PGE Polska Grupa Energetyczna S.A.

Environmental & Social Information • Mar 7, 2018

PGE Polska Grupa Energetyczna S.A. Consolidated report on payments to public administration for 2017

ended December 31, 2017 (in PLN 000s)

TABLE OF CONTENTS

1.	Basis for preparing the consolidated report on payments to public administration3
2.	Rules applied in preparing the report on payments to public administration4
3.	Payments to public administration in 2017 6
3.1	Total amount paid, by level of public administration6
3.2	Total amount of payments by project and broken down by payment title6

1. Basisfor preparing the consolidated report on paymentsto public administration

The basis for preparing this report on payments to public administration is regulations introduced through Chapter 6a of the Accounting Act of September 29, 1994 ("Act") (consolidated text: Polish Journal of Laws of 2016, item 1047). According to these regulations, starting from 2016, entities operating in extractive industries and entities engaged in the logging of primary forests, provided that they meet the criteria specified in the above act, are to prepare a report on payments made to public administration as at the balance sheet date alongside their annual financial statements. The Act defines entities operating in extractive industries as entities pursuing activities consisting of the exploration, prospecting, discovery, production and mining of mineral resources, oil, natural gas or other commodities within the types of economic activity listed in section B, divisions 05-08 of the Polish Classification of Economic Activities. This consolidated report on payments to public administration presents the data of subsidiary PGE Górnictwo i Energetyka Konwencjonalna Spółka Akcyjna ("Subsidiary"), a PGE Group company, the main economic activity of which is activity listed in section D, division 35, of the Polish Classification of Economic Activities.

The Act also imposes obligation to prepare consolidated report on payments to public administration. The consolidated report on payments to public administration shall include data of the parent company and its subsidiaries operating in extractive industries and entities engaged in the logging of primary forests, if they meet the criteria specified in the Act.

In the PGE Capital Group the only entity meeting the criteria of Chapter 6a of the Act, is PGE Górnictwo i Energetyka Konwencjonalna Spółka Akcyjna (the "Company", "PGE GiEK S.A."). Accordingly, this consolidated report on paymentsto public administration presents only data of PGE GiEK S.A.The main economic activity of PGE GiEK S.A. ("Company") is activity listed in section D, division 35, of the Polish Classification of Economic Activities("PKD"):

• Production of electricity (PKD 35.11.Z),
• Transmission of electricity (PKD 35.12.Z),
• Distribution of electricity (PKD 35.13.Z),
• Trade in electricity (PKD 35.14.Z),
• Production and supply of steam, hot water and air for air conditioning installations (PKD 35.30.Z).

The Company also conducts economic activity listed in PKD in section B Mining and quarrying. This is mainly lignite mining (PKD 05.20.Z), which islargely used asfuel in the Company's power plants and to a low extentsold to external consumers.

Moreover, in accordance with the Company's Articles of Association, its activities also include:

• quarrying of ornamental and building stone, limestone, gypsum, chalk and slate (PKD 08.11.Z)
• operation of gravel and sand pits; mining of clays and kaolin (PKD 08.12.Z),
• mining of mineralsfor chemical industry and for production of fertilizers (PKD 08.91.Z),
• extraction of peat (PKD 08.92.Z),
• extraction of salt (PKD 08.93.Z),
• other mining and quarrying not elsewhere classified (PKD 08.99.Z).

Those activities are of marginalsignificance forthe Company and are conducted as activities accompanying lignite mining.

The Company's organisationalstructure includes 12 branches:

• Branch Elektrownia Bełchatów,
• Branch KWB Bełchatów,
• Branch KWB Turów,
• Branch Elektrownia Turów,
• Branch Elektrownia Opole,
• Branch Zespół Elektrowni Dolna Odra,
• Branch Elektrociepłownia Gorzów,
• Branch Elektrociepłownia Lublin Wrotków,
• Branch Elektrociepłownia Rzeszów,
• Branch Elektrociepłownia Kielce,
• Branch Zespół Elektrociepłowni Bydgoszcz,
• Branch Elektrociepłownia Zgierz.

Mining activities are conducted at two branches, i.e.:

• KWB Bełchatów (Bełchatów lignite mine),
• KWB Turów (Turów lignite mine).

Mining activity conducted pursuant to a concession forlignite mining issued by the Ministry of the Environment.

2. Rules applied in preparing the report on paymentsto public administration

Pursuant to art. 63e point 6 of the Act, payments are understood as amounts paid, in cash orin kind, on the following account:

• receivablesfrom production,
• taxes on income, production or profits of companies, excluding taxes on consumption such as tax on goods and services, personal income tax or tax on sales,
• royalties,
• dividends,
• concession fees and premiumsfor discovery and production,
• licence fees, lease fees, fees for launching activities as well as other considerations for issuing a licence or concession,
• paymentsfor infrastructure improvements;

concerning the activitieslisted in art. 63e points 1 and 2 of the Act.

The activity listed in points 1 and 2 of art. 63e of the Act is activity consisting of the exploration, prospecting, discovery, production and mining of minerals, oil, natural gas or other commodities within the types of economic activity listed in section B, divisions 05-08 of the Polish Classification of Economic Activities, as well as the activity referred to in section A, division 02, in group 02.2 of the Polish Classification of Economic Activities – wood harvesting within primary forest areas.

The Company does not harvest wood from primary forest areas therefore all amounts indicated in this report, unless explicitly stated otherwise, apply only to mining activity being conducted in the Company's two Branches listed above and do not include amounts paid to public administration on the account of othertypes of activity carried out at the Company's other Branches.

