DTEK Energy B.V.

International Financial Reporting Standards Consolidated Financial Statements and Independent Auditorís Report

31 December 2017

Directorsí report 1
Consolidated Financial Statements 13
Consolidated Balance Sheet 14
Consolidated Income Statement 15
Consolidated Statement of Comprehensive Income 15
Consolidated Statement of Changes in Equity 16
Consolidated Statement of Cash Flows 17

1	The Organisation and its Operations 18
2	Operating Environment of the Group 19
3	Summary of Significant Accounting Policies 20
4	Critical Accounting Estimates and Judgements 29
5	Adoption of New or Revised Standards and Interpretations 32
6	Subsidiaries with material non-controlling interest 34
7	Segment Information 35
8	Balances and Transactions with Related Parties 37
9	Property, Plant and Equipment 39
10	Intangible Assets 43
11	Goodwill 43
12	Financial Investments 46
13	Inventories 47
14	Trade and Other Receivables 47
15	Cash and Cash Equivalents 49
16	Loss of control over the operations of entities located in non-controlled territory 49
17	Share Capital 52
18	Other Reserves 53
19	Borrowings 54
20	Other Financial Liabilities 56
21	Retirement Benefit Obligations 58
22	Provisions for Other Liabilities and Charges 59
23	Trade and Other Payables 60
24	Other Taxes Payable 61
25	Revenue and Heat Tariff Compensation 61
26	Cost of Sales 62
27	Other Operating Income 62
28	Distribution Costs 62
29	General and Administrative Expenses 63
30	Other Operating Expenses 63
31	Finance Income and Finance Costs 64
32	Income Taxes 64
33	Contingencies, Commitments and Operating Risks 67
34	Acquisition of entities under common control 69
35	Financial Risk Management 70
36	Management of Capital 73
37	Fair Value of Assets and Liabilities 74
38	Reconciliation of Classes of Financial Instruments with Measurement Categories 77
39	Subsequent events 77
	Company financial statements 78

Independent auditor's report

To: the general meeting and supervisory board of DTEK Energy B.V.

Report on the financial statements 2017

Our opinion

In our opinion DTEK Energy B.V.'s financial statements give a true and fair view of the financial position of the Company and the Group as at 31 December 2017, and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.

What we have audited

We have audited the accompanying financial statements 2017 of DTEK Energy B.V., Amsterdam ('the Company'). The financial statements include the consolidated financial statements of DTEK Energy B.V. and its subsidiaries (together: 'the Group') and the company financial statements.

The financial statements comprise:

· the consolidated and company balance sheet as at 31 December 2017;
· the following statements for 2017: the consolidated and company income statement, the consolidated statement of comprehensive income, changes in equity and cash flows; and
· the notes, comprising a summary of the significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is EU-IFRS and the relevant provisions of Part 9 of Book 2 of the Dutch Civil Code.

Material uncertainty related to going concern

We draw your attention to the paragraph 'going concern' as included in Note 3 on page 20 of the consolidated financial statements, which states that DTEK Energy B.V. has been negatively affected by the devaluation of the national currency of Ukraine in the period 2014 to 2016. This resulted in a breach of certain bank covenants and thus gave a number of the Group's lenders the ability to legally require repayment of the respective debt on demand. A significant portion of the Group's debt has been restructured during 2016 and 2017. The Group remains in discussions with lenders towards the goal of restructuring its remaining bank borrowings, which continue to be in breach of certain bank covenants.

C6ASUMMQP4W5-1891208422-22

PricewaterhouseCoopers Accountants N.V., Thomas R. Malthusstraat 5, 1066 JR Amsterdam, P.O. Box 90357, 1006 BJ Amsterdam, the Netherlands

T: +31 (0) 88 792 00 20, F: +31 (0) 88 792 96 40, www.pwc.nl

'PwC' is the brand under which PricewaterhouseCoopers Accountants N.V. (Chamber of Commerce 34180285), PricewaterhouseCoopers Belastingadviseurs N.V. (Chamber of Commerce 34180284), PricewaterhouseCoopers Advisory N.V. (Chamber of Commerce 34180287), PricewaterhouseCoopers Compliance Services B.V. (Chamber of Commerce 51414406), PricewaterhouseCoopers Pensions, Actuarial & Insurance Services B.V. (Chamber of Commerce 54226368), PricewaterhouseCoopers B.V. (Chamber of Commerce 34180289) and other companies operate and provide services. These services are governed by General Terms and Conditions ('algemene voorwaarden'), which include provisions regarding our liability. Purchases by these companies are governed by General Terms and Conditions of Purchase ('algemene inkoopvoorwaarden'). At www.pwc.nl more detailed information on these companies is available, including these General Terms and Conditions and the General Terms and Conditions of Purchase, which have also been filed at the Amsterdam Chamber of Commerce.

As a consequence, in order for the Group to achieve its positive cash flow estimates for periods throughout 2018 and the first six months of 2019, the Group, amongst other assumptions made by management, is dependent on the willingness of these lenders not to demand repayment of the outstanding principal, and to continue their support of the Group by postponing the payment of interest due in future periods. This, along with other matters as described in the paragraph 'going concern' as included in Note 3 on page 20, indicates the existence of a material uncertainty which may cast significant doubt about the ability of DTEK Energy B.V. to continue as a going concern.

Our opinion is not qualified in respect of this matter.

The basis for our opinion

We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the section 'Our responsibilities for the audit of the financial statements' of our report.

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

Independence

We are independent of DTEK Energy B.V. in accordance with the 'Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten' (ViO – Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the 'Verordening gedrags- en beroepsregels accountants' (VGBA – Code of Ethics for Professional Accountants, a regulation with respect to rules of professional conduct).

Report on the other information included in the annual report

In addition to the financial statements and our auditor's report thereon, the annual report contains other information that consists of:

· the directors' report;
· the other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.

Based on the procedures performed as set out below, we conclude that the other information:

· is consistent with the financial statements and does not contain material misstatements;
· contains the information that is required by Part 9 of Book 2 of the Dutch Civil Code.

We have read the other information. Based on our knowledge and understanding obtained in our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.

By performing our procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of such procedures was substantially less than the scope of those performed in our audit of the financial statements.

Management is responsible for the preparation of the other information, including the directors' report and the other information in accordance with Part 9 of Book 2 of the Dutch Civil Code.

DTEK Energy B.V. - C6ASUMMQP4W5-1891208422-22

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Responsibilities for the financial statements and the audit Responsibilities of management and the supervisory board for the

financial statements Management is responsible for:

· the preparation and fair presentation of the financial statements in accordance with EU-IFRS and with Part 9 of Book 2 of the Dutch Civil Code; and for
· such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, management is responsible for assessing the company's ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going-concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company's ability to continue as a going concern in the financial statements.

The supervisory board is responsible for overseeing the company's financial reporting process.

Our responsibilities for the audit of the financial statements

Our responsibility is to plan and perform an audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence to provide a basis for our opinion. Our audit opinion aims to provide reasonable assurance about whether the financial statements are free from material misstatement. Reasonable assurance is a high but not absolute level of assurance which makes it possible that we may not detect all misstatements. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

A more detailed description of our responsibilities is set out in the appendix to our report.

Amsterdam, 24 April 2018 PricewaterhouseCoopers Accountants N.V.

Original has been signed by A.G.J. Gerritsen RA

Appendix to our auditor's report on the financial statements 2017 of DTEK Energy B.V.

In addition to what is included in our auditor's report we have further set out in this appendix our responsibilities for the audit of the financial statements and explained what an audit involves.

The auditor's responsibilities for the audit of the financial statements

We have exercised professional judgement and have maintained professional scepticism throughout the audit in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Our audit consisted, among other things of the following:

· Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the intentional override of internal control.
· Obtaining an understanding of internal control relevant to the audit 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 company's internal control.
· Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
· Concluding on the appropriateness of management's use of the going concern basis of accounting, and based on the audit evidence obtained, concluding whether a material uncertainty exists related to events and/or conditions that may cast significant doubt on the company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report and are made in the context of our opinion on the financial statements as a whole. However, future events or conditions may cause the company to cease to continue as a going concern.
· Evaluating the overall presentation, structure and content of the financial statements, including the disclosures, and evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Considering our ultimate responsibility for the opinion on the company's consolidated financial statements we are responsible for the direction, supervision and performance of the group audit. In this context, we have determined the nature and extent of the audit procedures for components of the group to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole. Determining factors are the geographic structure of the group, the significance and/or risk profile of group entities or activities, the accounting processes and controls, and the industry in which the group operates. On this basis, we selected group entities for which an audit or review of financial information or specific balances was considered necessary.

We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

DTEK Energy B.V. - C6ASUMMQP4W5-1891208422-22

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Directorsí report

31 December 2017

DIRECTORSí REPORT

Introduction

The Directors of DTEK Energy B.V. (the ìCompanyî) present their report in order to disclose the results of the activity of the Company for the year ended 31 December 2017 and likely future development of the Company.

Principal activities

DTEK Energy B.V. (former DTEK Holdings B.V.) is a private limited liability company incorporated in the Netherlands on 16 April 2009. The Company was formed through the contribution by System Capital Management Limited (SCM ltd.) and InvestCom Services Limited of their 100% equity interest in DTEK Holding Limited, a Cyprus registered entity and predecessor to the Company. On 19 September 2014 the Company changed its parent company to DTEK B.V.

The Company and its subsidiaries (together referred to as ìthe Groupî or ìDTEK Energyî) is a vertically integrated power generating and distribution group. Its principal activities are coal mining for further supply to its power generating facilities and finally distribution of electricity to end customers primarily in Ukraine. The Groupís coal mines, power generation plants and distribution facilities are located in the Donetsk (controlled territory), Dnipropetrovsk, Lugansk (controlled territory), Lviv, Ivano-Frankivsk, Vinnitsya, Zaporizhzhya, Kyiv regions and the City of Kyiv in Ukraine. As disclosed in Note 16 to the accompanying Consolidated Financial Statements, the Group lost control over the operations in the non-controlled territory in March 2017. In September 2016, as part of a deleveraging exercise, the Company transferred its ownership in three mines located in the Rostov region of the Russian Federation to an entity wholly owned by DTEK B.V. The Group sells mostly all electricity generated to the State enterprise Energorynok (ìEnergorynok SEî), the state-owned electricity metering and distribution pool, at prices determined based on the competitive pool model adopted by the National Electricity Regulatory Committee and Public Utilities in Ukraine. The Groupís distribution entities then repurchase electricity for supply to final customers at a regulated price.

The principal activity of the Company is holding ownership interests in its subsidiaries, their financing and management. The Company is a corporate member of EURACOAL, a union of coal producers in Europe, and business associate member of EUROELECTRIC, a union of electricity producers of the European Union and other European countries.

Business overview

Income statement data by reporting segments for the year ended 31 December 2017.

	Coal and power	Electricity
In millions of Ukrainian Hryvnia	generation	distribution	Kyivenergo	Other	Elimination	Total
Sales ñ external	62,945	41,755	26,234	10,039	-	140,973
Sales to other segments	3,902	1,120	-	2,549	(7,571)	-
Total revenue	66,847	42,875	26,234	12,588	(7,571)	140,973
Heat tariff compensation	40	-	725	-	-	765
Total revenue and heat tariff
compensation	66,887	42,875	26,959	12,588	(7,571)	141,738
Segment result	14,951	788	(304)	(548)	-	14,887
Net operating foreign exchange loss						(467)
Foreign exchange losses less gains on
financing and investing activities						(2,589)
Loss of control over the operations of
entities located in non-controlled territory
(Note 16) Charitable donations and sponsorship to	(3,590)	(639)	-	(196)	-	(4,425)
related parties (Note 8)						(240)
Impairment of property, plant and
equipment (Note 9)	(789)	(113)	(235)	-	-	(1,137)
Unallocated expenses						(74)
Finance costs not included in
segment result						(7,975)
Loss before income tax						(2,020)
Capital expenditure	6,078	992	1,199	147	-	8,416
Decrease in valuation of property, plant
and equipment through OCI	(4,297)	(313)	(177)	-	-	(4,787)
Material non cash item included in segment result:
Net movement in provision for impairment
of trade and other receivables and
prepayments made (Note 14)	311	295	(177)	(3)	-	426
Depreciation and amortisation	(7,529)	(769)	(839)	(34)	-	(9,171)
Non-recoverable VAT (Note 30)	(140)	(9)	(40)	(30)	-	(219)
Finance income and finance costs included
in segment results	2	348	11	9	-	370

The following table sets out DTEK's income statement data by reporting segments for the year ended 31 December 2016.

	Coal and power	Electricity
In millions of Ukrainian Hryvnia	generation	distribution	Kyivenergo	Other	Elimination	Total
Sales ñ external	53,488	41,034	23,516	9,859	-	127,897
Sales to other segments	3,230	1,480	-	1,537	(6,247)	-
Total revenue	56,718	42,514	23,516	11,396	(6,247)	127,897
Heat tariff compensation	-	-	159	-	-	159
Total revenue and heat tariff
compensation	56,718	42,514	23,675	11,396	(6,247)	128,056
Segment result	9,373	(110)	(784)	(204)	161	8,436
Net operating foreign exchange loss Foreign exchange losses less gains on						(847)
financing and investing activities Charitable donations and sponsorship to						(7,038)
related parties (Note 8)						(1,157)
Unallocated expenses						(32)
Finance costs not included in
segment result						(6,658)
Loss before income tax						(7,296)

Capital expenditure	4,437	827	769	102	-	6,135

Material non cash item included in segment result: Net movement in provision for impairment
of trade and other receivables and
prepayments made (Note 14)	(383)	(784)	176	6	-	(985)
Depreciation and amortisation	(8,021)	(555)	(751)	(99)	57	(9,369)
Non-recoverable VAT (Note 30)	(231)	(21)	(6)	(20)	-	(278)
Finance income and finance costs included
in Segment results	26	453	(184)	103	(101)	297

Acquisition of new subsidiaries

On 28 November 2017 the Group acquired 100% of Corum Druzhkivskyi Machine-Building Plant LLC (ëDMBPí) and 100% of Engineering and Technical Center Mining Machines LLC (ETC). On 30 November 2017 the Group acquired 61.17% of Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC (ëSvitlo Shakhtaryaí), together îCorum companiesî (for further details refer to Note 34 of the accompanying Consolidated Financial Statements). The Corum companies are engaged in supporting the Groupís underground mining operations and were purchased to enable better oversight over their operation and create cost efficiencies.

On 29 November 2017 the Group acquired 100% of share capital of Transinvest B.V. (further renamed to DTEK Grids B.V.). DTEK Grids B.V. is considered to be the new holding company of the Groupís subsidiaries from Electricity distribution segment to be unbundled in 2018.

No acquisitions took place in 2016.

Revenues and Heat tariff compensation

DTEK Energy consolidated revenues and heat tariff compensation for the year ended 31 December 2017 amounted to UAH 141,738 million (2016: UAH 128,056 million).

Structure of consolidated revenues and heat tariff compensation by segments for the year ended 31 December 2017 is as follows:

Structure of revenues and heat tariff compensation by segments for the year ended 31 December 2016 is as follows:

We refer to Note 7 of the accompanying Consolidated Financial Statements for description of main reportable segments.

DTEK Energy reports its business in three main segments:

Coal mining and power generation on thermal power plants segment, comprising the production of thermal and coking coals, primarily for generation companies. The Groupís mining and power generation operations are vertically integrated and while the operating businesses are organised and managed separately, with each segment offering different products and serving different markets, there remains significant inter-dependence between the segments. This segment is represented from the coal mining side by ten mines of DTEK Pavlogradugol PJSC, six mines of DTEK Rovenkiantracyte LLC, five mines of DTEK Dobropolyeugol LLC, five mines of DTEK Sverdlovantracyte LLC, DTEK Mine Komsomolets Donbassa PJSC, Belozerskaya Mine ALC and number of coal enrichment plants; and from the power generation side ñ by three thermal power plants of DTEK Skhidenergo LLC, three thermal power plants of DTEK Dniproenergo PJSC, three thermal power plants of DTEK Zakhidenergo PJSC, one thermal power plant of DTEK Donetskoblenergo PJSC. As discussed in Note 16 to the consolidated financial statements, management determined on 15 March 2017 that it had lost control over the assets and operations of DTEK Rovenkiantracyte LLC, DTEK Sverdlovantracyte LLC, DTEK Mine Komsomolets Donbassa PJSC, Mospino CPE LLC, one power plant belonging to DTEK Skhidenergo LLC (Zuevskaya TTP). The segment includes also operations of three mines located in Rostov region of Russian Federation (together, the "Rostov Mines") for the eight months ended 31 August 2016. As at 1 September 2016 share capital of Rostov Mines was transferred to a new non-Group holding company, owned by its immediate parent DTEK B.V. - Fabcell Limited as a result of a deleveraging plan with Sberbank of Russia (Note 19). Following this transfer the Rostov mines are no longer part of the Group. DTEK Energyís share in the coal mining production in Ukraine in 2017 and 2016 was about 71% (only Groupís entities registered in Ukraine). Power generation business comprises the production and sale of electricity to the wholesale electricity market in Ukraine. The total installed capacity of all power generation units comprised 17 478 MW as at 31 December 2017 (31 December 2016: 18 748 MW). During the year ended 31 December 2017, coal mining and power generation segment third party revenue and heat tariff compensation was UAH 62,985 million, representing 44% of consolidated revenue for that period.
Electricity distribution segment, comprising the transmission capacities of DTEK Power Grid LLC, DTEK Energougol ENE PJSC, DTEK Donetskoblenergo PJSC, DTEK Dniprooblenergo PJSC, which purchase electricity on the wholesale electricity market for transmission and sale to end customers. As discussed in Note 16 to the consolidated financial statements, management determined on 15 March 2017 that it had lost control over the operations of DTEK Donetskoblenergo PJSC (only non-controlled territory part), DTEK Energougol ENE PJSC (only non-controlled territory part) and DTEK Power Grid LLC (only non-controlled territory part). Principal customers in this segment are steel-making and coal-mining industries, water- and utilities-supply entities, and individual customers in Donetsk region (controlled territory), Dnipropetrovsk region of Ukraine. The Groupís share in the electricity distribution industry in Ukraine amounted to 26% in 2017 and 2016. During the year ended 31 December 2017 electricity distribution segment external revenue and heat tariff compensation was UAH 41,755 million, representing 29% of consolidated revenue for that period. During the same period, intersegment sales accounted for 3% of the electricity distribution segment total revenues.
Kyivenergo, comprising Kyivenergo PJSC capacities for heat and power supply in Kyiv City. During the year ended 31 December 2017, Kyivenergo external revenue and heat tariff compensation was UAH 26,959 million, representing 19% of consolidated revenue for that period. During the same period, there were no intersegment sales from Kyivenergo.
Other, comprising the gas resale, sales of services and operations of the three newly acquired mining equipment entities. These activities are excluded from the reportable operating segments, as they are not reviewed by the Management Board on an on-going basis.

Separate line below revenues is the heat tariff compensation, representing the difference between ìeconomically justifiedî heat tariff and that imposed by the state. We refer to Notes 4 and 25 of the accompanying Consolidated Financial Statements for further details.

Revenues concentration by customers for the year ended 31 December 2017 is as follows:

In millions of Ukrainian Hryvnia	Coal and power generation	Electricity distribution	Kyivenergo	Other	Total
Energorynok SE	49,685	-	4,447	-	54,132
Entities under common control of SCM and DTEK B.V. Group subsidiaries	1,705	10,219	117	6,807	18,848
Total	51,390	10,219	4,564	6,807	72,980

Revenues concentration by customers for the year ended 31 December 2016 is as follows:

In millions of Ukrainian Hryvnia	Coal and power generation	Electricity distribution	Kyivenergo	Other	Total
Energorynok SE Entities under common control of SCM and	41,782	-	3,594	-	45,376
DTEK B.V. Group subsidiaries	2,192	10,379	163	4,031	16,765
Total	43,974	10,379	3,757	4,031	62,141

The diagram below represents the structure of third party customersí revenues and heat tariff compensation for the year ended 31 December 2017 (all figures are in millions of Ukrainian Hryvnia):

Main part of coal mining and power generation segment comes from sales of electricity to the Energorynok SE, a controlling entity of the wholesale electricity market in Ukraine. Such revenues comprise UAH 49,685 million, or 78.9% of total external segment revenue.

External revenues from the electricity distribution to the entities under common control of SCM (the ultimate controlling party of the Group) comprise 24.5% of total segment revenue and represent mainly sales of electricity to the steel production subsidiaries of Metinvest B.V.

Operating Expenses

The table below sets forth DTEK Energy operating expenses by category, including as a percentage of total revenue, and heat tariff compensation.

		2017		2016
	Amount	Percentage of total revenue and heat tariff compensation	Amount	Percentage of total revenue and heat tariff compensation
In millions of Ukrainian Hryvnia, except percentages
Cost of sales	122,224	86,23%	113,040	88,27%
General and administrative expenses	2,509	1,77%	2,405	1,88%
Distribution costs	733	0,52%	1,216	0,95%
Total operating expenses	125,466	88,52%	116,661	91,10%

Consolidated cost of sales amounted to UAH 122,224 million for the year ended 31 December 2017 (2016: UAH 113,040 million).

DTEK Energy B.V. Directorsí report for the year ended 31 December 2017

The main part of consolidated cost of sales (UAH 57,164 million, or 46.8% of total consolidated cost of sales) comprise the cost of electricity purchased in the wholesale market for sale to final customers, and relates to the electricity distribution segment. Other significant parts of cost of sales are the cost of raw materials (UAH 22,990 million, or 18.8% of total consolidated cost of sales), cost of gas purchased for resale (UAH 9,562 million, or 7.8% of total consolidated cost of sales), depreciation of property, plant and equipment and amortisation of intangible asset (UAH 9,013 million, or 7.4% of total consolidated cost of sales) and staff cost (UAH 8,872 million, or 7.3% of total consolidated cost of sales).

General and administrative expenses consist mainly of salaries paid to administration employees, comprising UAH 1,471 million, or 58.6% of total consolidated general and administrative expense and professional fees of UAH 600 million, or 23.9% of total general and administrative expense.

Distribution costs consist largely of transportation costs, comprising UAH 454 million, or 61.94% of total consolidated distribution costs.

Other Operating Income/ (Expenses), Net

Net other operating income and expenses for year ended 31 December 2017 amounted to UAH 2,236 million expense (2016: UAH 4,796 million expense).

Other operating income and expenses consist primarily of charity payments, expenses on idle capacity, changes in provision for impairment of trade and other accounts receivable, expenses related to social infrastructure maintenance, penalties and write-off of non-recoverable VAT. Maintenance of social infrastructure expenses, social payments and charity payments include such items as additional payments to employees primarily at coal mining entities, maintenance of medical centres, recreational centres and employee holiday allowances and the sponsorship of sports teams and charitable events.

Other operating income and expense were as follows:

In millions of Ukrainian Hryvnia	2017 Income/(expense)	2016
Net movement in provision for impairment of trade and other receivables and
prepayments made (Note 14)	426	(985)
Penalties	198	289
Other income	152	101
Gain on sales of property, plant and equipment	86	-
Income from sales of services	32	-
Gain on sales of inventory	32	166
Assets received free of charge	7	16
Income from extinguishment of accounts payable	6	108
Increase in provision for other liabilities and charges	(68)	-
Maintenance of social infrastructure	(124)	(307)
Non-recoverable VAT	(219)	(278)
Penalties	(223)	(572)
Social payments	(532)	(576)
Other expenses	(564)	(441)
Charitable donations and sponsorship	(626)	(1,225)
Expenses on idle capacity	(819)	(1,092)
Total	(2,236)	(4,796)

Loss of control over the operations of entities located in non-controlled territory

As a result of losing control over the assets located in the non-controlled territory in March 2017, management of the Group has decided to charge impairment provision on certain assets. Moreover, the Group also released certain liabilities of the entities located in the non-controlled territory. Impairment loss before income tax of UAH 4,425 million and UAH 3,540 million was charged to the income statement and statement of comprehensive income, respectively, in 2017.

Finance income and Finance costs

Finance income for the year ended 31 December 2017 comprises UAH 2,538 million (2016: UAH 3,156 million).

Finance income largely consists of (i) gain on initial recognition of long term accounts payable of UAH 879 million (2016: UAH 520 million) or 34.6% of total consolidated finance income, (ii) interest income on loans received from related parties of UAH 754 million (2016: UAH 728 million) or 29.7% of total consolidated finance income, (iii) gain amortisation of guarantee provided to related party of UAH 357 million (2016: UAH nil million) or 14.1% of total consolidated finance income, (iv) interest income on bank deposits of UAH 166 million (2016: UAH 197 million) or 6.5% of total consolidated finance income.

Finance costs include interest expense on borrowings, loss on restructuring of borrowings, loss on change in estimates on loans provided to related parties, unwinding of discount on pension obligations and other financial instruments. Finance costs for the year ended 31 December 2017 amounted to UAH 9,976 million (2016: UAH 9,324 million).

Finance costs largely comprise interest expense on bank borrowings and Eurobonds issued amounted to UAH 5,482 million (2016: UAH 5,577 million), or 55.0% of total consolidated finance costs. Other significant parts of consolidated finance costs in 2017 are (i) loss on change in estimates on loans provided to related parties amounted to UAH 1,573 million (2016: UAH nil million), or 15.8% of total consolidated finance costs, (ii) unwinding of discounts on pension obligations amounted to UAH 835 million (2016: UAH 774 million), or 8.4% of total consolidated finance costs, (iii) loss on early repayment of long-term payables amounted to UAH 477 million (2016: UAH 9 million), or 4.8% of total consolidated finance costs, and (iv) unwinding of discounts on deferred consideration related to acquisition and finance lease amounted to UAH 453 million (2016: UAH 798 million), or 4.5% of total consolidated finance costs.

During 2012 and 2013 DTEK concluded agreements for swaps of RUB loans with floating rates for a USD and EUR loans with fixed rates. A fair value gain on the derivatives amounting to UAH nil million was recognised in financial income for the year ended 31 December 2017 (2016: gain of UAH 218 million in financial income). In 2016 the Group has entered into a deleveraging plan with Sberbank of Russia, one of the Groupís lenders (Note 19, Note 20 of the accompanying Consolidated Financial Statements). As part of this transaction the amount of outstanding liability under a swap derivative of USD 237 million (UAH 6,162 million applying exchange rate at the date of transaction) including accrued interest was converted to a financial instrument that has a conversion option and cap/floor features. As at 31 December 2016 this financial liability amounting to UAH 6,462 million was measured at fair value through profit or loss, and included to other non-current financial liabilities. In February 2017 financial liability at fair value through profit or loss in amount of USD 59 million (equivalent of UAH 1,597 million) was converted to New Notes (Note 19) according to the Bank Exchange Offer. In March 2017 remaining portion of financial liability at fair value through profit and loss in amount of USD 178 million (equivalent of UAH 4,840 million) was converted to the bank facility agreement by way of signing an Override agreement (the ìOverride Agreementî).

Income tax expense

Income tax expense for the year ended 31 December 2017 was UAH 896 million (2016: benefit of UAH 601 million), representing current income tax expense of UAH 2,539 million (2016: UAH 1,065 million) and deferred income tax benefit of UAH 1,643 million (2016: UAH 1,666 million). The effective tax rate applicable to DTEK Energy group operations for the respective period was 44.4% in 2017 comparing to (8.2)% in 2016. One of the major items impacting the effective income tax rate change is the effect of items not deductible or assessable for taxation purposes and unrecognised deferred tax on tax losses carried forward.

The Group is subject to taxation in several tax jurisdictions, depending on the residence of its subsidiaries (primarily in Ukraine). In 2017 Ukrainian corporate income tax was levied on taxable income less allowable expenses at the rate of 18% (2016: 18%). In 2017, the tax rate for Cyprus operations was 12.5 % (2016: 12.5%), for Dutch operations - 25 % (2016: 25%), for UK operations - 20 % (2016: 20%), for Switzerland operations - 12 % (2016: 12%), for Hungary operations - 19 % (2016: 19%).

Issued Capital and Capital Distributions

The authorised share capital of DTEK Energy B.V. equals to fully paid share capital and comprises 3,000 ordinary shares with a par value of Euro 10.0 per share in total amount of Euro 30,000. All shares carry one vote.

Financing activity

Financing activity of the Group is managed centrally by the Corporate Finance department together with the Treasury department. The overall risk management policies seek to minimise the potential adverse effects on the Groupís financial performance for those risks that are manageable or noncore to the power generating business.

Financial risk management is carried out by a centralised treasury department working closely with the operating units, under policies approved by the Management Board. The Treasury department identifies, evaluates and proposes risk management techniques to minimise these exposures.Additionally, DTEK Energy developed a compliance function to monitor and analyse financial, reputation or legal risks connected with business activities.

Financial risk management

Exposure of the Group to different financial risks is disclosed in Note 35 of the accompanying Consolidated Financial Statements.

Principal Risks and Uncertainties

The recent political and economic instability in Ukraine has continued in 2017 and has led to a deterioration of State finances, volatility of financial markets, illiquidity on capital markets, higher inflation and a depreciation of the national currency against major foreign currencies (though the devaluation of the national currency and inflation were less in 2017 when compared to 2014-2016).

As of 31 December 2017, the Group had significant balances receivable from and prepayments made to the State and entities dependent on the government financing, including prepaid income taxes (both current and non-current) of UAH 217 million, net VAT recoverable of UAH 2,376 million and receivables from Energorynok SE and various water and heat supply companies of UAH 6,898 million and UAH 600 million, respectively. The timing of settlement of these balances is uncertain and is dependent upon the availability of State funds and, as regards the entities located in the area not controlled by Ukraine government, the ability and willingness of the Ukraine government to provide financing to these regions and amounts of future taxable profits of Groupís subsidiaries.

The final resolution of the political and economic situation in Ukraine and the final effects of this are difficult to predict, but it may have further severe effects on the Ukrainian economy and the Groupís business (Reference is given to the Notes 2 and 3 of the accompanying Consolidated Financial Statements).

During 2017 the Group entered into restructuring engagements with its lenders, namely (reference is given to the Note 3 and Note 19 of the accompanying Consolidated Financial Statements):

On 29 March 2017, the Group restructured a significant portion of its bank borrowings totalling USD 492 million (equivalent of UAH 13,321 million as at the date of transaction) by the way of signing an Override agreement, resulted in the modification of certain of the key terms and conditions of the underlying loan documentation in respect of the Restructured Bank Debt;
On 22 August 2017, the Group restructured its bank borrowings owing to PJSC UkrsotsBank totalling UAH 714 million (as at date of transaction) by the way of signing additional agreement to the facility agreement with the bank, resulted in the modification of certain of the key terms and conditions aligned with the Override Agreement.

