB Energijos Sistemy Servisas. On 22 June 2006 the Company signed a lease agreement with UAB Kauno Termofikacijos Elektrine regarding the equipment used in production of heating energy operated by UAB Energijos Sistemy Servisas. The contract is valid for a period of three vears.

The Company's generation capacity includes a power plant in Petrasiūnai, 3 district boiler-houses in Kaunas integrated network, 7 regional boiler-houses in Kaunas region, 14 isolated networks and 50 local gas buming boilerhouses. On 25 June 2008 the Company sold Paliai boiler house, located in Marijampole city municipality.

The Company's total heat and electricity generation capacity is 534.2 MW and 8.75 MW, respectively, out of which 265.8 MW of heat generation and 8 MW of electric capacity are located at the power plant in Petrašiūnai. The total Company's power generation capacity is 542.95 MW.

In 2008 the average number of employees at the Group was 663 (721 employees in 2007). In 2008 the average number of employees at the Company was 609 (624 employees in 2007).

The Company's management approved these financial statements on 3 March 2009. The shareholders of the Company have a statutory right to either approve the financial statements after the Company's management approves these financial statements.

2 Accounting principles

2.1. Basis of preparation

These financial statements have been prepared in accordance with International Reporting Standards (IFRS), as adopted by the European Union (hereinafter the EU).

Adoption of new and/or changed IFRSs and IFRIC interpretations

The Group and the Company has adopted the following new and amended IFRS and International Report Interpretation Committee (IFRIC) interpretations during the year:

Amendments to IAS 39 Financial Instruments: Recognition and IFRS 7 Financial Instruments: Disclosures - Reclassification of Financial Assets;
IFRIC 11 IFRS 2 Group and Treasury Share Transactions.

The principal effects of these changes are as follows:

Amendments to IAS 39 and IFRS 7 - Reclassification of Financial Assets

Through these amendments the IASB implemented additional options for reclassfication of certain financial instruments categorised as held-for-trading or available-for-sale under specified circumstances. Related disclosures were added to IFRS 7. The Group and the Company did not have financial instruments caught by these amendments.

IFRIC 11 IFRS 2 - Group and Treasury Share Transactions

The interpretation provides quidance on classification of transactions as equity-settled and also gives guidance on how to account for share-based payment arrangements that involve two or more entities within the same group in the individual financial statements of each group and the Company have not issued instruments caught by this interpretation.

Standards issued but not yet effective

The Group and the Company has not applied the following IFRSs and IFRIC Interpretations that have been issued but are not yet effective:

Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements (effective for financial years beginning on or after 1 January 2009).

The amendment to IFRS 1 allows an entity to determine the 'cost' of investments in subsidiaries, jointly controlled entities or associates in its opening IFRS financial statements in accordance with IAS 27 or using a deemed cost. The amendment to IAS 27 requires all dividends from a subsidiary, jointly controlled entity or associate to be recognised in the income statement in the separate financial statements affect only the parent's separate financial statements and do not have an impact on the consolidated financial statements.

Besides, a new version of IFRS 1 was issued in November 2008. It retains the substance of the previous version, but within a changed structure and replaces the previous version of IFRS 1 (effective for financial years beginning on or after 1 July 2009 once adopted by the EU).

Amendment to IFRS 2 Share-based Payment (effective for financial years beginning on or after 1 January 2009).

The amendment clarifies the definition of a vesting condition and prescribes the treatment for an award that is effectively cancelled. The amendment will have no impact on the financial position or performance of the Group and the Company, as the Group and the Company do not have share-based payments.

Amendments to IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements (effective for financial years beginning on or after 1 July 2009 once adopted by the EU).

Revised IFRS 3 (IFRS 3R) introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS 27R requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an equity transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. Other consequential amendments were made to IAS 7 Statement of Cash Flows, IAS 12 Income Taxes, IAS 21 The Effects of Changes in Foreign Exchange Rates, IAS 28 Investment in Associates and IAS 31 Interests in Joint Ventures. In accordance with the transitional requirements of these amendments, the Group and the Company will adopt them as a prospective change. Accordingly, assets and liablittles arising from business combinations prior to the revised standards will not be restated.

2.1. Basis of preparation (cont'd)

IFRS 8 Operating Segments (effective for financial years beginning on or after 1 January 2009).

The standard sets out requirements for disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical areas in which it operates, and its major customers. IFRS 8 replaces IAS 14 Segment Reporting. The Group and the Company expect that the operating segments determined in accordance with IFRS 8 will not materially differ from the business segments previously identified under IAS 14.

Amendment to IAS 1 Presentation of Financial Statements (effective for financial years beginning on or after 1 January 2009).

This amendment introduces a number of changes, including introduction of a new terminology, revised presentation of equity transactions and introduction of a new statement of comprehensive income as well as amended requirements related to the presentation of the financial statements when they are restated retrospectively. The Group and the Company are still evaluating whether it will present all items of recognised income and expense in one single statement or in two linked statements.

Amendment to IAS 23 Borrowing Costs (effective for annual periods beginning on or after 1 January 2009).

The revised standard eliminates the option of expensing costs and requires borrowing costs to be capitalised if they are directly attributable to the acquisition or production of a qualifying asset. In accordance with the transitional requirements of the the Group and the Company will adopt this as a prospective change. Accordingly, borrowing costs will be capitalised on qualifying assets with a commencement date after 1 January 2009. No changes will be made for borrowing costs incurred to this date that have been expensed.

Amendments to IAS 32 Financial Instruments: Presentation of Financial Statements -Puttable Financial Instruments and Obligation (effective for financial years beginning on or after 1 January 2009).

The revisions provide a limited scope exception for puttable instruments to be classified as equity if they fulfil a number of specified features. The amendments to the standards will have no impact on the financial position or performance of the the Group or the Company, as the Group and the Company have not issued such instruments.

Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items (effective for financial years beginning on or after 1 July 2009).

The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations, It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item. The amendment will have no impact on the financial position or performance of the Group and the Company, as the Group and the Company have not entered into any such hedges.

Improvements to IFRSs

In May 2008 IASB issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard; most of the changes are effective for financial years beginning on or after 1 January 2009. The Group and the Company anticipate that these amendments to standards will have no material effect on the financial statements.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Clarification that all of a subsidiary's assets and liabilities are classified as held for sale, even when the entity will retain a nor-controlling interest in the subsidiary after the sale.
IFRS 7 Financial Instruments: Disclosures. Removal of the reference to 'total interest income' as a component of finance costs.
IAS 39 are not automatically classified as current in the balance sheet.
IAS 8 Accounting Policies, Change in Accounting Estimates and Errors. Clarification that only implementation guidance that is an integral part of an IFRS is mandatory when selecting accounting policies.
IAS 10 Events after the Reporting Period. Clarfication that dividends declared after the end of the reporting period are not obligations.
IAS 16 Property, Plant and Equipment. Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are transferred to inventory when rental ceases and they are held for sale. Also, replaced the term "net selling price" with "fair value less costs to sell".

2.1. Basis of preparation (cont'd)

IAS 18 Revenue. Replacement of the term 'direct costs' with 'transaction costs' as defined in IAS 39.
IAS 19 Employee Benefits. Revised the definition of 'past service costs', 'return on plan assets' and 'short term' and 'other long-term' employee benefits. Amendments to plans that result in a reduction in benefits related to future services are accounted for as curtailment.
IAS 20 Accounting for Government Grants and Disclosures of Government Assistance. Loans granted in the future with no or low interest rates will not be exempt from the impute interest. The difference between the amount received and the discounted amount is accounted for as government grant. Also, revised various terms used to be consistent with other IFRS.
IAS 23 Borrowing Costs. The definition of borrowing costs is revised to consolidate the two types of items that are considered components of 'borrowing costs' into one - the interest expense calculated using the effective interest rate method calculated in accordance with IAS 39.
IAS 27 Consolidated and Separate Financial Statements. When a parent entity accounts for a subsidiary at fair value in accordance with IAS 39 in its separate financial statement continues when the subsidiary is subsequently classified as held for sale.
IAS 28 Investment in Associates. If an associate is accounted for at fair value in accordance with IAS 39, only the requirement of IAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans applies. In addition, an investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment is not separately allocated to the goodwill included in the investment balance.
IAS 29 Financial Reporting in Hyperinflationary Economies. Revised the reference to the exception to measure assets and liabilities at historical cost, such that it notes property, plant and equipment as being an example, rather than implying that it is a definitive list. Also, revised various terms used to be consistent with other IFRS.
IAS 31 Interest in Joint ventures: If a joint venture is accounted for at fair value, in accordance with IAS 39, only the requirements of IAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities, income and expense will apply.
I AS 34 Interim Financial Reporting. Earnings per share are disclosed in interim financial reports if an entity is within the scope of IAS 33.
IAS 36 Impairment of Assets. When discounted cash flows are used to estimate "fair yalue less costs to sell" additional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to estimate 'value in use'.
IAS 38 Intangible Assets. Expenditure on advertising and promotional activities is recognised as an expense when the entity either has the right to access the goods or has received the service. The reference to there being rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a straightline method has been removed.
IAS 39 Financial Instruments: Recognition and Measurement. Changes in circumstances relating to derivatives are not reclassifications and therefore may be either removed from, or included in, the fair value through profit or loss' classification after initial recognition. Removed the reference in IAS 39 to a 'segment' when determining whether an instrument qualifies as a hedge. Require the use of the revised effective interest rate when remeasuring a debt instrument on the cessation of the fair value hedge accounting.
IAS 40 Investment Property. Revision of the scope such that property under construction or development for future use as an investment property is classified as investment property. If fair value cannot be reliably determined, the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete. Also, revised of the conditions for a voluntary change in accounting policy to be consistent with IAS 8 and clarified that the carrying amount of investment property held under lease is the valuation obtained increased by any recognised liability.
JAS 41 Agriculture. Removed the reference to the use of a pre-tax discount rate to determine fair value. Removed the prohibition to take into account cash flows resulting from any additional transformations when estimating fair value. Also, replaced the term 'point-of-sale costs' with 'costs to sell'.

