PGE Polska Grupa Energetyczna S.A. Condensed interim consolidated financial statements for the 3-month and 9-month period

ended September 30, 2017 in accordance with IFRS EU (in PLN million)

	CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME4
CONSOLIDATED STATEMENT OF FINANCIAL POSITION5
	CONSOLIDATED STATEMENT OF CHANGES IN EQUITY6
	CONSOLIDATED STATEMENT OF CASH FLOWS7
	GENERAL INFORMATION, BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS AND OTHER EXPLANATORY INFORMATION8
1.	General information8
1.1	Information about the parent company 8
1.2	Information about the PGE Group9
1.3	Structure of the PGE Group9
2.	Basis for preparation of the financial statements11
2.1 2.2	Statement of compliance11 Presentation and functional currency 11
2.3	New standards and interpretations published, not yet effective12
2.4	Professional judgment of management and estimates13
3.	Fair value hierarchy 14
	EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS15
	EXPLANATORY NOTES TO THE OPERATING SEGMENTS 15
4.	Information on operating segments15
	EXPLANATORY NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME18
5.	Revenues and expenses18
5.1	Sales revenues18
5.2	Cost by nature and function19
5.3 5.4	Other operating income and expenses21 Financial income and expenses21
5.5	Share of profit of associates and joint arrangements accounted for under the equity method22
6.	Impairment allowances on assets22
7.	Tax in the statement of comprehensive income23
	EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 24
8.	Significant additions and disposals of property, plant and equipment and intangible assets24
9.	Future investment commitments24
10.	Shares in associates and joint arrangements accounted for under the equity method24
11.	Deferred tax in the statement of financial position25
11.1	Deferred tax assets25
11.2	Deferred tax liabilities25
12.	CO2 emission rights for own use25
13.	Other current and non-current assets26
13.1	Other non-current assets26
13.2	Other current assets26
14.	Selected financial assets27
14.1 14.2	Trade and other financial receivables27 Cash and cash equivalents27
15.	Derivatives27

16. 16.1	Equity28 Share capital28
16.2	Hedging reserve29
16.3	Dividends paid and dividends declared29
17.	Provisions30
17.1	Provision for employee benefits31
17.2 17.3	Rehabilitation provision 31 Provision for deficit of CO2 emission rights31
17.4	Provision for energy origin rights held for redemption31
17.5	Provision for non-contractual use of property31
17.6	Other provisions31
18.	Financial liabilities32
18.1	Loans, borrowings, bonds and lease 32
18.2	Trade and other financial liabilities33 OTHER EXPLANATORY NOTES34
19.	Contingent liabilities and receivables. Legal claims34
19.1	Contingent liabilities34
19.2	Other significant issues related to contingent liabilities34

19.3 19.4	Contingent receivables34 Other legal claims and disputes35
20.	Tax settlements37
21.	Information on related parties38
21.1	Associates and joint arrangements38
21.2	Subsidiaries of the State Treasury 38
21.3	Management personnel remuneration 39
22.	Significant events of the reporting period and subsequent events39
22.1	Compensation resulting from termination of long term contracts39
22.2	Capital investment in Polska Grupa Górnicza S.A41
22.3	Acquisition of EDF assets in Poland41
22.4	Capital investment in Polimex-Mostostal S.A42
23.	Quarterly condensed separate financial information of PGE Polska Grupa Energetyczna S.A44
	SEPARATE STATEMENT OF COMPREHENSIVE INCOME44
	SEPARATE STATEMENT OF FINANCIAL POSITION45
	SEPARATE STATEMENT OF CHANGES IN EQUITY46
	SEPARATE STATEMENT OF CASH FLOWS47
24.	Approval of the financial statements48

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		3 months ended	9 months ended	3 months ended	9 months ended
	Note	September 30,	September 30,	September 30,	September 30,
		2017 (not audited)	2017 (not audited)	2016 (not audited)	2016 (not audited)