The vast majority of the Groupís borrowings have financial and non-financial covenants. Following the signing of the Override Agreement the Group is in compliance with the covenants relating to this debt. Covenants on the remaining unrestructured bank borrowings remain in breach as at 31 December 2017, this debt has been classified as current and amounts to UAH 15,528 million as of 31 December 2017. Events of default are comprehensive and include cross-default to other debt of the Group. However, the cross-default clauses in the New Notes and the debt covered by the Override Agreement excludes existing cross default in relation to the remaining unrestructured bank borrowings.

Despite the results of the forecasted cash flows the Group is nevertheless unable to wholly repay during 2018 or 2019 the amount of borrowing classified as current liabilities. Management remains in discussions with its lenders but, however, acknowledges that, prior to the successful restructuring of debt obligations, there is a material uncertainty which may cast significant doubt about the Groupís ability to continue as a going concern. Despite these material uncertainties with respect to the repayment of the current loans and interest, the debt restructuring, other factors outlined above and based on cash flow projections performed and an expected positive outcome from the discussions with its lenders, management considers that the application of the going concern assumption for the preparation of these consolidated financial statements is appropriate. (Reference is given to the Notes 2 and 3 of the accompanying Consolidated Financial Statements).

Risk Management Framework

DTEK Energy implemented Internal Control and Risk Management system which is based mainly on COSO framework. It is fully integrated into strategic and tactical planning, including but not limited to business planning and budgeting processes, investment projects, etc. The risk management function is present at the Corporate Centre level (Internal Control and Risk Management Department) as well as at the level of business and production units (risk managers and coordinators). Risk management approach and processes are unified across all units, iterative bottom-up and top-down approaches are in place for identification and assessment of risks and opportunities, threelines of defence principle is used.

DTEK Energy B.V. Directorsí report for the year ended 31 December 2017

The DTEK Energy's Executive Board is responsible in general for the development of strategic and operational targets and for identification, assessment and mitigation of associated risks. The Executive Board established the Risk Committee, which tackles with risk management issues on regular basis. For the identified risks deemed to be material, comprehensive mitigating action plans are developed and reviewed on a regular basis to ensure that the risks' levels remain at acceptable levels. Management is kept informed via regular risk reports and understands how risks influence the achievement of business targets, so managements decisions are made based on existent/potential risks and opportunities. DTEK Energy strives to implement necessary internal controls into the business processes based on performed risk assessments. Preference is given to automated controls that are embedded into IT systems (e.g. SAP). The Group also makes use of insurance programs in order to safeguard its most critical assets and activities from low-probability/high-impact risks.

Thus, Groupís Risk Management and Internal Control framework provides reasonable assurance that business objectives can be achieved.

During 2017 Group concentrated on management following main risks:

Political, macroeconomic and geopolitical risks:

The recent political and economic instability in Ukraine continued in 2017. This has manifested in continued strains on state finances, continued illiquidity on local capital market, high inflation level relative to other major markets and in late 2017 a depreciation of the national currency against major foreign currencies, following a period of currency appreciation in 2017.

Furthermore, on 15 March 2017 the self-proclaimed authorities took control of the Group's assets located in the noncontrolled territory (refer to Note 16 of the accompanying Consolidated Financial Statements). The management has implemented its contingency plans following this event.

Risks of corporate strategy:

Taking into account the above mentioned political risks, the Group's corporate strategy was updated accordingly. DTEK Energy is aimed to purchase required amounts of anthracite coal on the external markets, to increase mining of gas-type coal and to lower electricity production by anthracite-based thermal power plants (ìTPPî). In 2017 the Group successfully rejigged two units of Prydneprovskaya TPP for gas-type coal, and planned similar projects for other anthracite coal units. A programme of converting electricity generation from anthracite to G grade coal was also commenced and is carrying on in 2018.

Financial risks and Market risks:

In order to mitigate commodity price risks the Group regularly re-assessed its open positions, developed and implemented risk mitigation strategies - principles of distribution of export commodities (electricity and coal) between short-term and long term positions, price projections, etc.

With regard to currency risk, DTEK Energy strived to reduce open short foreign currency balance sheet position aroused as a result of imbalance between loan portfolio in foreign currency and income in local currency.

In order to manage liquidity risk and ensure timely repayment of debt, the Group diligently plans and monitors cash inflows and outflows on daily basis, takes measures to optimize working capital structure, keeps short communication lines with lenders in order to restructure loan portfolio and eliminate possible liquidity gaps in future.

Credit risk management was based on internal scoring system, which assigns internal ratings and limits to counterparties based on financial performance and other aspects.

Aspects related to DTEK Energy's external credit rating remained a focus of management's. Moodyís assigned ìCAî rating with outlook improvement to ìpositiveî in February 2017.

The Group paid a special attention to the market risks, mostly related to forthcoming market competition and expansion. Despite the low significance of these risks in the reporting period, the Group is actively working to minimize such risks in the future in connection with the future liberalization of the Ukrainian electricity market and expected increased competition from local and international players.

Reputational Risks:

The Group actively manages reputational risks, performs regular assessment of the reputation, changes in the social climate both in the internal and external environment. DTEK Energy executes proactive and reactive communications at the local and international level in order to minimize the impact of reputational risks.

DTEK Energy B.V. Directorsí report for the year ended 31 December 2017

Corporate Governance and Compliance Risks:

In order to manage compliance risks, the Group follows restrictions of current sanction regimes and acts in accordance with the international legislation, execute KYC procedures and compliance checks while working with its counterparties. The Group also implements anti-corruption and anti-bribery programs, Compliance Policy, Code of ethics & business conduct, Regulation on implementation of Code of ethics & business conduct, regularly provides employees with appropriate compliance trainings and monitors the internal compliance rules being in place.

IT risks:

Technical malfunction, virus attacks, data loss or downtime of IT systems can have significant negative impact on the Group's activities, taking into account high level of integration of informational and communicational systems into the Group's business processes. The following tools were implemented in order to manage these risks: control over unauthorized software (SCCM, etc.), the Intrusion Prevention System (IPS), DLP policies, the MDM system, group policies of the EMET tool, antivirus control, anti-SPAM systems, etc.

In 2017 the Group had experienced external virus attacks (Wannacry, etc.), but due to the preventive measures taken these incidents did not significantly affect the Group's operations.

Environmental issues

DTEK Energy activities are tightly connected with production cycles impacting heavily the environment. That is why maintaining high ecological compliance standards is a crucial point for the business development of the Group both in Ukraine and European markets.

The mining industry is subject to significant risks that could result in damage to, or destruction of, coal properties or producing facilities, personal injury or death, environmental damage, delays in mining, and monetary losses and possible legal liability. Despite the insurance industry is not yet well developed in Ukraine, DTEK Energy aims to have "all risks" international reinsurance programme for its mines, including underground risks connected with methane gas, coal dust explosive and coal spontaneous combustion and also business interruption insurance coverage.

DTEK Energy implemented an environmental management system according to ISO 14001 standard. The system is recertified every 3 years. The National emission reduction plan of major pollutants from the large combustion plants was approved by government institutions in 2017 so it will form the basis of the environmental strategy of DTEK Energy for upcoming years. Currently a financial mechanism is being developed by authorities in order to ensure duly implementation of the plan. DTEK Energy actively participates in this activity.

Social responsibility

Social responsibility and commitment to the principles of sustainable development are key values and an integral part of the strategy of the Group. That is why DTEK Energy invests significant funds in improving the safety, efficiency and environmental friendliness of its enterprises, labour protection, health improvement and professional development of employees, the development of local communities and improving the quality of life of people in the regions of activity. The Group systematically develops its activities in the field of sustainable development and strives to work in accordance with international standards for sustainable development, remaining an internal employer and social investor, participating in the socio-economic development of the regions in which it operates, while not replacing the functions of the state.

DTEK Energyís main principle is to maintain partnership between the authorities, business and society, for the implementation of which the Group implements the Social Partnership Programme. The programme is developed on the basis of international standards for sustainable development and aims to improve energy efficiency in the public sector, improve the quality of health services, education. In the long term, the Group considers the development of the regions in which it operates as a competitive advantage. In 2017 DTEK Energy investments in this area comprise almost UAH 161 million (2016: UAH 46 million). These investments were mainly directed to the social partnership programmes with local communities and charity.

The Group is a member of the UN Global Compact Network and in its activities follows the principles and goals of sustainable development proclaimed by the UN. DTEK Energy strives to protect the environment, improve production and management processes, and invest in environmental activities in all areas of its enterprises. Environmental activities are an integral part of the Groupís successful business and are based on DTEK's Environmental Policy, developed in accordance with the international standard ISO 14001: 2015. Unconditional priority of the Group's activities is the conduct of ethical, legal and open business. DTEK Energy openly declares its anti-corruption standards and adheres to the principle of zero tolerance for corruption. DTEK Energy continues to report on social corporate responsibility and sustainable development. The report on sustainable development for 2017 is expected by the middle of 2018.

Research and Development Costs

During 2017, the Group was not involved in any activities concerning research and development.

Human resources

The Group employed approximately 69 thousand people by the end of 2017 (2016: 106 thousand people). The main reason for the reduction is due to the aforementioned loss of control over operations in non-controlled territory.

To ensure the constant development of its employees, in 2010 DTEK Energy launched its corporate university ñ DTEK Academy. The main goal in this area is to prepare internal candidates for 80% of the top positions. Two key programmes are aimed to develop human resources and successor practice for main managerial positions in the Group that are ìLeaderís Energyî and ìEnergy of Knowledgeî, developed by Kyiv-Mohyla Business School and INSEAD. In 2011, DTEK Academy joined CEEMAN (Association for the Development of Management in Central and Eastern Europe) and EFMD (European Foundation for Management Development). Annually, more than 63 thousand employees use the educational products of DTEK Academy. DTEK Academy is first organization in Ukraine that approved at the state level 31 professional and educational standards for working professions.

Code of Ethics

The Group has a Code of Ethics developed and approved in 2011 with changes introduced in 2014. It is mandatory for all the Group entities and prescribes the key principles that the Group follows in its operations, including relationship with its employees, counterparties, state authorities and non-governmental and public authorities, responsibility for all activities the Group performs, conflicts of interests etc. The Code is available on the Groupís official web-site.

Male/female ratio of Executive/Supervisory Board

The Company strives to get the best applicable persons in the Supervisory board and the Management board despite the gender or culture.

As at 31 December 2017, the Supervisory Board consists of two women and five men and the Management board of two legal persons.

Future Developments

In 2017 and further in 2018, the Group continues implementing its long-term strategy, aimed to complete the reorganisation in the management structure and integration of newly acquired assets to the Group.

Next stages are devoted to improving efficiency of operations (such as scaling up lean projects, launching innovative technologies, covering period of 2016-2020) and wide scale roll out of innovations through the production and management processes (covering period of 2021-2030).

Ukraine is considered as the main market for the Group activities in long-term. Priority in further market penetration is also focused on Central and Eastern Europe and CIS countries.

Following a period of continued depreciation in 2016 and 2017, the value of Ukrainian hryvnia is likely to stabilise in 2018 at the level of 29,3 Ukrainian hryvnias against the U.S. dollar following the renewal of cooperation with the IMF as well as with other international partners.

Taking into account uncertainties in the year 2018 the Group will focus on the following key areas:

Further improve operational efficiency;
Complete the Groupís financial restructuring and optimize liquidity management;
Implement ëUnbundlingí of distribution assets;
Prepare for liberalization of the Ukrainian electricity market;
Maintain self-sufficiency in steam coal and strengthen vertical integration;
Increase of G-grade production for increased load of G-fired units. This initiative also includes conversion of several anthracite power-generating units to G-grade.

Post balance sheet events

The developments after the balance sheet date which are related to the operating environment and the debt restructuring are disclosed in the Notes 2, 3 and 19 in consolidated financial statements.

DTEK Management B.V., Director SCM Management B.V., Director

24 April 2018

Consolidated Financial Statements

31 December 2017

DTEK Energy B.V. Consolidated Balance Sheet

In millions of Ukrainian Hryvnia	Note	31 December 2017	31 December 2016
ASSETS
Non-current assets
Property, plant and equipment	9	77,049	64,124
Intangible assets	10	1,592	1,639
Goodwill	11	4,384	4,384
Financial investments	12	11,857	10,085
Income tax prepaid		171	118
Deferred income tax asset	32	947	1,011
Trade and other receivables	14	407	210
Total non-current assets		96,407	81,571
Current assets
Inventories	13	4,814	4,686
Trade and other receivables	14	24,600	24,008
Income tax prepaid		46	135
Financial investments	12	136	1,930
Cash and cash equivalents	15	5,611	7,545
Total current assets		35,207	38,304
TOTAL ASSETS		131,614	119,875
EQUITY
Share capital	17	0	0
Share premium		9,909	9,909
Other reserves	18	29,789	19,017
Accumulated deficit		(28,366)	(27,742)
Equity attributable to owners of the parent		11,332	1,184

Non-controlling interest in equity	6	7,729	4,530
TOTAL EQUITY		19,061	5,714
LIABILITIES
Non-current liabilities
Borrowings	19	47,898	26,747
Other financial liabilities	20	5,516	14,101
Retirement benefit obligations	21	5,992	7,254
Provisions for other liabilities and charges	22	1,159	1,741
Deferred income tax liability	32	4,724	2,207
Total non-current liabilities		65,289	52,050
Current liabilities
Borrowings	19	16,384	30,101
Other financial liabilities	20	453	1,186
Prepayments received		7,008	7,288
Trade and other payables	23	19,072	17,948
Current income tax payable		793	955
Other taxes payable	24	3,554	4,633
Total current liabilities		47,264	62,111
TOTAL LIABILITIES		112,553	114,161
TOTAL LIABILITIES AND EQUITY		131,614	119,875

Signed by entire Management Board on 24 April 2018

DTEK Management B.V. Director

SCM Management B.V. Director

Approved for issue and signed by entire Supervisory Board on 24 April 2018

Oleg Popov
Sergey Korovin
Irina Mykh
Robert Sheppard
Damir Akhmetov
Catherine Stalker
Johan Bastin

DTEK Energy B.V. Consolidated Income Statement

In millions of Ukrainian Hryvnia	Note	2017	2016
Revenue	25	140,973	127,897
Heat tariff compensation	25	765	159
Cost of sales	26	(122,224)	(113,040)
Gross profit		19,514	15,016
Other operating income	27	513	680
Distribution costs	28	(733)	(1,216)
General and administrative expenses	29	(2,509)	(2,405)
Other operating expenses	30	(2,749)	(5,476)
Net operating foreign exchange loss		(467)	(847)
Loss of control over the operations of entities located in non	16
controlled territory		(4,425)	-
(Impairment) of property, plant and equipment/Reversal of	9
impairment Operating profit		(1,137) 8,007	158 5,910

Foreign exchange losses less gains on financing and
investing activities		(2,589)	(7,038)
Finance income	31	2,538	3,156
Finance costs	31	(9,976)	(9,324)
Loss before income tax Income tax (expense)/benefit	32	(2,020) (896)	(7,296) 601
Loss for the year		(2,916)	(6,695)

Loss is attributable to:
Equity holders of the Company		(2,626)	(7,302)
Non-controlling interest		(290)	607
Consolidated Statement of Comprehensive Income
In millions of Ukrainian Hryvnia	Note	2017	2016
Loss for the period		(2,916)	(6,695)
Items that may be reclassified to profit or loss:
Recycling of cash flow hedge reserve to income statement	18	220	506
Currency translation reserve	18	143	(196)
Items that will not be reclassified to profit or loss:
Property, plant and equipment:
- Change in estimate for asset retirement obligation	18	(262)	(367)
- Income tax recorded on change in estimate for asset
retirement obligation	32	47	66
- Increase in valuation of property, plant and equipment - Decrease in valuation of property, plant and equipment	9 9	32,003 (4,787)	- -
- Income tax recorded on revaluation of property, plant and
equipment	32	(4,899)	-
Re-measurements of post-employment benefit obligations	21	(1,555)	(1,624)
Income tax recorded on re-measurements of post
employment benefit obligations	32	280	292
Loss of control over the operations of entities located in non
controlled territory:	16		-
- De-recognition of asset retirement obligation		487	-
- Income tax recorded on de-recognition of asset retirement
obligation		(50)	-
- Impairment of property plant and equipment		(5,359)	-
- Income tax recorded on impairment of property plant and
equipment		756	-
- Re-measurements of post-employment benefit obligations		1,332	-
- Income tax recorded on re-measurements of post
employment benefit obligations Other comprehensive income/(loss) for the year	18	(240) 18,116	- (1,323)
Total comprehensive income/(loss) for the period		15,200	(8,018)

Total comprehensive income/(loss) attributable to:
Equity holders of the Company		11,821	(8,589)
Non-controlling interest		3,379	571
Total comprehensive income/(loss) for the period		15,200	(8,018)

Attributable to equity holders of the Company					Non controlling interest	Total Equity
In millions of Ukrainian Hryvnia	Share capital	Share premium	Other reserves	Accumulated deficit	Total
Balance at 1 January 2016	0	9,909	20,900	(29,237)	1,572	3,959	5,531
Loss for 2016	-	-	-	(7,302)	(7,302)	607	(6,695)
Other comprehensive income/(loss) for 2016	-	-	10	(1,297)	(1,287)	(36)	(1,323)
Total comprehensive income/(loss) for 2016	-	-	10	(8,599)	(8,589)	571	(8,018)
Property, plant and equipment: - Realised revaluation reserve - Deferred tax related to realised	-	-	(4,166)	4,166	-	-	-
revaluation reserve	-	-	741	(741)	-	-	-
Deleveraging and restructuring	-	-	1,532	6,754	8,286	-	8,286
Demerger of subsidiaries	-	-	-	(85)	(85)	-	(85)
Balance at 31 December 2016	0	9,909	19,017	(27,742)	1,184	4,530	5,714
Loss for 2017	-	-	-	(2,626)	(2,626)	(290)	(2,916)
Other comprehensive income/(loss) for 2017	-	-	14,369	78	14,447	3,669	18,116
Total comprehensive income/(loss) for 2017	-	-	14,369	(2,548)	11,821	3,379	15,200
Property, plant and equipment:
- Realised revaluation reserve	-	-	(5,061)	5,061	-	-	-
- Deferred tax related to realised revaluation reserve	-	-	787	(787)	-	-	-
Acquisition of entities under common control (Note 34)	-	-	677	(2,350)	(1,673)	237	(1,436)
Dividends declared	-	-	-	-	-	(417)	(417)
Balance at 31 December 2017	-	9,909	29,789	(28,366)	11,332	7,729	19,061

In millions of Ukrainian Hryvnia	Note	2017	2016

Cash flows from operating activities
Loss before income tax		(2,020)	(7,296)

Adjustments for: Depreciation and impairment of property, plant and equipment and amortisation of
intangible assets	9,10	10,583	8,748
Net (gain)/loss on disposals of property, plant and equipment		(86)	97
Assets received free of charge	27	(7)	(16)
Net change in provision for trade and other receivables and prepayments made	30	(426)	985
Change in provisions for other liabilities and charges	22	79	63
Non-cash operating charge to retirement benefit obligation	21	(619)	198
Unrealised foreign exchange loss on operating activity		(147)	650
Foreign exchange losses less gains on financing and investing activities		2,589	7,038
Finance costs, net	31	7,438	6,168
Loss of control over the operations of entities located in non-controlled territory	16	4,425	-
Other operating non-cash transactions		2	98
Operating cash flows before working capital changes		21,811	16,733
Changes in:
Trade and other receivables		428	(10,136)
Inventories		(839)	1,638
Prepayments received		(280)	1,931
Trade and other payables		(817)	1,565
Repayment of restructured obligations		(165)	(882)
Other financial liabilities		(3)	2,723
Other taxes payable and tax provision, other than income tax		(1,070)	1,916
Cash generated from operations		19,065	15,488
Income taxes paid		(2,665)	(1,019)
Defined employee benefits paid	21	(545)	(648)
Interest and tender costs excluding capitalised borrowings cost paid		(2,515)	(682)
Interest received		166	197
Provisions utilised	22	(11)	(134)
Net cash generated from operating activities		13,495	13,202
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets		(7,798)	(5,886)
Acquisition of entities under common control, net of cash acquired	34	(2,466)	-
Placement of restricted cash Capitalised borrowings cost paid	15 9	(30) (89)	(41) (112)
Withdrawal/(placement) of deposits	12	87	(165)
Cash loss as a result of loss of control	16	(39)	-
Cash disposed as a result of demerger		-	(191)
Net cash used in investing activities		(10,335)	(6,395)
Cash flows from financing activities
Proceeds from borrowings	19	-	29
Repayment of borrowings	19	(4,860)	(235)
Dividends paid to non-controlling participants	6	(369)	-
Net cash used in financing activities		(5,229)	(206)
Net (decrease)/increase in cash and cash equivalents		(2,069)	6,601
Cash and cash equivalents at the beginning of the year	15	7,488	690
Exchange gains on cash and cash equivalents		105	197
Cash and cash equivalents at the end of the year	15	5,524	7,488

1 The Organisation and its Operations

DTEK Energy B.V. (the ìCompanyî) is a private limited liability company incorporated in the Netherlands on 16 April 2009. The Company was renamed on 19 September 2014 and its former name was DTEK Holdings B.V. The Company and its subsidiaries (together referred to as ìthe Groupî or ìDTEK Energyî) are beneficially owned by Mr. Rinat Akhmetov, through various entities commonly referred to as System Capital Management (ìSCMî). Mr. Akhmetov has a number of other business interests outside of the Group. Related party transactions are detailed in Note 8.

DTEK Energy B.V. is a vertically integrated power generating and distribution group. Its principal activities are coal mining for further supply to its power generating facilities and finally distribution of electricity to end customers primarily in Ukraine. The Groupís coal mines, power generation plants and distribution facilities are located in the Donetsk (controlled territory), Lugansk (controlled territory), Dnipropetrovsk, Lviv, Ivano-Frankivsk, Vinnitsya, Zaporizhzhya, Kyiv regions and the City of Kyiv in Ukraine. The Group sells major part of electricity generated to Energorynok SE, the state-owned electricity metering and distribution pool, at prices determined based on the competitive pool model adopted by the National Commission for State Regulation of Energy and Public Utilities in Ukraine. The Groupís distribution entities then repurchase electricity for supply to final customers at a regulated price.

The principal subsidiaries are presented below:

	% interest held as at 31 December
Name/Segment	2017	2016	Country of incorporation
Coal mining and power generation
DTEK Pavlogradugol PJSC	99.91	99.91	Ukraine
DTEK Mine Komsomolets Donbassa PJSC	95.31	95.31	Ukraine
DTEK Dobropolskaya CEP PJSC	60.06	60.06	Ukraine
DTEK Oktyabrskaya CEP PJSC	60.85	60.85	Ukraine
Bilozerska Mine ALC	95.44	95.44	Ukraine
Mospino CPE LLC	99.00	99.00	Ukraine
Pershotravensky RMZ LLC	99.00	99.00	Ukraine
Tehrempostavka LLC	100.00	100.00	Ukraine
CCM Kurahovskaya LLC	99.99	99.99	Ukraine
CCM Pavlogradskaya LLC	99.99	99.99	Ukraine
DTEK Dobropolyeugol LLC	100.00	100.00	Ukraine
DTEK Rovenkiantracyte LLC	100.00	100.00	Ukraine
DTEK Sverdlovantracyte LLC	100.00	100.00	Ukraine
DTEK Dniproenergo PJSC	73.54	73.54	Ukraine
DTEK Zakhidenergo PJSC	72.24	72.24	Ukraine
DTEK Skhidenergo LLC	100.00	100.00	Ukraine
DTEK Hungary Power Trade LLC	100.00	100.00	Hungary
DTEK Trading Limited	100.00	100.00	Cyprus
DTEK Trading SA	100.00	100.00	Switzerland
Interenergoservis LLC	99.99	99.99	Ukraine
DTEK Scientific and Project Centre LLC	100.00	100.00	Ukraine
DTEK Trading LLC	100.00	100.00	Ukraine
Electricity distribution
DTEK Energougol ENE PJSC	95.71	95.71	Ukraine
DTEK Donetskoblenergo PJSC	71.50	71.50	Ukraine
DTEK Power Grid LLC	100.00	100.00	Ukraine
DTEK Dniprooblenergo PJSC	51.66	51.66	Ukraine
DTEK Krymenergo PJSC	57.71	57.71	Ukraine
Kyivenergo PJSC	72.40	72.40	Ukraine
Other
DTEK Grids B.V.	100.00	-	Netherlands
DTEK Finance B.V.	100.00	100.00	Netherlands
DTEK Finance PLC	100.00	100.00	United Kingdom
DTEK Investments Ltd	100.00	100.00	United Kingdom
DTEK Holdings Limited	100.00	100.00	Cyprus
DTEK Servis LLC	99.00	99.00	Ukraine
DTEK Energy LLC	100.00	100.00	Ukraine
Sotsis LLC	99.00	99.00	Ukraine
Elektronaladka LLC	99.00	99.00	Ukraine
Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC	61.17	-	Ukraine
Corum Druzhkivskyi Machine-Building Plant LLC	100.00	-	Ukraine
Engineering and Technical Center Mining Machines LLC	100.00	-	Ukraine

The Company is registered at Schiphol Boulevard 231 Tower B, 5th floor, 1118BH, Luchthaven Schiphol, the Netherlands. The address of Ukrainianís head office is 57 Lva Tolstogo str, 01032 Kyiv Ukraine.

As at 31 December 2017, the Group employed approximately 69 thousand people (31 December 2016: 106 thousand people). Decrease in a number of employees is explained by the loss of control over operations of entities located in non-controlled territory of Ukraine (Note 16).

2 Operating Environment of the Group

Ukrainian economy suffered a deep slump in 2014-2016 due to the political instability, the escalation of the conflict in the Donetsk and Luhansk regions and unfavorable global markets for key export-oriented sectors. Since 2017 the Ukrainian economy has demonstrated a slight recovery amid overall macroeconomics stabilization supported by a rise in domestic investment, revival in household consumption, increase in agricultural and industrial production, construction activity and improved environment on external markets. Ukraine returned to international debt capital markets, having issued a record USD 3 billion 15-year Eurobond at 7.375% in September 2017, which smoothed external debt maturity profile of Ukraine.

The inflation rate in Ukraine stood at 13.7% for 2017 (as compared to 12.4% for 2016 and 43.3% for 2015) while GDP continued to grow at 2.1% (1% in 2016).

As of the date of this report the official NBU exchange rate of Hryvnia against US dollar was UAH 26.13 per USD 1, compared to UAH 28.07 per USD 1 as at 31 December 2017 and UAH 27.19 per USD 1 as at 31 December 2016. In 2017 there has been a further easing of currency control restrictions that were introduced in 2014ñ2015. In particular, the required share of foreign currency for mandatory sale was decreased from 75% to 50% starting from 4 April 2017 and the settlement period for export-import transactions in foreign currency was increased from 90 to 180 days starting from 26 May 2017. In addition, starting from 13 June 2016 Ukrainian companies are permitted to pay dividends to non-residents with a limit of USD 5 million per month for the 2014-2016 period. Starting from 15 November 2017 the limit for dividends related to the periods up to 2013 was set at USD 2 million per month. Starting from March 2018 National Bank of Ukraine allowed Ukrainian companies to pay dividends to non-residents with a limit of USD 7 million per month regardless of the period.

The IMF has continued to support the Ukrainian government under the four-year Extended Fund Facility (ìEFFî) Programme approved in March 2015, providing the fourth tranche of approximately USD 1 billion in April 2017. Further disbursements of IMF tranches depend on the continued implementation of Ukrainian government reforms, and other economic, legal and political factors.

The banking system remains fragile due to its weak level of capital, low asset quality caused by the economic situation, currency depreciation, changing regulations and other factors.

The relationships between Ukraine and the Russian Federation have remained strained. On 1 January 2016, the agreement on the free trade area between Ukraine and the EU came into force. Just after that, the Russian government implemented a trading embargo on many key Ukrainian export products. In response, the Ukrainian government implemented similar measures against Russian products.

The conflict in the parts of Eastern Ukraine which started in spring 2014 has not been resolved to date. In Januaryñ March 2017, there was some escalation of military confrontation along the line of contact of the conflicting parties. The National Security and Defence Council of Ukraine issued resolution in March 2017 that completely suspended any freight transportation between the controlled and non-controlled territory of Ukraine, and this continues to date. In FebruaryñMarch 2017, the self-proclaimed authorities in the non-controlled territory announced their intention to seize business assets located in the non-controlled territory and to require businesses to comply with various local fiscal, regulatory and other requirements which contravene Ukrainian legislation. Subsequently, on 15 March 2017 the selfproclaimed authorities took control of all of the Group's assets located in the non-controlled territory. As a result, the Group and SCM has announced that they have lost control over the operations and assets of the entities located in the non-controlled territory. The Group has taken active measures to mitigate the loss of control over these assets, these measures include: the conversion of certain generation assets to G-grade coal who previously used Anthracite coal mainly supplied from DTEK mines located in the non-controlled parts of Donetsk and Lugansk regions; and the sourcing of Anthracite coal from international markets. The effect of the event is further disclosed in Note 16.

The Groupís entities affected include:

DTEK Rovenkiantracyte LLC;
DTEK Sverdlovantracyte LLC;
DTEK Mine Komsomolets Donbassa PJSC;
Mospino CPE LLC;
one power plant belonging to DTEK Skhidenergo LLC (Zuevskaya TTP);
DTEK Donetskoblenergo (only non-controlled territory part);
PJSC DTEK Energougol ENE PJSC (only non-controlled territory part);
DTEK Power Grid LLC (only non-controlled territory part).

As at 31 December 2017, the Group had significant balances receivable from and prepayments made to the State and entities dependant on government financing, including prepaid income taxes of UAH 217 million, VAT recoverable of UAH 2,376 million (Note 14), receivables from Energorynok SE and various municipal water and heat supply companies of UAH 6,898 million and UAH 600 million respectively. The timing of settlement of these balances is uncertain and is dependent upon the availability of State funds and amounts of future taxable profits of the Groupís subsidiaries.

3 Summary of Significant Accounting Policies

Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (ìIFRSî) as adopted by the European Union using the historical cost convention, as modified by the revaluation of property, plant and equipment (revaluation model under IAS 16 Property, plant and equipment), and certain financial instruments measured in accordance with the requirements of IAS 39 Financial instruments: recognition and measurement. The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Going concern. As of 31 December 2017 the Group had an excess of current liabilities over current assets of UAH 12,057 million. This was caused by the classification of UAH 15,528 million of bank borrowings that are in default as of 31 December 2017.