IFRIC 12 Service Concession Arrangements (effective once adopted by the EU).

This interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. The Group and the Company has preliminary assessed that this interpretation will have no impact on the financial position or performance of the Group and the Company.

2.1. Basis of preparation (cont'd)

IFRIC 13 Customer Loyalty Programmes (effective for financial years beginning on or after 1 July 2008).

This interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the consideration received is allocated to the award credit and deferred over the period that the award credit is fulfilled. The Group and the Company do not maintain customer loyally programmes, therefore, this interpretation will have no impact on the financial position or performance of the Group and the Company.

IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for financial years beginning on or after 1 January 2009).

This interpretation specifies the conditions for recognising a net asset for a defined benefit pension plan. The Group and the Company has preliminary assessed that this interpretation will have no impact on the financial position or performance of the Group and the Company.

IFRIC 15 Agreement for the Construction of Real Estate (effective for financial years beginning on or after 1 January 2009 once adopted by the EU).

The interpretation clarifies when and related expenses from the sale of a real estate unit should be recognised if an agreement between a developer and a buyer is reached before the construction of the real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is within the scope of IAS 11 or IAS 18. The Group and the Company do not conduct such activity, therefore, this interpretation will not have an impact on the consolidated financial statements.

IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective for financial years beginning on or after 1 October 2008 once adopted by the EU).

The interpretation provides guidance on the accounting for a hedge of a net investment in a foreign operation. IFRIC 16 will not have an impact on the consolidated financial statements because the Group and the Company do not have hedges of net investments.

IFRIC 17 Distributions of Non-cash Assets to Owners (effective for financial years beginning on or after 1 July 2009 once adopted by the EU).

The interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders. IFRIC 17 will not have an impact on the consolidated financial statements because the Group and the Company do not distribute non-cash assets to owners.

IFRIC 18 Transfers of Assets from Customers (effective for transfers of assets received on or after 1 July 2009 once adopted by the EU).

The Interpretation provides guidance on accounting for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). The Group and the Company is evaluating the effect on the financial statements of this IFRIC.

2.2. Measurement and presentation currency

The amounts shown in these financial statements are measured in the local currency of the Republic of Lithuania, litas (LTL) and all values are rounded to the nearest thousand, except when otherwise indicated.

Starting from 2 February 2002, Lithuanian litas is pegged to EUR at the rate of 3.4528 litas for 1 euro, and the exchange rates in relation to other currencies are set daily by the Bank of Lithuania.

2.3. Principles of consolidation

The consolidated financial statements of the Group include AB Kauno Energija and its subsidiary. The control is normally evidenced when the Group owns, either directly, more than 50 % of the voting rights of a company's share capital and/or is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. The equity and net income attributable to minority shareholders' interests are shown separately in the consolidated balance sheet and consolidated income statement.

The purchase method of accounting is used for acquired businesses. The Company accounts for the acquired identifiable assets and liabilities of another company at their fair value at acquisition date. Goodwill is initially measured at cost being the excess of the business combination over the Group's share in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities. The goodwill is stated at cost, less impairment losses in the financial statements. Negative goodwill is recognised as income statement for the reporting period. The goodwill is presented in the stand alone financial statements of the Company in the same line as the investment into the acquired company. In the consolidated financial statements goodwill related to consolidated subsidiaries is presented under the intangible assets caption.

The goodwill is not amortised, however the goodwill is tested for impairment annually, and impairment loss is recognised as expenses for the period, when occurred. The impairment of goodwill in future periods is not reversed.

Companies acquired or sold during a year are included into the financial statements from the date of acquisition or until the date of sale.

The financial statements of the subsidiary are prepared for the same reporting period as the Parent.

Inter-company balances and transactions, including unrealised profits and losses, are eliminated on consolidation.

Consolidated financial statements are prepared on the basis of the same accounting principles applied to similar transactions and other events under similar circumstances.

In separate financial statements of the Company investments into subsidiaries and associated companies are accounted for applying the cost method less impairment losses.

2.4. Intangible assets

Intangible assets are initially measured at cost. Intangible assets are recognised if it is probable that future economic benefits that are attributable to the enterprise and the cost of asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised on a straight-line basis over their estimated useful lives (3 - 4 years).

Licenses

Amounts paid for licenses are capitalised and then amortised over useful life (3 - 4 years).

Software

The costs of acquisition of new software are capitalised and treated as an intangible asset if these costs are not an integral part of the related hardware. Software is amortised over a period not exceeding 3 years.

Costs incurred in order to restore or maintain the future economic benefits of performance of the existing software systems are recognised as an expense for the period when the restoration or maintenance work is carried out.

2.5. Accounting for emission rights

The Group and the Company apply a 'net liability' approach in accounting for the emission rights received. It records the emission allowances granted to it at nominal amount, as permitted by IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Liabilities for emissions are recognised only as emissions are made (i.e. provisions are never made on the basis of expected future emissions) and only when the reporting entity has made emissions in excess of the rights held.

When applying the net liability approach, the Group and the Company have chosen a system that measures deficits on the basis of an annual allocation of emission rights.

The outright sale of an emission right is recorded as a sale at the value of consideration received. Any difference between the fair value of the consideration received and its carrying amount is recorded as a gain or loss, irrespective of whether this creates an actual or an expected deficit of the allowances held. When a sale creates an actual deficit an additional liability is recognised with a charge to the income statement.

2.6. Property, plant and equipment

Property, plant and equipment of the Group and the Company are stated at cost less accumulated depreciation and impairment losses.

When assets are sold or retired, their cost, accumulated depreciation and impairment are eliminated from the accounting records, and any gain or loss resulting from their disposal is included in the income statement.

The initial cost of property, plant and equipment comprises its purchase price, including any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repair and maintenance costs, are normally charged to the income statement in the period the costs are incurred.

Depreciation is computed on a straight-line basis over the following estimated useful lives:

	Years
Buildings	7 - 50
Structures and machinery	5 - 60
Vehicles	3 - 10
Equipment and tools	2 - 20

The useful lives are reviewed annually to ensure that the period of depreciation is consistent with the expected pattern of economic benefits from the items in property, plant and equipment. Depreciation periods were revised as of 1 September 2008, as further described in Note 2.22.

Construction-in-progress is stated at cost. This includes the cost of construction, plant and other directly attributable costs. Construction-in-progress is not depreciated until the relevant assets are completed and put into operation.

27. Financial instruments

According to IAS 39 "Financial Instruments: Recognition and Measurement" financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and availablefor-sale financial assets, as appropriate. All purchases and sales of financial assets are recognised on the trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Financial assets or financial liabilities designated at fair value through profit or loss

The category 'financial assets at fair value through profit or loss' includes financial as held for trading. Financial assets are classified as held for trading if they are derivatives or are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in the income statement .

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-tomaturity when the Group and the Company have the positive intention and ability to hold to maturity. Investments that are intended to be held to-maturity are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the investment when the investments are derecognised or impaired, as well as through the amortisation process.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale investments

Available-for-sale financial assets are those non-derivative finat are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition available-for-sale financial assets are measured at fair value with gains or losses (except impairment and gain or losses from foreign currencies exchange) being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation technique includes using recent arm's length market transactions; reference to the current market value of another instrument which is substantially the same; discounted cash flow analysis or other valuation models.

2.8. Derivative financial instruments

The Group and the Company uses derivative financial instruments such as interest rate swaps to hedge its interest rate risks. Such derivative financial Instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives during the year are taken directly to the income statement as they do not qualify for hedge accounting.

The fair value of interest rate swap contracts is determined by the reference to market values for similar instruments.

2.9. Inventories

Inventories are valued at the lower of cost or net realisable value is the selling price in the ordinary course of business. Iess the costs of completion, marketing and distribution. Cost is determined by the firstin, first-out (FIFO) method. Technological fuel is accounted for using the weighted average method. Unrealisable inventory is written off.

2.10. Cash and cash equivalents

Cash includes cash on hand, cash at banks and cash in transit. Cash equivalents are short-term, highly liquid investments that are readly convertible to known amounts of cash with onginal maturities of three months or less and that are subject to an insignificant risk of change in value.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, cash with banks, cash in transit, deposits held at call with banks, and other short-term highly liquid investments.

2.11. Employee benefits

Long-term employee benefits

Each employee of the Group and the Company is entitled to 2 - 6 months salary payment when leaving the job at or after the start of the pension period according to Lithuanian legislation of the collective bargaining agreement. The liability recognised in the balance sheet in respect of long-term employee benefits is the present value of the defined benefit obligation at the balance sheet obligation is calculated at each balance sheet date in accordance to actuarial assumptions using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of government bonds that are denominated in the benefits will be paid, and that have terms of maturity approximating to the terms of the related liability.