STATEMENT OF PROFIT OR LOSS
SALES REVENUES	5.1	6 073	16 693	6 897	20 563
Costs of goods sold	5.2	(3 759)	(11 631)	(5 517)	(17 339)
GROSS PROFITON SALES		2 314	5 062	1 380	3 224
Distribution and selling expenses	5.2	(282)	(882)	(350)	(1 077)
General and administrative expenses	5.2	(156)	(501)	(163)	(562)
Other operating income	5.3	57	259	64	389
Other operating expenses	5.3	(50)	(123)	(36)	(127)
OPERATING PROFIT		1 883	3 815	895	1 847
Financial income	5.4	1	145	14	63
	5.4
Financial expenses Share of profit/(loss) of entities accounted for using the equity	5.5	(81)	(347)	(61)	(265)
method		10	11	(19)	(61)
PROFIT BEFORE TAX		1 813	3 624	829	1 584
Current income tax	7	(108)	(356)	(142)	(369)
Deferred income tax	7	(243)	(311)	(31)	(16)
NET PROFIT FOR THE REPORTING PERIOD		1 462	2 957	656	1 199

OTHER COMPREHENSIVE INCOME
Items, which may be reclassified to profit or loss, including:
Valuation of financial instruments	16.2	(1)	(1)	(1)	(1)
Valuation of hedging instruments	16.2	12	(60)	19	59
Foreign exchange differences from translation of foreign entities		3	(3)	(3)	1
Deferred tax	7	(2)	12	(3)	(11)

OTHER COMPREHENSIVE INCOME FOR THE REPORTING
PERIOD, NET		12	(52)	12	48

TOTAL COMPREHENSIVE INCOME		1 474	2 905	668	1 247

NET PROFITATTRIBUTABLE TO:
– equity holders of the parent company		1 463	2 960	656	1 202
– non-controlling interests		(1)	(3)	-	(3)

COMPREHENSIVE INCOME ATTRIBUTABLE TO :
– equity holders of the parent company		1 475	2 908	668	1 250
– non-controlling interests		(1)	(3)	-	(3)

EARNINGS AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO
EQUITY HOLDERS OF THE PARENT COMPANY (IN PLN)		0.78	1.58	0.35	0.64

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Note	As at September 30, 2017	As at December 31, 2016	As at September 30, 2016
		(not audited)	(audited)	(not audited)
NON-CURRENT ASSETS
Property, plant and equipment	8	52 891	51 365	49 998
Investment property	8	26	27	31
Intangible assets		660	653	630
Financial receivables	14.1	246	237	148
Derivatives	15	250	356	132
Available-for-sale financial assets		36	37	35
Shares in entities accounted for under the equity method	10	626	402	308
Other non-current assets	13.1	566	730	800
Deferred tax assets	11.1	258 55 559	268 54 075	247 52 329
CURRENT ASSETS
Inventories		1 271	1 596	1 643
CO2 emission rights for own use	12	1 417	2 349	2 100
Income tax receivables		13	19	15
Derivatives	15	2	9	9
Trade and other financial receivables	14.1	3 482	6 325	3 698
Available-for-sale financial assets		5	4	4
Other current assets	13.2	480	416	428
Cash and cash equivalents	14.2	5 603	2 669	5 386
Assets classified as held-for-sale		12	12	20
		12 285	13 399	13 303
TOTAL ASSETS		67 844	67 474	65 632

EQUITY
Share capital	16.1	19 165	19 165	18 698
Reserve capital for increase of the share capital		-	-	467
Hedging reserve	16.2	98	147	26
Foreign exchange differences from translation		-	3	-
Reserve capital		15 328	13 730	13 730
Retained earnings		10 999	9 634	8 068
EQUITY ATTRIBUTED TO EQUITY HOLDERS OF THE PARENT COMPANY		45 590	42 679	40 989

Non-controlling interests		88	96	86
TOTAL EQUITY		45 678	42 775	41 075
NON-CURRENT LIABILITIES
Non-current provisions	17	5 147	5 004	6 244
Loans, borrowings, bonds and lease	18.1	8 434	9 603	9 076
Derivatives	15	27	30	48
Deferred tax liabilities	11.2	1 509	1 191	816
Deferred income and government grants		1 059	1 141	1 161
Other financial liabilities	18.2	28	33	27
		16 204	17 002	17 372
CURRENT LIABILITIES
Current provisions	17	1 805	2 181	2 038
Loans, borrowings, bonds and lease	18.1	1 358	411	390
Trade and other financial liabilities	18.2	1 624	3 556	2 841
Income tax liabilities		13	6	103
Deferred income and government grants		108	119	117
Other current non-financial liabilities		1 054	1 424	1 696
		5 962	7 697	7 185
TOTAL LIABILITIES		22 166	24 699	24 557
TOTAL EQUITY AND LIABILITIES		67 844	67 474	65 632