The Groupís business is concentrated in Ukraine, the majority of its revenue is generated in Ukraine and denominated in UAH (2017: 94% and 2016: 94%, respectively), although the Group also receives some foreign currencies from its export of electricity and in the past through the export of coal. The majority of the Groupís debt is denominated in currencies other than the UAH.

Due to the significant UAH devaluation during the period 2014 to 2016 management commenced discussions with lenders on both a bi-lateral and an all-party basis. However, the Group has not been able to finalise discussion with all of its lenders or execute the restructured bank debt documentation to extend the terms of all of its debt as of the date of preparation of these consolidated financial statements. In December 2016 the Groupís bonds in amount of UAH 26,089 million were restructured. In March 2017 bank borrowings together with accrued but not paid interest in amount of UAH 13,321 million at the date of transaction were restructured and in August 2017 additional bank borrowings of UAH 714 million were restructured. The restructurings resulted in the modification of certain of the key terms and conditions in respect of the Restructured Debt aligned with the Override Agreement (see Note 19). However, of the remaining facilities of UAH 15,528 million including interest accrued as of 31 December 2017 remains in default as a result of the breaching of covenants. These remaining facilities amount to 24% of total borrowings as of 31 December 2017.

Management has prepared monthly cash flow projections for periods throughout 2018 and the first six months of 2019. Judgments with regard to future electricity prices, coal volumes and the timing of settlements with various counterparties were required for the preparation of the cash flow projections. Management has estimated that the overall cash flows are positive, indicating that there is no liquidity gap in any months, based on the important assumptions in the cash flow projections, including: electricity tariffs increasing to offset the impact of cost inflation; improvement of the payment discipline of Energorynok SE; continued stabilisation of the UAH; and that lenders with whom the Group has yet to complete debt restructuring will not demand principal repayment. Management have also evaluated the impact of the loss of control over the operations from 15 March 2017 in the non-controlled territory on the future cash flows and have concluded that this loss of control does not reduce operating cash flows to an extent that the Group will not be able to perform its payment obligations in accordance with the New Notes (Note 19) and the restructured bank borrowings.

Whilst the terms of the restructuring have been agreed with the bank lenders for the remaining facilities on the basis of binding heads of terms accepted by all of the bank lenders under the Bank Exchange Offer, management acknowledges that, prior to full completion of the restructuring of the remaining debt obligations that are subject to restructuring and completion of required procedures, there is an uncertainty which may cast significant doubt about the Groupís ability to continue as a going concern

Based on cash flow projections performed, management considers that the application of the going concern assumption for the preparation of these consolidated financial statements is appropriate.

Use of estimates. The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Groupës accounting policies. The areas, involving a high degree of judgement, complexity, or areas where assumptions and estimations are significant to the financial statements are disclosed in Note 4.

Functional and presentation currency. Items included in the financial statements of each of the Groupís entities are measured using the currency of the primary economic environment in which the Group operates (ìthe functional currencyî). The consolidated financial statements are presented in Ukrainian Hryvnia (ìUAHî), which is the Companyís functional and the Groupís presentation currency. Transactions denominated in currencies other than the relevant functional currency are translated into the functional currency, using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses, resulting from settlement of such transactions and from the translation of foreign currency denominated monetary assets and liabilities at year end, are recognised in the income statement. Translation at year end does not apply to non-monetary items including equity investments. The effects of exchange rate changes on the fair value of equity securities are recorded as part of the fair value gain or loss.

Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity.

Translation differences in non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences in non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences in nonmonetary financial assets such as equities classified as available-for-sale are included in the available-for-sale reserve in equity.

Foreign exchange differences classification. Foreign exchange transaction differences on accounts receivable, accounts payable, cash and cash equivalents and deposits placed are classified in consolidated income statement as ìNet operating foreign exchange gains and lossesî. In addition, a cumulative gain or loss on hedges which relate to operating activity is reclassified in the same line item when a forecast transaction occurs. Transaction differences recognised on other monetary assets and liabilities are classified in consolidated income statement as ìForeign exchange losses less gains on financing and investing activitiesî.

As at 31 December 2017, the exchange rates used for translating foreign currency balances were USD 1 = UAH 28.07 (31 December 2016: USD 1 = UAH 27.19); EUR 1 = UAH 33.49 (31 December 2016: EUR 1 = UAH 28.42); RUB 10 = UAH 4.87 (31 December 2016: RUB 10 = UAH 4.51). Exchange restrictions in Ukraine are limited to compulsory receipt of foreign receivables within 90 days of sales and to the compulsory conversion of 75% of proceeds in foreign currency to Ukrainian Hryvnia. In 2014 the National Bank of Ukraine implemented regulations that required foreign currency receipts to be converted to UAH and prohibited dividend payments for certain legal entities to foreign entities. The restriction was prolonged several times during 2015 and 2016 and was effective until 8 June 2016. From the 9 June 2016 the National Bank of Ukraine has imposed of restriction on the compulsory conversion of 65% of proceeds in foreign currency to Ukrainian Hryvnia. From 05 April 2017 the level of conversion was revised and reduced to 50% and this restriction is effective till 13 June 2018.

The results and financial position of each consolidated entity are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at monthly average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity. All the components of consolidated equity are translated at the closing rate of that balance sheet date, except for retained earnings, which is stated at historical rates. The balancing figure goes to cumulative currency translation reserve in other reserves in equity.

Consolidated financial statements. Subsidiaries are those companies and other entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interestís proportionate share of the acquireeís net assets.

If a subsidiary is acquired in stages it is measured as the sum of the fair value of the interest previously held plus the fair value of any additional consideration transferred as of the date when the investment became an associate. Relative gain or loss from valuation of previously held interest is recognised in the income statement.The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the groupís identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Transactions with non-controlling interests. The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

Common control business combinations. Purchases of subsidiaries from parties under common control are recorded using the predecessor values. Under this method the subsidiaries results, assets and liabilities are incorporated prospectively from the date, on which business combination between entities under common control occurred. The corresponding amounts for the previous year are not restated. The assets and liabilities of the subsidiary transferred under common control are at the predecessor entityís carrying values. The difference between the consideration given and the aggregate carrying value of the assets and liabilities (as of the date of the transaction) of the acquired entity is recorded as an adjustment to equity. No additional goodwill is created by such purchases.

The above accounting policy has been changed for the year ended 31 December 2017. Previously, the Group had an accounting policy to account for common control business combinations retrospectively, as if the businesses had been consolidated from the beginning of the earliest period presented (or the date that the entities were first under common control, if later). This policy was changed as in managementís view, reflecting common control business combinations prospectively from the acquisition date as a purchase, albeit at predecessor values, provides a better reflection of the business reality where businesses were not operated together prior to the transaction, but were managed separately and performed transactions on armís length principles. Additionally, it was considered that users of the financial statements would more easily understand the impacts of the new businesses acquired by seeing the actual effects on the Groupís financial statements prospectively following the purchase, particularly in order to understand the effects on debt covenants going forward. The Group has not had business combination under common control since 2009, therefore the new accounting policy had no impact to opening balance sheet and no opening balance sheet as at 1 January 2016 has thus been presented.

Reorganisation. The Group reorganisation whereby the entities or segments of the Group are demerged as separate legal entities, but remain under common control, are accounted for as follows: assets and liabilities are transferred at the carrying amount along with related fair value adjustments which were recognised on acquisition of such assets. Difference between any consideration received in exchange and the net assets transferred, inclusive of any fair value adjustments is recorded directly in equity. If entities transferred meet the criteria of discontinued operations, the results to the date of transfer and respective comparatives are presented accordingly as a single line in the income statement.

Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the Groupís chief operating decision maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. Reportable segments whose revenue, result or assets are ten percent or more of all the segments are reported separately. Segments falling below this threshold can be reported separately at management decision.

Property, plant and equipment. The Group uses the revaluation model to measure property, plant and equipment. Fair value was based on valuations by external independent valuers. The frequency of revaluation will depend upon the movements in the fair values of the assets being revalued. Subsequent additions to property plant and equipment are recorded at cost. Cost includes expenditure directly attributable to acquisition of the items. The cost of selfconstructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. The cost of acquired and self-constructed qualifying assets includes borrowing costs.

Any increase in the carrying amounts resulting from revaluation are credited to other reserves in equity through other comprehensive income. Decreases that offset previously recognised increases of the same asset are charged against other reserves in equity through other comprehensive income; all other decreases are charged to the income statement. However, to the extent that an impairment loss on the same revalued asset was previously recognised in the income statement, a reversal of that impairment loss is also recognised in the income statement.

Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the assetís original cost is transferred from other reserves to retained earnings. When an item of property, plant and equipment is revalued the accumulated depreciation is eliminated against the gross carrying amount of the asset.

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalised with the carrying amount of the replaced component being written off. Subsequent costs are included in the assetís carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Property, plant and equipment are derecognised upon disposal or when no future economic benefits are expected from the continued use of the asset. Gains and losses on disposals determined by comparing proceeds with carrying amount of property, plant and equipment are recognised in the consolidated income statement. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

Depreciation. Depreciation is charged to the consolidated income statement on a straight-line basis to allocate costs of individual assets to their residual value over their estimated useful lives. Depreciation commences on the date of acquisition or, in respect of self-constructed assets, from the time an asset is completed and ready for use.

Mining assets include mineral licences and mineral reserves, which were acquired by the Group and which have finite useful lives. Mineral licenses and mineral reserves are stated at cost less accumulated amortisation and accumulated impairment losses. Mining assets are amortised on a straight-line basis over the estimated useful life.

Other property, plant and equipment are depreciated on a straight line basis over its expected useful life. The typical useful lives of the Groupís other property, plant and equipment are as follows:

	Useful lives in years
Mining assets	from 10 to 60
Buildings and structures	from 10 to 50
Plant and machinery	from 2 to 30
Furniture, fittings and equipment	from 2 to 15

Construction in progress represents the cost of property, plant and equipment, including advances to suppliers, which has not yet been completed. No depreciation is charged on such assets until they are available for use.

Leases. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the leaseís commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.

Asset retirement obligations. According to the Code on Mineral Resources, Land Code of Ukraine, Mining Law, Law on Protection of Land and other legislative documents, the Group is responsible for site restoration and soil rehabilitation upon abandoning of its mines. Estimated costs of dismantling and removing an item of property, plant and equipment are added to the cost of an item of property, plant and equipment when the item is acquired, and corresponding obligation is recognised. Changes in the measurement of an existing asset retirement obligation, that result from changes in the estimated timing or amount of the outflows, or from changes in the discount rate used for measurement, are recognised in the income statement or, to the extent of any revaluation balance existence in respect of the related asset, other reserves.

Provisions in respect of abandonment and site restoration are evaluated and re-estimated annually, and are included in the consolidated financial statements at each balance sheet date at their expected net present value, using discount rates which reflect the economic environment in which the Group operates.

Goodwill. Goodwill represents the excess of the consideration transferred for an acquisition over the fair value of the acquirerís share of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary or associate at the date of exchange. Goodwill on acquisitions of subsidiaries is included in intangible assets in the balance sheet. Goodwill on acquisitions of associates is included in the investment in associates. Goodwill is carried at cost less accumulated impairment losses, if any.

Goodwill is allocated to cash generating units for the purposes of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business to which the goodwill arose.

Other intangible assets. All of the Groupís other intangible assets have definite useful lives and primarily include capitalised computer software and licenses. Acquired computer software are capitalised on the basis of the costs incurred to acquire and bring them to use. Other intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs of disposal. ìBurshtyn electricity islandî intangible asset has a definite useful life of 13 years and is depreciated on a straight line basis over this period. Other intangibles assets is amortised on a straight-line basis over estimated useful life of 1-49 years.

Impairment of non-financial assets. Intangible assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation are reviewed for impairment whenever events and changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less cost of disposal and value in use. For purposes of assessing impairment, assets are grouped to the lowest levels for which there are separately identifiable cash flows (cash generating unit). Non-financial assets, other than goodwill, that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Non-current assets (or disposal groups) held for distribution. Non-current assets (or disposal groups) are classified as assets held for distribution when their carrying amount is to be recovered principally through a sale transaction/contribution of assets to owners and a sale/contribution is considered highly probable. They are stated at the lower of carrying amount and fair value less costs of disposal. The Group grossed up both continuing and discontinued operations, and add a supplementary presentation of intercompany transactions for discontinued operations is made in the notes.

Discontinued operations. A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, represents a separate major line of business, and is part of a single coordinated overall plan to dispose of a separate major line of business. The Group records intercompany operations on a gross basis in both continued and discontinued operations. Elimination entries against the discontinued operation is disclosed separately in the Note16. When an operation is classified as discontinued, the comparative statements of income and cash flows are re-presented as if the operation had been discontinued from the start of the comparative period.

Classification of financial assets. The Group classifies its financial assets into the following measurement categories: (a) loans and receivables; (b) available-for-sale financial assets.

Loans and receivables include financial receivables created by the Group by providing money, goods or services directly to a debtor, other than those receivables which are created with the intention to be sold immediately or in the short term, or which are quoted in an active market. Loans and receivables comprise primarily loans issued and trade and other accounts receivable. All other financial assets are included in the available-for-sale category.

Initial recognition of financial instruments. The Groupís principal financial instruments comprise available-for-sale investments, loans and borrowings, cash and cash equivalents, financial liabilities designated at fair value through profit and loss, short-term deposits and financial guarantees. The Group has various other financial instruments, such as trade debtors and trade creditors, which arise directly from its operations

Where available-for-sale investments are acquired from parties under the common control of the ultimate shareholder, and the difference between the amount paid to acquire the instrument and its fair value in substance represents a capital contribution or distribution, such difference is recorded as a debit or credit in other reserves in equity.

All purchases and sales of financial instruments that require delivery within the time frame established by regulation or market convention (ìregular wayî purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial instrument. All other purchases and sales are recognised on the settlement date with the change in value between the commitment date and settlement date not recognised for assets carried at cost or amortised cost, and recognised in equity for assets classified as available-for-sale.

Subsequent measurement of financial instruments. Subsequent to initial recognition, the Groupís financial liabilities, loans and receivables are measured at amortised cost. Derivative financial instruments and financial liabilities designated at fair value through profit and loss are measured at fair value. Amortised cost is calculated using the effective interest rate method and, for financial assets, it is determined net of any impairment losses. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method. Bank overdrafts are included into borrowings line item in the consolidated balance sheet.

The face values of financial assets and liabilities with a maturity of less than one year, less any estimated credit adjustments, are assumed to be their fair values. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments.

Gains and losses arising from a change in the fair value of available-for-sale assets are recognised directly in equity. In assessing the fair value of financial instruments, the Group uses a variety of methods and makes assumptions based on market conditions existing at the balance sheet date.

When available-for-sale assets are sold or otherwise disposed of, the cumulative gain or loss recognised in equity is included in the determination of net profit. When a decline in fair value of available-for-sale assets has been recognised in equity and there is objective evidence that the assets are impaired, the loss recognised in equity is removed and included in the determination of net profit, even though the assets have not been derecognised.

Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the consolidated income statement when the Groupís right to receive payment is established and the inflow of economic benefits is probable. Impairment losses are recognised in the income statement when incurred as a result of one or more events that occurred after the initial recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an instrument below its cost is an indicator that it is impaired.

The cumulative impairment loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in the income statement, is removed from equity and recognised in the income statement.

Impairment losses on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through current periodís income statement.

A provision for impairment of loans and accounts receivable is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered to be indicators that the trade receivable is impaired. The amount of the provision is the difference between the assetís carrying amount and the present value of estimated future cash flows.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement. When receivable is uncollectible, it is written off against the allowance account for receivables. Subsequent recoveries of amounts previously written off are credited in the income statement.

Financial guarantees. Financial guarantees are irrevocable contracts that require the Group to make specified payments to reimburse the holder of the guarantee for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantees are initially recognised at their fair value. This amount is amortised on a straight line basis over the life of the guarantee. At the end of each reporting period, the guarantees are measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition and (ii) the best estimate of expenditure required to settle the obligation at the end of the reporting period.

Derecognition of financial assets. The Group derecognises financial assets when (i) the assets are redeemed or the rights to cash flows from the assets have otherwise expired or (ii) the Group has transferred substantially all the risks and rewards of ownership of the assets or (iii) the Group has neither transferred nor retained substantially all risks and rewards of ownership but has not retained control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

Derecognition of financial liabilities. A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. A substantial modification of the terms of an existing financial liability or a part of it is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. While assessing if modification is substantial, management considers both quantitative and qualitative factors. Qualitative factors include change of form of the instrument, interest rate, change in covenants and guarantors (Note 19). The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, are recognised in profit or loss. If the exchange or modification of financial liability is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability.

Gains and losses on loans provided to related parties. Gains and losses on initial recognition and early repayment as well as unwinding of discount and foreign exchange differences on loans provided to related parties are recognised in consolidated income statements in the period when incurred.

Derivative financial instruments, including hedge accounting. The Group enters, from time to time, into various derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk. Starting from 1 January 2013 until 1 July 2014 the Group applied hedge accounting to such transactions.

Derivatives were initially recognised at fair value on the date a derivative contract was entered into and were subsequently re-measured at their fair value. The effective portion of changes in the fair value of derivatives that were designated and qualified as cash flow hedges was recognised in other comprehensive income.

Starting from 1 July 2014 management decided to discontinue the hedge accounting application since does not expect the hedge will be highly effective in the future. The cumulative loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (from 1 January 2013 to 30 June 2014) will remain separately in equity and will be reclassified to profit or loss in the periods when the forecast transaction occurs. Movements on the hedging reserve in other comprehensive income are shown in Note 18. Cash flow hedge was discontinued prospectively.

Income taxes. Income taxes have been provided for in the financial statements in accordance with Ukrainian, Russian, Hungarian, Dutch, Cypriot, Swiss or UK legislation enacted or substantively enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognised in the income statement unless it relates to transactions that are recognised, in the same or a different period, directly in equity. Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes other than on income are recorded within operating expenses.

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised.

Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.

Deferred income tax is provided on post-acquisition retained earnings and other post-acquisition movements in reserves of subsidiaries, except where the Group controls the subsidiaryís dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.

Inventories. Inventories are recorded at the lower of cost and net realisable value. The cost of inventory is determined on the first in first out basis for raw materials and spare parts, weighted average cost for coal and specific identification principle for goods for resale. Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses.

Trade and other receivables. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Prepayments. Prepayments are carried at cost less provision for impairment. A prepayment is classified as noncurrent when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group.

Other prepayments are charged to the income statement when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in the income statement.

Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with maturities of three months or less with insignificant change in fair value. Cash and cash equivalents are carried at amortised cost using the effective interest method. Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated cash flow statement. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the balance sheet date are included in other non-current assets.

The Group enters into cash pooling arrangements whereby the Groupís subsidiary places a deposit and another subsidiary takes a loan in the same bank for the same amount. For the purposes of consolidated cash flow statement movement of such balances is excluded from financing and investing activities.Amount of cash pledged under cash pooling arrangements is included in restricted cash balance in cash and cash equivalents or in restricted deposits in financial investments depending on maturity. Related loan balance is included in Borrowings in the consolidated balance sheet.

Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is presented in the notes as share premium.

Dividends. Dividends are recognised as a liability and deducted from equity at the balance sheet date only if they are declared before or on the balance sheet date. Dividends are disclosed when they are proposed before the balance sheet date or proposed or declared after the balance sheet date but before the consolidated financial statements are authorised for issue.

Value added tax (ìVATî). In Ukraine VAT is levied at two rates: 20% on sales and imports of goods within the country, works and services and 0% on the export of goods and provision of works or services to be used outside Ukraine. A taxpayerís VAT liability equals the total amount of VAT collected within a reporting period, and arises on the earlier of the date of shipping goods to a customer or the date of receiving payment from the customer. A VAT credit is the amount that a taxpayer is entitled to offset against his VAT liability in a reporting period. Rights to VAT credit arise when a VAT invoice is received, which is issued on the earlier of the date of payment to the supplier or the date goods are received. VAT related to sales and purchases is recognised in the consolidated balance sheet on a gross basis and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, the impairment loss is recorded for the gross amount of the debtor, including VAT.

Government grants. Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and that the Group will comply with all attached conditions. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight-line basis over the expected lives of the related assets. Government grants relating to an expense item are recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate.

Trade and other payables. Trade and other payables are recognised and initially measured under the policy for financial instruments mentioned above. Subsequently, instruments with a fixed maturity are re-measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any transaction costs and any discount or premium on settlement.

Prepayments received. Prepayments received are carried at amounts originally received. Amounts of prepayments received are expected to be realised through the revenue received from usual activity of the Group.

Provisions for liabilities and charges. Provisions for liabilities and charges are provisions for environmental restoration, restructuring costs and legal claims which are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

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

Contingent liabilities are not recognised in the financial statements unless it is probable that an outflow of economic resources will be required to settle the obligation and it can be reasonably estimated. Contingent liabilities are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

Revenue recognition. The Groupís generating companies sells all electricity produced by its electricity generation plants to Energorynok SE, a state-owned electricity distribution monopoly, at prices determined based on the competitive pool model adopted by the National Electricity Regulatory Committee of Ukraine (ìNERCî). The Groupís distribution companies buy electricity from Energorynok SE and sell it to the end-customers, at prices determined by NERC. Revenue from the sale of electricity is the value of units supplied during the year and includes an estimate of the value of units supplied to customers between the date of their last meter reading and the year end. Revenue from sale of electricity to end customers is recognised on a gross basis.

Revenues from sales of goods are recognised at the point of transfer of risks and rewards associated with ownership of goods. If the goods are transported to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. Revenues are measured at the fair value of consideration received or receivable, and are shown net of value added tax and discounts.

Recognition of expenses. Expenses are recorded on an accrual basis. The cost of goods sold comprises the purchase price, transportation costs, commissions relating to supply agreements and other related expenses.

Finance income and costs. Finance income and costs comprise interest expense on borrowings, losses on early repayment of loans, interest income on funds invested, income on origination of financial instruments, unwinding of interest of the pension obligation and asset retirement provision, and foreign exchange gains and losses.

Borrowing costs that relate to assets that take a substantial period of time to construct are capitalised as part of the cost of the asset. All other interest and other costs incurred in connection with borrowings are expensed using the effective interest rate method.

Interest income is recognised as it accrues, taking into account the effective yield on the asset.

Employee benefits: Defined Contributions Plan. The Group makes statutory unified social contributions to the Pension Fund of Ukraine in respect of its employees. The contributions are calculated as a percentage of current gross salary, and are expensed when incurred. Discretionary pensions and other post-employment benefits are included in labour costs in the consolidated income statement.

Employee benefits: Defined Benefit Plan. Certain entities within the Group participate in a mandatory State defined retirement benefit plan, which provides for early pension benefits for employees working in certain workplaces with hazardous and unhealthy working conditions. The Group also provides lump sum benefits upon retirement subject to certain conditions. The liability recognised in the balance sheet in respect of the defined benefit pension plan is the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation is calculated annually by actuaries using the Projected Unit Credit Method.

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

Remeasurement of liability resulting from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Current and past service costs are recognised immediately in the income statement.

Income from non-core activity. The Group undertakes, in the course of its ordinary activities, other transactions that do not generate revenue and are incidental to the main revenue-generating activities. When the Group acts as an agent the presentation of the transaction reflect the substance of the transaction by recording the net result through netting any income with related expenses arising on the same transaction. Accounts receivable and accounts payable are recognised on a gross basis and not offset.

4 Critical Accounting Estimates and Judgements

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on managementís experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Impairment of property, plant and equipment and goodwill. The Group is required to perform impairment tests for its cash-generating units where goodwill was recognised and for those cash-generated units where impairment indicators are identified. One of the determining factors in identifying a cash-generating unit is the ability to measure independent cash flows for that unit. For many of the Groupís identified cash-generating units a significant proportion of their output is input to another cash-generating unit.

The Group also determines whether goodwill is impaired at least on an annual basis. This requires estimation of the value in use/ fair value less costs of disposal of the cash-generating units to which goodwill is allocated. Estimating value in use/ fair value less costs of disposal requires the Group to make an estimate of expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. For detailed analysis of impairment and related sensitivities refer to Notes 9 and 11.

Revaluation of property, plant and equipment. On an annual basis management of the Group carries out an analysis to assess whether carrying amounts of items of property, plant and equipment differ materially from that which would be determined using fair value at the end of the reporting period. The analysis is based on price indices, developments in technology, movements in exchange rates since the date of latest revaluation, profitability of underlying businesses and other relevant factors. Where the analysis indicates that the fair values of items of property plan and equipment differ materially from the carrying amounts, further revaluation is performed involving independent valuers.

As most of the Groupís property, plant and equipment is of specialised nature, its fair value is determined using depreciated replacement cost (Level 3). As at 1 July 2017, the Groupís management decided to carry out a revaluation of property, plant and equipment for its mining assets, as at 1 October 2017 and 1 November 2017 for its generation and distribution assets based on changes in economic conditions of business environment and an increase of the inflation rate. Fair values of property, plant and equipment and remaining useful lives were determined by an independent appraiser.

The carrying value and useful lives property, plant and equipment are affected by the estimates of depreciated replacement cost and remaining useful life. Changes in these assumptions could have a material impact to the fair value of property, plant and equipment (Note 9).

When performing valuation using these methods, the key estimates and judgments applied by the independent valuers, in discussion with the Groupís internal valuation team and technicians, are as follows:

choice of information sources for construction costs analysis (actual costs recently incurred by the Group, specialised reference materials and handbooks, estimates for cost of construction of various equipment etc.);
determination of comparatives for replacement cost of certain equipment, as well as corresponding adjustments required to take into account differences in technical characteristics and condition of new and existing equipment;
selection of market data when determining market value where it is available;
timing of when the tariff for distribution will be determined based on a return on assets formulae (ìRABî); and determination of applicable cumulative price indices or changes in foreign exchange rates which would most reliably reflect the change in fair value of assets revalued using indexation of carrying amounts.

The fair values obtained using depreciated replacement cost are validated using discounted cash flow models (income approach, Level 3), and are adjusted if the values obtained using income approach are lower than those obtained using depreciated replacement cost or indexation of carrying amounts (i.e. there is economic obsolescence). Key inputs into discounted cash flow models are consistent with the assumptions used for determination of economic ceiling (Note 9) and goodwill impairment testing (Note 11).

Changes in the above estimates and judgments could have a material effect on the fair value of property, plant and equipment, which, however, is impracticable to quantify due to wide variety of assumptions and assets being valued.

Control over the legal entities whose operations in the non-controlled territory were lost. As further disclosed in Note 16, on 15 March 2017 the self-proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. The Group has determined that it retains control over the legal entities whose operations were located in the non-controlled territories, as these entities are registered in the controlled territory of Ukraine and continue to serve its obligations and collect payments on receivables. Thus, the Group continues to consolidate the remaining assets and liabilities of those entities as of 31 December 2017.

4 Critical Accounting Estimates and Judgements (Continued)

Management of the Group considered whether the operations lost in the non-controlled territory fall under Discontinued Operations. Management believes that operations attributable to entities located in the non-controlled territory does not represent a major business segment or geographical area and therefore, do not fall under the definition of Discontinued Operations.

Recognition of revenue and fair value of liabilities in the non-controlled territory. With respect to revenue recognition (up to 15 March 2017) management has recognised revenue for certain large and regular payers. Revenue is recognised with respect to other customers on a cash basis. Unrecognised revenue amounts to UAH 231 million for the year ended 31 December 2017 (2016: UAH 1,756 million).

In accordance with IFRS liabilities are initially recognised at their fair value. Management have determined that the fair value (contractually enforceable amount of payables) of liabilities with respect to purchases of electricity of the power distributors is substantially less than their nominal amount. In accordance with the existing contract the contractually enforceable amount is tied to the collections from the end customers being less than 20% of the nominal amount of the payable. Management have assessed the fair value of liabilities with respect to power purchases by the power distributors based on anticipated and factual collections from end customers.

Any increase or decrease in collections would have a similar impact on revenues, expenses, assets and liabilities. The basis for this accounting is with respect to the ability of the Group to enforce the multilateral contracts signed. Management are confident that these multilateral contracts are legally enforceable and they will be upheld if challenged. The difference between the nominal value of the related liability and its fair value is UAH 1,971 million (31 December 2016: UAH 1,740 million).

Impairment of property, plant and equipment located in the non-controlled territory. As a result of the events further disclosed in Note 16, management of the Group has performed an impairment testing of respective property, plant and equipment and determined that the value of these assets is zero, thus recognising UAH 5,359 million as a decrease of previously recognised revaluation in other comprehensive income and UAH 7,433 million as impairment charge in the consolidated income statement. Management has determined that the loss of control over the assets does not require derecognition of the property, plant and equipment. This is based on consideration that the Group still holds the legal title over the assets; the seizure of assets is illegal and might be temporary; the Group may still be able to claim some compensation for the assets through International courts. Would the judgement be made that the assets are derecognised, the whole amount of UAH 12,792 million of decrease in the carrying value of property, plant and equipment would need to be charged to the income statement and previously recognised revaluation in equity in amount of UAH 5,359 would need to be transferred to retained earnings.

Impairment of trade and other accounts receivable. Management estimates the likelihood of the collection of trade and other accounts receivable based on an analysis of individual accounts. Factors taken into consideration include an ageing analysis of trade and other accounts receivable in comparison with the credit terms allowed to customers, and the financial position of and collection history with the customer. With respect to the impairment of receivables from the sale of heat an analysis on a whole population was performed. Should actual collections be less than managementís estimates, the Group would be required to record an additional impairment expense.

The estimates used to assess the impairment (if any) of trade and other accounts receivable for those entities located in Eastern Ukraine are impacted by greater uncertainty than in other areas (see discussion of operating environment in Note 2 and the loss of control over operations in Note 16). Though most of the remaining non-fully impaired balances are from related parties and the major uncertainty is with respect to the timing of settlement.

Management estimated that receivables from individuals for supplied heat in the amount of UAH 3,703 million will be settled in full by the end of 2018. Management anticipates that overdue receivables for supplied electricity to Energorynok SE will be settled in full either in cash or via set off mechanism during one year from the balance sheet date.

Post-employment and other employee benefit obligations. Management assesses post-employment and other employee benefit obligations using the Projected Unit Credit Method based on actuarial assumptions which represent managementís best estimates of the variables that will determine the ultimate cost of providing post-employment and other employee benefits. Since the plan is administered by the State, the Group may not have full access to information and therefore assumptions regarding when, or if, an employee takes early retirement, whether the Group would need to fund pensions for ex-employees depending on whether that ex-employee continues working in hazardous conditions, the likelihood of employees transferring from State funded pension employment to Group funded pension employment could all have a significant impact on the pension obligation. The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions.