Actuarial gains and losses are recognised immediately in the income/expense and no "corridor" is applied. All past service costs are recognised immediately.

Other employee benefits

Wages, salaries, contributions to the state social insurance funds, vacation and sick leave are accrued in the year in which the employees provide their services to the Group and the Company.

2.12. Borrowings

Borrowing costs are expensed as incurred.

Borrowings are initially recognised at fair value, less the costs of transaction. They are subsequently carried at amortised cost, the difference between the value at the inception value being recognised in the net profit or loss over the penod of the borrowings.

2.13. Finance and operating leases - the Group and the Company as lessor

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of specific asset or the arrangement conveys a right to use the asset.

Finance lease

Leases where the Group and the Company transfer substantially all the risks and benefits of ownership of the asset are classified as finance leases. The Group and the Company recognise lease receivables at the value equal to the net investment in the lease, starting from the date of commencement of the lease term. Finance income is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding. Initial direct costs are included in the initial measurement of the lease receivables.

Operating lease

Leases where the Group and the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. The Group and the Company presents assets subject to operating leases in the balance sheets according to the nature of the asset. Lease income from operating leases is recognised in the statement of income on a straight-line basis over the lease term as other income. Initial direct costs incurred specifically to earn revenues from an operating lease are added to the carrying amount of the leased asset.

The depreciation policy for leased assets is consistent with the Group's depreciation policy for similar assets, and depreciation is calculated in accordance with the accounting policies, used for the property, plant and equipment.

2.14. Operating leases - the Group and the Company as lessee

Leases where the lessor retains all the risk and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

The gains from discounts provided by the lessor are recognised as a decrease in lease expenses over the period of the lease using the straight-line method.

If the result of sales and lease back transactions is operating lease and it is obvious that the transaction has been carried out at fair value, any profit or loss is recognised immediately. If the sales price is lower than the fair value, any profit or loss is recognised immediately, except for the cases when the loss is compensated by lower than market prices for lease payments in the future. The profit is then deferred and amortised in proportion to the lease payments over a period, during which the assets are expected to be operated. If the sales price exceeds the fair value, a deferral is made for the amount by which the fair value is exceeded and it is amortised over a period, during which the assets are expected to be operated.

2.15. Grants (deferred income)

Grants received in the form of non-current assets or intended for the purchase, construction of non-current assets are considered as asset-related grants. Assets received free of charge are also allocated to this group of grants. The amount of the grants related to assets is recognized as deferred income and released to income in equal annual amounts over the expected useful life of related asset. In the income statement, a relevant expense account is reduced by the amount of grant amortisation.

Grants received as a compensation for the expenses or unearned income of the current or previous reporting period, also, all the grants, which are not grants related to assets, are considered as grants related to incomerelated grants are recognised as used in parts to the expenses incurred during the reporting period or unearned income to be compensated by that grant.

The balance of unutilised grants is shown in the caption "Grants (deferred income)" in the balance sheet.

2.16. Income tax

Income tax charge is based on profit for the year and considers deferred taxation. Income tax is calculated based on the Lithuanian tax legislation.

The current income tax is based on taxable pre-tax profit for the items of income or expense that are not taxable or deductable. The tax rates used to compute the income tax expenses are those that are enacted by the balance sheet date. In 2008 the income tax rate in Lithuania was 15 %. In 2007 along with the corporate income tax (15 %) companies had to pay an additional 3 % temporary social tax calculated based on the same basis as income tax. Starting 1 January 2009 a new tax rate of 20 % is to be applied.

Tax losses can be carried for indefinite period, except for the losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the Company changes its activities due to which these losses incurred except when the Company does not continue its activities due to reasons which do not depend on the Company itself. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature.

Deferred taxes are calculated using the liability method on temporary differences. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse based on tax rates enacted or substantially enacted at the balance sheet date.

Deferred tax assets have been recognised in the balance sheet the Group's and the Company's management believes it will be realised in the foreseeable future, based on taxable profit forecasts. If it is believed that part of the deferred tax asset is not going to be realised, this part of the deferred tax asset is not recognised in the financial statements.

2.17. Basic and diluted earnings per share

Basic earnings per share are calculated by dividing the net profit attributable to the weighted average of ordinary registered shares issued. Provided that the number of shareholders changes without causing a change in the economical resources, the weighted average of ordinary registered shares is adjusted in proportion to the change in the nurnber of shares as if this change took place at the beginning of the previous period presented. Since there are no instruments reducing earnings per share, there is no difference between the basic and diluted earnings per share.

2.18. Revenue recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably. Sales are recognised net of VAT and discounts.

Revenue from sales of heat energy is recognised based on the bills issued to residential and other customers for heating and heating-up of cold water. The customers are billed monthly according to the readings of heat meters.

Income from overdue interest is recognised upon receipt.

2.19. Expense recognition

Expenses are recognised on the basis of accrual and revenue and expense matching principles in the reporting period when the income related to these expenses was earned, irrespective of the time the money was spent. In those cases when the costs incurred cannot be directly attributed to the specific income and they will not bring income during the future periods, they are expensed as incurred.

The amount of expenses is usually accounted for as the amount paid or due, excluding VAT. In those cases when a long period of payment is established and the interest is not distinguished, the amount of expenses is estimated by discounting the amount of payment using the market interest rate.

2.20. Foreign currencies

Foreign currency transactions are accounted for at the exchange rates prevailing at the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies on the balance sheet date are recognised in the income statement. Such balances denominated in foreign currencies are translated at period-end exchange rates.

2.21. Impairment of assets

Financial assets

Financial assets are reviewed for impairment at each balance sheet date.

For financial assets carried at amortised cost, whenever it is probable that the Group and the Company will not collect all amounts due according to the contractual terms of loans or receivables, an impairment or bad debt loss is recognised in the income statement. The reversal of impairment losses previously recognised is recorded when the decrease in impairment loss can be justified by an event occurring after the write-down. Such reversal is recorded in the income statement. However, the increased carrying amount is only recognised to the extent it does not exceed the amortised cost that would have been had the impairment not been recognised.

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to profit or loss. Reversals in respect of equity instruments classified as available-for-sale are not recognised in profit or loss. Reversals of impairments are reversed through profit or loss. if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in profit or loss.

In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group and the Company will not be able to collect all of the amounts due under the original terms of the carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Other assets

Other assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. Reversal is accounted for in the same caption of income statement as impairment losses. For evaluation of impairment of assets the entire Group and Company is considered as one cash generating unit.

2.22. Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingencies, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

Judgments

In the process of applying the Group's and the Company's accounting policies, management has made the following judgment, apart from those involving estimations, which has the most significant effect on the amounts recognised in the financial statements:

Finance Lease Commitments-Group and Company as Lessee

The Group and the Company has entered into leases contracts on vehicles. The Group and the Company has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the contracts as finance leases.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Property, plant and equipment - useful life

The key assumptions concerning determination the useful life of property, plant and equipment are as follows: expected usage of the asset, expected physical wear and tear, technical or commercial obsolescence arising from changes or improvements in the services, legal or similar limits on the asset, such as the expiry dates of related leases.

Change in accounting estimates

The Group and the Company has considered the actual useful life of property, plant and increased depreciation period for the heating connections from 20 years and for the heating stations from 10 years to 15 years respectively starting from 1 September 2008. If the Group and the Company would continue using 20 and 10 years depreciation period, depreciation expenses for 2008 would be higher by LTL 1,600 thousand and property plant and equipment balance would be lower by LTL 1,600 thousand.

Impairment of non-financial assets

The Group and the Company assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Deferred Tax Assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is profit will be available against which the losses can be utilised. Significant management judgment is required the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details are contained in Note 23.

Allowances

The Group and the Company makes allowances for doubtful accounts receivable. Significant judgment is used to estimate doubtful accounts. In estimating doubtful accounts historical and anticipated customer performance are considered. Changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in the financial statements.

2.23. Segments

The activities of the Group and the Company are organised in one major business and geographical segment.

2.24. Contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.

2.25. Subsequent events

Post-balance sheet events that provide additional information about the Group's and the Company's position at the balance sheet date (adjusting events) are reflected in the financial statements. Post-balance sheet events that are not adjusting events are disclosed in the notes when material.

2.26. Offsetting and comparative figures

When preparing the financial statements, assets and liabilities, as well as revenue and expenses are not set off, except the cases when certain IFRS specifically require such set-off.

Where necessary, comparative figures have been adjusted to correspond to the presentation of the current year.

3 Correction of an error

While preparing the financial statements for the previous reporting periods the Group and the Company did not evaluate the fact that each employee is entitled to 2 - 6 months salary payments when leaving the job at or after the start of the pension period according to the Lithuanian legislation of the collective bargaining agreement. Therefore when preparing the Group's and the Company's financial statements for 2008 this correction was accounted for respectively, i.e. by correcting the comparative information of 2007 and previous reporting periods.