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital	Hedging reserve	Foreign exchange differences from translation	Reserve capital	Retained earnings	Total	Non-controlling interests	Total equity
Note	16.1	16.2
AS AT JANUARY 1, 2016	18 698	(21)	(1)	13 009	8 636	40 321	96	40 417
Net profit for the reporting period	-	-	-	-	2 568	2 568	(2)	2 566
Other comprehensive income	-	168	4	-	200	372	-	372
COMPREHENSIVE INCOME	-	168	4	-	2 768	2 940	(2)	2 938
Retained earnings distribution	-	-	-	1 301	(1 301)	-	-	-
Dividend	-	-	-	-	(467)	(467)	(4)	(471)
Increase of the share capital from own funds	467	-	-	(467)	-	-	10	10
Tax on increase of share capital	-	-	-	(110)	-	(110)	-	(110)
Acquisition of additional shares in
subsidiaries	-	-	-	-	(2)	(2)	(4)	(6)
Other changes	-	-	-	(3)	-	(3)	-	(3)
TRANSACTIONS WITH OWNERS	467	-	-	721	(1 770)	(582)	2	(580)
AS AT DECEMBER 31, 2016	19 165	147	3	13 730	9 634	42 679	96	42 775
Net profit for the reporting period	-	-	-	-	2 960	2 960	(3)	2 957
Other comprehensive income	-	(49)	(3)	-	-	(52)	-	(52)
COMPREHENSIVE INCOME	-	(49)	(3)	-	2 960	2 908	(3)	2 905
Retained earnings distribution	-	-	-	1 598	(1 598)	-	-	-
Dividend	-	-	-	-	-	-	(2)	(2)
Acquisition of additional shares in
subsidiaries	-	-	-	-	2	2	(3)	(1)
Other changes	-	-	-	-	1	1	-	1
TRANSACTIONS WITH OWNERS	-	-	-	1 598	(1 595)	3	(5)	(2)
AS AT SEPTEMBER 30, 2017	19 165	98	-	15 328	10 999	45 590	88	45 678

	Share capital	Hedging reserve	Foreign exchange differences from translation	Reserve capital	Reserve capital for increase of the share capital	Retained earnings	Total	Non controlling interests	Total equity
AS AT JANUARY 1, 2016	18 698	(21)	(1)	13 009	-	8 636	40 321	96	40 417
Net profit for the reporting period	-	-	-	-	-	1 202	1 202	(3)	1 199
Other comprehensive income	-	47	1	-	-	-	48	-	48
COMPREHENSIVE INCOME	-	47	1	-	-	1 202	1 250	(3)	1 247
Retained earnings distribution	-	-	-	1 301	-	(1 301)	-	-	-
Dividend	-	-	-	-	-	(467)	(467)	(4)	(471)
Increase of the share capital from own funds	-	-	-	(467)	467	-	-	-	-
Tax on increase of share capital	-	-	-	(110)	-	-	(110)	-	(110)
Acquisition of additional shares in subsidiaries	-	-	-	-	-	(2)	(2)	(3)	(5)
Other changes	-	-	-	(3)	-	-	(3)	-	(3)
TRANSACTIONS WITH OWNERS	-	-	-	721	467	(1 770)	(582)	(7)	(589)
AS AT SEPTEMBER 30, 2016	18 698	26	-	13 730	467	8 068	40 989	86	41 075

CONSOLIDATED STATEMENT OF CASH FLOWS

	Period ended	Period ended
Note	September 30,	September 30,
	2017	2016
	(not audited)	(not audited)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax	3 624	1 584
Income tax paid	(462)	(183)