The major assumptions used in determining the net cost (income) for pensions include the discount rate, indexation rate and expected salary increases. Any changes in these assumptions will impact the carrying amount of pension obligations. Since there are no long-term, high quality corporate bonds issued in Ukrainian Hryvnias, significant judgement is needed in assessing an appropriate discount rate. Key assumptions and sensitivities are presented in Note 21.

4 Critical Accounting Estimates and Judgements (Continued)

Deferred tax asset recognition. The net deferred tax asset represents income taxes recoverable through future deductions from taxable profits and is recorded in the balance sheet. Deferred tax assets are recorded to the extent that realisation of the related tax benefit is probable. In determining future taxable profits and the amount of tax benefits that are probable in the future, management makes judgements and applies estimation based on historic taxable profits and expectations of future income that are believed to be reasonable under the circumstances.

Tax legislation. Ukrainian tax, currency and customs legislation continues to evolve. Conflicting regulations are subject to varying interpretations. Management believes its interpretations are appropriate and sustainable, but no guarantee can be provided against a challenge from the tax authorities.

Prepayments for current income tax. In accordance with the existing Tax Code in Ukraine, the current income tax is paid during the year based on the level of taxable profit received in the prior fiscal year, and subsequently corrected at the end of the current fiscal year when the annual income tax return is submitted to the tax authorities. As a result of this, the Group has significant current income tax prepaid. Management believes that it will be able to settle these prepayments in foreseeable future.

Related party transactions. In the normal course of business the Group enters into transactions with related parties. Judgement is applied in determining if transactions are priced at market or non-market rates, where there is no active market for such transactions.

Heat tariff compensation received by Kyivenergo JSC. In accordance with existing legislation, Kyivenergo is entitled to claim heat tariff compensation which is calculated as the difference between the heat tariff required to cover all production costs plus reasonable margin and that imposed by the National Electricity Regulatory Committee of Ukraine. Such claims are subject to additional Governmental, Budget and City approvals, prescribed by the state regulations. In October 2012 the Cabinet of Ministers of Ukraine approved Resolution #968 stating that the compensation of the difference between the ìeconomically groundedî tariffs and that imposed by the State should be calculated by the companies entitled to such compensation and approved by the state regularly. Kyivenergo accounts for such heat tariff compensation as government grant and has recorded amounts of compensation receivable on an accrual basis starting from November 2012. The amount of compensation receivable as at 31 December 2017 is UAH 730 million (31 December 2016: UAH 644 million).

Deleveraging transaction accounting. As explained in Note 19, in September 2016 DTEK Energy B.V. completed a deleveraging plan with Sberbank of Russia. In accordance with this plan the Rostov mines were transferred to a new holding company (Fabcell Limited), owned by the Company's immediate parent DTEK B.V. According to the deleveraging plan a corporate governance structure was established that gave Sberbank of Russia certain protective rights, including the Board of Rostov mines requires unanimous consent of all four members to approve day-to-day operations, one of these four members is an independent director nominated by Sberbank. The sole purpose of the independent member is to make sure that Fabcell assets are appropriately managed, enabling the repayment of the Sberbank loan according to the agreed plan. There has been no sign that Sberbank has had any intention to block DTEKís business decision and/or to use the independent member for anything else than for protective purposes. Management assumes that the Sberbank loan will be repaid according to the schedule, and considers that Fabcell Limited has 100% economic interest in Rostov mines assets and bears full risks and rewards and after repayment of loan to Sberbank of Russia these protective rights will disappear.

Based on the above, management has concluded that control over the Rostov mines by DTEK B.V. via Fabcell Limited has been retained. Therefore, Group accounted for the disposal of Rostov Mines as a Group reorganisation, recording the difference between net assets derecognised and consideration received directly in equity.

5 Adoption of New or Revised Standards and Interpretations

The following standards and interpretations apply for the first time to financial reporting periods commencing on or after 1 January 2017:

Amendments to IAS 7: Disclosure Initiative The amended IAS 7 requires disclosure of a reconciliation of movements in liabilities arising from financing activities. Reconciliation on movement in loans and borrowings is presented in the Note 19. Cash movement in other financial liabilities arising from financing activities was immaterial.
Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses The amendment has clarified the requirements on recognition of deferred tax assets for unrealised losses on debt instruments. The entity will have to recognise deferred tax asset for unrealised losses that arise as a result of discounting cash flows of debt instruments at market interest rates, even if it expects to hold the instrument to maturity and no tax will be payable upon collecting the principal amount. The economic benefit embodied in the deferred tax asset arises from the ability of the holder of the debt instrument to achieve future gains (unwinding of the effects of discounting) without paying taxes on those gains. The above amendment did not have any significant impact on the Groupís financial statements.

The following new standards, which are relevant to the Groupís consolidated financial statements, have been issued, but have not been endorsed by European Union:

Annual Improvements to IFRS Standards 2014-2016 Cycle (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2017 and 1 January 2018);
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018);
IFRIC 23 Uncertainty over Income Tax Treatments (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019);
Annual Improvements to IFRS Standards 2015-2017 Cycle (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019).

The following new standards which are relevant to the Groupís consolidated financial statements, have been issued and endorsed by European Union, but have not been effective for financial periods beginning on or after 1 January 2017:

IFRS 9, Financial Instruments (issued on 24 July 2014 and effective for annual periods beginning on or after 1 January 2018);

The new standard IFRS 9 Financial Instruments issued by the Board in July 2014 is obligatory for implementation for the periods beginning on or after January 1, 2018. The standard replaces IAS 39 which previously regulated operations with financial instruments. Key features of the new standard are:

Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).

Classification for debt instruments is driven by the entityís business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assetsí cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.

Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss.

The standard also regulates hedge accounting and provide explicit rules for calculation of loss allowance.

Management examined all material financial instruments according to the new models for classifying and measuring financial assets and liabilities after initial recognition. They were checked through both Business Model test and SPPI test. Management tested financial assets as an object to another fundamental change ñ implementation of ìexpected credit lossî model, which generally focuses on the risk that an instrument will default rather than whether a loss has been incurred.

During prior analysis management did not identify any financial instrument that would change its classification due to new requirement of IFRS 9 based on Business model and SPPI test. However, implementation of the ìexpected credit lossî model will lead to increase in impairment charges. This is due to the fact that under IFRS 9 the Group is obliged to accrue provision on amounts that were previously out of bad debt analysis due to accounting policy rules.

5 Adoption of New or Revised Standards and Interpretations (continued)

Particularly that would concern financial assets from related parties and newly created financial assets from third parties. Under preliminary assessment, total impact of new requirements in respect of allowance will constitute approximately UAH 990 million as at 1 January 2018. Management intends to complete its assessment during the first half of 2018 year. The Group will apply the new rules retrospectively from 1 January 2018, with the practical expedients permitted under the standard, and account the impact within retained earnings as of 1 January 2018. Comparatives for 2017 will not be restated.

IFRS 15 Revenue from Contracts with Customers (issued on 28 May 2014 and effective for annual periods beginning on or after 1 January 2018);
Clarifications to IFRS 15 Revenue from Contracts with Customers (issued on 12 April 2016 and effective for annual periods beginning on or after 1 January 2018);

Starting from 1 January 2018 the Group is obliged to apply IFRS 15 Revenue from Contracts with Customers. The new standard recognition requirements provide more advanced guidance on complex transactions, such as accounting for multiple-element arrangements. The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed.

IFRS 15 also includes a cohesive set of disclosure requirements that would result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entityís contracts with customers.

Management reviewed number of typical sales agreements used for revenue stream of each segment: generation, distribution, heating, mining, gas, export sales. Taking into account specifics of business activity of the Group, current sales structure and near future business development, management does not expect sales contracts with multiple performance obligations to be common business practice, except for those described below. Consequently, management does not consider IFRS 15 will bring material changes in sales recognition rules and, therefore, does not expect the new standard may materially influence the consolidated financial statements. Nevertheless, management regularly reviews business changes and all new or unusual transactions are separately examined for proper treatment, recognition and disclosure within the consolidated financial statements.

Following analysis, management identified sales transactions within the mining segment, which will be differently recognised and presented after IFRS 15 requirements implementation. Such transactions include at least two performance obligations, which should be separately accounted for and presented under the new standard requirement. Initial assessment showed the approximate amount of such sales to the approximately UAH 660 million for 2017, which presented in consolidated financial statements as revenue from sales of coal. Applying the new standard requirements the amount should be split into revenue from coal in the amount of ca. UAH 535 million and revenue from other services (transportation) of nearly UAH 125 million less costs of such services of nearly UAH 115 million resulting in net revenue of UAH 10 million.

For the purpose of transition to accounting according to IFRS 15 the Group decided to apply the method using the modified retrospective approach, meaning that the cumulative impact of the adoption will be recognised in retained earnings as of 1 January 2018 and that comparatives will not be restated. Management assessed that possible adjustment of the retained earnings opening balance as at 1 January 2018 is immaterial and will not exceed UAH 10 million.

IFRS 16 ñ Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019).

All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

IFRS 16 will require the Group to recognise in the balance sheet assets taken in an operating lease and the related lease liabilities. Although, the current annual operating lease commitments are immaterial, the Group is still assessing the impact of IFRS 16. Management will perform more detailed analysis and will disclose the impact of the new standard in the consolidated financial statements for the year ended 31 December 2018 that will be comparative period for the year when the standard is adopted. Management intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to the adoption.

6 Subsidiaries with material non-controlling interest

The following table provides information about each subsidiary that has non-controlling interest that is material to the Group:

In millions of Ukrainian Hryvnia	Place of business (and country of incorpo ration if different)	Proportion of non controlling interest	Proportion of non controlling interestís voting rights held	Profit or (loss) attributable to non controlling interest	Accumulated non controlling interest in the subsidiary	Dividends paid to non controlling interest during the year

Year ended 31 December 2017
DTEK Krymenergo PJSC	Ukraine	42.30%	42.30%	5	(170)	-
DTEK Dniprooblenergo PJSC	Ukraine	48.34%	48.34%	16	1,906	(75)
DTEK Donetskoblenergo PJSC	Ukraine	28.50%	28.50%	(50)	(904)	-
Kyivenergo JSC	Ukraine	27.61%	27.61%	(139)	1,029	(1)
DTEK Dniproenergo PJSC	Ukraine	26.46%	26.46%	256	3,564	(293)
DTEK Zakhidenergo PJSC Kharkivskyi Machine-Building	Ukraine	27.76%	27.76%	(429)	1,831	-
Plant Svitlo Shakhtarya PJSC	Ukraine	38.83%	38.83%	(3)	233	-
Total				(344)	7,489	(369)

Year ended 31 December 2016
DTEK Krymenergo PJSC	Ukraine	42.30%	42.30%	(6)	(175)	-
DTEK Dniprooblenergo PJSC DTEK Donetskoblenergo PJSC	Ukraine Ukraine	48.34% 28.50%	48.34% 28.50%	200 (54)	1,134 (863)	- -

Kyivenergo JSC	Ukraine	27.61%	27.61%	(193)	659	-
DTEK Dniproenergo PJSC	Ukraine	26.46%	26.46%	641	2,714	-
DTEK Zakhidenergo PJSC	Ukraine	27.76%	27.76%	(14)	604	-
Total				574	4,073	-

The summarised financial information of these subsidiaries was as follows at 31 December 2017:

		Non		Non			Total compreh ensive
In millions of Ukrainian Hryvnia	Current assets	current assets	Current liabilities	current liabilities	Revenue	Profit / (loss)	income / (loss)	Cash flows
Year ended 31 December 2017
DTEK Krymenergo PJSC	-	5	406	-	-	13	13	-
DTEK Dniprooblenergo PJSC	1,759	5,667	2,906	577	28,459	33	1,833	(463)
DTEK Donetskoblenergo PJSC	1,194	767	3,100	2,033	4,589	(176)	(145)	35
Kyivenergo JSC	7,216	7,042	10,066	461	26,235	(502)	1,345	11
DTEK Dniproenergo PJSC	8,758	13,314	6,783	1,819	15,373	967	4,355	(391)
DTEK Zakhidenergo PJSC Kharkivskyi Machine-Building	4,074	13,841	8,862	2,458	21,341	(1,544)	4,420	(157)
Plant Svitlo Shakhtarya PJSC	1,210	203	776	37	145	(8)	(8)	-
Total	24,211	40,839	32,899	7,385	96,142	(1,217)	11,813	(965)
Year ended 31 December 2016
DTEK Krymenergo PJSC	-	5	419	-	-	(15)	(15)	-
DTEK Dniprooblenergo PJSC	2,144	3,383	2,886	295	28,081	414	415	818
DTEK Donetskoblenergo PJSC	854	736	3,185	1,432	3,890	(188)	(173)	7
Kyivenergo JSC	7,089	4,834	9,425	110	23,516	(699)	(723)	37
DTEK Dniproenergo PJSC	10,239	10,202	8,902	1,282	14,137	2,423	2,381	356
DTEK Zakhidenergo PJSC	6,604	6,976	9,311	2,094	16,142	(52)	(95)	116
Total	26,930	26,136	34,128	5,213	85,766	1,883	1,790	1,334

7 Segment Information

The Management Board is the Groupís chief operating decision-maker.

The management has determined the operating segments used for disclosure by the Group based on reports reviewed by the Management Board for the purposes of assessing performance. The Management Board considers the business from a product perspective taking into account the vertical integration of the Group.

The Management Board assesses the performance of the operating segments based on a measure of Adjusted EBIT. This measurement basis represents profit for the year after excluding the following income statement items: foreign exchange losses less gains, income tax expense, impairment of property, plant and equipment, any effect of loss of control over the operations of entities located in non-controlled territory, charity payments to related parties, certain maintenance of social infrastructure costs, finance income and expenses except for gains/losses on initial recognition and early repayment of financial instruments from non-related parties, interest on bank deposits and unwinding of discount on the long-term restructured accounts receivable.

The following operating segments are analysed by the Management Board being also the reportable segments:

Coal mining and power generation on thermal power plants, coal resale, electricity export;
Electricity distribution;
Kyivenergo; and
Other

Revenues included in ëOtherí segment mainly include revenues from gas resale for third parties and sales of services. Revenues from gas resale within the Group for the purpose of internal consumption are presented in ëCoal and power generationí segment.

The ëCoal mining and power generationí segment includes also operations of JSC Mine Office Obukhovskaya, JSC Donskoy Anthracite and LLC Sulinanthracite (together, the "Rostov Mines") for the eight months ended 31 August 2016. As at 1 September 2016 share capital of Rostov Mines was transferred to a new non-Group holding company, owned by its immediate parent DTEK B.V. - Fabcell Limited as a result of a deleveraging plan with Sberbank of Russia (Note 19). Total external revenue and segment result of the Rostov mines within the ëCoal mining and power generationí segment for the eight months ended 31 August 2016 amounted to UAH 437 million and UAH 179 million respectively.

The Groupís mining and power generation operations are vertically integrated and while the operating businesses are organised and managed separately, with each segment offering different products and serving different markets, there remains significant inter-dependence between the segments. The primary reporting format, business segments, is based on the Groupís management and internal reporting structure. Prices between the segments were set based on references to the market prices. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment revenue includes transfer between business segments. Those transfers are eliminated on consolidation.

The Group employed approximately 69 thousand people at the end of 2017 (2016: 106 thousand people), which are allocated as follows within the Groupís operating segments: coal and power generation ñ 47 thousand people (2016: 79 thousand people); electricity distribution - 9 thousand people (2016: 13 thousand people); Kyivenergo - 10 thousand people (2016: 11 thousand people); other ñ 3 thousand people (2016: 3 thousand people). The main reason for the reduction in employees is due to the aforementioned loss of control over operations in the noncontrolled territory (Note 16).

7 Segment Information (Continued)

Segment information for the reportable segments of the Group for the year ended 31 December 2017 is as follows:

	Coal and power	Electricity
In millions of Ukrainian Hryvnia	generation	distribution	Kyivenergo	Other	Elimination	Total
Sales ñ external	62,945	41,755	26,234	10,039	-	140,973
Sales to other segments	3,902	1,120	-	2,549	(7,571)	-
Total revenue	66,847	42,875	26,234	12,588	(7,571)	140,973
Heat tariff compensation	40	-	725	-	-	765
Total revenue and heat tariff
compensation	66,887	42,875	26,959	12,588	(7,571)	141,738
Segment result Net operating foreign exchange loss Foreign exchange losses less gains on	14,951	788	(304)	(548)	-	14,887 (467)
financing and investing activities Loss of control over the operations of entities located in non-controlled territory						(2,589)
(Note 16)	(3,590)	(639)	-	(196)	-	(4,425)
Charitable donations and sponsorship to related parties (Note 8)						(240)
Impairment of property, plant and
equipment (Note 9)	(789)	(113)	(235)	-	-	(1,137)
Unallocated expenses						(74)
Finance costs not included in
segment result						(7,975)
Loss before income tax						(2,020)
Capital expenditure	6,078	992	1,199	147	-	8,416
Decrease in valuation of property, plant and equipment through OCI	(4,297)	(313)	(177)	-	-	(4,787)
Material non cash item included in segment result: Net movement in provision for impairment of trade and other receivables and
prepayments made (Note 14)	311	295	(177)	(3)	-	426
Depreciation and amortisation	(7,529)	(769)	(839)	(34)	-	(9,171)
Non-recoverable VAT (Note 30)	(140)	(9)	(40)	(30)	-	(219)
Finance income and finance costs included
in segment results	2	348	11	9	-	370

Segment information for the reportable segments of the Group for the year ended 31 December 2016 is as follows:

In millions of Ukrainian Hryvnia	Coal and power generation	Electricity distribution	Kyivenergo	Other	Elimination	Total

Sales ñ external	53,488	41,034	23,516	9,859	-	127,897
Sales to other segments	3,230	1,480	-	1,537	(6,247)	-
Total revenue	56,718	42,514	23,516	11,396	(6,247)	127,897
Heat tariff compensation	-	-	159	-	-	159
Total revenue and Heat tariff
compensation	56,718	42,514	23,675	11,396	(6,247)	128,056
Segment result	9,373	(110)	(784)	(204)	161	8,436
Net operating foreign exchange loss						(847)
Foreign exchange losses less gains on financing and investing activities						(7,038)
Charitable donations and sponsorship to
related parties (Note 8) Unallocated expenses						(1,157) (32)
Finance costs not included in
segment result						(6,658)
Loss before income tax						(7,296)
Capital expenditure	4,437	827	769	102	-	6,135

Material non cash item included in segment result:
Net movement in provision for impairment
of trade and other receivables and
prepayments made (Note 14)	(383)	(784)	176	6	-	(985)
Depreciation and amortisation	(8,021)	(555)	(751)	(99)	57	(9,369)
Non-recoverable VAT (Note 30)	(231)	(21)	(6)	(20)	-	(278)
Finance income and finance costs included
in segment results	26	453	(184)	103	(101)	297

7 Segment Information (Continued)

The total of non-current assets other than financial instruments and deferred tax assets (there are no employment benefit assets and rights arising under insurance contracts) located in Ukraine is UAH 83,196 million (2016: UAH 70,265 million). As at 31 December 2017 and 2016 the Group has no non-current assets, located in other countries than Ukraine. Customers concentration, exceeding 10% of total revenues is presented below:

In millions of Ukrainian Hryvnia	Coal and power generation	Electricity distribution	Kyivenergo	Other	Total

2017
Energorynok SE Entities under common control of SCM	49,685	-	4,447	-	54,132
and DTEK B.V. Group subsidiaries	1,705	10,219	117	6,807	18,848
Total	51,390	10,219	4,564	6,807	72,980
2016
Energorynok SE Entities under common control of SCM	41,782	-	3,594	-	45,376
and DTEK B.V. Group subsidiaries	2,192	10,379	163	4,031	16,765
Total	43,974	10,379	3,757	4,031	62,141
Geographical information
In millions of Ukrainian Hryvnia				2017	2016
Ukraine Other European countries Other				133,060 8,502 176	119,391 5,708 2,957
Total revenues and heat tariff compensation				141,738	128,056

The Companyís revenues are presented by legal address of the customer under direct sales contracts.

8 Balances and Transactions with Related Parties

Related parties are defined in IAS 24, Related Party Disclosures. Parties are generally considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Other related parties represent entities with significant concentration of transactions, but which are not under common control.

The nature of the related party relationships for those related parties with whom the Group entered into significant transactions or had significant balances outstanding at 31 December 2017 are detailed below.

			2017			2016
In millions of Ukrainian Hryvnia	Entities under common control of SCM	DTEK BV Group subsidiaries	Associates and Joint Ventures of SCM	Entities under common control of SCM	DTEK BV Group subsidiaries	Associates and Joint Venture of SCM
Prepayments for property, plant and
equipment	82	1	-	39	-	-
Loans receivable (Note 12)	-	11,875	-	-	11,811	-
Trade and other receivables	3,159	2,684	109	1,937	994	121
Restricted deposits	76	-	-	93	-	-
Cash and cash equivalents ñ current account Guarantee under the borrowings of related	1,449	-	-	1,654	-	-
parties	-	(1,065)	-	-	(1,379)	-
Other financial liabilities and interest accrual	(2)	(17)	-	-	(16)	-
Trade and other payables	(1,122)	(3,040)	(1)	(584)	(160)	(1)
Prepayments received	(863)	(8)	(3)	(1,198)	(12)	(12)

8 Balances and Transactions with Related Parties (Continued)

The income and expense items with related parties for the years ended 31 December were as follows:

			2017			2016
In millions of Ukrainian Hryvnia	Entities under common control of SCM	DTEK BV Group subsidiaries	Associates and Joint Ventures of SCM	Entities under common control of SCM	DTEK BV Group subsidiaries	Associates and Joint Venture of SCM

Sales of electricity	10,618	-	2,466	11,725	-	2,403
Sales of gas	6,351	210	1,432	3,955	-	1,050
Sales of coking coal	714	-	21	427	-	95
Sales of steam coal	705	-	1	574	-	-
Sales of scrap metal and services	149	101	14	5	79	10
Purchase of coal and fuel Purchase of production materials and spare	(72)	(4,426)	-	(93)	(548)	-
parts	(1,035)	-	(1)	(817)	(2)
Purchase of gas	(1)	(11,458)	-	-	(12,056)	-
Purchase of non-current assets	(1,745)	-	-	(1,189)	-	-
Purchase of services	(3,230)	(251)	(1)	(3,453)	(268)	-
Charitable donations and sponsorship	(240)	-	-	(1,157)	-	-
Interest income on bank deposits	69	-	-	63	-	-
Interest expense on bank loans	-	-	-	-	-	-
Interest income on loans issued	-	754	-	-	728	-
Amortisation of guarantee	-	357	-	-	-	-
Unwinding of discount on guarantee provided	-	(22)	-	-	-	-
Gain on derecognition of guarantee provided to related party Effect of changes in expected settlement	-	-	-	-	49	-
period on loans provided to related parties	-	(1,573)	-	-	-	-
Unwinding of discount on loans provided	-	100	-	-	95	-

Revenue, trade and other receivable

The trade receivable balances as at 31 December 2017 due from entities under common control and associates are non-interest bearing. The balances outstanding from related parties as at 31 December 2017 and 2016 are unsecured and settlements are made either in cash, in the form of debt set-off or by means of exchanging promissory notes issued by the settling counterparties or third parties to the transaction. The Group created no provision for impairment of accounts receivable (except for time value of money effects) due from related parties as at 31 December 2017 and 2016.

Purchases, trade and other payables

Purchases and outstanding trade and other payables as at 31 December 2017 and 2016 comprised mainly balances due to related parties for provision of railway services, supplies of gas, iron shoring for mines, raw materials and steaming coal. Balances payable are non-interest bearing and are repayable in the normal course of business.

Key management personnel compensation

Key management personnel consist of seven top executives (2016: eight top executives). In 2017 total compensation to key management personnel amounted to UAH 109 million (2016: UAH 138 million). Compensation to the key management personnel consists of salary and bonus payments.

9 Property, Plant and Equipment

Movements in the carrying amount of property, plant and equipment were as follows:

	Mining	Buildings and	Plant and	Furniture, fittings and	Con struction in
In millions of Ukrainian Hryvnia	assets	structures	machinery	equipment	progress	Total
At 1 January 2016
Cost or valuation	15,072	21,539	32,012	2,533	5,376	76,532
Accumulated depreciation and impairment	(600)	(2,788)	(4,069)	(884)	-	(8,341)
NBV at 1 January 2016	14,472	18,751	27,943	1,649	5,376	68,191

Additions	594	627	2,639	321	1,954	6,135
Disposals	(7)	(98)	(63)	(7)	(37)	(212)
Depreciation charge	(1,062)	(1,909)	(5,554)	(467)	-	(8,992)
Reversal of impairment of property, plant
and equipment	-	22	(36)	4	168	158
Deleveraging	(438)	(326)	(485)	(19)	(75)	(1,343)
Foreign exchange differences	98	19	84	3	(17)	187
Transfer	341	494	793	787	(2,415)	-
NBV at 31 December 2016	13,998	17,580	25,321	2,271	4,954	64,124
At 31 December 2016
Cost or valuation	15,577	22,123	33,862	3,451	4,954	79,967
Accumulated depreciation and impairment	(1,579)	(4,543)	(8,541)	(1,180)	-	(15,843)
NBV at 31 December 2016	13,998	17,580	25,321	2,271	4,954	64,124

Additions	695	1,019	3,563	313	2,826	8,416
Disposals	-	(233)	(30)	(16)	-	(279)
Depreciation charge	(1,027)	(1,944)	(5,856)	(502)	-	(9,329)
Net increase in valuation of property, plant
and equipment	3,663	7,831	15,211	511	-	27,216
Impairment of property, plant and						(1,137)
equipment Loss of control over the operations of	(253)	(238)	(314)	53	(385)
entities located in non-controlled
territory(Note 16)	(4,686)	(2,860)	(3,897)	(165)	(1,184)	(12,792)
Acquisition of entities under common
control (Note 34)	-	694	122	6	8	830
Transfer	217	129	642	120	(1,108)	-
NBV at 31 December 2017	12,607	21,978	34,762	2,591	5,111	77,049

At 31 December 2017
Cost or valuation	16,677	26,854	42,829	4,296	6,082	96,738
Accumulated depreciation and impairment	(4,070)	(4,876)	(8,067)	(1,705)	(971)	(19,689)
NBV at 31 December 2017	12,607	21,978	34,762	2,591	5,111	77,049
NBV without revaluation at
31 December 2016	7,061	6,863	15,855	2,009	3,112	34,900
NBV without revaluation at
31 December 2017	4,441	4,825	14,278	1,830	4,038	29,412

In 2017 the Group engaged independent appraisers to determine the fair value of its property, plant and equipment. Fair value was determined with reference to depreciated replacement cost or market-based evidence, in accordance with International Valuation Standards. As a result of the revaluation performed management reassessed the useful lives of the Groupís property, plant and equipment. This change affected the depreciation charge for the second half of 2017 and will impact depreciation onwards. The Group makes use of the exemption as allowed by IAS 8 for not disclosing the estimated effect due to impracticability.

The majority of the structures, plant and machinery are specialised in nature and are rarely sold in the open market in Ukraine other than as part of a continuing business. The market for similar property, plant and equipment is not active in Ukraine and does not provide a sufficient number of sales of comparable assets to allow for using a market-based approach for determining fair value. Consequently, the fair value of structures, plant and machinery was primarily determined using depreciated replacement cost. This method considers the cost to reproduce or replace the property, plant and equipment, adjusted for physical, functional or economic depreciation, and obsolescence.

The depreciated replacement cost was estimated based on internal sources and analysis of Ukrainian and international markets for similar property, plant and equipment. Specifically, the depreciated replacement cost was based on the actual physical characteristics of assets (volume, length, etc) multiplied by the cost to replace (as based on price indices), this was then further adjusted by the remaining useful life and the economic ceiling as determined on each cash generating unit. Various market data was collected from published information, catalogues, statistical data etc, and industry experts and suppliers.

9 Property, Plant and Equipment (Continued)

As at 31 December 2017 total net book value of property, plant and equipment under finance lease is UAH 1,237 million (31 December 2016: UAH 1,154 million).

As at 31 December 2017 and 2016, no property, plant and equipment have been pledged to third parties as collateral for borrowings (Note 33).

In 2017, the depreciation expense of UAH 8,835 million (2016: UAH 8,333 million), was included in cost of sales, UAH 296 million (2016: UAH 245 million) in other operating expenses, UAH 75 million (2016: UAH 85 million) in general and administrative expenses, UAH 29 million (2016: UAH 28 million) in distribution expenses and UAH 94 million was capitalised (2016: UAH 301 million).

During 2017 the Group continued the construction of qualifying assets. This construction is financed through specialpurpose and other borrowings. Borrowing costs capitalised during 2017 were UAH 89 million (2016: UAH 112 million). The rate in the range between 6% and 22% was used to estimate borrowing costs subject to capitalisation (2016: between 15.25% and 17.49%). The recoverable amount has been determined based on fair value less costs of disposal calculations. Assumptions used in impairment testing of property, plant are consistent with those used in goodwill impairment test (Note 11), except for the following, which relate to certain assets which do not have goodwill allocated to them.

Key Assumptions used in valuation and determination of economic ceiling.

Determination of tariff in the new market. It is anticipated in the assessment of the fair value that from 2019 the electricity market in Ukraine will move from a regulated tariff for generation to a market tariff arising from direct contracts. Management assumed that the pricing model under the new market conditions will be based on the tariff of the most costly generation station. Based on this assumption a tariff has been calculated and applied to projected volumes to arrive at their gross cash inflows related to the sale of electricity. Should the tariff in the new market be determined on another basis, being different from the most costly coal fired station in the grid, this will result in reduction of the carrying amount of property, plant and equipment. The amount of such reduction is impractical to estimate because it is not clear how the new market pricing will be determined.

Generation volumes. Management have assumed that generation volumes for coal-fired stations will be reduced on average by 0.7% annually. If projected volumes were to reduce by 2% annually, this would result in reduction to the carrying amount of property, plant and equipment by UAH 4,742 million with the corresponding reduction being primarily to revaluation reserve in equity.

Infrastructure. Management have assumed that from 2019 the operator of the national electricity grid will complete construction of certain announced capital expenditures to facilitate the increase of the electricity flow between certain Group generation stations. If such connection is not built then this would result in the impairment of property, plant and equipment by approximately UAH 623 million to the income statement.

Railway tariff. Management assumes that the cost of railway transportation will grow on average by 56% in 2018, but then reduce by 18% in 2019 and remain relatively flat for the next four years. If following the increase in 2018, the cost of railway transportation grows in line with anticipated industrial inflation, this would result in a reduction of property, plant and equipment by UAH 4,436 million with the corresponding reduction in revaluation reserve in equity.