Group	As of 31 December	Correction of an error	As of 31 December
BALANCE SHEET	2007 (as stated earlier)		2007 (as restated)
Current and non-current assets	215,227		215,227
Total assets	215,227		215,227
Total equity	117,660	(1,348)	116,312
Other non-current liabilities	824	1,392	2,216
Deferred tax liability	909	(337)	572
Other current liabilities	304	293	597
Other non-current and current liabilities	95,530		95,530
Total equity and liabilities	215,227		215,227
INCOME STATEMENT
Operating income	170,847		170,847
Salaries and social security	(22,989)	(132)	(23,121)
Income tax	1,840	26	1,866
Other captions of income statement	(158,218)		(158,218)
Net profit for the year	(8,520)	(106)	(8,626)
Basic (loss) per share (litas)	(0.43)		(0.44)
Company	As of 31 December 2007 (as stated earlier)	Correction of an error	As of 31 December 2007 (as restated)
BALANCE SHEET
Current and non-current assets	219,198		219,198
Total assets	219,198		219,198
Total equity	121.118	(1,348)	119,770
Other non-current liabilities	824	1,392	2,216
Deferred tax liability	1,578	(337)	1,241
Other current liabilities
	304	293	597
Other non-current and current liabilities	95,374		95,374
Total equity and liabilities	219,198		219,198
INCOME STATEMENT
Operating income	169,373		169,373
Salaries and social security	(19,966)	(132)	(20,098)
Income tax	1,845	26	1,871
Other captions of income statement	(159,767)		(159,767)

4 Intangible assets

Movements of intangible assets for the current and prior reporting periods are as follows:

	Group	Company
	Patents, licenses
Cost:
Balance as of 31 December 2006	4,063	4,036
Additions	1,265	1,217
Balance as of 31 December 2007	5,328	5,253
Additions	343	264
Balance as of 31 December 2008	5,671	5,517
Amortisation:
Balance as of 31 December 2006	1,949	1,947
Charge for the year	868	858
Balance as of 31 December 2007	2,817	2,805
Charge for the year	1,071	1,029
Balance as of 31 December 2008	3,888	3,834
Net book value as of 31 December 2008	1,783	1,683
Net book value as of 31 December 2007	2,511	2,448
Net book value as of 31 December 2006	2,114	2,089

Amortisation expenses of intangible assets are included in the operating expenses in the income statement.

Part of the non-current intangible assets of the Group and the Company with the acquisition cost of Far of the Tion of Childring Mangile "Good" of the "Crosp" and as of 31 December 2007) were fully amortised but were still in active use.

5 Property, plant and equipment

Group	Land and buildings	Structures and machinery	Vehicles	Equipment and tools	Construction in progress and prepayments	Total
Cost:
Balance as of 31 December 2006	54,788	309,021	4,273	10,731	10,122	388,935
Additions	113	13,587	536	રિકેટ	13,584	28,486
Disposals and write-offs	(7)	(2,158)	(231)	(125)		(2,521)
Reclassifications	595	11,684		3,223	(15,502)
Balance as of 31 December 2007	55,489	332,134	4,578	14,495	8,204	414,900
Additions	392	15,675	217	814	8,874	25,972
Disposals and write-offs	(379)	(2,851)	(129)	(241)		(3,600)
Reclassifications	1,119	6,814	47	417	(8,397)
Balance as of 31 December 2008	56,621	351,772	4,713	15,485	8,681	437,272
Accumulated depreciation and impairment losses:
Balance as of 31 December 2006	23,868	206,319	2,994	4,690		237,871
Charge for the year	1,133	17,202	451	1,890		20,676
Disposals and write-offs	(6)	(2,143)	(224)	(125)		(2,498)
Balance as of 31 December 2007	24,995	221,378	3.221	6,455		256,049
Charge for the year	1,140	15,206	526	2,335		19,207
Disposals and write-offs	(206)	(2,486)	(150)	(241)		(3,083)
Reclassifications		119	7	(126)
Balance as of 31 December 2008	25,929	234,217	3,604	8,423		272,173
Net book value as of 31 December 2008	30,692	117,555	1,109	7,062	8,681	165,099
Net book value as of 31 December 2007	30,494	110,756	1,357	8,040	8,204	158,851
Net book value as of 31 December 2006	30,920	102,702	1,279	6,041	10,122	151,064

5 Property, plant and equipment (cont'd)

Company	Land and buildings	Structures and machinery	Vehicles	Equipment and tools	Construction in progress and prepayments	Total
Cost:
Balance as of 31 December 2006	52,245	308,473	3,841	10,506	10,122	385,187
Additions	113	13,578	332	640	13,584	28,247
Disposals and write-offs	(7)	(2,157)	(231)	(125)		(2,520)
Reclassifications	596	11,684		3,222	(15,502)
Balance as of 31 December 2007	52,947	331,578	3,942	14,243	8,204	410,914
Additions	392	15,661	217	760	8,874	25,904
Disposals and write-offs	(378)	(2,832)	(121)	(205)		(3,536)
Reclassifications	1,119	6,814	47	417	(8,397)
Balance as of 31 December 2008	54,080	351,221	4,085	15,215	8,681	433,282
Accumulated depreciation and impairment:
Balance as of 31 December 2006	23,024	205,835	2,642	4,567		236,068
Charge for the year	1,077	17,170	402	1,858		20,507
Disposals and write-offs	(5)	(2,145)	(223)	(123)		(2,496)
Balance as of 31 December 2007	24,096	220,860	2,821	6,302		254,079
Charge for the year	1,082	15,171	441	2,277		18,971
Disposals and write-offs	(206)	(2,454)	(121)	(204)		(2,985)
Reclassifications		119	7	(126)
Balance as of 31 December 2008	24,972	233,696	3,148	8,249		270,065
Net book value as of 31 December 2008	29,108	117,525	937	6,966	8,681	163,217
Net book value as of 31 December 2007	28,851	110,718	1,121	7,941	8,204	156,835
Net book value as of 31 December 2006	29,221	102,637	1,199	5,940	10,122	149,119

The depreciation charge of the Group's and Company's property, plant and equipment for 2008 amounts to LTL 19,207 thousand and LTL 18,971 thousand, respectively (LTL 20,676 thousand and LTL 20,507 thousand in 2007). The amounts of LTL 19,050 thousand and LTL 18,894 thousand for the year 2008 (LTL 20,474 thousand and LTL 20,333 thousand for the year 2007), respectively, were included into operating expenses in the Group's and the Company's income statement. The remaining amounts were included into other expenses caption.

Part of the property, plant and equipment of the Company with acquisition cost of LTL 50,828 thousand were fully depreciated as of 31 December 2008 (LTL 45,634 thousand as of 31 December 2007) but were still in active use. During 2008 the Company has revised depreciation rates and prolonged useful life for heating connections and heating stations from 20 years to 30 years and from 10 years to 15 years respectively, starting September 2008. (Note 2.22).

As of 31 December 2008 and 2007 the major part of the Group's construction in progress consisted of reconstruction works.

As of 31 December 2008 property, plant and equipment of the Group and the Company with the net book value of LTL 73,691 thousand (LTL 79,042 thousand as of 31 December 2007) was pledged to banks as a collateral for loans (Note 12).

6 Non-current accounts receivable

	Group		Company
	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
Long-term loans granted to the Company's employees	રેણે	104	56	104
Other	9	13	9	13
	રેસ	117	દર્	117

Long-term loans granted to the employees of the Company are non-interest bearing and mature from 2008 to 2023. These loans are accounted for at discounted value using 6.0 % interest rate.

All non-current accounts receivable as of 31 December 2008 and 2007 are neither past due nor impaired.

Other financial assets 7

	Group		Company
	As of 31 2008	As of 31 December December 2007	As of 31 December December 2008	2007
Ordinary shares - unquoted	433	433	433	433

Carrying value of the unquoted ordinary shares is estimated using recent arm's length market transactions.

8 Inventories

	Group		Company
	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
Technological fuel	3.443	3.416	3,443	3.416
Spare parts	1.457	2,202	1.457	2,202
Materials	1,356	1,769	1,316	1,602
	6.256	7,387	6,216	7,220
Valuation allowance at the end of the year	(675)	(856)	(675)	(856)
	5,581	6,531	5,541	6.364

The acquisition cost of the Group's and the Company's inventories accounted for at net realisable value as of 31 December 2008 amounted to LTL 675 thousand (LTL 856 thousand as of 31 December 2007).

Changes in the valuation allowance for inventones for the year 2008 and 2007 was included into change in inventories allowance caption in the Group's and the Company's income statement.

9 Current accounts receivable

		Group
	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
Trade receivables, gross	74.277	58.283	74.512	58.005
Less: impairment of doubtful receivables	(19,480)	(20,399)	(19,480)	(20,399)
Trade receivables, net	54.797	37,884	55,032	37.606

Change in impairment of doubtful receivables in 2008 and 2007 is included into the change in allowance for doubtful receivables caption in the Group's and the Company's income statement.

As of 31 December 2008 trade receivables with the nominal value of LTL 19,480 thousand (as of 31 December 2007 - LTL 20,399 thousand) were impaired and fully provided for.

Movements in the allowance for impairment of the Group's and the Company's receivables were as follows:

	Total
Balance as of 31 December 2006	22,370
Unused amounts reversed	(1,014)
Utilized	(957)
Balance as of 31 December 2007	20,399
Unused amounts reversed	(241)
Utilized	(678)
Balance as of 31 December 2008	19.480

In 2008 the Group and the Company wrote off LTL 678 thousand (in 2007 - LTL 957 thousand) of bad debts. In 2008 the Group and the Company also recovered LTL 67 thousand of bad debts (in 2007 - LTL 119 thousand), which were written off in the previous periods.