Thisreport on paymentsto public administration takesinto consideration the following items:

Payment title defined in art. 63a of the Accounting Act	Titles of taxes and fees assigned by the Subsidiary to each of the payment titles listed in the Accounting Act
Receivables from production	Company did not make any such payments in 2017
Taxes on income, production or profits of companies, excluding taxes on consumption such as tax on goods and services, personal income tax or tax on sales	Corporate income tax
Royalties	Company did not make any such payments in 2017
Dividends	Company did not make any such payments in 2017
Concession fees and premiums for discovery and production	production fee, mining use fee
	fee for perpetual usufruct of land fee for excluding land from agricultural and forestry production fee for paid use of geological information fee for economic use of the environment
Licence fees, lease fees, fees for launching activities as well as other considerations for issuing a licence or concession
	property tax vehicle tax
	agricultural tax forest tax
Payments for infrastructure improvements	Company did not make any such payments in 2017

Corporate income tax

In 2014 PGE GiEK S.A. signed a 25-year agreement concerning the tax capital named "PGK PGE 2015" where PGE Polska Grupa Energetyczna S.A. is the representing entity. Apart from the representing entity and PGE GiEK S.A. other PGE Group companies also entered PGK PGE 2015. PGK PGE 2015 has become the Corporate Income Tax payer asfrom January 1, 2015. The Polish Corporate Income Tax Act treats tax groups as separate income tax payers. This means that companies within PGK PGE 2015 are not treated as separate entities for corporate income tax purposes, with PGK PGE 2015 being treated as one whole entity instead. PGK PGE 2015's tax base will constitute the group's aggregate income, calculated asthe excess of the income of the companiesthat make up the group overtheirlosses. Thus from 2015, the Company's corporate income tax is not transferred directly to the tax authority, but to the representing entity of PGK PGE 2015. Then the representing entity pays the Corporate Income Tax, calculated from the total income of PGK PGE 2015, to the tax authority.

Considering the above circumstances, and in connection with the fact that corporate income tax is calculated at the Company'slevel, in this report it is recognised in amounts remitted to the representing entity in full amount calculated on the total income of the Company, not only income from the mining activities.

Information contained in the report

The payment amounts presented in this report constitute the amounts of cash transfers to public administration in 2017 on account of specific titles, less any returnsreceived in 2017. The Subsidiary did not make any in-kind paymentsto public administration in 2017.

Pursuant to art. 63fsec. 2 of the Act, the payment report isto contain the following information:

• total amount of payments made to public administration of a given state, broken down into payments to specific public administration levels;
• total amount of payments broken down into the titles listed in art. 63e point 6 to specific public administration levels of a given state;
• in the event that payments were attributed by the entity to a specific project total amount of payments by specific project and broken down by the payment titles listed in art. 63e point 6.

The Company attributed its paymentsto public administration to two projects. These projects are related to activities conducted in:

• KWB Bełchatów (Bełchatów lignite mine),
• KWB Turów (Turów lignite mine).

3. Paymentsto public administration in 2017

3.1 Total amount paid, by level of public administration

Public administration levels	Tax on income, production or profit	Concession fees and premiums for discovery and production	Fees for licences, rent, launch of activities and others	Total
Payments by public administration level
National government administration organs and entities supervised or controlled by these organs	-	69,914	33,493	103,407
Local government administration organs and entities supervised or controlled by these organs	-	59,267	160,379	219,646
Cities and municipalities	-	59,267	137,286	196,553
Poviat authorities	-	-	3,414	3,414
Voivodship authorities	-	-	19,679	19,679
PGE - Corporate income tax*	200,017	-	-	200,017
Total	200,017	129,181	193,872	523,070

* as described in point 2, in connection with having signed a tax group agreement, the Company does not make payments for corporate income tax to the relevant tax authority but instead transfer it to the parent company – PGE Polska Grupa Energetyczna S.A. The presented amount constitutes the balance of tax payments to PGE and received returns of overpayments, in an amount calculated based on the entire Company'sincome and not just income from extractive industries.

3.2 Total amount of payments by project and by payment title

3.2.1 Project KWB Bełchatów

Public administration levels	Concession fees and premiums for discovery and production	Fees for licences, rent, launch of activities and others	Total
Payments by public administration level
National government administration organs and entities supervised or controlled by these organs	59,484	27,566	87,050
Local government administration organs and entities supervised or controlled by these organs	51,048	114,550	165,598
Cities and municipalities	51,048	100,683	151,731
Poviat authorities	-	1,508	1,508
Voivodship authorities	-	12,359	12,359
Total	110,532	142,116	252,648

3.2.2 Project KBW Turów

Public administration levels	Concession fees and premiums for discovery and production	Fees for licences, rent, launch of activities and others	Total
Payments by public administration level
National government administration organs and entities supervised or controlled by these organs	10,431	5,927	16,358
Local government administration organs and entities supervised or controlled by these organs	8,219	45,829	54,048
Cities and municipalities	8,219	36,603	44,822
Poviat authorities	-	1,906	1,906
Voivodship authorities	-	7,320	7,320
Total	18,650	51,756	70,406

Warsaw, March 6, 2018

Signatures of members of the Management Board of PGE Polska Grupa Energetyczna S.A.

President of the
Management Board	Henryk Baranowski
Vice-President of the
Management Board	Wojciech Kowalczyk
Vice-President of the
Management Board	Marek Pastuszko
Vice-President of the
Management Board	Paweł Śliwa
Vice-President of the
Management Board	Ryszard Wasiłek
Vice-President of the
Management Board	Emil Wojtowicz