Mine production volumes. Management assumed that the production volume of the mines of Dobropolyeugol LLC will increase from the current level of 2.3 million tons per annum to 3.3 million tons per annum by 2020. Should the production volume stay at the level of 2017, this would result in reduction of property, plant and equipment by UAH 3,428million with a corresponding reduction in revaluation reserve in equity and UAH 808 of impairment charge to the income statement.

Return on assets based tariff (ìRABî). Management assumes that from 1 January 2020 the Groupís distribution entities will be transferred to the announced incentive regulation of tariffs for natural monopolies. Under this regulation, the overall profitability of the distribution entity is determined as a product of return on assets base (ìRABî) and predetermined rate of return, adjusted for approved operating costs. Transition to the RAB based incentive tariff setting mechanism will have a significant positive effect on the operating cash flows of the respective distribution entities. The carrying value of property, plant and equipment will not be impacted unless the transition to RAB is delayed beyond 2021.

For inputs used for determination of depreciated replacement cost, please follow Note 37.

9 Property, Plant and Equipment (Continued)

Impairment assessment in 2017

As discussed further in Note 16, following the loss of control over operations in the non-controlled territory all property, plant and equipment located there was fully impaired.

As a result of revaluation of property, plant and equipment, certain items were identified with recoverable amount being lower than their net book value before revaluation due to physical condition or economic obsolescence. The excess was written-off as an impairment of property, plant and equipment in the income statement in amount of UAH 1,137 million. This comprised UAH 616 million of impairment represented by slow moving construction in progress and equipment with poor physical condition determined at the individual asset level and UAH 521 million determined at the level of cash-generating (CGU) unit related to one electricity generating plant in the east of Ukraine whose financial performance deteriorated due to increase in the cost of coal sourced following the events in the NCT in March 2017.

Impairment assessment in 2016

Management determined that as at 31 December 2016 there were indicators of impairment with respect to all its property, plant and equipment located in the non-controlled territory: mines, generation and distribution assets Additionally, it determined that there were no indicators of impairment as with respect to the assets in the controlled territory of Ukraine.

As a consequence of continuing logistical issues impacting the volume of coal that can be transported and continued poor collection rates in its distribution business management performed impairment assessments as of 31 December 2016 for its assets located in the non-controlled territory. Management noted that following the separation of the energy market in May 2015 the payment discipline from certain categories of end customers has deteriorated. This poor payment discipline continued in 2016. Consequently, management performed impairment tests as of 31 December 2016 and 2015 using the fair value less cost of disposal model for its mine, distribution and generation assets in that area. No impairment tests were performed for the distribution segment as of 31 December 2016 because most distribution assets located in the area were written off during the prior year impairment assessment. In 2016 impairment tests were performed for the following CGUs: DTEK Rovenkiantracyte LLC, DTEK Sverdlovantracyte LLC and combined CGU of DTEK Mine Komsomolets Donbassa PJSC plus ZuTES power station. In performing its impairment tests management used post-tax cash flow projections based on financial budgets approved by management covering a five-year period, these were discounted using a post-tax weighted average cost of capital of 19.6% (2015: 21-24%). Cash flows beyond the five-year period are extrapolated using an estimated growth rate of 3% (2015: 3%).

Management in 2015 have determined under existing at that time operating circumstances that it operates as a single cash generating unit with the coal mining entity DTEK Mine Komsomolets Donbassa PJSC and ZuTES power station being a part of DTEK Skhidenergo LLC (both located in the non-controlled territory), this is due to the interdependancy on the movement of coal and a normal operating production level of electricity. These companies belong to the coal and power generation segment. Management considered this treatment as one cash generation unit was appropriate for 2016. An important assumption for the impairment testing of this cash generating unit was that collection rates at ZuTES would average 61% in 2017 through 2020 (actual collection rates being 60% in 2016) and increase to 100% from 2021 onwards. Additionally, the impairment assessment included the assumption that the volume of electricity generated by ZuTES would increase by 42% in 2018 compared to 2016 and that subsequent incremental increases of on average 2% for the next three years would take place. Another significant assumption used in the calculation was the production and ability to despatch coal from DTEK Mine Komsomolets Donbassa PJSC. This was set at a sales level of 3.1 million tons for 2017 (an increase of 13% from 2016) with future development in following years.

If ZuTES and DTEK Mine Komsomolets Donbassa PJSC were to have been considered to be two separate cash generating units as at 31 December 2016 then the carrying value of ZuTES with a current carrying value of UAH 3,211 million would have been fully impaired while the carrying amount of DTEK Mine Komsomolets Donbassa PJSC would have been left without impairment.

9 Property, Plant and Equipment (Continued)

As a result of the impairment testing performed at this cash generating unit no additional impairment was recognised in 2016. If collection rates at ZuTES were to remain flat at 60% for the whole projected period then the carrying amount of this cash generating unit would be completely impaired. The carrying amount of property, plant and equipment at this cash generating unit as of 31 December 2016 is UAH 5,488 million. If actual sale volume of coal at DTEK Mine Komsomolets Donbassa PJSC were to be 5% lower than projected by management for future periods then an additional impairment of UAH 389 million of this CGU would be recognised.The volume of coal shipped from mines located in non-controlled territory being DTEK Rovenkiantracyte LLC and DTEK Sverdlovantracyte increased in 2016 by 32% as compared to 2015, with specifically a strong level of shipments in the second half of 2016. Despite these improvements logistical challenges persist and consequently management performed an impairment assessment for each of these cash generating units. Both are part of the coal and power generation segment. The main assumption used in the calculation was the production and ability to despatch coal. Actual 2016 despatch of coal was 2.0 million tons for DTEK Rovenkiantracyte LLC and 1.5 million tons for DTEK Sverdlovantracyte LLC. The actual volumes in 2016 were still lower than estimated by management in impairment models prepared for impairment assessment in 2015 year. Management estimated that in 2017 the production and movement of coal would continue to improve and that this would increase by 120% and 41% for DTEK Rovenkiantracyte LLC and DTEK Sverdlovantracyte LLC, respectively.

Further, management estimated that volumes would increase by 39% on average over the subsequent four years. As a result of the impairment testing performed no additional impairment was recognised in 2016. If projected sales volumes were to remain flat at 2016 levels in the future for the whole projected period, an additional impairment in amount of UAH 2,120 million for DTEK Rovenkiantracyte and UAH 2,305 million for DTEK Sverdlovantracyte respectively would be recognised.

As further discussed in Note 16, the Group has lost control over the operations of entities located in non-controlled territory. Consequently, carrying values of property, plant and equipment attributable to these entities were fully impaired in 2017. The assumptions disclosed above in relation to impairment assessment in 2016 reflect management view as at 31 December 2016 and are no longer relevant.

10 Intangible Assets

As at 31 December, intangible assets comprise:

In millions of Ukrainian Hryvnia	2017	2016
Burshtyn electricity island	984	1,125
Other intangible assets	608	514
Total	1,592	1,639

Intangible asset ìBurshtyn electricity islandî is a unique technological capability of DTEK Zakhidenergo PJSC related to supply of electricity to the European Union.

The movements of other intangible assets were as follows:

		Accumulated amortisation and
In millions of Ukrainian Hryvnia	Cost	impairment	Net book value
As at 1 January 2016	2,524	(820)	1,704
Additions / (Charge) for the year	190	(215)	(25)
Deleveraging	(40)	-	(40)
As at 31 December 2016	2,674	(1,035)	1,639
Additions / (Charge) for the year	241	(211)	30
Acquisition of entities under common control (Note 34) Loss of control over the operations of entities	5	-	5
located in non-controlled territory(Note 16)	-	(82)	(82)
As at 31 December 2017	2,920	(1,328)	1,592

In 2017, the amortisation expense of UAH 178 million (2016: UAH 180 million), was included in cost of sales, and UAH 30 million (2016: UAH 28 million) in general and administrative expenses and UAH 3 million (2016: UAH 7 million) was included in other operating expenses.

As at 31 December 2017 the remaining useful life of ìBurshtyn electricity islandî intangible asset was 7 years (31 December 2016: 8 years).

11 Goodwill

Goodwill Impairment Test

Goodwill is allocated to cash-generating units (ìCGUsî) which represent the lowest level within the Group at which goodwill is monitored by management.

Management allocated goodwill to five main CGUs:

				In millions of Ukrainian Hryvnia
--	--	--	--	----------------------------------	--

In millions of Ukrainian Hryvnia	2017	2016
Coal and power generation:
- DTEK Dniproenergo PJSC	1,999	1,999
- DTEK Zakhidenergo PJSC	1,265	1,265
- DTEK Pavlogradugol PJSC	590	590
Energy distribution:
- Kyivenergo JSC	483	483
- DTEK Dniprooblenergo PJSC	47	47
Total	4,384	4,384

The recoverable amount has been determined based on fair value less cost of disposal calculations. Cash flow projections, based on strategic model approved by senior management covering the period until 2030 year. Management believes that the assumptions used reflect market participantís expectations.

The following table summarises key assumptions for major components on the management has based its cash flow projections to undertake the impairment testing of goodwill.

11 Goodwill (Continued)

	2017	2016
Coal and power generation ñ DTEK Dniproenergo PJSC
Post-tax discount rate per annum, %	17.6%	17.4%
Volumes growth rate per annum, %	(4)%-11%	(9)%-22%
Gross margin per annum, %	From 19% to 28% in	From 11% to 19% in
	2018 - 2030	2017 - 2030
Coal and power generation ñ DTEK Zakhidenergo PJSC
Post-tax discount rate per annum, %	17.6%	17.4%
Volumes growth rate per annum, %	(24)%-31%	(6)%-13%
Gross margin per annum, %	From 11% to 21% in	From 11% to 16% in
	2018 - 2030	2017 - 2030
Coal and power generation - DTEK Pavlogradugol PJSC
Post-tax discount rate per annum, %	18.4%	17.4%
Volumes growth rate per annum, %	(9)%-3%	(16)%-7%
Gross margin per annum, %	From 24% to 61% in	From 55% to 59% in
	2018 ñ 2030	2017 ñ 2030
Electricity distribution ñ DTEK Kyivenergo PJSC
Post-tax discount rate per annum, %	16.15%	17.4%
Volumes growth rate per annum, %	2.5%-8.9%	1.2%-1.4%
Gross margin per annum, %	From 2.5% to 10.9% in	From 14.1% to 14.4%
	2018 - 2030	in 2017 - 2030
Period of transition to RAB	1Q 2020	1Q 2017
Electricity distribution ñ DTEK Dniprooblenergo PJSC
Post-tax discount rate per annum, %	15.8%	17.4%
Volumes growth rate per annum, %	1%-1.7%	1%-2%
Gross margin per annum, %	From 2% to 7.9% in	From 9% to 16% in
	2018 ñ 2030	2017 ñ 2030
Period of transition to RAB	1Q 2020	1Q 2017

One of the assumptions in the impairment models is that from 2019 the electricity market in Ukraine will move from a regulated tariff for generation to direct contracts. Management assumed that the pricing model under the new market conditions will be based on the tariff of the most costly generation station.

Management assumed for DTEK Dniproenergo PJSC that all blocks that are intended to be engaged in generation of electricity in a long-term perspective would be transferred to G grade coal during 2018-2019 period. If the period of transfer to G grade coal is delayed by two years, this would result in impairment of goodwill in the amount of UAH 750 million for DTEK Dniproenergo PJSC.

The assumptions used in the impairment testing models for external coal sales prices in the period from 2018 to 2019 are based on the most recent API2 index forecasts adjusted for freight costs. For the period from 2020 to 2030 the price trend was based on forecast USD inflation based on the data from IHS global insight.

One of the key assumption for electricity distribution segment is switching from the regulated tariff to the model of ìreturn on asset baseî (further ìRABî) tariff which implies gradual growth in the margins. Management expects in 2017 that the following rates of returns will be introduced after implementation of incentive regulation: 12.5% for all qualifying fixed assets being valued in accordance with methodology developed by regulator (2016: 19.11% for the new assets). If the expected RAB rates will be lower, this will result in certain impairment of PPE and related goodwill on distribution companies. The carrying value of goodwill at DTEK Dniprooblenergo PJSC and DTEK Kyivenergo PJSC will not be impacted unless the transition to RAB is delayed beyond 2021.

Projected volumes of electricity distribution ranged from 9,060 million kWh for Kyivenergo and 21,863 million kWh for Dniprooblenergo in 2018 to 16,575 million kWh for Kyivenergo and 24,965 million kWh for Dniprooblenergo in 2030 (31 December 2016: 8,708 million kWh and 21,488 million kWh in 2017 to 10,398 million kWh and 25,142 million kWh in 2030 respectively). Actual electricity distribution volumes in 2017 amounted to 10,078 million kWh for Kyivenergo and 21,436 million kWh for Dniprooblenergo (2016: 8,754 million kWh and 21,704 million kWh respectively).

11 Goodwill (Continued)

Forecasted volumes of electricity generation for Dniproenergo and Zakhidenergo (being volumes of Ladyzhyn and Dobrotvor power generation stations) ranged from 8,951 million kWh and 5,968 million kWh in 2018 to 11,938 million kWh and 5,149 million kWh in 2030 respectively (31 December 2016: 10,257 million kWh and 5,135 million kWh in 2017 to 17,629 million kWh and 6,700 million kWh in 2030 respectively). Forecasts from industry experts and other external reputable sources, as well as internal analysis were used by management to determine price levels used in the impairment test. Actual electricity generation volumes in 2017 amounted to 9,335 million kWh for Dniproenergo and 7,115 million kWh for Zakhidenergo (2016: 11,676 million kWh and 5,743 million kWh respectively).

In June 2012, changes were implemented into the Law of Ukraine on Natural Monopolies (#4998-VI dated 21 June 2012). Such changes introduced new provisions concerning implementation of the incentive regulation for tariffs of natural monopolists, such as the definition of the incentive regulation, regulatory assets base ("RAB") and rate of return and the major tariff elements to be included by the state authorities when setting tariffs. Also, a one-time assets revaluation is envisaged for the determination of the regulatory asset base. The State Property Fund developed methodology for the valuation of assets of the natural monopolists in October 2012, which was subsequently approved. Management expects transition to regulatory assets base tariff in 2020 for Dniprooblenergo and Kyivenergo (distribution segment). In 2017, the National energy regulator approved the rate of return at the level of 12.5 percent on all regulatory assets. Yet for RAB incentive to become effective for a specific distribution company it should meet a number of requirements and ultimately obtain approval from the regulator.

The values assigned to the key assumptions represent managementís best assessment of future trends in the business and are based on both external and internal sources. The Management believes that the assumptions used reflect market participantís expectations.

For the purposes of impairment testing, goodwill on Kyivenergo acquisition is allocated to electricity distribution activity. This unit represents the lowest level within the Group at which the goodwill is monitored for internal management purposes.

The following tables illustrate the headroom derived from the impairment test using the assumptions disclosed above, and, for reasonably possible changes, the amount by which each key assumption must change in isolation in order for the estimated recoverable amount to equal its carrying value:

CGU At 31 December 2017	Headroom (In millions of Ukrainian Hryvnia)	Increase of discount rate by (p.p.)	Decrease in selling tariff / coal prices growth by (p.p.)	Decrease in volume growth by (p.p.)	Decrease in gross margin by (p.p.)
DTEK Pavlogradugol PJSC	2,308	4.1	0.3	0.4	1.6
DTEK Dniproenergo PJSC	8,034	5.1	0.9	2.1	6.3
DTEK Zakhidenergo PJSC	155	0.2	0.1	0.1	0.3
Kyivenergo JSC	468	0.7	0.1	0.1	0.2
DTEK Dniprooblenergo PJSC At 31 December 2016	4,891	10.6	0.2	1.6	1.2
DTEK Pavlogradugol PJSC	33,778	24.2	4.4	7.6	20.9
DTEK Dniproenergo PJSC	2,198	1.9	0.2	0.6	1.5
DTEK Zakhidenergo PJSC	217	0.7	0.1	0.1	0.3
Kyivenergo JSC	2,214	8.7	0.3	0.5	1.8
DTEK Dniprooblenergo PJSC	1,665	6.2	1.4	0.6	1.1

Based on the above assumptions, management determined that the fair value less cost of disposal exceeds the carrying value of goodwill as at 31 December 2017. No impairment of goodwill was recognised as at 31 December 2017.

12 Financial Investments

As at 31 December, non-current financial investments comprised:

In millions of Ukrainian Hryvnia	2017	2016
Loans provided to related parties (Note 8) Equity securities: - quoted	11,815 38	10,046 37
Deposits placed	4	2
Total	11,857	10,085

As at 31 December, current financial investments were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Restricted deposits Loans provided to related parties (Note 8)	76 60	165 1,765
Total	136	1,930

Non-current financial investments are neither past due nor impaired. Equity securities are carried at fair value.

Loans provided to related parties in amount of UAH 11,815 million (31 December 2016: UAH 11,751 million) are presented by the loans issued to subsidiary of DTEK Oil&Gas B.V., an entity under common control. DTEK Oil&Gas B.V. is incorporated in the Netherlands and has the majority of its assets in Ukraine and outside of non-controlled territory. The loans are due in 2023 and 2024. During 2017 management revised expected settlement period of interest accrued on loans issued. Revised period is based on existing contractual terms and suggests that all interest accrued will be repaid at maturity together with the outstanding principal. Consequently, all accrued and not paid interest as at 31 December 2017 was reclassified from current to non-current. Respective effect of changes in expected settlement period comprised UAH 1,573 million and was recognised as a finance costs (Note 31).

The loans are carried at amortised cost with effective interest rate of 8% at origination date. As at 31 December 2017 UAH 9,195 million were denominated in US dollars (31 December 2016: UAH 9,381 million); UAH 2,620 million were denominated in Euro (31 December 2016: UAH 2,370 million) and UAH 60 million (31 December 2016: UAH 60 million) denominated in Ukrainian hryvnia. The loans provided to related parties in the amount of UAH 11,815 million (31 December 2016: UAH 11,751 million) are pledged under the New Notes (Note 19). As at 31 December 2017 the fair value of the loans provided to related parties was approximately equal to UAH 10,966 million.

As at 31 December 2017 restricted deposits in the amount of UAH 63 million were presented by deposits placed under letter of credit (31 December 2016: UAH 165 million), UAH 13 million were presented by guarantee deposit placed as security for tender participation (31 December 2016: UAH nil million).

As at 31 December 2017, restricted deposits in the amount of UAH 17 million were denominated in US dollars (31 December 2016: UAH 72 million), UAH 59 million were denominated in UAH (31 December 2016: UAH 67 million) and UAH nil million - in EUR (31 December 2016: UAH 26 million).

Analysis by credit quality of bank deposits is as follows:

In millions of Ukrainian Hryvnia	2017	2016
Rating by Moodyís Investors Service
- Ba2 rated	-	72
- Baa3 rated	4	-
Non-rated	76	95
Total	80	167

Current financial investments are neither past due nor impaired. The carrying amounts of deposits approximate their fair values.

13 Inventories

As at 31 December, inventories were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Coal	3,102	2,064
Production materials	774	742
Fuel supplies	475	1,027
Spare parts	418	506
Goods for resale	45	347
Total inventories	4,814	4,686

Inventory in the amount of UAH 1,051 million was impaired as a result of loss of control events (Note 16).

14 Trade and Other Receivables

As at 31 December, non-current trade and other receivables were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Restructured trade receivables (less discounting effect of UAH 335 million) (2016: UAH 280 million) Other financial receivables (less discounting effect 31 million)	327	203
(2016: UAH 2 million)	80	7
Total non-current trade and other receivables	407	210

As at 31 December 2017, restructured accounts receivable of UAH 327 million (31 December 2016: UAH 203 million) were represented by balances renegotiated with State owned and other customers, these balances were neither past due nor impaired.

As at 31 December, current trade and other receivables were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Trade receivables (less provision of UAH 7,447 million) (2016: UAH 7,686 million) Restructured trade receivables (less discounting effect of UAH 17	16,153	15,746
million (2016: UAH 17 million)	207	150
Other financial receivables (less provision of UAH 895 million) (2016: UAH 703 million)	775	2,606
Total financial receivables	17,135	18,502
Prepayments to suppliers (less provision of UAH 1,209 million)
(2016: UAH 1,004 million)	4,162	2,109
VAT recoverable (less provision of UAH 85 million) (2016: UAH 85 million)	2,376	2,427
Heat tariff compensation receivable	730	644
Other (less provision of UAH 72 million) (2016: UAH 43 million)	197	326
Total non-financial receivables	7,465	5,506
Total current trade and other receivables	24,600	24,008

As at 31 December 2017 current and non-current trade and other receivables in amount of UAH 23,481 million (31 December 2016: UAH 21,234 million) were due from customers located in the controlled territory and UAH 1,526 million (31 December 2016: UAH 2,984 million) were due from entities registered in the controlled territory but having production assets and operations in the non-controlled territory of Ukraine.

As at 31 December 2017, 13% of trade and other receivables are denominated in currency, other than UAH (31 December 2016: 9%).

As at 31 December 2017 and 31 December 2016, UAH 1,004 million out of total provision for prepayments to suppliers was attributable to prepayments for coal and gas that were fully impaired due to non-shipment.

During 2016 and 2017 the Group entered into restructuring agreements with water supply companies and formally deferred repayment from immediately to an agreed repayment schedule from 2016 to 2048. The terms of this restructuring did not include any interest. A loss of UAH 153 million was reflected in finance costs (Note 31) in 2017 as a result of this restructuring (2016: UAH 290 million).

14 Trade and Other Receivables (Continued)

Movements in the impairment provision for trade and other receivables were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Provision for impairment at 1 January	9,521	8,726
Provision for impairment during the year	1,823	1,894
Reversal of provision	(2,249)	(909)
Exchange rate difference	13	40
Amounts written-off due to loss of control over the operations of entities
located in non-controlled territory (Note 16)	692	-
Deleveraging	-	(8)
Acquisition of entities under common control	132	-
Amounts written off during the year as uncollectible and other movements	(224)	(222)
Provision for impairment at 31 December	9,708	9,521

Provision for impairment during the year was recognised due to financial difficulties of the customers. Reversal of provision was recognised due to payments received from customers that were previously provided.

Analysis by credit quality of current financial trade and other receivables (including restructured) is as follows:

		2017		2016
In millions of Ukrainian Hryvnia	Trade receivables	Other financial receivables	Trade receivables	Other financial receivables
Current and not impaired ñ exposure to
- Energorynok SE	2,694	-	3,439	-
- Large Ukrainian corporates	98	6	192	9
- Medium sized companies	1,054	39	1,591	1,692
- Households - Restructured balances of State	1,757	1	1,902	-
owned and other customers	207	-	150	-
Total current and not impaired	5,810	46	7,274	1,701
Past due and individually impaired (gross)
- less than 30 days overdue	2,085	39	2,125	108
- 30 to 90 days overdue	1,580	77	1,465	155
- 90 to 180 days overdue	701	58	500	282
- 180 to 360 days overdue	3,736	416	1,654	293
- over 360 days overdue	9,895	1,034	10,564	770
Total past due and individually
impaired	17,997	1,624	16,308	1,608
Less impairment provision	(7,447)	(895)	(7,686)	(703)
Total	16,360	775	15,896	2,606

Major part of overdue accounts receivables relate to Energorynok SE and receivables from entities under common control of SCM. In 2017 gain from reversal of impairment totalling UAH 586 million was recognised in respect of these receivables based on revised settlement period and resulting time value of money assessment (2016: impairment loss amounting to UAH 321 million). Additional gain from reversal of impairment totalling UAH 1,158 million was recognised in respect to receivables from municipal water supply entities due to repayment ahead of schedule (2016: impairment loss amounting to UAH 587 million).

15 Cash and Cash Equivalents

As at 31 December, cash and cash equivalents were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Bank balances payable on demand Term deposits with maturity of less than three months Restricted cash	4,395 1,129 87	5,499 1,989 57
Total cash and cash equivalents	5,611	7,545

As at 31 December 2017, cash and cash equivalents of UAH 1,745 million were denominated in US dollars (31 December 2016: UAH 4,769 million), and UAH 1,082 million were denominated in EUR (31 December 2016: UAH 553 million). Remaining balances were denominated in Ukrainian hryvnia.

As at 31 December 2017 and 2016, no term deposits with original maturity of less than three months were pledged as collateral for borrowings or bank guarantees received.

As result of deleveraging of Rostov mines in 2016 the Group derecognised UAH 191 million of cash and cash equivalents. As result of loss of control over operations in the non-controlled territory in March 2017 (see Note 16) the Group derecognised UAH 39 million of cash and cash equivalents.

As at 31 December 2017, restricted cash in the amount of UAH 80 million were used to cover letter of credit for purchase of coal (31 December 2016: UAH 11 million were used to cover letter of credit for purchase of equipment). For the purposes of the cash-flow statements amounts of restricted cash were not included in cash and cash equivalents balance.

The bank balances and term deposits are neither past due nor impaired. Analysis by credit quality of bank balances and term deposits is as follows:

			2017			2016
	Bank			Bank
	balances payable on	Term	Restricted	balances payable on	Term	Restricted
In millions of Ukrainian Hryvnia	demand	deposits	cash	demand	deposits	cash
Rating by Moody's Investors Service
- A3 rated	2,586	-	-	705	-	-
- Ba2 rated	2	148	80	2	-	-
- Baa3 rated	-	-	-	2	-	-
- Ca rated	-	-	-	413	17	-
- Caa1 rated	6	-	-	-	-	-
- Caa3 rated	732	-	4	-	-	-
- Caa2 rated	-	-	-	2,733	1,871	11
- Non-rated*	1,069	981	3	1,644	101	46
Total	4,395	1,129	87	5,499	1,989	57

* Non-rated banks rank in the top 10 Ukrainian banks by size of total assets and capital (per National Bank of Ukraine).

16 Loss of control over the operations of entities located in non-controlled territory

In early March 2017 a number of threats were reported in the Ukrainian and online media of the potential seizure by the self-proclaimed authorities of production assets located in the non-controlled territory in the Donbass region of Ukraine. Management took all available actions to retain control over the assets and the systems that permitted these assets to operate. Subsequently, on 15 March 2017 the self-proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. The entities impacted include: DTEK Rovenkiantracyte LLC, DTEK Sverdlovantracyte LLC, DTEK Mine Komsomolets Donbassa PJSC, Mospino CPE LLC, one power plant belonging to DTEK Skhidenergo LLC (Zuevskaya TTP), DTEK Donetskoblenergo (only non-controlled territory part), PJSC DTEK Energougol ENE PJSC (only non-controlled territory part) and DTEK Power Grid LLC (only non-controlled territory part). The Group considered this as a theft of assets and informed the relevant Ukrainian law enforcement authorities. The Group has determined that it retains control over the legal entities impacted in the non-controlled territories, as these entities are formally registered in the controlled territory of Ukraine.

16 Loss of control over the operations of entities located in non-controlled territory (continued)

For illustrative purposes, the Group prepared consolidated Income Statement and Statement of Comprehensive income of the assets over which the Group lost control to show the effect of its operation until the moment the control was lost:

	Period from 1
In millions of Ukrainian Hryvnia	January 2017 to 15 March 2017	2016
Revenue	2,381	9,937
Cost of sales	(1,873)	(9,707)
Gross profit	508	230
Distribution costs	(95)	(267)
General and administrative expenses	(67)	(351)
Other operating expenses, net	(278)	(1,574)
Operating profit/(loss)	68	(1,962)
Foreign exchange losses less gains on financing and investing activities	-	9
Finance income	1	400
Finance costs	(413)	(1,079)
Loss before income tax	(344)	(2,632)
Income tax benefit/(expense)	50	(142)
Loss for the period	(294)	(2,774)
Loss attributable to:
Owners of the Company	(253)	(2,647)
Non-controlling interest	(41)	(127)
Loss for the period	(294)	(2,774)
Other comprehensive loss:
Items that will not be reclassified to profit or loss:
Property, plant and equipment:
- Change in estimate for asset retirement obligation	(38)	(233)
- Income tax recorded on change in estimate for asset retirement obligation	7	42
- Re-measurements of retirement benefit obligations	-	(807)
- Income tax recorded on re-measurements of retirement benefit obligations	-	145
Other comprehensive loss for the period	(31)	(853)
Total comprehensive loss for the period	(325)	(3,627)
Total comprehensive loss attributable to:
Owners of the Company	(284)	(3,500)
Non-controlling interest	(41)	(127)
Total comprehensive loss for the period	(325)	(3,627)

16 Loss of control over the operations of entities located in non-controlled territory (continued)

		Recognised in	Recognised in Other
In millions of Ukrainian Hryvnia	Note	income statement	comprehensive income	Total
Assets
Property plant and equipment	9	7,433	5,359	12,792
Intangible assets	10	82	-	82
Deferred tax assets (gross)		592	290	882
Inventory		1,051	-	1,051
Trade and other receivables		692	-	692
Cash and cash equivalents		39	-	39
Total assets		9,889	5,649	15,538
Liabilities
Deferred tax liability (gross)		(519)	(756)	(1,275)
Deferred consideration for acquisition		(3,148)	-	(3,148)
Retirement benefit obligations	21	(1,181)	(1,332)	(2,513)
Asset retirement provision	22	(503)	(487)	(990)
Accruals for employeesí bonuses		(40)	-	(40)
Total liabilities		(5,391)	(2,575)	(7,966)
Net result, including:		4,498	3,074	7,572
Loss of control over the operations of
entities located in non-controlled territory		4,425	3,540	7,965
Deferred tax charge	32	73	(466)	(393)

During 2017 management of the Group continued to assess effects of the loss of control over the operations of entities located in non-controlled territory on the Groupís financial statement, therefore amounts presented in these annual consolidated financial statements for 2017 deviate from those presented in the Consolidated Interim Financial Statement of the Group for the six months ended 30 June 2017.

Property plant and equipment. As a result of losing control, management performed an impairment test for a property, plant and equipment located in the non-controlled territory using the fair value less cost of disposal model (Level 3) and determined that the recoverable value of these assets is zero. Coal and power generation segment in the non-controlled territory includes the following three CGUs: coal mining entity DTEK Rovenkiantracyte LLC; coal mining entity DTEK Sverdlovantracyte LLC; and combined CGU of the coal mining entity DTEK Mine Komsomolets Donbassa PJSC and ZuTES power station being a part of DTEK Skhidenergo LLC. The impairment loss attributable to coal and power generation segment comprised UAH 6,985 million recognised in the income statement and UAH 5,152 million recognised in the statement of other comprehensive income. Distribution segment includes the following CGUs: DTEK Donetskoblenergo (non-controlled territory part), PJSC DTEK Energougol ENE PJSC (noncontrolled territory part) and DTEK Power Grid LLC (non-controlled territory part). The impairment loss attributable to distribution and other segments comprised UAH 448 million recognised in the income statement and UAH 207 million recognised in other comprehensive income. The above mentioned companies of the distribution and other segments also have assets in the controlled area of Ukraine that have not been impaired.