The ageing analysis of the Group's trade receivables as of 31 December 2008 and 2007 is as follows:

	Trade receivables	Trade receivables past due but not impaired
	neither past due nor impaired	Less than 60 days days		days	days	days	Total

2008	43.602	6.338	1.569	1.612	817		859 54,797
2007	28.027	6,363	643	1.085	604	1.162	37,884

The ageing analysis of the Company's trade receivables as of 31 December 2008 and 2007 is as follows:

	Trade receivables past due but not impaired
	Trade receivables neither past due nor impaired	Less than 60 days	days	60 - 150 days	days	More than 360 days	Total
2008	43.851	6.336	1.557	1.612	817		859 55,032
2007	27.801	6.358	624	1.085	576		1.162 37.606

Trade receivables are non-interest bearing and are generally on 30 days terms or individually agreed.

The Group's and the Company's trade receivables, past due more than 360 days, comprise the accounts receivable from budget organisations, financed from budgets of the State and municipalities, and from institutions financed by Patient's Funds, for which the allowance is not accrued by the Group and the Company.

9 Current accounts receivable (cont'd)

Other receivables of the Group and the Company as of 31 December 2008 amounted to LTL 8,547 thousand and LTL 8,655 thousand, respectively (as of 31 December 2007 - respectively LTL 3,551 thousand and LTL 3,567 thousand). As of 31 December 2008, the major part of other receivables from sold inventones (metals, heating equipments), other services supplied (transportation and permanent heating systems maintenance) and VAT receivable.

The ageing analysis of the Group's other receivables as of 31 December 2008 and 2007 is as follows:

		Other receivables (excluding taxes) past due but not impaired
	Other receivables neither past due nor impaired	60 days	days	Less than days	days	More than 360 days	lotal
2008	2.305	63	39		2	242	2.651
2007	2.550				8		2 559

The ageing analysis of the Company's other receivables as of 31 December 2008 and 2007 is as follows:

		Other receivables (excluding taxes) past due but not impaired
	Other receivables neither past due nor impaired	Less than 60 days	days	days	days	More than 360 days	Total

2008	2.413	63	39		2	242	2.759
2007	2.566				8		2.575

The Group's and the Company's other receivables are non-interest bearing and are generally on 30 - 45 days terms.

Credit quality of financial assets neither past due nor impaired

10 Cash and cash equivalents

		Group		Company
	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
Cash in transit	2.158	3.401	2.158	3.401
Cash at bank	1,437	1,472	1.426	1.450
Cash on hand	21	13	20	13
	3,616	4.886	3.604	4,864

The Group's and the Company's accounts in national currency in banks amounting to LTL 801 thousand (2007 -LTL 865 thousand) are pledged as collateral for the loans (Note 12).

11 Reserves

Legal and other reserves

A legal reserve is a compulsory reserve under Lithuanian legislation. Annual transfers of not less than 5 % of net profit calculated in accordance with IFRS are compulsory until the reserve reaches 10 % of the share capital. The legal reserve cannot be distributed as dividends but can be used to cover any future losses. On 29 April 2008, based on the decision of the shareholders the Group and the Company transferred an amount of LTL 8,515 thousand from legal reserve to cover losses of 2007. On 14 May 2007 the Group and the Company transferred LTL 7,689 thousand to the legal reserve. On 7 March 2008 based on the decision of the Subsidiary transferred an amount of LTL 183 thousand from other reserve and retained earnings to the legal reserve. On 14 March 2007 based on the decision of the shareholders the Subsidiary transferred an amount of LTL 50 thousand to the legal reserve and an amount of LTL 163 thousand to the other reserve for the purpose of investment.

12 Borrowings

		Group		Company
	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
Non-current borrowings
Non-current borrowings	33,921	23.039	33.921	23,039
Current borrowings	33,921	23.039	33,921	23,039
Current portion of non-current borrowings	8.748	8,688	8,748	8,688
Current borrowings (including credit line)	15.720	21,020	15,720	21,020
	24,468	29.708	24,468	29,708
	58.389	52.747	58.389	52.747

Terms of repayment of non-current borrowings are as follows (all loans are with variable interest rate):

		Group		Company
	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
2008		8,688		8,688
2009	8.748	15,607	8,748	15.607
2010	9,570	2,319	9.570	2,319
2011	9,940	1,910	9.940	1.910
2012	4,682	1.163	4,682	1,163
2013	3,987	668	3,987	668
2014	3.987	667	3.987	667
2015	1.406	604	1.406	604
2016	349	101	349	101
	42,669	31.727	42,669	31.727

Actual interest rates are close to effective interest rates. Weighted average effective interest rates (in %) of borrowings outstanding at the year-end are as follows:

	Group		Company
	As of 31 December December 2008	As of 31 2007	As of 31 December December 2008	As of 31 2007
Current borrowings	7.7	7.3	7.7	7.3
Non-current borrowings	5.9	6.7	5.9	6.7

Parts of borrowings at the end of the year in national and foreign currencies are as follows:

		Group		Company
	As of 31 December December 2008	As of 31 2007	As of 31 December 2008	As of 31 December 2007
Currency of the loan:
EUR	32.913	23.610	32.913	23,610
LTL	25.476	29.137	25,476	29,137
	58,389	52,747	58,389	52.747

12 Borrowings (cont'd)

On 1 August 2005 the Group and the Company signed a long-term loan agreement with AB Bankas for the amount of LTL 5,000 thousand. The matunty date of the loan is 1 August 2012. As of 31 December 2008 the outstanding balance of the loan amounted to LTL 2.921 thousand of which LTL 832 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 6-month VILIBOR plus 0.77 % interest rate. The loan is secured by bank account in AB Bankas Hansabankas of LTL 346 thousand (2007 - LTL 6 thousand).

On 23 August 2005 the Group and the Company signed a long-term loan agreement with AB SEB Bankas for the amount of EUR 8,776 thousand (the equivalent of LTL 30,300 thousand). The maturity date of the last portion of the loan is 31 December 2014. The outstanding balance of the loan amounted to EUR 4,344 thousand (the equivalent of LTL 15,000 thousand) as of 31 December 2008, of which LTL 2,500 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 6-month EUR LIBOR plus 1.9 % interest rate. The loan is secured by bank account in AB SEB Bankas of LTL 455 thousand (2007 - LTL 858 thousand).

On 1 December 2006 the Group and the Company signed a long-term loan agreement with Nordea Bank Finland Plc. Lithuanian branch for the amount of LTL 2.090 thousand. On 18 April 2007 the loan amount increased up to LTL 6,090 thousand. The maturity date of the loan is 31 October 2015. As of 31 December 2008 the outstanding balance of the loan amounted to LTL 5,825 thousand, of which LTL 844 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 3-month VILIBOR plus 0.45 % interest rate.

On 21 December 2006 the Group and the Company signed a long-term loan agreement with AB SEB Bankas for the amount of EUR 2.059 thousand (the equivalent of LTL 7,108 thousand), The maturity date of the last portion of the loan is 30 November 2016. As of 31 December 2008 the outstanding balance of the loan amounted to EUR 830 thousand (the equivalent of LTL 2,863 thousand), of which LTL 395 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 6-month EUR LIBOR plus 0.4 % interest rate.

On 14 November 2007 the Group and the Company signed a long-term loan agreement with AB DnB NORD Bankas for the amount of EUR 576 thousand (the equivalent of LTL 1,989 thousand). The maturity date of the last portion of the loan is 31 December 2016. As of 31 December 2008 the outstanding balance of the loan amounted to EUR 576 thousand (the equivalent of LTL 1,989 thousand), of which LTL 248 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 12-month EUR LIBOR plus 0.59 % interest rate.

On 20 April 2007 the Group and the Company signed an overdraft with Danske Bank A/S Lithuania Branch for the amount of LTL 1.010 thousand, with the maturity date of 20 October 2009. As of 31 December 2008 the Group's and the Company's balance of used overdraft was LTL 1,010 thousand as of 31 December 2007). The overdraft bears 3-month VILIBOR plus 0.44 % interest rate.

On 31 July 2008 the Group and the Company signed a long-term investment with Danske Bank A/S Lithuania Branch for the amount of EUR 984 thousand (the equivalent of LTL 3,398 thousand). The maturity date of the last portion of the loan is 2018. As of 31 December 2008 the outstanding balance of the investment credit amounted to EUR 357 thousand (the equivalent of LTL 1,232 thousand), of which LTL 262 thousand with maturity date 31 December 2012 was accounted for as the current borrowings in the financial statements of the Group and the Company. The loan bears 3-month EURIBOR plus 0.385 % interest rate.

On 31 July 2008 the Group and the Company signed a long-term investment with Danske Bank A/S Lithuania Branch for the amount of EUR 1,158 thousand (the equivalent of LTL 4.000 thousand). The maturity date of the last portion of the loan is 30 September 2017. As of 31 December 2008 the outstanding balance of the investment credit amounted to EUR 223 thousand (the equivalent of LTL 771 thousand). All amount with maturity date 31 December 2011 was accounted for as the non-current borrowing in the financial statements of the Group and the Company. The loan bears 3-month EURIBOR plus 0.7 % interest rate.