Adjustments for:
Share of profit of associates consolidated under the equity method	(11)	61
Depreciation, amortization, disposal and impairment losses	2 291	2 941
Interest and dividend, net	101	83
Profit / loss on investment activities	41	(54)
Change in receivables	(691)	59
Change in inventories	324	297
Change in liabilities, excluding loans and borrowings	(411)	(497)
Change in other non-financial assets, prepayments and CO2 emission rights	768	170
Change in provisions	(290)	347
Other	(39)	(17)
NET CASH FROM OPERATING ACTIVITIES	5 245	4 791

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment and intangible assets	(4 338)	(6 081)
Deposits with a maturity over 3 months	(203)	(524)
Termination of deposits over 3 months	2 486	513
Acquisition of financial assets / increase in shareholding in the PGE Group companies	(218)	(382)
Acquisition /proceeds from sales of subsidiaries after deduction of acquired/returned	272	-
cash
Other	31	38
NET CASH FROM INVESTING ACTIVITIES	(1 970)	(6 436)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans, borrowings and issue of bonds	7	4 143
Repayment of loans, borrowings, bonds and finance lease	(113)	(123)
Interest paid	(230)	(129)
Grants received for non-current assets	3	47
Other	(7)	(10)
NET CASH FROM FINANCING ACTIVITIES	(340)	3 928

NET CHANGE IN CASH AND CASH EQUIVALENTS	2 935	2 283
Effect of movements in exchange rates on cash held	-	2
14.2 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD	2 666	3 101
14.2 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD	5 601	5 384
Restricted cash	98	130

GENERAL INFORMATION, BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS AND OTHER EXPLANATORY INFORMATION

1. General information

1.1 Information about the parent company

PGE Polska Grupa Energetyczna S.A. ("parent company", "the Company", "PGE S.A.") was founded on the basis of the Notary Deed of August 2, 1990 and registered in the District Court in Warsaw, XVI Commercial Department on September 28, 1990. The Company was registered in the National Court Register of the District Court for the capital city of Warsaw, XII Commercial Department, under no. KRS 0000059307. The parent company is seated in Warsaw, 2 Mysia Street.

As at January 1, 2017 the composition of the Company's Management Board was as follows:

Henryk Baranowski the President of the Management Board,
Marta Gajęcka the Vice-President of the Management Board,
Bolesław Jankowski the Vice-President of the Management Board,
Marek Pastuszko the Vice-President of the Management Board,
Paweł Śliwa the Vice-President of the Management Board,
Ryszard Wasiłek the Vice-President of the Management Board,
Emil Wojtowicz the Vice-President of the Management Board.

On February 13, 2017 the Supervisory Board recalled all Members of the Company's Management Board effective from February 13, 2017. At the same time, the Supervisory Board appointed the following persons to the 10th term of the Management Board effective from February 14, 2017: Mr. Henryk Baranowski entrusting him the position of the President of the Management Board, Mr. Bolesław Jankowski, Mr. Wojciech Kowalczyk, Mr. Marek Pastuszko, Mr. Paweł Śliwa, Mr. Ryszard Wasiłek and Mr. Emil Wojtowicz entrusting them the positions of Vice-Presidents of the Management Board.

On June 20, 2017 Mr. Bolesław Jankowski submitted his resignation effective as of July 1, 2017.

As at September 30, 2017 and as at the publication date of these financial statements, the composition of the Management Board of the Company is as follows:

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

Separate quarterly report of PGE S.A.

Starting from the first quarter of 2017, the parent company no longer publishes a separate quarterly report, instead being included as part of the consolidated quarterly report. This is possible under § 83 of the Regulation of the Minister of Finance dated February 19, 2009 on current and periodic information published by issuers of securities and on conditions under which such information may be recognized as being equivalent to information required by the regulations of law of a state which is not a member state. (Dziennik Ustaw of 2014, item 133, as amended) and PGE S.A. had declared that it would use this option in current report 3/2017 of January 23, 2017.

In connection with this, note 23 to these consolidated financial statements contains quarterly financial information for PGE S.A.

Ownership structure

As at September 30, 2017 the ownership structure of the parent company is as follows:

	State Treasury	Other shareholders	Total
As at December 31, 2016	57.39%	42.61%	100.00%
As at September 30, 2017	57.39%	42.61%	100.00%

The ownership structure as at particular reporting dates was prepared on the basis of data available to the Company.