Deferred consideration for acquisition. Deferred consideration for acquisition relates primarily to acquisition of coal mines DTEK Rovenkiantracyte LLC and DTEK Sverdlovantracyte LLC, located in the non-controlled territory of Ukraine. As at 15 March 2017, the Groupís management recognised impairment of the minesí assets attributable to above mentioned entities. In addition, the Group obtained certificates of Ukrainian Chamber of Commerce regarding Force Majeure according to which the Group has the right to release its liabilities for non-fulfilment (improper fulfilment) of its obligations in the non-controlled territory of Ukraine. As a result, deferred consideration for acquisition in the amount of UAH 3,148 million was released and presented as part of operating income within the line ìLoss of control over the operations of entities located in non-controlled territoryî.

Retirement benefit obligations. As a consequence of the loss of control over the operations of entities located in the non-controlled territory and the resultant dismissal of employees of these subsidiaries, management remeasured the retirement benefit obligation. The decrease in the obligation was primarily a result of applying an assumption that a majority of employees (dismissed during 2015-2017) and pensioners will stay in the non-controlled territory and thus are unable to gain required experience to be entitled for preferential retirement and claim for their preferential pensions under Ukrainian legislation. The resulting UAH 1,332 million gain from the change of assumptions in relation to retirement benefit obligations was recorded in other comprehensive income in 2017. Further, the obligations under collective agreements were decreased to reflect the loss of control over the operations producing such coal/domestic fuel for settlement of these obligations. The resulting UAH 1,181 million curtailment gain was recorded in income statement within the line ìLoss of control over the operations of entities located in non-controlled territoryî.

16 Loss of control over the operations of entities located in non-controlled territory (continued)

Asset retirement provision. The Group performed re-estimation of abandonment and site restoration provision as at 15 March 2017 in respect of mines located in the non-controlled territory of Ukraine. The Group considers that asset retirement provision attributable to mines DTEK Rovenkiantracyte LLC, DTEK Sverdlovantracyte LLC, DTEK Mine Komsomolets Donbassa PJSC does not further meets the criteria of provision, as reliable estimate of the amount of obligation is impracticable due to limited access to the minesí physical characteristics, useful life, etc. The release of assets retirement provision comprised UAH 503 million recognised in the income statement and UAH 487 million recognised in other comprehensive income.

Trade and other accounts payable. Trade and other accounts payable of the companies located in the noncontrolled territory of Ukraine are primary presented by restructured payable to Energorynok SE, payable to electricity suppliers, payable for restructured taxes, accruals for salaries and related charges, other accounts payable. As a result of loss of control, the Group still retains the legal constructive obligation to fulfil these obligations, therefore the Group did not derecognise its trade and other accounts payable relating to obligations incurred prior to the loss of control in March 2017 of the entities located in the non-controlled territory of Ukraine.

Deferred tax asset/liability. Due to uncertainty of future taxable income of the entities located in the non-controlled territory of Ukraine, the Group has derecognised deferred tax assets in excess of deferred tax liabilities in previous accounting periods. Deferred tax liabilities of the entities located in the non-controlled territory of Ukraine attributable to property, plant and equipment were also derecognised due to impairment of related property, plant and equipment, over which the control was lost in current accounting period.

Management have sought to actively manage and limit the impact of these events on the Groupís operations by adopting a number of contingency arrangements.

17 Share Capital

18 Other Reserves

	Additional paid in	Hedge	Revaluation	AFS	Currency translation
In millions of Ukrainian Hryvnia	capital	reserve	reserve	reserve	reserve	Total
Balance at 1 January 2016	(4,199)	(885)	24,410	(25)	1,599	20,900
Other comprehensive income/(loss) for the period:
Change in estimate relating to asset retirement provision net of tax	-	-	(300)	-	-	(300)
Reclassification adjustment in relation to cash flow hedges	-	506	-	-	-	506
Currency translation reserve	-	-	-	-	(196)	(196)
Other movement in other reserves posted directly through equity:
Realised revaluation reserve net of tax	-	-	(3,425)	-	-	(3,425)
Deleveraging	-	-	-	-	1,532	1,532
Balance at 31 December 2016	(4,199)	(379)	20,685	(25)	2,935	19,017
Other comprehensive income/(loss) for the period:
Change in estimate relating to asset retirement provision net of tax	-	-	(215)	-	-	(215)
Net increase/decrease in valuation of property, plant and equipment net of tax	-	-	18,336	-	-	18,336
Reclassification adjustment in relation to cash flow hedges	-	220	-	-	-	220
Loss of control over the operations of entities located in non-controlled territory:
- De-recognition of asset retirement obligation net of tax	-	-	437	-	-	437
- Impairment of property plant and equipment net of tax	-	-	(4,552)	-	-	(4,552)
Currency translation reserve	-	-	-	-	143	143
Other movement in other reserves posted directly through equity:
Realised revaluation reserve net of tax	-	-	(4,274)	-	-	(4,274)
Acquisition of entities under common control (Note 34)	-	-	677	-	-	677
Balance at 31 December 2017	(4,199)	(159)	31,094	(25)	3,078	29,789

The revaluation reserve, hedge reserve, AFS reserve and currency translation reserve are not distributable to the shareholders until they are transferred to retained earnings.

Retained earnings of the Group represent the earnings of the Group entities from the date they have been established or acquired by the entities under common control. Group subsidiaries distribute profits as dividends or transfer them to reserves on the basis of their statutory financial statements prepared in accordance with local GAAP as appropriate. Ukrainian legislation identifies the basis of distribution as retained earnings only, however this legislation and other statutory laws and regulations are open to legal interpretation and, accordingly, management believes at present it would not be appropriate to disclose the amount of distributable reserves in these consolidated financial statements.

A portion of accumulated loss in hedge reserve in equity for the period when the hedge accounting was applied (from 1 January 2013 to 30 June 2014) in amount of UAH 220 million (2016: UAH 506 million) was reclassified to income statement to net operating forex exchange losses. The remaining part of cumulative loss on the hedging instrument that has been recognised in other comprehensive income and attributable to export sales proceeds will remain separately in equity and reclassified to profit or loss in the periods when the forecast sales transaction occurs.

19 Borrowings

As at 31 December, borrowings were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Non-current
Eurobonds	32,841	26,403
Bank borrowings	15,057	344
	47,898	26,747
Current
Bank borrowings	13,543	27,035
Interest accrual	2,841	3,066
	16,384	30,101
Total borrowings	64,282	56,848

Cash and non-cash movements in borrowings during the period are as follows:

In millions of Ukrainian Hryvnia	2017	2016

Opening balance as at 1 January	56,848	57,948
Cash movements Repayment of borrowings Interest and tender costs paid during the period New borrowings	(4,860) (2,604) -	- (235) (794) 29
Non-cash movements Recognition of Bank Borrowings upon restructuring Extinguishment of Bank Borrowings	18,681 (14,035)	-
Interest and tender costs accrued during the period Interest costs accrued on Eurobonds prior to restructuring Foreign exchange (gain)/loss including currency translation	5,571 -	3,799 1,813
difference Reclassification to Eurobonds from Bank borrowings upon restructuring	3,132 (2,012)	8,743 -
Recognition of Eurobonds upon restructuring Extinguishment of Eurobonds New Eurobonds recognised	3,561 - -	- (26,089) 26,057
Decrease in borrowings due to cash pooling arrangements Recognition of discount (Note 31) Release of interest accrued	- - -	(1,500) (397) (78)
Deleveraging Reclassification to other financial liabilities upon deleveraging Offset with other accounts receivables upon deleveraging	- - -	(11,380) (808) (260)
Closing balance as at 31 December	64,282	56,848

Interest and tender costs accrued during the period include borrowing costs capitalised on the construction of qualifying assets (Note 9). Interest costs accrued on Eurobonds represents interest that was added to the principal amount of Eurobonds prior to restructuring in accordance with the terms of the Standstill arrangement.

As at 31 December, the Groupís borrowings were denominated in the following currencies:

Total borrowings	64,282	56,848
- Roubles	8,727	7,463
- Euros	6,248	7,737
- US Dollars	47,967	40,179
Borrowings denominated in: - UAH	1,340	1,469
In millions of Ukrainian Hryvnia	2017	2016

19 Borrowings (Continued)

As at 31 December, the maturity of the Groupís loans and borrowings were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Loans and borrowings due:
- within 1 year	16,384	30,101
- between 1 and 5 years	6,032	-
- after 5 years	41,866	26,747
Total borrowings	64,282	56,848

The effective interest rates and currency denomination of loans and borrowings as at the balance sheet date were as follows:

				2017				2016
In % per annum	UAH	USD	EUR	RUB	UAH	USD	EUR	RUB
	UIRD 3m + 5% - 22%	Euribor 3m + 6.5%; m + 5% - 10.75% Libor 1	Euribor 3m + 0.375%-7%	Mosprime 3m + 4.45%-5.2%	19% - 25%	Libor 3m + 3.25% - 10.75%	Euribor 3-6m + 1.45% - 8%	Mosprime 3m + 4.45% -5.2%
Total borrowings	1,340	47,967	6,248	8,727	1,469	40,179	7,737	7,463

Bank borrowings. On 29 March 2017, the Group restructured a significant portion of its bank borrowings totalling USD 492 million (equivalent of UAH 13,321 million as at the date of transaction) (the ìRestructured Bank Debtî) by way of signing an Override agreement (the ìOverride Agreementî). On 22 August 2017, the Group also restructured its bank borrowings owing to PJSC UkrsotsBank totaling UAH 714 million (as at date of transaction) (the ìRestructured Bank Debtî) by the way of signing additional agreement to original facility agreement with the bank (the ìAgreementî). In addition to this, as further disclosed in Note 20, part of the financial liability designated at fair value through income statement in amount of USD 178 million (equivalent of UAH 4,840 million as at date of transaction) was converted to bank borrowings and included in Recognition of Bank Borrowings upon restructuring line. Further, the Group recognised discount in amount of UAH 194 million applying effective interest method on respective conversion included in the same disclosure line.

The Override Agreement and the Agreement resulted in modification of certain of the key terms and conditions of the underlying loan documentation (the ìRestructured Bank Debt Documentationî). According to the Restructured Bank Debt Documentation, approximately 50 percent of the interest accrued for the year ended 31 December 2017 were capitalised and included into the principal amount. The maturity dates of the Restructured Bank Debt were extended to 30 June 2023. Further, the interest rates for the Restructured Bank Debt denominated in USD were amended to Libor+5%, in EUR - Euribor+5%, in UAH - UIRD+5% respectively. A cash sweep mechanism was introduced that establishes that any excessive available cash balance over a threshold of USD 110 million shall be used to prepay the principal of the Restructured Bank Debt.

The differences between the terms of Bank Borrowings prior to restructuring and the terms of Restructured Bank Debt Documentation are considered substantial by management based on combination of qualitative and quantitative factors, including changes in the covenants, interest rates and in the repayment schedule. Consequently, the transaction was accounted for as an Extinguishment of Bank Borrowings and the Recognition of Bank Borrowings upon restructuring.

Management believes that remaining unrestructured bank borrowings including interest accrued totalling UAH 15,528 million as at 31 December 2017 (31 December 2016: UAH 29,113 million) will be subject to separate new restructuring agreements with similar terms and conditions to the Restructured Bank Debt Documentation. Prior to the signing of these new agreements, the bank borrowings, with the exception of UAH 856 million as at 31 December 2017 (sundry current loans that are not to be restructured), remain in default.

19 Borrowings (Continued)

Eurobonds. In December 2016, the Group restructured all of its existing Eurobonds and exchanged them for new Eurobonds (the ìNew Notesî) with an aggregate principal amount of USD 1,275 million (equivalent of ca. UAH 34,670 million as at 31 December 2016). This amount includes USD 300 million, being the amount of bank debt that the Groupís bank lenders elected to exchange for New Notes at par in accordance with the debt exchange offer (the "Bank Exchange Offerî). As consequence, bank debt in the amount of USD 133 million (equivalent of UAH 3,609 million as at date of transaction) was exchanged to the New Notes and included in Recognition of Eurobonds upon restructuring line. This amount includes USD 74 million (equivalent of UAH 2,012 million as at the date of transaction) of bank borrowings and USD 59 million (equivalent of UAH 1,597 million as at the date of transaction) part of financial liability designated at fair value through profit and loss converted to New Notes (Note 20). Further, the Group capitalised commissions on respective conversion in amount of UAH 48 million included in the same disclosure line. As at 31 December 2017, the remaining portion of the Bank Exchange Offer totalling USD 167 million has not been converted to the New Notes and classified as current bank borrowings (as at 31 December 2016: USD 300 million).

According to the New Notes, approximately 50 percent of the interest accrued during the period ending 31 December 2017 were capitalised and added to the principal amount of New Notes. Fifty percent of the principal amount of the New Notes outstanding on 29 December 2023 will be redeemed by the Group on such date. The maturity of New Notes was extended to 31 December 2024. The nominal interest rate under the New Notes is 10.75%.

Collaterals for bank borrowings and Eurobonds are disclosed in Note 33.

Deleveraging and restructuring. In 2016, the Group and its parent company DTEK B.V. entered into and completed a deleveraging transaction with Sberbank of Russia (ìSberbankî), one of the Groupís lenders, pursuant to which it agreed to transfer the ownership of JSC Mine Office Obukhovskaya, JSC Donskoy Anthracite and LLC Sulinanthracite (together, the "Rostov Mines") to a new holding company (ìFabcell Limitedî), owned by its immediate parent DTEK B.V. (the ìDeleveraging Transactionî). The ownership of the Rostov Mines was transferred to Fabcell Limited on 1 September 2016. Total revenue and segment results of Rostov Mines consolidated for the eight months ended 30 August 2016 are disclosed in Note 7.

Additionally, the Group issued a guarantee to Sberbank with respect to the loan transferred to Fabcell. This guarantee is subject to a limit of USD 100 million, the fair value of the guarantee as at 31 December 2017 comprised UAH 1,065 million (31 December 2016: UAH 1,298 million) as disclosed in Note 20.

Covenants. The New Notes and Restructured Bank Debt contain specific covenants, including but not limited to limitations on distribution to shareholders (unless such distribution is made pursuant to mandatory requirements of the law), limits on capital expenditure, restrictions on permissible business activities, requirement to perform transactions on an armís length basis, requirement to make periodic disclosure of financial information, permissible levels of additional financial indebtedness and cash interest cover.

Following the signing of the Restructured Bank Debt Documentation the Group is in compliance with the covenants relating to this debt. Covenants on the remaining unrestructured bank borrowings remain in breach as at 31 December 2017, this debt has been classified as current and amounts to UAH 15,528 million as of 31 December 2017 (31 December 2016: UAH 14,320 million).

Events of default are comprehensive and include cross-default to other debt of the Group. However, the cross-default clauses in the New Notes and Restructured Bank Debt Documentation excludes existing cross default in relation to the remaining unrestructured bank borrowings.

20 Other Financial Liabilities

As at 31 December, non-current financial liabilities comprised:

In millions of Ukrainian Hryvnia	2017	2016
Restructured trade payables	2,269	1,723
Deferred consideration for acquisition	1,678	4,205
Guarantee under the borrowings of related parties	1,065	1,379
Payable for finance lease	447	280
Loans payable to related parties (Note 8)	13	12
Restructured taxes payable	9	8
Financial liability designated at fair value through profit or loss	-	6,462
Other long-term financial liabilities	35	32
Total non-current other financial liabilities	5,516	14,101

20 Other Financial Liabilities (Continued)

As at 31 December, current financial liabilities of the Group comprised:

In millions of Ukrainian Hryvnia	2017	2016
Current portion of restructured trade payable	229	809
Current portion of deferred consideration	107	296
Restructured taxes payable	85	77
Payable for finance lease	28	-
Loans payable to related parties	4	4
Total current other financial liabilities	453	1,186

In 2016 the Group entered into and completed a deleveraging plan with Sberbank of Russia. As part of this transaction the amount of outstanding liability under a gross-settled derivative of USD 237 million (UAH 6,162 million applying exchange rate at the date of transaction) including accrued interest was converted to a financial instrument that has a conversion option and cap/floor features. The Group has designated the whole financial liability at fair value through profit and loss subject to floor and cap features until the final conversion will take place. In December 2016 Group's bank lenders elected to exchange in aggregate USD 300 million for New Notes at par in accordance with the terms of Bank Exchange Offer. Consequently, the financial liability designated at fair value through profit or loss in the amount of USD 59 million (equivalent of UAH 1,597 million) was converted to New Notes (Note 19) according to the Bank Exchange Offer. In March 2017 remaining portion of financial liability at fair value through profit and loss in amount of USD 178 million (equivalent of UAH 4,840 million) was converted to the bank facility agreement by way of signing an Override agreement (the ìOverride Agreementî). Since 31 December 2016 forex exchange gain on financial liability designated at fair value through profit and loss amounted UAH 25 million.

Deferred consideration for acquisition and payable for finance lease relates primarily to acquisition of coal mines. It is carried at amortised cost at an effective discount rate of 16.8% per annum and matures in 2060. Liability for deferred consideration attributable to acquisition of coal mines DTEK Rovenkiantracyte LLC and DTEK Sverdlovantracyte LLC in the amount of UAH 3,148 million was released to income statement because of loss of control of control over the operations of entities located in non-controlled territory (see Note 16). The unwinding of discount attributable to deferred consideration and finance lease for the period comprised UAH 453 million (2016: UAH 798 million). Excess of actual inflation rate over expected inflation used for estimated value of future lease payments was accounted as loss on change in estimate and comprised UAH 174 million (2016: UAH 136 million). Other changes are immaterial.

Restructured trade payables include UAH 2,325 million (31 December 2016: UAH 2,358 million) of restructured payable to the energy seller monopolist Energorynok SE which sells the energy to distribution companies of the Group, and UAH 114 million of restructured trade payable for state-owned Vugillya Ukrayiny (31 December 2016: UAH 116 million). Remaining balance in amount of UAH 59 million (31 December 2016: 58 UAH million) relates to different suppliers. Restructured trade payables are recognised at fair value and subsequently carried at amortised cost at effective interest rate ranging between 14.8% and 21.1%. During 2017, UAH 1,625 million (2016: UAH 2,714 million) nominal values of trade payables to Energorynok SE were restructured with maturity up to 2020-2021 (2016: 2018-2019) based on court decisions. As a result of restructuring, gain on initial recognition of restructured trade payables in amount UAH 879 million (2016: UAH 520 million) was recognised in finance income (Note 31).

Change in other financial liabilities includes the following cash flows recorded in the Consolidated Statement of Cash Flows. Repayment of restructured trade payables to Energorynok SE of UAH 148 million and restructured trade payables to state-owned Vugillya Ukrayiny of UAH 17 million are included in repayment of restructured obligations in the cash flows from operating activities. The remaining changes in other financial liabilities are non-cash movements.

As part of acquisition of the mining assets in 2011, the Group assumed certain restructured tax obligations that are due between 2013 and 2030. The obligations have been discounted at implied rates in a range from 16.6% to 18.6%.

21 Retirement Benefit Obligations

The Groupís production companies have a legal obligation to compensate the Ukrainian state pension fund for additional pensions paid to certain categories of former employees of the Group. There are also lump sum benefits payable upon retirement and post-retirement benefit programs. In 2017 the defined benefit plan covers 114,408 people and 18,390 pensioners (2016: 119,762 and 19,412 respectively). None of the employee benefits plans stated below are funded.

The defined employee benefit liability as at 31 December originated as follows:

In millions of Ukrainian Hryvnia	2017	2016
Retirement benefits	4,532	4,898
Retirement benefits - coal support	793	1,671
Lump sum payments	667	685
Present value of Retirement benefit obligation	5,992	7,254
The amounts recognised in the income statement were as follows:
In millions of Ukrainian Hryvnia	2017	2016
Current service cost	144	168
Interest cost (Note 31)	835	774
Past service cost (gain)/loss	(763)	30

Total	(965)	972
operations of entities located in non-controlled territory (Note 16)	(1,181)	-

Changes in the present value of the defined benefit obligation were as follows:

Decrease in the obligations due to the loss of control over the

In millions of Ukrainian Hryvnia	Note	2017	2016
Defined benefit obligation as at 1 January		7,254	5,389
Current service cost Interest cost Decrease in the obligations due to the loss of control over the	31	144 835	168 774
operations of entities located in non-controlled territory Recognised past service cost (gain)/loss Foreign exchange losses	16	(2,513) (763) -	- 30 16
Benefits paid Re-measurements of the defined benefit liability resulting from:		(545)	(648)
- changes in financial assumptions - changes in demographic assumptions - experience adjustments		1,270 (172) 457	988 (6) 642
Acquisition of entities under common control Deleveraging	34	25 -	- (99)
Defined benefit obligation as at 31 December		5,992	7,254

Re-measurement of defined benefit liability is mainly attributable to increase in pension indexation rate as a result of amendments made in October 2017 to the pension legislation. In accordance with the amendments indexation rate was linked to the growth in average salary in Ukraine and growth in average inflation over the last 3 years. This change resulted in increase in pension indexation rate. Remaining change is attributable to actual salary growth against forecast, increase in coal cost per ton and volumes of coal supplied to the participants of benefit program.

In 2017 the company recognised past service gain. Positive amount of past service is explained by certain changes made in the Ukrainian pension legislation in October 2017: in particular, reduction in pension insurance index from 1.35% to 1% and linkage of retirement age to the length of work. These changes will lead to reduction in pensions for current plan participants in the long term. The estimate of pension obligations requires significant judgement (see Note 4). The principal actuarial assumptions used were as follows:

	2017	2016
Nominal discount rate	12.85%	14.4%
Nominal salary increase	5.00%-13.66%	5.00%-13.00%
Pension indexation rate	5.00%-9.33%	3.60%

21 Retirement Benefit Obligations (Continued)

Since there are no long-term high quality corporate bonds in Ukraine, the Group applies market rates on Ukrainian government bonds of appropriate maturity to discount post-employment benefit obligations.

The principal actuarial assumptions for sensitivity analysis were considered independently from each other. The sensitivity of the defined benefit obligation to changes in the principal assumptions is as follows:

	2017	2016
Nominal discount rate increase/decrease by 1%	(6,98%)/7,93%	(6,43%)/7,22%
Nominal salary increase/decrease by 1%	3,50%/(3,21%)	2,77%/(2,57%)
Pension indexation rate increase/decrease by 1%	2,09%/(2,02%)	1,87%/(1,84%)

As at 31 December 2017, the weighted average maturity of the Groupís defined benefit obligations is 7.6 years and it varies across different Groupís subsidiaries from 5.4 to 9.4 years (31 December 2016: 7.5 years, varying from 5.2 to 8.7 years). Payments in respect of defined benefit obligations expected to be made during the year ending 31 December 2018 are UAH 696 million (2017: UAH 1,085 million).

22 Provisions for Other Liabilities and Charges

Movements in provisions for liabilities and charges are as follows:

	Asset retirement	Provision for legal
In millions of Ukrainian Hryvnia	provision	claims	Total
At 1 January 2016	1,277	98	1,375
Change in estimates	367	-	367
Arising during the year	10	57	67
Unwinding of discount (Note 31)	124	-	124
Reversal of provision	-	(4)	(4)
Utilised	(14)	(120)	(134)
Deleveraging	(46)	(8)	(54)
At 31 December 2016	1,718	23	1,741
Change in estimates	262	-	262
Arising during the year	7	72	79
Unwinding of discount (Note 31)	78	-	78
Utilised	(6)	(5)	(11)
Amounts written-off due to loss of control over the operations of entities located in non-controlled territory
(Note 16)	(990)	-	(990)
At 31 December 2017	1,069	90	1,159

The asset retirement provision is attributable to the mining and energy generating activities of the Group resulting from the obligation to dismantle and remove the mines and remediate soils disturbed by the underground works and ash dumps to the extent of existing revaluation reserve. The increase of the asset retirement obligation was recorded in other reserves as the Group uses the fair value model to measure property, plant and equipment.

As at 31 December 2017 the maturity of the Groupís defined assets retirement obligations varies across different Groupís subsidiaries from 4 to 83 years (31 December 2016: varying from 5 to 84 years).

Key assumptions used to calculate asset retirement provision were as follows:

	2017	2016
Pre-tax nominal discount rate	12.85%	14.4%
Inflation long-term	5.0%	5.0%
Inflation middle-term	7.0%	7.0%

23 Trade and Other Payables

As at 31 December trade and other payables were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Trade payables	14,032	11,784
Liabilities for purchased property, plant and equipment	1,703	1,034
Dividends payable	105	57
Liabilities for purchased securities	12	12
Other creditors	1,297	3,340
Total financial payables	17,149	16,227
Accruals for employeesí unused vacations	726	773
Wages and salaries payable	1,197	948
Total non-financial payables	1,923	1,721
Total	19,072	17,948

Analysis by currency and future undiscounted cash flows of financial trade and other payables is as follows:

31 December 2017

In millions of Ukrainian Hryvnia	Trade payables	Liabilities for purchased securities	Liabilities for purchased property, plant and equipment	Dividends payable	Other creditors
Currency analysis:
UAH denominated	13,624	12	1,471	105	1,133
USD denominated	2	-	17	-	53
EUR denominated	392	-	109	-	108
Other currency	14	-	106	-	3
Total	14,032	12	1,703	105	1,297
Future undiscounted cash flow analysis:
Up to 3 months	13,784	12	1,692	105	1,118
From 3 to 6 months	61	-	11	-	-
From 6 to12 months	187	-	-	-	179
Total	14,032	12	1,703	105	1,297

31 December 2016

In millions of Ukrainian Hryvnia	Trade payables	Liabilities for purchased securities	Liabilities for purchased property, plant and equipment	Dividends payable	Other creditors
Currency analysis:
UAH denominated	11,446	12	973	57	2,740
USD denominated	136	-	-	-	396
EUR denominated	179	-	54	-	196
Other currency	23	-	7	-	8
Total	11,784	12	1,034	57	3,340
Future undiscounted cash flow analysis:
Up to 3 months	10,672	3	1,014	57	3,328
From 3 to 6 months	13	-	6	-	-
From 6 to 12 months	1,099	9	14	-	12
Total	11,784	12	1,034	57	3,340

24 Other Taxes Payable

As at 31 December other taxes payable were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Value-added tax	2,167	3,223
Payroll taxes	483	451
Other taxes	904	959
Total other taxes payable	3,554	4,633

25 Revenue and Heat Tariff Compensation

Analysis of revenue by category is as follows:

In millions of Ukrainian Hryvnia	2017	2016
Sale of electricity to final customers	54,303	53,548
Sale of electricity to electricity pool	54,132	45,376
Sale of gas	9,754	9,742
Heat generation	9,531	8,799
Sale of steaming and coking coal	6,034	5,715
Sale of electricity abroad	6,603	4,359
Other sales	616	358
Total	140,973	127,897

Other sales include sales of machinery by newly acquired Corum companies in amount of UAH 145 million (2016: UAH nil million) as described in Note 34.

Geographical analysis of revenue is presented in Note 7.

Heat tariff compensation

Heat tariff compensation is a government grant and represents the difference between heat tariff required to cover all production costs plus reasonable margin and that imposed by the State, compensated to the Group regularly. The amount of the difference to be compensated to the Group by the State for 2017 was UAH 765 million (2016: UAH 159 million). After the changes in legislation starting from 1 June 2014 heat tariff was revised and increased to an economically grounded tariff. After these changes direct revenue of the Company from heat supply is increased simultaneously with decrease of heat tariff compensation. However, due to dynamic changes in operating environment the costs of the Company are still higher than heat tariffs which lead to recognition of receivables for heat tariff compensation as at 31 December 2017 and 2016 which was approved by State authorities.

Agreement with Kiev City Authorities

The agreement with the Kyiv City Administration for the provision of heat and electricity generation to the residents and local companies expired on 31 December 2017. However, prior to this date the agreement was prolonged till 28 April 2018. The Group has submitted a proposal to continue provide heat and electricity generation, this matter is currently being discussed. The provision of these services resulted in revenue of UAH 13,681 million and heat tariff compensation in amount of UAH 725 million in 2017 and negligible gross profits. Remaining amount of heat tariff compensation totalling UAH 40 million attributable to other entities of the Group. Upon termination of agreement with Kyiv City Administration PJSC Kyivenergo is entitled to receive a compensation of improvements made at its own expense over the assets owned by Kyiv City Administration. As at 31 December 2017 such compensation amounts to UAH 725 million and represents a contingent asset.

26 Cost of Sales

In millions of Ukrainian Hryvnia	2017	2016
Cost of electricity purchased for resale	57,164	53,732
Raw materials	22,990	16,836
Cost of gas purchased for resale	9,562	9,643
Depreciation of property, plant and equipment and amortisation of
intangible assets	9,013	8,513
Staff cost, including payroll taxes	8,872	10,211
Transportation services and utilities	7,983	7,783
Cost of coal purchased for resale	2,573	651
Taxes, other than income tax	2,177	2,282
Production overheads	1,553	1,414
Equipment maintenance and repairs	557	612
Change in inventory	(341)	1,332
Other costs	121	31
Total	122,224	113,040

As at 31 December 2017, staff costs include payroll in the amount of UAH 6,818 million (31 December 2016: UAH 7,114 million), payroll related taxes in the amount of UAH 1,661 million (31 December 2016: UAH 1,758 million), unused vacation and bonuses provisions in the amount of UAH 1,122 million (31 December 2016: UAH 1,276 million), past service gain in the amount of UAH 763 million (31 December 2016: past service costs UAH 30 million) and other personnel costs in the amount of UAH 34 million (31 December 2016: UAH 33 million).

Raw materials include UAH 6,325 million of coal (2016: UAH 2,467 million), UAH 13,893 million of fuel (2016: UAH 11,444 million), UAH 2,772 million of production materials and spare parts (2016: UAH 2,925 million).

27 Other Operating Income

In millions of Ukrainian Hryvnia	2017	2016
Penalties	198	289
Gain on sales of property, plant and equipment	86	-
Income from sales of services	32	-
Gain on sales of inventory	32	166
Assets received free of charge	7	16
Income from extinguishment of accounts payable	6	108
Other	152	101
Total	513	680

28 Distribution Costs

In millions of Ukrainian Hryvnia	2017	2016
Transportation	454	1,021
Staff cost, including payroll taxes	38	42
Depreciation	29	28
Other costs	212	125
Total	733	1,216

As at 31 December 2017, staff costs include payroll in the amount of UAH 31 million (31 December 2016: UAH 13 million), payroll related taxes in the amount of UAH 7 million (31 December 2016: UAH 8 million), unused vacation and bonus provisions in the amount of UAH nil million (31 December 2016: UAH 21 million).