On 22 September 2008 the Company signed a long-term loan agreement with AB SEB Bankas for the amount of EUR 3,333 thousand (the equivalent of LTL 11,508 thousand). The maturity date of the loan is 31 December 2011. As of 31 December 2008 the outstanding balance of the loan amounted to EUR 3,133 thousand (the equivalent of LTL 10,818 thousand), of which LTL 2,417 thousand was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 1-month EUR LIBOR plus 0.7 % interest rate.

12 Borrowings (cont'd)

On 5 September 2008 the Group and the Company signed a short - term loan agreement with AB SEB Bankas for the amount of EUR 174 thousand (the equivalent of LTL 601 thousand). The maturity date of the loan is 31 May 2009. As of 31 December 2008 the outstanding balance of the loan amounted to EUR 70 thousand (the equivalent of LTL 240 thousand). All amount was accounted for as the current portion of non-current borrowings in the financial statements of the Group and the Company. The loan bears 1-month EUR LIBOR plus 0.8 % interest rate.

On 4 June 1999 the Group and the Company signed a credit line agreement with AB SEB Bankas for the amount of LTL 7,000 thousand, with the maturity date of 18 July 2009. As of 31 December 2008 the Group and the Company's balances of used credit line was LTL 6,960 thousand (LTL 6,500 thousand as of 31 December 2007). The credit line bears OVER'N VILIBOR plus 1.9 % interest rate.

On 08 July 2004 the Group and the Company signed an overdraft agreement with AB DnB NORD Bankas for the amount LTL 18,000 thousand with the maturity date of 31 May 2008 an overdraft amount was decreased to LTL 10,000 thousand and maturity date was prolonged up to 31 May 2009. As of 31 December 2008 the Group and the Company's balance of used overdraft was LTL 8,760 thousand as of 31 December 2007). The overdraft bears 6-month VILIBOR plus 0.78 % interest rate.

The property, plant and equipment (Note 5) and accounts in banks (Note 10) of the Group and the Company were pledged as collateral for the loans.

13 Finance lease obligations

The assets leased by the Group under finance lease contracts mainly consist of vehicles. The terms of financial lease are from 2 to 5 years. The distribution of the net book value of the assets acquired under financial lease is as follows:

	Group 2008	As of 31As of 31 As of 31As of 31 December December 2007	Company December December 2008	2007
Vehicles	186	265	55	75
	186	265	55	75

As of 31 December 2008 the interest rate on the financial lease obligations is fixed interest rate is equal to 3.99 % and 5.77 %. The variable interest rate varies depending on 6-month EURIBOR plus 1.5 %.

Financial lease payables at the year-end are denominated in EUR.

Future minimal lease payments under the above-mentioned financial lease contracts as of 31 December 2008 are as follows:

	Group As December 2008	31 of 31As of December 2007	Company As December 2008	of of 31 As 31 December 2007
Within one year	વેરૂ	વેદ	રૂક	41
From one to five years	101	192		38
Total financial lease obligations	194	288	38	79
Interest	(13)	(23)	(1)	(4)
Present value of financial lease obligations	181	265	37	75
Financial lease obligations are accounted for as:
- current	86	84	37 ·	38
- non-current	વેરૂ	181		37

AB KAUNO ENERGIJA CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

14 Grants (deferred income)

	Group As of December 2008	31 As 31 of December 2007	Company of 31 As ਰਤ December 2008	of 31 December 2007
Balance at the beginning of the reporting period Received during the year	10,503	7,935	10,503	7,935
Non-current assets received for free	889	3,370	889	3,370
	889	3.370	889	3.370
Amortisation Balance at the end of the reporting period	(1,139) 10,253	(802) 10,503	(1,139) 10,253	(802) 10,503

In 2008 the Company received the heating network located in Ziemgaliy Str. and Raudondvario Rd. for free, fair value of which at the date of the transfer amounted to LTL 149 thousand. As well, in 2008 the Group and the Company received telecommunication equipment, the fair value of the date of the transfer amounted to LTL 140 thousand. On 10 October 2008 the branch of the Company Jurbarko Silumos Tinklai received LTL 600 thousand subsidy for the change of the boiler burned by fuel oil to the boiler burned by gas from VŠ| Lietuvos Aplinkos Apsaugos Investicijy Fondas (LAAIF). As of 31 December 2008 the VS| LAAIF transferred LTL 360 thousand to the Company, the remaining part of LTL 240 thousand was accounted for by the Group and the Company under other accounts receivable caption as of 31 December 2008.

In 2007 the Company received the heating network for free located in Draugystes Str., Elektreny Str. and Partizany Str. in Kaunas, fair value of which at the date of the transfer amounted to LTL 3,370 thousand.

15 Employee benefit liability

The Group's and the Company's total employee benefit liability is stated below:

	Group As of 2008	313 of 31 December December 2007	Company of 31As As 2008	of 31 December December 2007
Non-current employee benefit liability Current employee benefit liability	1,612 408	1.392 293	1.612 408	1.392 293
	2,020	1.685	2,020	1.685

As of 31 December 2008 and 2007 the Group and the Company represented current portion of non-current employee benefit liability under other current liabilities caption.

Total amount of employee benefit expenses of the Group and the Company amounted to LTL 335 thousand during the year ended 31 December 2008 (LTL 132 thousand during the year ended 31 December 2007) and are included in salanes and social security expenses in the Group's and the Company's income statement.

15 Employee benefit liability (cont'd)

The following table summarizes the components of net benefit expenses recognized in the Group's and the Company's income statement and the balance sheet:

	As of 31 December 2008	As of 31 December 2007
		(restated)
Opening defined benefit obligation	1,685	1.553
Net benefit expenses (recognized in salanes and social security expenses)
Interest cost on benefit obligation	134	120
Current service cost	407	293
Actuarial losses on obligation	(134)	(220)
Total net benefit expense	407	193
Benefits paid	(72)	(61)
Closing defined benefit obligation	2,020	1,685

The principal assumptions used in determining pension benefit obligation for the Company's plan is shown below:

	2008	As of 31 December December 2007
Discount rate	7.0 %	7.0 %
Employee turnover rate	18.9 %	12.0 %
Expected average annual salary increases	3.0 %	3.0 %

16 Trade payables

Trade payables are non-interest bearing and are normally settled on 30 - 90 day terms.

17 Derivative financial instruments

On 29 October 2008, the Group and the Company concluded an interest rate swap agreement for the period from 24 November 2008 to 22 November 2010. The Group and the Company set a fixed interest rate at 3.86 % for a floating interest rate at 1-month EURIBOR. The notional amount of the transaction was EUR 3,133 thousand (the equivalent of LTL 10,818 thousand) as at 31 December 2008.

On 24 October 2008, the Group and the Company concluded an interest rate swap agreement for the period from 22 October 2008 to 23 August 2010. The Group and the Company set a fixed interest rate at 4,24 % for a floating interest rate at 6-month EUR LIBOR. The notional amount of the transaction was EUR 4,344 thousand (the equivalent of LTL 15,000 thousand) as at 31 December 2008.

18 Sales income

The Group's and the Company's activities are heat energy supply, electricity production, maintenance of heating and hot water supply systems, electricity production and other activities are inter-related, consequently for management purposes the Group's and the Company's activities are organised as one main segment - heat energy supply. The Group and the Company's sales by activities are stated below:

	Group		Company
	2008	2007	2008	2007
Heat energy	201,760	162.017	201,793	162,017
Maintenance of the heating and hot water supply systems of buildings	3.708	4.802	2.934	3.277
Electricity energy	506	2.694	506	2.694
Revenue from sale of emission rights		15		15
	205,974	169,528	205,233	168,003

19 Other expenses

	Group		Company
	2008	2007	2008	2007

Debts collection expenses	2,512	1,668	2,512	1,668
Cash collection expenses	2,126	1,836	2,124	1,834
Equipments verification and inspection	933	770	846	720
Customer bills issue and delivery expenses	816	914	816	914
Communication expenses	677	685	634	621
Employees related expenses	595	486	521	437
IT maintenance and related services	494	328	451	292
Transport expenses	392	230	339	187
Rent of equipment and machinery	311	316	311	316
Consulting expenses	304	171	230	129
Insurance	267	312	267	312
Membership fee	252	229	252	229
Advertising expenses	169	287	149	274
Stationery and post expenses	117	100	107	92
Audit expenses	89	89	89	89
Charity and donation		રેસ		16
Other expenses	706	904	600	661
	10,760	9,363	10,248	8,791

20 Other activities income and expenses

	Group		Company
	2008	2007	2008	2007
Income from other operating activities
Services provided by the Company	1,003	1,118	992	1,191
Materials sold	111	147	112	147
Gain from sale of non-current assets	162	18	157	18
Other	61	36	61	14
	1,337	1,319	1,322	1,370
Expenses from other operating activities
Cost of services provided by the Company	(631)	(873)	(625)	(858)
Cost of materials sold	(253)	(90)	(253)	(90)
Loss from sale of non-current assets	(475)	(18)	(475)	(18)
Other	(4)	(44)	(4)	(20)
	(1,363)	(1,025)	(1,357)	(886)
	(26)	294	(35)	384

21 Finance income

	Group		Company
	2008	2007	2008	2007
Income from financial and investment activities
Interest from late payment of accounts receivable	1.230	1.301	1.230	1,301
Bank interest receivable	18	13	18	13
Dividends received				50
Other	33		33
	1,281	1,314	1,281	1,364

AB KAUNO ENERGIJA CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

22 Finance costs

	Group		Company
	2008	2007	2008	2007
Interest on bank loans and overdrafts Net loss on financial liabilities at fair value through profit or	(2,772)	(1,989)	(2,764)	(1,984)
loss	(567)		(567)
Impairment loss of investment in subsidiary			(465)
Other	(4)	(19)	(4)	(19)
	(3,343)	(2.008)	- (3.800)	(2.003)

23 Income tax

	Group		Company
	2008	2007	2008	2007
		(restated)		(restated)
Components of the income tax expense
Current income tax for the reporting year		5
Deferred income tax (income)	(660)	(1.871)	(436)	(1,871)
Income tax (income) recorded in the income statement	(660)	(1.866)	(436)	(1,871)

Deferred income tax asset and liability was accounted for using the rate of 20 % and 15 % (refer to Note 2.16.).