29 General and Administrative Expenses

In millions of Ukrainian Hryvnia	2017	2016
Staff cost, including payroll taxes	1,471	1,486
Professional fees	600	453
Office costs	188	177
Depreciation of property, plant and equipment and amortisation of
intangible assets	105	113
Taxes, other than income tax	28	41
Transportation	7	23
Other costs	110	112
Total	2,509	2,405

As at 31 December 2017, staff costs include payroll in the amount of UAH 920 million (31 December 2016: UAH 946 million), payroll related taxes in the amount of UAH 167 million (31 December 2016: UAH 168 million), unused vacation and bonuses provisions in the amount of UAH 345 million (31 December 2016: UAH 342 million) and other personnel costs in the amount of UAH 39 million (31 December 2016: UAH 30 million).

30 Other Operating Expenses

In millions of Ukrainian Hryvnia	2017	2016
Expenses on idle capacity	819	1,092
Charitable donations and sponsorship	626	1,225
Social payments	532	576
Penalties	223	572
Non-recoverable VAT	219	278
Maintenance of social infrastructure	124	307
Increase in provision for other liabilities and charges	68	-
Net movement in provision for impairment of trade and other
receivables and prepayments made (Note 14)	(426)	985
Other	564	441
Total	2,749	5,476

Expenses on idle capacity represents payroll, depreciation and other costs incurred at mines being not operating at full capacity due to unexpected accidents on mines and maintenance of mines with suspended extraction.

31 Finance Income and Finance Costs

In millions of Ukrainian Hryvnia	2017	2016

Gain on initial recognition of long term accounts payable (Note 20)	879	520
Interest income on loans issued to related parties (Note 8)	754	728
Amortisation of guarantee provided to related party (Note 8)	357	-
Gain on initial recognition of long term borrowings upon Restructuring	194	-
Interest income on bank deposits	166	197
Unwinding of discount on loans provided to related parties (Note 8)	100	95
Unwinding of discount on long-term restructured accounts receivable Gain on change in estimates on deferred consideration related to	83	75
acquisition	-	788
Gain on initial recognition of renegotiated borrowings whose terms were
changed at the time of the deleveraging transaction	-	397
Change in fair value of derivative financial instruments	-	218
Gain on derecognition of guarantee provided to related party	-	49
Other finance income	5	89
Total finance income	2,538	3,156
Interest expense
- Bank borrowings	1,811	3,442
- Eurobonds issued	3,671	2,135
Effect of changes in expected settlement period on loans provided to
related parties (Note 12)	1,573	-
Unwinding of discounts on pension obligations (Note 21)	835	774
Unwinding of discounts on deferred consideration related to acquisition
and finance lease (Note 20)	453	798
Loss on early repayment of long-term payables	477	9
Unwinding of discounts on long term accounts payable	446	229
Professional fees	269	116
Loss on change in estimates on deferred consideration related to
acquisition and finance lease (Note 20)	174	136
Loss on initial recognition of long-term restructured accounts receivable	153	290
Unwinding of discounts on assets retirement provision (Note 22)	78	124
Interest on restructured taxes	9	327
Other finance costs	27	12
Finance expenses attributable to restructuring of borrowings	-	932
Total finance costs	9,976	9,324

32 Income Taxes

Income tax expense comprises the following:

In millions of Ukrainian Hryvnia	2017	2016
Current tax Deferred tax	2,539 (1,643)	1,065 (1,666)
Income tax expense/(benefit)	896	(601)

Deferred income tax related to items recognised in other comprehensive income:

In millions of Ukrainian Hryvnia	2017	2016
Re-measurement of post-employment benefit obligations Change in estimate relating to asset retirement provision recorded in equity Revaluation and impairment of property, plant and equipment	(40) 3 4,143	(292) (66) -
Income tax charge/(credit) through other comprehensive income	4,106	(358)

The Group is subject to taxation in several tax jurisdictions, depending on the residence of its subsidiaries (primarily in Ukraine).

32 Income Taxes (Continued)

Reconciliation between the expected and the actual taxation charge is provided below.

In millions of Ukrainian Hryvnia	2017	2016
Loss before income tax, including	(2,020)	(7,296)
Loss before income tax of Ukrainian companies Profit/(Loss) before income tax of non-Ukrainian companies	(3,418) 1,398	(1,091) (6,205)
Income tax at statutory rates of 18% (Ukrainian operations) Profit taxed at different rates 25% (Dutch operations) Profit taxed at different rates 12,5% (Cyprus operations) Profit taxed at different rates 20% (Russian operations) Profit taxed at different rates 12% (Switzerland operations) Profit taxed at different rates 20% (UK operations) Profit taxed at different rates 19% (Hungary operations)	(615) 114 (595) - 789 (195) 19	(196) 452 (738) (108) (102) (158) 14
Effect of changes in Tax legislation in Ukraine Tax effect of items not deductible or assessable for taxation purposes: - non-deductible expenses - non-taxable income Utilization of previously unrecognised tax losses Recognition of previously unrecognised deferred tax on tax losses carried	- 160 (248) (283)	(1,804) 1,608 (228) (619)
forward Unrecognised deferred tax on tax losses carried forward Tax effect of non-taxable forex losses/(gains) on foreign subsidiaries, net Unrecognised deferred tax on deductible temporary differences as a result of loss of control over the operations of entities located in non-controlled	- 961 (2)	(244) 162 73
territory Write-down of deferred tax assets previously recognised on tax losses carried forward Write-down of deferred tax assets on other deductible temporary differences	547 244 -	- - 1,287
Income tax expense/(benefit)	896	(601)

The parent and its subsidiaries are separate tax payers and therefore the deferred tax assets and liabilities are presented on an individual basis. The deferred tax liabilities and assets reflected in the consolidated balance sheets as at 31 December are as follows:

In millions of Ukrainian Hryvnia	2017	2016
Deferred tax asset Deferred tax liability	947 (4,724)	1,011 (2,207)
Net deferred tax liability	(3,777)	(1,196)

Tax Code of Ukraine is a subject of regular revisions and changes. In December 2016 the Parliament of Ukraine passed a law that introduced certain changes to the Tax Code that considered to be substantially enacted with respect of calculation of deferred taxes as at 31 December 2016. The most significant change relates to deductibility of accounts receivable write-off expenses through bad debt allowance for corporate income tax calculation that have been considered as non-deductible before. Subsequent revisions made during 2017 expected to have no material impact on the tax position of the Group.

32 Income Taxes (Continued)

						Loss of control (Note 16)
In millions of Ukrainian Hryvnia	1 January 2017	Acquisition (Note 34)	Credited/ (charged) to income	Credited/ (charged) to OCI	Credited/ (charged) to income	Credited/ (charged) to OCI	31 December 2017
Tax effect of deductible temporary differences
Retirement benefit
obligations	1,103	3	(49)	280	(71)	(240)	1,026
Trade and other
receivables	792	7	119	-	(91)	-	827
Financial investments	188	-	378	-	-	-	566
Deferred consideration and
finance lease	581	-	187	-	(362)	-	406
Provisions for other
liabilities and charges	259	-	18	47	(66)	(50)	208
Inventories	64	-	36	-	-	-	100
Trade and other payables	61	-	(16)	-	-	-	45
Tax losses	290	-	(280)	-	-	-	10
Prepayments received	7	5	(4)	-	(2)	-	6
Gross deferred tax asset	3,345	15	389	327	(592)	(290)	3,194
Less offsetting with
deferred tax liabilities	(2,334)	-	87	-	-		(2,247)
Recognised deferred tax
asset	1,011	15	476	327	(592)	(290)	947
Property, plant and
equipment	(4,541)	(133)	1,327	(4,899)	519	756	(6,971)
Gross deferred tax
liability	(4,541)	(133)	1,327	(4,899)	519	756	(6,971)
Less offsetting with
deferred tax assets	2,334	-	(87)		-		2,247
Recognised deferred tax
liability	(2,207)	(133)	1,240	(4,899)	519	756	(4,724)
Recognised net deferred
tax liability	(1,196)	(118)	1,716	(4,572)	(73)	466	(3,777)

32 Income Taxes (Continued)

In millions of Ukrainian Hryvnia	1 January 2016	Transfer related to demerge	Credited/ (charged) to income	Credited / (charged) to OCI	31 December 2016
Tax effect of deductible temporary differences
Retirement benefit obligations	966	(10)	(145)	292	1,103
Trade and other receivables	87	3	702	-	792
Deferred consideration and
finance lease	576	-	5	-	581
Tax losses	224	(9)	75	-	290
Provisions for other liabilities and
charges	239	(13)	(33)	66	259
Financial investments	189	15	(16)	-	188
Trade and other payables	66	(4)	(1)	-	61
Inventories	41	(1)	24	-	64
Prepayments received	4	-	3	-	7
Gross deferred tax asset	2,392	(19)	614	358	3,345
Less offsetting with deferred tax
liabilities	(1,784)	-	(550)	-	(2,334)
Recognised deferred tax asset	608	(19)	64	358	1,011
Property, plant and equipment	(5,438)	(62)	959	-	(4,541)
Prepayments made	(24)	-	24	-	-
Other financial liabilities	(69)	-	69	-	-
Gross deferred tax liability	(5,531)	(62)	1,052	-	(4,541)
Less offsetting with deferred tax
assets	1,784	-	550	-	2,334
Recognised deferred tax liability	(3,747)	(62)	1,602	-	(2,207)
Recognised net deferred tax
liability	(3,139)	(81)	1,666	358	(1,196)

As at 31 December 2017, the Group has not recorded a deferred tax liability in respect of taxable temporary differences of UAH 1,775 million (31 December 2016: UAH 1,041 million) associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future.

As at 31 December 2017, net recognised deferred tax liability of UAH 1,398 million is expected to be recovered or settled within twelve months after the reporting period (31 December 2016: UAH 486 million).

The deferred tax asset on unused tax losses not recognised as at 31 December 2017 comprised UAH 5,996 million (31 December 2016: UAH 5,074 million).

In the context of the Groupís current structure, tax losses and current tax assets of different Group companies may not be offset against current tax liabilities and taxable profits of other Group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity.

33 Contingencies, Commitments and Operating Risks

Tax legislation. Ukrainian tax and customs legislation is subject to varying interpretations and changes, which can occur frequently. Managementís interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant authorities, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

33 Contingencies, Commitments and Operating Risks (Continued)

The Group conducts intercompany transactions. It is possible with evolution of the interpretation of tax law in Ukraine and changes in the approach of tax authorities under the new Tax Code, that such transactions could be challenged in the future. The impact of any such challenge cannot be estimated; however, management believes that it should not be significant.

The Group has income tax liabilities in various countries. The ultimate tax consequences of many transactions and calculations are uncertain, partly because of uncertainty concerning their timing. The Group continually assesses such matters and where final tax sums differ from the estimates such differences are recognised as income tax provisions in the period in which the differences become apparent. As at 31 December 2017 the Groupís contingent liabilities in relation to uncertain tax positions are equal to UAH 323 million (31 December 2016: UAH 300 million).

On 1 September 2013 the Law ìOn Changes to the Tax Code of Ukraine in respect of transfer pricing rulesî came into effect. These transfer pricing rules were much more detailed than previous legislation and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). The new legislation allows the tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), if the transaction price is not arm's length and not supported by relevant documentation. Since 1 January 2015, the transfer pricing rules were amended so that transactions between Ukrainian companies (irrespective whether they are related parties or not) ceased to be treated as controlled transactions.

Management believes it is taking appropriate measures to ensure compliance with the new transfer pricing legislation.

Legal proceedings and tax litigations. From time to time and in the normal course of business, claims against the Group are received. Management believes that it has provided for all material losses in these financial statements. As at 31 December 2017 the Groupís contingent liabilities in relation to legal claims on the Groupís contractual obligations are equal to UAH 4,620 million (31 December 2016: UAH 3,684 million) and contingent liabilities in relation to tax litigations equal to UAH 277 million (31 December 2016: UAH 278 million).

During 2016 the Group's subsidiaries entered into additional agreements with the State Property Fund based on the changes in lease legislation. Due to possible interpretations of the new legislation and additional agreements, management assessed that possible increase in deferred consideration for acquisition of mines and payable for finance lease may be increased in 2017 by UAH 208 million (2016: UAH 271 million).

Capital expenditure commitments. The Group is committed to fund investment programs of mining assets acquired in 2011-2012 totalling UAH 7,727 million during the period 2011 through 2016. On 15 March 2017 the self-proclaimed authorities took control of all of the Group's assets located in the non-controlled territory. As a result of this action and the receipt of Force Majeure certificates (see Note 16), the Group is released from this outstanding commitment in respect of mining asset located in the non-controlled territory of UAH 2,128 million. As at 31 December 2017 there were no outstanding commitments for investment program (31 December 2016: UAH 2,148 million).

Purchase commitments. As at 31 December 2017 the Group has purchase commitments for the property, plant and equipment purchase in the amount of UAH 194 million (31 December 2016: UAH 98 million).

Assets pledged and restricted. At 31 December the Group has the following assets pledged as collateral or restricted:

In millions of Ukrainian Hryvnia	Asset pledged	2017 Related liability	Asset pledged	2016 Related liability
Loans provided to related parties (Note 12)	11,815	32,841	11,751	26,403
Restricted deposits (Note 12)	76	-	165	-
Cash and cash equivalents (Note 15)	87	-	57	57
Total	11,978	32,841	11,973	26,460

Following the terms of restructuring of the new senior Notes (Eurobonds) in December 2016, any proceeds obtained from the loans issued to related party as disclosed in Note 12 are restricted and should be used for repayment of the new senior Notes (Note 19).

As at 31 December 2017 the movable and immovable property of the Group having value of UAH 510 million is encumbered with a tax lien (31 December 2016: UAH 126 million).

33 Contingencies, Commitments and Operating Risks (Continued)

The Group has pledged proceeds from future sales of electricity and part of future volume of electricity as security for certain borrowings. Total amount of the pledge is set in the pledge agreements, and the maximum exposure of the group is limited to the outstanding loan balance and related liabilities. As at 31 December 2017 future sales proceeds and the volume of electricity production in amount of UAH 1,013 million were pledged as security for borrowings amounting UAH 781 million (31 December 2016: future sales proceeds and production of electricity totalling UAH 952 million were pledged as security for the borrowings of UAH 781 million). The Group has pledged proceeds from future export sales of coal as security for its borrowings. As at 31 December 2017 future sales proceeds of coal in amount of UAH 21,951 million were pledged as security for borrowings amounting to UAH 7,742 million (31 December 2016: UAH 21,237 million for UAH 9,169 million borrowings).

Environmental matters. The enforcement of environmental regulation in Ukraine is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material. Management believes that there are no significant liabilities for environmental damage.

Compliance with covenants. The Group is subject to certain covenants related primarily to its Eurobonds and bank borrowings. Non-compliance with such covenants may result in negative consequences for the Group, including increase in the cost of borrowings, declaration of default and demand for immediate repayment of borrowings.

As at 31 December 2017 and 2016 the Group was in breach of certain covenants under a number of bank borrowings agreements (see Note 19).

Insurance. The insurance industry in Ukraine is developing and many forms of insurance protection common in other parts of the world are not yet generally available. At present, Groupís insurance policy incorporates ìAll Risksî Property Damage and Business Interruption coverage for generation and several mining companies. In particular, the policy covers losses resulting from loss or damage of property, plant and equipment, loss of profit resulting from business interruption and loss or damage of wagons of third party transportation provider. The Group does not have full coverage for third party liability in respect of property or environmental damage arising from accidents on the Groupís property or relating to the Groupís operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have an adverse effect on the Groupís operations.

Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under noncancellable operating leases are as follows:

In millions of Ukrainian Hryvnia	2017	2016
Not later than 1 year Later than 1 year and not later than 5 years	- 204	9 28
Total operating lease commitments	204	37

Lease of land. The Group leases the land on which its assets are located. The annual lease payment in 2017 amounted to UAH 343 million (2016: UAH 275 million). Those payments are cancellable lease commitments.

34 Acquisition of entities under common control

These entities are engaged in the following businesses: Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC (ìSvitlo Shakhtaryaî), is a producer of equipment for mining; Corum Druzhkivskyi Machine-Building Plant LLC (ìDMBPî), is an owner of property, plant and equipment which is leased to Corum Group subsidiaries; Engineering and Technical Center Mining Machines LLC (ìETCî) is the owner of patents for models and equipment, which are used in the production activities of Kharkivskyi Machine-Building Plant Svitlo Shakhtarya PJSC and the entity that is still in the Corum Group. These businesses are engaged in supporting the Groupís underground mining operations and were purchased to enable better oversight over their operation and create cost efficiencies.

34 Acquisition of entities under common control (Continued)

The following table describes summary predecessor carrying values of the net assets acquired at the date of acquisition of Corum companies:

	Svitlo
In millions of Ukrainian Hryvnia	Shakhtarya	DMBP	ETC	Total

Property, plant and equipment	179	651	-	830
Intangible assets	-	-	5	5
Deferred income tax asset	15	-	-	15
Inventories	311	29	-	340
Trade and other receivables	923	91	27	1,041
Retirement benefit obligation	(25)	-	-	(25)
Deferred income tax liability	(11)	(122)	-	(133)
Trade and other payables	(783)	(213)	(47)	(1,043)
Carrying value of net assets/(liabilities) of acquired
entities	609	436	(15)	1,030
Less: non-controlling interest	(237)	-	-	(237)
Add: settlement of pre-existing payables to the Group	216	-	-	216
Net assets acquired	588	436	(15)	1,009
Purchase consideration paid	(876)	(1,590)	-	(2,466)
Settlement of pre-existing receivables from acquiree	(216)	-	-	(216)
Accumulated deficit recognised as a result of
acquisition of subsidiaries under common control	504	1,154	15	1,673

Cash flows on acquisition of subsidiaries
Cash and cash equivalents of the subsidiaries	-	-	-	-
Consideration paid for acquisition of subsidiaries	876	1,590	-	2,466
Net outflow of cash on acquisition of subsidiaries	876	1,590	-	2,466

The non-controlling interest represents the share of the net assets are determined based on predecessor values of the acquiree attributable to the owners of the non-controlling interest.

All three entities were part of the Corum Group and were under common control of SCM. The Group accounted acquisition of these entities as a common control transaction, recognising deficit in amount UAH 1,673 million directly in retained earnings in amount UAH 2,350 million less revaluation reserve 677 million in other reserves. This charge was calculated as cash consideration transferred less the predecessor carrying amount of assets and liabilities of acquired entities and less non-controlling interest recognised. The acquired entities results, assets and liabilities incorporated from the date of business combination between entities under common control as described in Note 3.

There were no contingent liabilities recognized as a result of the acquisition. The amount of acquisition related costs was not significant.

Revenue and net loss of the three entities included in the consolidated income statement from the date of acquisition totalled UAH 145 million and UAH 26 million, respectively. If the acquisition had occurred on 1 January 2017, the Groupís revenue for 2017 would increase by UAH 913 million, and net loss for 2017 would increase by UAH 243 million.

35 Financial Risk Management

The Groupís activities expose it to a variety of financial risks: market risk (including price risk, currency risk and cash flow and fair value interest rate risk), credit risk and liquidity risk. The Groupís overall risk management policies seek to minimise the potential adverse effects on the Groupís financial performance for those risks that are manageable or noncore to the power generating business.

Risk management is carried out by a centralised treasury department working closely with the operating units, under policies approved by the supervisory board. The Group treasury identifies, evaluates and proposes risk management techniques to minimise these exposures.

Credit risk. The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Groupís sales of products on credit terms and other transactions with counterparties giving rise to financial assets.

35 Financial Risk Management (Continued)

Credit risk is managed on an entity by entity basis with oversight by the Group. Credit risk arises from cash and cash equivalents, financial instruments and deposits with banks, as well as credit exposure to wholesale and retail customers, including outstanding receivables and committed transactions. For Banks only upper tier Ukrainian or international banks are accepted, which are considered at time of deposit to have minimal risk of default. Customers can be analysed between Energorynok SE, which buys 100% of electricity generated, industrial consumers and other. Due to the monopolistic nature of electricity supply by region, the Group cannot choose its customers, and instead must supply all customers within its distribution network. Sales are metered and management monitors ageing of receivables for industrial customers on a regular basis and ultimately may cut off supply for delinquent customers. For supply to municipal and the general populous, due to the low tariff structure and the political nature of disrupting supply management will continue to supply in the event non-payment and will use non-payment as justification for higher tariff increases for industrial customers. The exposure to credit risk for other customers is approved and monitored on an ongoing basis individually for all significant customers. The Group does not require collateral in respect of trade and other receivables.

The Group establishes a provision for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this provision are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss provision is determined based on historical data of payment statistics for similar financial assets. The Group does not create provision for receivables from related parties.

The maximum exposure to credit risk at the reporting date is UAH 37,953 million (2016: UAH 41,326 million) being carrying value of financial investments, trade and other financial receivables, guarantee under the borrowings of related parties and cash and cash equivalents. In September 2016, the Group recognised a guarantee provided to related party. As at 31 December 2017 carrying value of guarantee was UAH 1,065 million (31 December 2016: 1,379 million). In case the related party fails to meet its obligation, the Group's exposure to the credit risk would be UAH 2,807 million (31 December 2016: UAH 3,054 million). The Group does not hold any collateral as security.

Credit risks concentration. The Group is exposed to concentrations of credit risk.

The table below shows the balance of the major counterparties at the balance sheet date.

		31 December	31 December
Counterparty	Classification in balance sheet	2017	2016

Deutsche Bank AG Amsterdam	Cash and cash equivalents	2,585	544
First Ukrainian International Bank (FUIB)*	Cash and cash equivalents	1,449	1,654
State Savings Bank of Ukraine PJSC*	Cash and cash equivalents	737	430
Ukrgasbank JSB*	Cash and cash equivalents	600	-
Amsterdam Trade Bank N.V.	Cash and cash equivalents	231	-
BANK OF CYPRUS PC LTD.	Cash and cash equivalents	6	4,615
Ukrsibbank PJSC*	Cash and cash equivalents	-	109
DTEK Oil and Gas Group	Financial investments	11,815	11,751
First Ukrainian International Bank (FUIB)*	Financial investments	76	93
Sberbank of Russia JSC	Financial investments	-	72

Energorynok SE	Trade and other receivables	6,542	5,966
Corum Group	Trade and other receivables	1,108	212
Enakievo Metallurgical Plant	Trade and other receivables	1,083	1,260
PJSC "Dniprovskiy Metallurgical Plant"	Trade and other receivables	222	130
PrJSC Ilyich Iron and Steel Works of Mariupol	Trade and other receivables	121	33
PJSC Krasnodonugol	Trade and other receivables	108	105
Kievvodokanal OJSC	Trade and other receivables	104	51
PJSC Energomashspetsstal	Trade and other receivables	99	52
Komenergoservis	Trade and other receivables	54	103
State Company Voda Donbassu	Trade and other receivables	31	999

* These banks rank in the top 10 Ukrainian banks by size of total assets and capital (per National Bank of Ukraine).

35 Financial Risk Management (Continued)

Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in (a) foreign currencies, (b) interest bearing assets and liabilities and (c) equity investments, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

Currency risk. The Group primarily operates within Ukraine and accordingly its exposure to foreign currency risk is determined mainly by borrowings, cash balances and deposits, which are denominated in or linked to USD, EUR and RUB. Increasing domestic uncertainty, led to volatility in the currency exchange market and resulted in significant downward pressure on the Ukrainian Hryvnia relative to major foreign currencies. Substantial changes in currency rates crucially impact the Groupís earning to debt ratio used for covenants.

The following table presents sensitivities of profit or loss and equity before tax to reasonably possible changes in exchange rates applied at the balance sheet date relative to the functional currency of the respective Group entities, with all other variables held constant:

The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the respective entity of the Group.

		At 31 December 2017	At 31 December 2016
In millions of Ukrainian Hryvnia	Impact on profit or loss	Impact on equity	Impact on profit or loss	Impact on equity
USD strengthening by 25% (2016: 25%)	(9,417)	(9,417)	(8,197)	(8,197)
USD weakening by 25% (2016: 25%)	9,417	9,417	8,197	8,197
Euro strengthening by 25% (2016: 25%)	(759)	(759)	(1,300)	(1,300)
Euro weakening by 25% (2016: 25%)	759	759	1,300	1,300
RUB strengthening by 25% (2016: 25%)	(2,209)	(2,209)	(1,873)	(1,873)
RUB weakening by 25% (2016: 25%)	2,209	2,209	1,873	1,873

Interest rate risk. As the Group has substantially more interest bearing liabilities than assets, the Groupís income and operating cash flows are substantially dependent of changes in market interest rate. The Groupís interest rate risk arises from long-term and short-term borrowings and loans provided to related parties. Borrowings issued at variable interest rates expose the Group to cash flow interest rate risk. Borrowings at fixed rate expose the Group to fair value interest rate risk.

At 31 December 2017 and 2016, the majority of the Groupís variable interest debt is USD, RUB and EUR denominated. As at 31 December 2017, 43% of the total borrowings was provided to the Group at floating rates (31 December 2016: 43%).

The Groupís exposure to fixed or variable rates is determined at the time of issuing new debt. Management uses its judgment to decide whether fixed or variable rate would be more favourable to the Group over the expected period until maturity. The risk of increase in market interest rates is monitored by the Corporate Finance Department of the Company together with the Treasury Department. The Corporate Finance Department is responsible for planning the financing structure (levels of leverage) and borrowing activities. The key objectives to financing is reduction of borrowing costs, matching currency of borrowings with currency of proceeds from operating activities, and agreeing maturity profile of borrowings with liquidity needs.

The borrowing activities are reviewed on a 12-month budget. Long-term investing activities and associated funding are considered separately.

The maturity dates and effective interest rates of borrowings are disclosed in Note 19. Re-pricing for fixed rate financial instruments occurs at maturity. Re-pricing of floating rate financial instruments occurs continually.

At 31 December 2017, if interest rates on USD, EUR and RUB denominated borrowings had been 200 basis points higher (2016: 200 basis points higher) with all other variables held constant, post-tax loss for the year would have been UAH 438 million higher (2016: UAH 379 million higher).

As described in Note 19, borrowings of the Group are at different floating rates that are not hedged as at 31 December 2017 and 31 December 2016.

Other price risk. The Group has no exposure to price risk related to financial instruments.

35 Financial Risk Management (Continued)

Liquidity risk. Prudent liquidity management implies maintaining sufficient cash and marketable securities and the availability of funding to meet existing obligations as they fall due. Management monitors liquidity on a daily basis, management incentive programs use key performance indicators such as EBITDA, free cash flow and cash collections to ensure liquidity targets are actively monitored. Prepayments are commonly used to manage both liquidity and credit risks. The Group has capital construction programs which can be funded through existing business cash flows. At the reporting date, the Group remains in discussions with financial institutions with respect to restructuring of current bank borrowings (Note 19). The following table analyses the Groupís financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are undiscounted cash flows.

The maturity analysis of financial liabilities at 31 December 2017 is as follows:

In millions of Ukrainian Hryvnia	Up to 6 months	6 -12 months	1 - 2 years	2 - 5 years	Over 5 years	Total

Liabilities Bank borrowings	16,281	1,093	617	5,650	14,224	37,865
Eurobonds	1,044	1,072	2,624	10,996	46,860	62,596
Guarantee under the borrowings of
related parties	2,807	-	-	-	-	2,807
Other financial liabilities	306	177	1,164	2,523	37,688	41,858
Trade and other payables (Note 23)	16,783	366	-	-	-	17,149
Total future payments, including future principal and interest payments	37,221	2,708	4,405	19,169	98,772	162,275

The maturity analysis of financial liabilities at 31 December 2016 is as follows:

In millions of Ukrainian Hryvnia	Up to 6 months	6 -12 months	1 - 2 years	2 - 5 years	Over 5 years	Total
Liabilities
Bank borrowings	31,819	-	-	-	752	32,571
Eurobonds	779	755	1,570	7,028	42,938	53,070
Guarantee under the borrowings of
related parties	3,054	-	-	-	-	3,054
Other financial liabilities	753	623	8,002	3,025	85,130	97,533
Trade and other payables (Note 23)	15,093	1,134	-	-	-	16,227
Total future payments, including future principal and interest payments	51,498	2,512	9,572	10,053	128,820	202,455

Other financial liability external represents undiscounted future cash flows for deferred consideration payable related to acquisition, finance lease liability and other balances.

36 Management of Capital

The Groupís objectives when managing capital are to safeguard the Groupís ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return on capital to shareholders, issue new shares or sell assets to reduce debt. Currently there is a restriction imposed on dividends payments currencies based on agreement with the lenders and according to the limitations based by Ukrainian legislation (Note 2). Additionally, management may defer certain capital spending to enhance its debt position.

Consistent with others in the industry, the Group monitors capital on the basis of gearing ratio. This ratio is calculated as net liabilities divided by total capital under management. Net debt is calculated as total borrowing (current and long-term as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital under management equals equity as shown in the consolidated balance sheet.

36 Management of Capital (Continued)

The Group has yet to determine its optimum gearing ratio. As at 31 December 2017 approximately 25% of debt is classified as current due to breach of certain financial and non-financial covenants (as at 31 December 2016: approximately 53%). The Group is actively pursuing mechanisms to extend the credit terms to match its long-term investment strategy.

As at 31 December 2017 the total net debt and total capital of the Group were UAH 58,671 million and UAH 19,061 million respectively (31 December 2016: UAH 49,303 million and UAH 5,714 million), the net debt to equity ratio was 308% (31 December 2016: 863%).

37 Fair Value of Assets and Liabilities

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price.

The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to determine the estimated fair value. Ukraine continues to display some characteristics of an emerging market, and economic conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sale transactions and therefore not represent fair values of financial instruments. Management has used all available market information in estimating the fair value of financial instruments.

Financial instruments carried at fair value. Equity securities and financial liability designated at FVTPL are carried in the statement of financial position at their fair values. Fair values were determined based on quoted market prices or third party valuations using discounted cash flows techniques.

Financial assets carried at amortised cost. The fair value of floating rate instruments is normally their carrying amount. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows, expected to be received, discounted at current interest rates for new instruments with similar credit risk and remaining maturity. Discount rates used depend on credit risk of the counterparty. Cash and cash equivalents are carried at amortised cost which approximates fair value.

Liabilities carried at amortised cost. The estimated fair values of the financial liabilities are summarised in the table below. Carrying amounts of trade and other payables approximate their fair values. Fair values of other financial liabilities and non-current bank borrowings were determined using valuation techniques. The estimated fair value of interest rate instruments with stated maturity was estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity. The fair value of liabilities repayable on demand or after a notice period is estimated as the amount payable on demand, discounted from the first date that the amount could be required to be paid.

Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.

a) Recurring fair value measurements

Financial instruments carried at fair value

Recurring fair value measurements are those that the accounting standards require or permit in the statement of financial position at the end of each reporting period. Equity securities and financial liability designated at FVTPL are carried in the statement of financial position at their fair values.

Fair value through profit and loss financial instrument is measured using market-to-market pricing model (MTM).

During 2017 year financial liability measured at fair value though profit and loss was converted to borrowings and New notes (Note 20). As at 31 December 2016 financial liability measured at fair value through profit and loss was subject to floor and cap features. Based on the cap and floor features, the fair value of the instrument at any time cannot be higher than USD 242 million (equivalent of UAH 6,579 million applying exchange rate as at 31 December 2016) or lower than USD 237 million (equivalent of UAH 6,444 million applying exchange rate as at 31 December 2016).

37 Fair Value of Assets and Liabilities (Continued)

The levels in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows:

	31 December 2017		31 December 2016
In millions of Ukrainian Hryvnia	Level 1	Level 2	Level 1	Level 2
FINANCIAL ASSETS
Financial investments
- Securities quoted on Ukrainian stock market (Note 12)	38	-	37	-
TOTAL ASSETS RECURRING FAIR VALUE
MEASUREMENTS	38	-	37	-

FINANCIAL LIABILITIES
Other financial liabilities
Financial liability designated at FVTPL (Note 20)	-	-	-	6,462
TOTAL LIABILITIES RECURRING FAIR VALUE
MEASUREMENTS	-	-	-	6,462

Property, plant and equipment at fair value.

Property, plant and equipment are carried in the statement of financial position at their fair value.

The appraisers use different approaches for valuing different asset groups. Where the fair value of an asset is able to be determined by reference to market based evidence, such as sales of comparable assets, the fair value is determined using this information. Where fair value of the asset is not able to be reliably determined using market based evidence, discounted cash flows or optimised depreciated replacement cost is used to determine fair value.

The majority of the Groupís property, plant and equipment are categorized as Level 3 in the fair value hierarchy, according to IFRS 13 ìFair Value Measurementî. Current market prices for acquiring or constructing similar assets, as adjusted for the effective age and condition of the asset were used to estimate the fair value. Further, the resulting values were adjusted down (where applicable) by economic ceiling test. Key assumptions on determination of economic ceiling disclosed in Note 9.

For coal mining assets, the following major inputs were used. Costs for mine workings were based on a per kilometre measure with reference to recent actual cost of extension the mine. Buildings were assessed using a cost per cubic metre ranging from UAH 485 per cubic metre to UAH 3,140 per cubic metre.

For power generation assets the following major inputs were used. Turbogenerators equipment were assessed using commercial offers being adjusted on capacity, resulting in a range from UAH 582 million to UAH 1,139 million per 100 MVt. Boilers equipment were assessed using commercial offers being adjusted on capacity as well, resulting in a range from UAH 653 thousands to UAH 1,101 thousands per ton of steam per hour. Buildings were assessed using a cost per cubic metre ranging from UAH 489 per cubic metre to UAH 4,234 per cubic metre.

For electricity distribution assets the following major inputs were used. Overhead power lines were assessed on a per kilometre basis ranging from UAH 199 thousand to UAH 3,323 thousand per kilometre. Underground high-voltage power lines and low-voltage power lines were also assessed on a per kilometre basis ranging from UAH 19,740 thousand to UAH 23,323 thousand and UAH 182 thousand to UAH 1,615 thousand respectively. Transformer sub stations were assessed based on their capacity with a price range from UAH 1.3 million to UAH 5.4 million.

The minority of the Groupís property, plant and equipment are categorised as Level 2 in the fair value hierarchy, including buildings, in particular administrative buildings, and transport groups. Administrative buildings were valued using the income approach based on market offers of rental rates. Transport vehicles were valued using the market approach based on relevant market offers.

37 Fair Value of Assets and Liabilities (Continued)

b) Fair value of financial assets and liabilities carried at amortised cost.

				31 December 2017 Carrying				31 December 2016 Carrying
In millions of Ukrainian Hryvnia	Level 1	Level 2	Level 3	value	Level 1	Level 2	Level 3	value
FINANCIAL ASSETS
Cash and cash equivalents
- Bank balances payable on
demand	-	4,395	-	4,395	-	5,499	-	5,499
- Term deposits	-	1,129	-	1,129	-	1,989	-	1,989
- Restricted cash	-	87	-	87	-	57	-	57
Trade and other receivables
- Trade receivables	-	16,153	-	16,153	-	15,746	-	15,746
- Restructured trade
receivables	-	207	-	207	-	150	-	150
- Other financial receivables	-	775	-	775	-	2,606	-	2,606
Other non-current assets
Trade and other receivables -
non-current	-	395	-	407	-	211	-	210
Financial investments
- Deposits placed with the
maturity more than three
months	-	4	-	4	-	2	-	2
- Restricted deposits	-	76	-	76	-	165	-	165
- Loans receivable	-	10,966	-	11,875	-	11,811	-	11,811
TOTAL ASSETS	-	34,187	-	35,108	-	38,236	-	38,235
FINANCIAL LIABILITIES
Eurobonds (Note 19)	33,448	-	-	32,841	24,636	-	-	26,403
Bank borrowings ñ current
(Note 19)*	-	-	-	13,543	-	25,226	-	27,035
Bank borrowings ñ non
current (Note 19)	-	15,335	-	15,057	-	344	-	344
Interest accrual on borrowings
(Note 19)	-	2,841	-	2,841	-	3,066	-	3,066
Other financial liabilities
(Note 20)	-	3,904	-	4,184	-	4,185	-	4,324
Deferred consideration
(Note 20)	-	1,325	-	1,785	-	3,435	-	4,501
Trade and other payables
(Note 23)	-	17,149	-	17,149	-	16,227	-	16,227
TOTAL LIABILITIES	33,448	40,554	-	87,400	24,636	52,483	-	81,900

Valuation technique and description of inputs used in the fair value measurement for level 2:

In millions of Ukrainian Hryvnia	Valuation technique	Inputs used
FINANCIAL ASSETS

Cash and cash equivalents	Current cost accounting
Trade and other receivables current	Current cost accounting
		Interest on loans pursuant to statistical
Trade and other receivables - non-current	Discounted cash flows	data of Ukrainian banks
Financial investments	Current cost accounting

FINANCIAL LIABILITIES
Bank borrowings *	Market approach	Market quotes on DTEK Eurobonds

Interest accrual on borrowings	Current cost accounting
		Interest on loans pursuant to statistical
Other financial liabilities	Discounted cash flows	data of Ukrainian banks
Financial liability designated at FVTPL	Futures pricing models - MTM	Forward exchange rates
		Interest on loans pursuant to statistical
Deferred consideration (Note 20)	Discounted cash flows	data of Ukrainian banks
Trade and other payables	Current cost accounting

* Given the current default status on current borrowings totalling UAH 12,687 and the uncertainties on the timing of cash flows on their repayment, management considers it is impracticable to estimate a fair value of these borrowings as at 31 December 2017. Fair value of remaining part of current borrowings being UAH 856 approximates its carrying values. In 2017 and 2016 there were no changes in valuation technique for level 2 recurring fair value measurements.

38 Reconciliation of Classes of Financial Instruments with Measurement Categories

All of the Groupís financial assets and financial liabilities are carried at amortised cost, except for financial liability measured at fair value through profit or loss and available-for-sale investments which are carried at fair value.

39 Subsequent events

There were no significant events subsequent to the year end.

Company financial statements

31 December 2017

In millions of Ukrainian Hryvnia	Note	31 December 2017	31 December 2016
ASSETS
Non-current assets
Investments in subsidiaries	3	36,890	23,925
Loans to related parties	4	11,843	11,917
Deferred income tax asset		563	194
Total non-current assets		49,296	36,036
Current assets
Dividend receivable from related parties	5	8,041	5,647
Trade and other receivables	5	33	2,739
Current income tax receivable from related party		95	-
Cash and cash equivalents	5	10	2
Total current assets		8,179	8,388
TOTAL ASSETS		57,475	44,424

EQUITY
Share capital		0	0
Share premium	6	9,909	9,909
Revaluation reserves	6	23,222	17,658
Other legal reserves	6 / 7	14,949	8,483
Retained earnings	6	-	-
Unappropriated result	6	7,672	6,065
TOTAL EQUITY		55,752	42,115
LIABILITIES
Non-current liabilities
Borrowings	8	399	344
Loans from related parties	9	239	585
Provisions	10	1,065	1,359
Total non-current liabilities		1,703	2,288
Current liabilities
Trade and other payables		20	21
Total current liabilities		20	21
TOTAL LIABILITIES		1,723	2,309
TOTAL LIABILITIES AND EQUITY		57,475	44,424

DTEK Energy B.V. Company Income Statement

In millions of Ukrainian Hryvnia	Note	2017	2016
Share of result of subsidiaries Other income / (expense) after taxation		6,937 735	2,567 3,498
Net income attributable to shareholders		7,672	6,065

1 The Organisation and its Operations

General

DTEK Energy B.V. (former DTEK Holdings B.V.) (the ìCompanyî) is a private limited liability company incorporated in the Netherlands on 16 April 2009 (Dutch Chamber of Commerce registration number 34334895). The principal place of business is Kiev, Ukraine. The Company was formed through the contribution by System Capital Management Limited and InvestCom Services Limited of their 100% equity interest in DTEK Holding Limited, a Cyprus registered entity and predecessor to the Company. The Company and its subsidiaries (together referred to as ìthe Groupî or ìDTEK Energyî) is a vertically integrated power generating and distribution group. Its principal activities are coal mining for further supply to its power generating facilities and finally distribution of electricity and heat to end customers primarily in Ukraine. The Groupís coal mines, power generation plants and distribution facilities are located in the Donetsk (controlled territory), Dnipropetrovsk, Lugansk (controlled territory), Lviv, Ivano-Frankivsk, Vinnitsya, Zaporizhzhya, Kyiv regions and the City of Kyiv in Ukraine. As disclosed in Note 16 to the accompanying Consolidated Financial Statements, the Group lost control over the operations in the non-controlled territory in March 2017. The Group sells mostly all electricity generated to the State enterprise Energorynok (ìEnergorynok SEî), the state-owned electricity metering and distribution pool, at prices determined based on the competitive pool model adopted by the National Electricity Regulatory Committee and Public Utilities in Ukraine. The Groupís distribution entities then repurchase electricity for supply to final customers at a regulated price.

Supervisory Board

The Board consists of 7 (seven) members. In 2017 DTEK Energy B.V. and its subsidiaries paid remuneration to the Supervisory Board in the amount of UAH 22.1 million (2016: UAH 8.7 million).

Basis of presentation of the company financial statements

The company financial statements of DTEK Energy B.V. are presented pursuant to the legal stipulations of BW Title 9 Book 2 of the Dutch Civil Code. In this context use was made of the option provided under article 362(8), Book 2 of the Dutch Civil Code to apply the accounting principles for the recognition and measurement of assets and liabilities and determination of results (including principles for presentation of financial instruments such as equity or debt) to the companyís financial statements to be consistent with those that are applied in the consolidated financial statements.

The principal subsidiaries and associates of the Company are presented in Note 2 to the accompanying Consolidated Financial Statements. The remaining subsidiaries and associates are SCC Dniprooblenergo CJSC (located in Ukraine, group ownership 99,97%), Insurance Company LAD CJSC (located in Ukraine, group ownership 92,98%), Ukrainian-Polish Joint Company Entek LLC (located in Ukraine, group ownership 60,00%), Vanco Prykerchenska Ltd (registered in BVI, group ownership 25,5%), Vanco Ukraine Ltd (registered in BVI, group ownership 25,5%), Dniproline CJSC (located in Ukraine, group ownership 41,00%), Skhidno-Krymskaya Company PJSC (located in Ukraine, group ownership 43,03%), Kirovsk local Media newspaper reduction "Our horizons" (located in Ukraine, group ownership 33,57%), DobrotvirTPS-2 PJSC (located in Ukraine, group ownership 99,81%), Izdatelskiy dom ìVestnik Shakhtyoraî LLC (located in Ukraine, group ownership 100,0%).

2 Accounting Policies

General

The accounting policies for the Companyís financial statements are the same as for the consolidated financial statements. Where no specific policies are mentioned, reference should therefore be made to the accounting policies relating to the consolidated financial statements.

Since the income statement for 2017 and 2016 of DTEK Energy B.V. is included in the consolidated financial statements, an abridged income statement has been disclosed in accordance with article 402, Book 2, of the Dutch Civil Code.

Subsidiaries

The companies in which DTEK Energy B.V. is able to exercise control are presented at their net asset value.

In case of unprofitable subsidiaries any negative amounts are booked against receivables that are part of the net investment. Any unrealised revaluation will result in a legal reserve in case such revaluation leads to undistributable reserves in the country where the entity is incorporated.

2 Accounting Policies (Continued)

Elements of shareholdersí equity

Various statutory reserves required by Part 9, Book 2, of the Netherlands Civil Code have been retained in the corporate balance sheet which form part of the retained profits in the consolidated balance sheet. These reserves restrict the ability to distribute equity. They are the reserve for property revaluations, the reserve for intangible assets (only to the extent related to the capitalized incorporation costs and the capitalized development costs, if any) and the reserve for participating interests (only to the extent that profits and other equity increases are both not distributed and not freely distributable at the intention of the entity). The latter three reserves have been combined under legal reserves.

The revaluation reserve (Article 2:390.1) is maintained in respect of unrealised fair value increase held by companies forming part of DTEK Energy B.V.

Additions to the reserve for property, plant and equipment revaluations are made via the profit appropriation, after allowing for corporate income tax.

3 Investments in subsidiaries

Movements in investments in subsidiaries are as follows:

In millions of Ukrainian Hryvnia	2017	2016
Carrying amount at 1 January	23,925	19,789
Acquisition of entities under common control	809	-
Share of profit / (loss) of subsidiaries*	6,937	2,567
Share of equity movements	7,621	1,569
Dividends accrued	(2,402)	-
Carrying amount at 31 December	36,890	23,925

Share of equity movements of subsidiaries comprise re-measurements of post-employment benefit obligations, effects on fair value hedges, changes in estimates for asset retirement obligation and property, plant and equipment revaluation reserve.

As discussed in Note 16 to the accompanying Consolidated Financial Statements the Group lost control over all of the operations in the non-controlled territory. Consequently, those legal entities with operations wholly in the noncontrolled territory were fully impaired, whilst those entities with operations partially in the non-controlled territory were impaired in relation to the proportion of operations in the non-controlled territory.

On 29 November 2017 the Group acquired 100% of share capital of Transinvest B.V. (further renamed to DTEK Grids B.V.).

In 2016 the Group and its parent company DTEK B.V. entered into and completed a deleveraging plan with Sberbank of Russia, one of the Groupís lenders, pursuant to which both parties agreed to transfer the ownership of JSC Mine Office Obukhovskaya, JSC Donskoy Anthracite and LLC Sulinanthracite (together, the "Rostov Mines") to a new holding company (Fabcell Limited), owned by its immediate parent DTEK B.V. The ownership of the Rostov Mines was transferred to Fabcell Limited on 1 September 2016 (refer to Note 19 the accompanying Consolidated Financial Statements).

* Net profit of the subsidiaries within the Group attributable to shareholders for the year ending 31 December 2017 was UAH 6,937 million (31 December 2016: net profit of UAH 2,567 million) and their share on other comprehensive income for the same period was gain of UAH 8,613 million (31 December 2016: gain of UAH 1,569 million). The difference of UAH 10,298 million with the consolidated result for the year ended 31 December 2017 (31 December 2016: UAH 13,367 million) is related to the fact that the Company recognise losses of the subsidiaries only to the extent of net investment in subsidiaries which includes long-term receivables that in substance form part of the net investment in the subsidiary. In the event the net equity value of a subsidiary becomes negative additional losses are not recognised unless there is a probability of cash outflow due to guarantees given to third parties on loan and Eurobond contracts issued by its subsidiaries. As of 31 December 2017, the management assesses the probability of such cash outflow as possible.

4 Loans to related parties

As at 31 December, non-current loans to related parties were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Balance at 1 January	11,917	11,051
Interest accrued during the period	900	1,272
Settlement of loans issued	(192)	(1,823)
Effect of change in estimates	(1,573)	-
Foreign exchange gain	791	1,417
Balance at 31 December	11,843	11,917

During the year 2017 the Company has partially settled non-current loan issued to DTEK Holdings Limited, no new non-current loans were issued to related parties in 2017 (2016: partially settled non-current loan issued to DTEK Holdings Limited, no new non-current loans were issued).

As at 31 December, current loans to related parties were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Balance at 1 January	-	419
Additions Settlement during the period	- -	1,682 (2,202)
Interest settled during the period Interest recognised during the period	(6) 5	- 15
Effect of changes in exchange rate	1	86
Balance at 31 December	-	-

During 2017 no current loan was issued to related party by the Company under existing loan agreement (2016: one).

Loans provided to related parties are due in 2023 - 2025. During 2017 management revised their estimates in respect of timing of settlement of interest accrued on loans issued. New estimates are based on current contractual terms and suggest that interest accrued will be repaid at maturity together with the outstanding principal. Respective loss as a result of change in estimates comprised UAH 1,573 million and was recognised as a finance costs.

The loans were initially recognised at fair value and accounted for under an effective interest rate of 8%. As at 31 December 2017 UAH 9,217 million were denominated in US dollars (31 December 2016: UAH 9,377 million) and UAH 2,626 million were denominated in Euro (31 December 2016: UAH 2,540 million).

As at 31 December 2017 and 2016 the loans to related parties are neither past due nor impaired, the carrying amounts of loans to related parties approximate their fair values.

5 Current assets

As at 31 December, current assets were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Dividend receivable from related parties	8,041	5,647
Accounts receivable from related parties	-	2,728
Other receivables	33	11
Cash & cash equivalents	10	2
Total trade and other receivables	8,084	8,388

Accounts receivable from related parties are recognized at fair value and subsequently measured at amortized cost. Fair value of other current assets approximates the book value, due to their short-term character.

6 Equity

Movements in equity are as follows:

				Other			Unappro
	Share	Share	Revaluation	legal	Other	Retained	priated
In millions of Ukrainian Hryvnia	capital	premium	reserves	reserves	reserves *	earnings	result	Total

Balance at 1 January
2016	0	9,909	17,342	4,723	(4,199)	3,547	(1,289)	30,033
Profit appropriation	-	-	-	-	-	(1,289)	1,289	-

Result for the year ended 31 December 2016	-	-	-	-	-	(450)	6,065	5,615

Property, plant and
equipment:
- Revaluation reserve	-	-	2,421	-	-	-	-	2,421
- Deferred tax	-	-	(362)	-	-	-	-	(362)
- Realised revaluation
reserve	-	-	(2,115)	-	-	2,115	-	-
- Deferred tax related to
realised revaluation
reserve	-	-	372	-	-	(372)	-	-
Deleveraging	-	-	-	-	-	5,742	-	5,742
Guarantee recognition	-	-	-	-	-	(1,298)		- (1,298)
Transfer due to changes in
Ukrainian legislation	-	-	-	7,995	-	(7,995)	-	-
Other movements	-	-	-	(36)	-	-	-	(36)
Balance at 31 December
2016	0	9,909	17,658	12,682	(4,199)	-	6,065	42,115

Profit appropriation	-	-	-	-	-	6,065	(6,065)	-
Result for the year ended
31 December 2017	-	-	-	-	-	(839)	7,672	6,833
Property, plant and
equipment:
- Revaluation reserve	-	-	11,832	-	-	-	-	11,832
- Deferred tax	-	-	(2,254)	-	-	-		- (2,254)
- Realised revaluation
reserve	-	-	(3,609)	-	-	3,609	-	-
- Deferred tax related to
realised revaluation
reserve	-	-	586	-	-	(586)	-	-
Acquisition of entities under
common control	-	-	-	-	-	(1,657)		- (1,657)
Loss of control over
subsidiaries	-	-	(991)	-	-	-	-	(991)


Transfer due to changes in
Ukrainian legislation	-	-	-	6,592	-	(6,592)	-	-
Other movements	-	-	-	(126)	-	-	-	(126)
Balance at 31 December 2017	0	9,909	23,222	19,148	(4,199)	-	7,672	55,752

* Other reserves are represented by restructuring reserve.

Additional information with respect to equity is included in the consolidated statement of changes in equity and in Note 17 to the accompanying Consolidated Financial Statements. Regarding the Other legal reserve, refer to Note 7 to the accompanying Companyís Financial Statements. The revaluation reserves are maintained for the revaluation of property, plant and equipment.

Proposed profit appropriation

In line with the stipulations in article 23 of the articles of association of DTEK Energy B.V., which state that the General Meeting of Shareholders shall determine the allocation of accrued result, the Management Board proposes to appropriate the gain for the year ended 31 December as follows:

In millions of Ukrainian Hryvnia	2017	2016
Dividends Gain to retained earnings	- 7,672	- 6,065
Profit for the period	7,672	6,065

7 Other legal reserves

As at 31 December, other legal reserves are as follows:

In millions of Ukrainian Hryvnia	2017	2016
Non-distributable cumulative share in profits and other gains regarding subsidiaries	19,148	12,682
Total	19,148	12,682

As at 31 December 2017, non-distributable cumulative share in profits and other gains regarding subsidiaries amounting to UAH 19,148 million (31 December 2016: UAH 12,682 million) mainly composes of the transfer of the retained earnings to other legal reserves due to limitations of Ukrainian legislation (NBU), according to which starting from 13 June 2016, Ukrainian companies are allowed to pay dividends to non-residents with a limit of USD 5 million per month (equivalent of UAH 140 336 million applying exchange rate as at 31 December 2017). (Reference is given to Note 2 to the accompanying Consolidated Financial Statements).

In addition, there are contractual restrictions on future dividend distributions of DTEK Energy B.V. due to specific covenants, including limitations on payments to shareholders, as included in new senior Notes (Eurobonds) contracts issued in December 2016 (Reference is given to Note 19 to the accompanying Consolidated Financial Statements).

Difference in equity and profit/loss between the company and consolidated financial statements

The difference between equity according to the Company balance sheet and equity according to the consolidated balance sheet of UAH 44,420 million (2016: UAH 40,931 million), as well as the result according to the Company income statement and result according to the consolidated income statement of UAH 10,298 million (2016: UAH 13,367 million) is due to the fact that the Company recognise losses of the subsidiaries only to the extent of net investment in subsidiaries which includes long-term receivables that in substance form part of the net investment in the subsidiary. In the event the net equity value of a subsidiary becomes negative additional losses are not recognised.

8 Borrowings

In 2016 the DTEK Energy B.V. Group has entered into a deleveraging plan with Sberbank of Russia (refer to Note 9 to the accompanying Consolidated Financial Statements). As part of the transaction, as at 22 September 2016 indebtedness of the Group in respect of Sberbank of Russia in the amount of UAH 1,616 million was converted to ìDelta Outstanding Amountî (further, the ìDeltaî). The Delta was separated on two equal parts: first half of the amount of UAH 808 million was allocated to swap arrangement; second half of the amount of UAH 808 million was presented as compensation fee liability of the Company and classified as the Borrowings.

As at 31 December borrowings were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Carrying amount at 1 January	344	-
New borrowings	-	808
Settlement of borrowings	-	(90)
Foreign exchange loss	13	16
Unwinding of discount	42	-
Recognition of discount	-	(390)
Carrying amount at 31 December	399	344

As at 31 December 2017 and 31 December 2016 borrowings are denominated in USD, due in 2028 and initially recognised at amortized cost under effective interest rate of 8,21%. The carrying amounts of borrowing approximate their fair values.

9 Loans from related parties

As at 31 December, non- current liabilities were as follows:

In millions of Ukrainian Hryvnia	2017	2016
Carrying amount at 1 January	585	5,049
Settlement of borrowings Interest accrued during the period Foreign exchange loss	(407) 25 36	(5,791) 870 457
Carrying amount at 31 December	239	585

During 2017 and 2016 no new loans were provided to the Company from related party. The loans are initially recognised at fair value and accounted for under an effective interest rate of 8%.

10 Provisions

As at 31 December 2017 and 2016 non-current provisions were presented by guarantee provided to related party. The guaranteeís movement for the period are as follows:

In millions of Ukrainian Hryvnia	2017
Carrying amount at 1 January	1,359
Foreign exchange loss Unwinding of discount Amortization	24 22 (340)
Carrying amount at 31 December	1,065

As part of deleveraging plan with Sberbank of Russia (for further details please refer to Note 19 to the accompanying Consolidated Financial Statements), as at 22 September 2016 the Company issued guarantee to secure the obligation of its related party under loanís facility. This guarantee is subject to a limit of USD 100 million. Initially the guarantee is recognized at fair value.

11 Average number of employees

During the years ended 31 December 2017 and 2016, the average number of employees, based on full time equivalents, was nil.

12 Directors remuneration

The directors of the Company received remuneration of UAH 14 million (2016: UAH 6.6 million).

13 Auditors Remuneration

The following fees were expensed in the income statement in the reporting period:

	2017	2016
Audit of the financial statements, including audit fee of the signing
firm of UAH 3 million (31 December 2016: UAH 3 million)	25	23
Other audit services	0	0
Tax services	11	3
Other non-audit services	5	0
Total	41	26

14 Taxation

For Current Income Tax (CIT) purposes the Company is part of the fiscal unity together with other Dutch DTEK Group entities which is headed by DTEK B.V. Based on the principles of the fiscal unity, the Company accrues CIT to DTEK BV. DTEK B.V. settles, based on the outcome of the fiscal consolidation, the CIT with the tax authorities. CIT assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities.

The current income tax benefit is UAH 101 million for 2017 (2016: expense of UAH 291 million). Deferred income tax benefit for the Company is UAH 369 million for 2017 (2016: UAH 28 million). The Company has not submitted yet its tax declaration for 2016 and 2017. The tax declaration will be filed by the head of the fiscal unity (DTEK B.V.).

15 Off balance sheet commitments

Off balance sheet commitments of the Company are primarily related to the guarantees given to the banks for loans and bond holders issued by its subsidiaries and tax contingencies. DTEK Energy B.V. does not rely on special purpose entities to deconsolidate these risks.

The ultimate tax consequences of transactions and calculations are uncertain, partly because of uncertainty concerning their timing. The Company continually assesses such matters and where final tax sums differ from the estimates such differences are recognised as income tax provisions in the period in which the differences become apparent. As at 31 December 2017 the Companyís contingent liabilities in relation to uncertain tax positions are equal to nil (31 December 2016: UAH 300 million).

The following table shows the remaining off-balance sheet commitments as at 31 December:

In millions of Ukrainian Hryvnia	2017	2016
Guarantees given on loan and Eurobonds and bank borrowings issued by its subsidiaries	60,624	59,243

16 Subsequent events

We refer to Note 39 to the accompanying Consolidated Financial Statements.

Signed by entire Management Board on 24 April 2018	Approved for issue and signed by entire Supervisory Board on 24 April 2018
	Oleg Popov
DTEK Management B.V.	Sergey Korovin
Director	Irina Mykh
	Robert Sheppard
SCM Management B.V.	Damir Akhmetov
Director	Catherine Stalker
	Johan Bastin

Other information

Provisions in the Articles of Association relating to profit appropriation

Article 23 of the Articles of Association states that General Meeting of Shareholders shall determine the appropriation of the results realised in any financial year.

AI assistant

Energy SpA — Audit Report / Information 2017

4100_10-k_2017-12-31_ef29ca3c-f50d-4cf5-b4f2-30adc626f9f7.pdf

Independent auditor's report

Report on the financial statements 2017

Our opinion

What we have audited

Material uncertainty related to going concern

The basis for our opinion

Independence

Report on the other information included in the annual report

Responsibilities for the financial statements and the audit Responsibilities of management and the supervisory board for the

Our responsibilities for the audit of the financial statements

Appendix to our auditor's report on the financial statements 2017 of DTEK Energy B.V.

The auditor's responsibilities for the audit of the financial statements

DTEK Energy B.V. - C6ASUMMQP4W5-1891208422-22

DIRECTORSí REPORT

Introduction

Principal activities

Business overview

Acquisition of new subsidiaries

Revenues and Heat tariff compensation

Operating Expenses

DTEK Energy B.V. Directorsí report for the year ended 31 December 2017

Other Operating Income/ (Expenses), Net

Loss of control over the operations of entities located in non-controlled territory

Finance income and Finance costs

Income tax expense

Issued Capital and Capital Distributions

Financing activity

Financial risk management

Principal Risks and Uncertainties

Risk Management Framework

DTEK Energy B.V. Directorsí report for the year ended 31 December 2017

During 2017 Group concentrated on management following main risks:

Political, macroeconomic and geopolitical risks:

Risks of corporate strategy:

Financial risks and Market risks:

Reputational Risks:

DTEK Energy B.V. Directorsí report for the year ended 31 December 2017

Corporate Governance and Compliance Risks:

IT risks:

Environmental issues

Social responsibility

Research and Development Costs

Human resources

Code of Ethics

Male/female ratio of Executive/Supervisory Board

Future Developments

Post balance sheet events

Consolidated Financial Statements

DTEK Energy B.V. Consolidated Balance Sheet

DTEK Energy B.V. Consolidated Income Statement

1 The Organisation and its Operations

2 Operating Environment of the Group

3 Summary of Significant Accounting Policies

4 Critical Accounting Estimates and Judgements

4 Critical Accounting Estimates and Judgements (Continued)

4 Critical Accounting Estimates and Judgements (Continued)

5 Adoption of New or Revised Standards and Interpretations

5 Adoption of New or Revised Standards and Interpretations (continued)

6 Subsidiaries with material non-controlling interest

7 Segment Information

7 Segment Information (Continued)

7 Segment Information (Continued)

8 Balances and Transactions with Related Parties

8 Balances and Transactions with Related Parties (Continued)

Revenue, trade and other receivable

Purchases, trade and other payables

Key management personnel compensation

9 Property, Plant and Equipment

9 Property, Plant and Equipment (Continued)

9 Property, Plant and Equipment (Continued)

Impairment assessment in 2017

Impairment assessment in 2016

9 Property, Plant and Equipment (Continued)

10 Intangible Assets

11 Goodwill

Goodwill Impairment Test

11 Goodwill (Continued)

Energy SpA Audit Report / Information 2017