Deferred income tax consists of:

	Group		Company
	2008	2007	2008	2007
		(restated)		(restated)
Deferred income tax asset
Accounts receivable	4.029	3.203	4,029	3,203
Tax loss carry forward	3,642	1,997	3,642	1,997
Revaluation of an interest rate swap to fair value	113		113
Accruals	537	442	536	442
Allowance for inventories	135	128	135	128
Differences of depreciation	95	52	95	52
Impairment of investment			વેરૂ
Deferred income tax asset before valuation allowance	8,551	5,822	8.643	5,822
Less: valuation allowance	(4,328)	(3,240)	(4,421)	(3,240)
Deferred income tax asset, net	4,223	2,582	4,222	2,582
Deferred income tax liability
Investment incentive	(2,341)	(2,216)	(2,341)	(2,216)
Revaluation of the assets transferred to subsidiary			(892)	(୧୧୨୨)
Differences of depreciation	(1,794)	(838)	(1,794)	(938)
Deferred income tax liabilities	(4,135)	(3,154)	(5,027)	(3,823)
Deferred income tax, net	88	(572)	(805)	(1,241)

23 Income tax (cont'd)

Deferred income tax assets on tax losses carry forward have been recognised in the balance sheet in full amount as the Group's and the Company's management believes it will be realised in the foreseeable future, based on taxable profit forecasts.

Valuation allowance was made for the deferred tax asset, which, in the opinion of the management, is not likely to be realized in the foreseeable future. The recorded income tax for the year can be reconciled with the theoretical calculated income tax, which is computed by applying the standard income tax rate to profit before taxes as follows:

	Group		Company
	2008	2007	2008	2007
	(restated)		(restated)
Income tax income (expenses) calculated at statutory rate	734	1.889	717	1.889
Change in deferred income tax due to change in tax rate	634	(142)	410	(142)
Permanent differences	380	(164)	490	(159)
Change in valuation allowance of the deferred tax	(1,088)	283	(1,181)	283
Income tax income (expenses) accounted in income statement	660	1.866	436	1.871 .

24 Basic and diluted (loss) per share

Calculations of the basic and diluted (loss) per share of the Group are presented below:

		Group
	2008	2007
		(restated)
Net (loss)	(4,235)	(8,626)
Number of shares (thousand), opening balance	19.718	19.718
Number of shares (thousand), closing balance	19.918	19.718
Average number of shares (thousand)	19,818	19,718
Basic and diluted (loss) per share (LTL)	(0.21)	(0.44)

25 Financial assets and liabilities and risk management

Credit risk

The Group and the Company do not have any credit concentration risk because they work with a large number of customers.

The Group and the Company do not guarantee obligations of the other parties, except as described in Note 26.

With respect to trade receivables and other receivables that are neither impaired nor past due, there are no indications as of the reporting date that the debtors will not meet their payments obligations since receivables balances are monitored on an ongoing basis. The Group and the Company consider that their maximum exposure to credit risk is reflected by the amount of trade receivables, net of allowance for doubtful accounts recognised at the balance sheet date (Note 9).

With respect to credit risk arising from the other financial assets of the Company, which comprise cash and cash equivalents and available-for-sale financial investments, the Group's and the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal of these instruments.

25 Financial assets and liabilities and risk management (cont'd)

Interest rate risk

All of the Group's and the Company's borrowings are at variable interest rates, therefore the Group and the Company faces an interest rate risk. In 2008 to manage variable rate risk the Company has entered into interest rate swaps agreements, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts as described in Note 17, calculated by the reference to an agreed upon notional principal amount. In 2007 the Group and the Company did not have financial instruments for managing the interest rate risk.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates (increase and decrease in basis points was determined based on Lithuanian economic environment and the Group's and the Company's historical experience), with all other variables held constant, of the Group's and the Company's profit before tax (through the impact on floating rate borrowings). There is no impact on the Gompany's equity, other than current year profit impact.

	Increase/decrease in basis points	Effect on profit before tax
2008 LTL	+ 16.6	(42)
LTL	- 16.6	+ 42
EUR	+ 15.0	(11)
EUR	- 15.0	+ 11
2007 LTL	+ 15.0	(79)
LTL	- 15.0	+ 79

Liquidity risk

The Group's and the Company's policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of overdrafts and committed credit facilities to meet its commitments at a given date in accordance with its strategic plans. The Group's liquidity (total current liabilities) and quick ((total current assets - inventories) / total current liabilities) ratios as of 31 December 2008 were 0.91 and 0.84, respectively (0.85 and 0.75 as of 31 December 2007). The Company's liquidity and quick ratios as of 31 December 2008 were 0.91 and 0.84, respectively (0.85 and 0.75 as of 31 December 2007).

The Group and the Company expects to overcome liquidity issues implementing the following action plan: (1) increase in the heat price is effective starting from 1 December 2008; (2) during January and February 2009 there was a 35 - 40 % decrease in the gas price, and it is forecasted that it will not increase during 2009 (the new heat sale price, as described under (1), was calculated on the basis of the old, higher price of gas); (3) the Company attempts to receive part of investments funds from the EU Structural Funds. The Company has submitted 5 projects, the support for three of them (50 % of the project, but not more than LTL 6 million) is expected to be received in 2009; (4) in addition, the Group and the Company implements the cost reduction means: temporary termination of membership in various association of production and transfer loss reduction plan; etc.(5) considering the increase in heat price, decrease in gas prices and other cost reducing plans, the Group and the Company expects to gain net profit for 2009 which could cover accumulated losses of prior periods.

25 Financial assets and liabilities and risk management (cont'd)

Liquidity risk (cont'd)

The table below summarises the maturity profile of the Group's financial liabilities as of 31 December 2008 and 2007 based on contractual undiscounted payments (scheduled payments including interest).

	Less than 3 months	3 to 12 months	1 to 5 years	More than 5 years	Total
Interest bearing loans and borrowings	2,626	25.125
Trade payables	50,749	180	33,511	6.059	67,321 50,929
Other current liabilities	319				319
Balance as of 31 December 2008	53,694	23,305	33,511	6,059	118,569
Interest bearing loans and borrowings	1.049	31,017	23,893	5.132	61.091
Trade payables	24.329	3,845	7		28.181
Other current liabilities	179				179
Balance as of 31 December 2007 (restated)	25,557	34,862	23,900	5,132	89,451

The table below summarises the maturity profile of the Company's financial liabilities as of 31 December 2008 and 2007 based on contractual undiscounted payments (scheduled payments including interest).

	Less than 3 months	3 to 12 months	1 to 5 years	More than 5 years	Total
Interest bearing loans and borrowings	2.615	25,068	33,307	6.059	67.049
Trade payables	51.181	180			51,361
Other current liabilities	319				319
Balance as of 31 December 2008	54,115	25,248	33,307	6.059	118,729
Interest bearing loans and borrowings	1,040	30.972	23,739	5.132	60,883
Trade payables	24,572	3,845	7		28.424
Other current liabilities	179				179
Balance as of 31 December 2007 (restated)	25,791	34,817	23,746	5,132	89,486

Foreign currency risk

All sales and purchases transactions as well as the financial debt porffolio of the Group and the Company are denominated in LTL and EUR. Therefore, the foreign currency risk is not incurred.

Monetary assets and liabilities denominated in local and foreign currencies as of 31 December 2008 were as follows (stated in LTL):

		Group		Company
	Assets	Liabilities	Assets	Liabilities
LTL	66,733	81,620	67.064	81,932
EUR	50	33,663	50	33,519
	66.783	115.283	67.114	115,451

25 Financial assets and liabilities and risk management (cont'd)

Fair value of financial instruments

The Company's principal financial instruments accounted for at amortised cost are trade and other current and non-current receivables, trade and other payables, long-term and short-term borrowings. The net book value of these amounts is similar to their fair value.

Fair value is defined as the amount at which the instrument could be exchanged between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

(a) The carrying amount of current trade accounts receivable, current trade accounts payable, other receivables and other payables and current borrowings approximate their fair value.
(b) The fair value of trade and other payables, long-term and short-term borrowings is based on the quoted market price for the same or similar issues or on the current rates available for borrowings with the same maturity profile. The fair value of non-current borrowings with variable and fixed interest rates approximates their carrying amounts.

Capital management

The primary objectives of the Group's and the Company's capital management are to ensure that the Group and the Company comply with externally imposed capital requirements and that the Group and the Company maintains healthy capital ratios in order to support its business and to maximise shareholders' value.

The Group and the Company manages its capital structure and makes adjustments to it in the light of changes in economics conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Group and the Company may issue new shares, adjust the dividend payment to shareholders, return capital to shareholders. No changes were made in the objectives, policies or processes of capital management during the vears ended 31 December 2008 and 2007.

The Group and the Company is obliged to upkeep its equity of not less than 50 % of its share capital, as imposed by the Law on Companies of Republic of Lithuania. The Group and the Company complies with equity requirements imposed by the Law on Companies of Republic of Lithuania. There were no other externally imposed capital requirements on the Group and the Company.

The Group and the Company monitor capital using debt to equity ratio. Capital includes ordinary shares, reserves, retained earnings attributable to the equity holders of the parent. There is no specific debt to equity ratio target set out by the Group's and the Company's management, however current ratios presented below are treated as sustainable performance indicators.

	Group		Company
	As of 31 December 2008	As of 31 December 2007	As of 31 December 2008	As of 31 December 2007
		(restated)		(restated)
Non-current liabilities (including deferred tax and grants)	46.705	36,511	47,415	37.036
Current liabilities	80.538	62.404	80,740	62,392
Liabilities	127,243	98.915	128,155	99,428
Equity	113,277	116,312	116,627	119,770
Debt* to equity ratio	112.33 %	85.04 %	109.88 %	83.02 %

Debt contains all non-current (including deferred income tax liability and grants (deferred revenues)) and current liabilities.

26 Commitments and contingencies

On 10 October 2008 the Company has given a guarantee for the public enterprise Krepšinio Perspektyos for a credit line agreement with AB DnB Nord Bankas in the amount of LTL 5 million for a period till 31 March 2009. In addition the Company has signed the agreement with Kaunas city municipality, in accordance to which Kaunas city municipality is liable to repay the liabilities to the Company, in case the Company will have to make payments to the bank on behalf of the public enterprise.

The Company participates as a third party in the administrative litigation regarding the UAB Kauno Termofikacijos Elektrine complaint on the Commission decree "On the UAB Kauno Termofikacijos Elektrine heat production base price fixing" annulment on 24 October 2008. KTE claims that the heat production price, calculated on 31 March 2003 according to the terms of Heat energy purchase and sales agreement, should continue to be applied, not the revised price determined by the Commission. The case will be heard on the Civil Code of the Civil Code of the Republic of Lithuania, decrees of the Republic of Lithuania and responses of Kaunas city municipality and the Commission, the Company believes that the Heating Law of the Republic of Lithuania which came into force on 1 January 2008 prevails over the Heat energy purchase and sales agreement signed on 31 March 2003 by the Company and KTE, therefore the possibility that the claim will be set by KTE is remote and no provision related to this possible case was recognized in the Group's and the Company's financial statements. If the court's verdict is opposite, and KTE decides to bring the claim against the Company due to the incurred losses, this exposure would amount to the difference between the heat production price calculated in accordance with methodology agreed in Heat energy purchase and sales agreement and the price determined by the Commission to KTE. The Company is considering at the nearest future to file a LTL 17 million claim against KTE regarding its noncompliance with investment plant determined in the agreement signed on 31 March 2003.

27 Related parties transactions

The parties are considered related when one party has the possibility to control the other or have significant influence over the other party in making financial and operating decisions.

In 2008 and 2007 the Group and the Company did not have any significant transactions with the other companies owned by Kaunas city municipality except for the purchases or sales of the utility services provided to the Kaunas city municipality and the companies owned by the Kaunas city municipality were executed at market prices.

In 2008 and 2007 the Group's and the Company's transactions with Jurbarkas city municipality, Kaunas city municipality and the entities, controlled by Kaunas city municipality and the balances at the end of the year were as follows:

2008	Purchases	Sales	Receivables	Payables
Kaunas city municipality	125*	2,587	839
Budgetary institutions under control of Kaunas city municipality		13,205	6,236
Jurbarkas city municipality			600 **
Entities controlled by Kaunas city municipality	1,254	4.878	1,108	100
2007	Purchases	Sales	Receivables	Payables
Kaunas city municipality	124*	1,947	529
Budgetary institutions under control of Kaunas city municipality		10.667	5.098
Entities controlled by Kaunas city municipality	1.268	5.024	1.050	179

* represents real estate taxes paid to Kaunas city municipality.

** represents receivable amount from shareholder for issued, but not paid capital, as described in Note 1.

As further described in Note 26, the Group and the Company has provided a guarantee for the entity controlled by Kaunas city municipality - public enterprise Krepšinio Perspektyvos.

27 Related parties transactions (cont'd)

In 2008 and 2007 the Company's transactions with the subsidiary and the balances at the end of the year were as follows:

2008	Purchases	Sales	Receivables	Payables
UAB Pastatų Priežiūros Paslaugos	2.569	261	51	157
2007	Purchases	Sales	Receivables	Payables
UAB Pastatų Priežiūros Paslaugos	2.955	310	દર્ડ	299

Remuneration of the management and other payments

The Group's and the Company's management remuneration amounted to LTL 775 thousand and LTL 582 thousand in 2008, respectively (LTL 778 thousand and LTL 390 thousand respectively in 2007). Post-employment benefits liability for the Group's and the Company's management amounted to LTL 103 thousand as of 31 December 2008 (LTL 79 thousand as of 31 December 2008). In 2008 and 2007 the management of the Group and the Company did not receive any loans or guarantees; no other payments or property transfers were made or accrued.

28 Subsequent events

No significant subsequent events occurred after the date of the balance sheet.

AI Terminal

Kauno Energija

2256_bfr_2009-03-25_e9792cf7-b073-4bb3-bc2a-3b9e652002c9.pdf

AB KAUNO ENERGIJA

EI FRNST & YOUNG

Independent auditor's report to the shareholders of AB Kauno Energija

Report on the Financial Statements

Management's Responsibility for the Financial Statements

Auditor's Responsibility

Opinion

Report on Other Legal and Regulatory Requirements

JSC "KAUNO ENERGIJA" CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008

CONTENTS

1. Period under review for which consolidated annual report is prepared

2. Companies composing the group of companies and their contact data

The main data about the Company:

Main data about the subsidiary:

3. The nature of the main activity of the companies composing the group of companies

4. The agreements of Issuer with finance broker companies and (or) credit institutions

5. Trade in securities of the companies, forming the group of companies, in regulated markets (the name of regulated market, the amount of securities included into trade)

6. Objective review of companies group state, activity and development, characterization of main risk types and indetermination with which there is confrontation

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

Investments of JSC "Kauno Energija" in the period 2007-2008

7. The analysis of the companies group financial and non-financial activity results, information related to the environment and personnel issues

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

8. References and additional explanations on the data presented in the annual financial report

9. Important events after the end of the previous financial year

10. The plans and forecasts of the activity of the companies group

11. Information on the companies group research and development activity

12. Information on Issuer acquired and own shares

14. Information on Issuer subsidiary and secondary enterprises

15. The share capital structure of the Issuer

16. Data on issues of the shares of the Issuer

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

17. Information about the shareholders of the Issuer

18. Employees

The education of employees of the Company at the end of the period

19. Order of changes of Regulations of the Issuer

20. Issuer bodies

21. Members of the collegiate bodies, the manager of the company, chief accountant

21.1. Data about the members of the Company's supervisory board:

21.2. Data about the members of the management board

Data about the members of the management board :

21.3. Data about the Manager and Chief accountant of the Company

22. All important agreements of which Issuer is a part and which would come into force, would change or end in case of the change of Issuers control as well as their influence with the exception of cases when because of the nature of agreements their revealing would cause damage to the Issuer

24. Information about major related party transactions

25. Information on the observance of the Governance code of the companies

26. Data about publicly declared information

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

JSC "Kauno energija" report on the compliance with the Governance Code for the companies listed on the Stock Exchange NASDAQ OMX Vilnius

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania consolidated annual Report for the year 2008

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania consolidated annual REPORT FOR THE YEAR 2008

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008

Balance sheets

AB KAUNO ENERGIJA, company code 235014830, Raudondvario Rd. 84, Kaunas, Lithuania CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR 2008 (all amounts are in LTL thousand unless otherwise stated)

Balance sheets (cont'd)

Income statements

Statements of changes in equity

Cash flow statements

Cash flow statements (cont'd)

Notes to the financial statements

General information 1

General information (cont'd) 1

2 Accounting principles

2.1. Basis of preparation

Adoption of new and/or changed IFRSs and IFRIC interpretations

Amendments to IAS 39 and IFRS 7 - Reclassification of Financial Assets

IFRIC 11 IFRS 2 - Group and Treasury Share Transactions

Standards issued but not yet effective

2.1. Basis of preparation (cont'd)

Improvements to IFRSs

2.1. Basis of preparation (cont'd)

IFRIC 12 Service Concession Arrangements (effective once adopted by the EU).

2.1. Basis of preparation (cont'd)

2.2. Measurement and presentation currency

2.3. Principles of consolidation

2.4. Intangible assets

Licenses