According to information available in the Company as at the date of publication of these financial statements the sole shareholder who holds at least 5% of votes at the General Meeting of PGE S.A. is the State Treasury.

1.2 Information about the PGE Group

PGE Polska Grupa Energetyczna S.A. Group ("PGE Capital Group", "PGE Group", "Group", "CG PGE") comprises the parent company PGE Polska Grupa Energetyczna S.A., 50 subsidiaries, 3 associates and 1 joint arrangement. As described in note 22.4, in the current period, the Group gained significant influence on Polimex-Mostostal S.A. and accounts for this company under the equity method. For additional information about subsidiaries included in the consolidated financial statements please refer to note 1.3.

These consolidated financial statements of the PGE Group comprise financial data for the period from January 1, 2017 to September 30, 2017 ("financial statements", "consolidated financial statements") and include comparative data for the period from January 1, 2016 to September 30, 2016 and as at December 31, 2016.

The financial statements of all affiliated companies were prepared for the same reporting period as the financial statements of the parent company, using consistent accounting principles.

Core operations of the PGE Group companies are as follows:

production of electricity,
distribution of electricity,
wholesale and retail sale of electricity, energy origin rights, CO² emission rights and gas,
production and distribution of heat,
rendering of other services related to the above mentioned activities.

Business activities are conducted under appropriate concessions granted to particular Group companies.

Going concern

These consolidated financial statements were prepared under the assumption that the significant Group companies will continue to operate as a going concern in the foreseeable future. As at the date of the approval of these consolidated financial statements, there is no evidence indicating that the significant Group companies will not be able to continue its business activities as a going concern. The foregoing financial statements are prepared based on the same accounting principles (policy) and methods of computation as compared with the most recent annual financial statements. These financial statements are to be read together with the audited consolidated financial statements of the PGE Group for the year ended December 31, 2016.

1.3 Structure of the PGE Group

During the reporting period, the PGE Group consisted of the enumerated below companies, consolidated directly and indirectly:

	Entity	Entity holding shares	Share of the Group entities as at September 30, 2017	Share of the Group entities as at December 31, 2016
	SEGMENT: SUPPLY
1.	PGE Polska Grupa Energetyczna S.A. Warsaw		The Parent Company
2.	PGE Dom Maklerski S.A. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
3.	PGE Trading GmbH Berlin	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
4.	PGE Obrót S.A. Rzeszów	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
5.	ENESTA sp. z o.o. Stalowa Wola	PGE Obrót S.A.	87.33%	87.33%
	SEGMENT: CONVENTIONAL GENERATION
6.	PGE Górnictwo i Energetyka Konwencjonalna S.A. Bełchatów	PGE Polska Grupa Energetyczna S.A.	100.00%	99.98%
7.	ELBIS sp. z o.o. Rogowiec	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
8.	MEGAZEC sp. z o.o. Bydgoszcz	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
9.	MegaSerwis sp. z o.o. Bogatynia	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
10.	"ELMEN" sp. z o.o. Rogowiec	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
11.	Przedsiębiorstwo Usługowo-Produkcyjne "ELTUR-SERWIS" sp. z o.o. Bogatynia	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
12.	Przedsiębiorstwo Usługowo-Produkcyjne "TOP SERWIS" sp. z o.o. Bogatynia	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
13.	Przedsiębiorstwo Transportowo-Sprzętowe	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%

	Entity	Entity holding shares	Share of the Group entities as at September 30, 2017	Share of the Group entities as at December 31, 2016
	"BETRANS" sp. z o.o.
14.	Bełchatów Przedsiębiorstwo Wulkanizacji Taśm i Produkcji Wyrobów Gumowych BESTGUM POLSKA sp. z o.o. Rogowiec	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
15.	RAMB sp. z o.o. Piaski	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
16.	EPORE sp. z o.o. Bogatynia	PGE Górnictwo i Energetyka Konwencjonalna S.A.	85.38%	85.38%
17.	"Energoserwis – Kleszczów" sp. z o.o. Rogowiec	PGE Górnictwo i Energetyka Konwencjonalna S.A.	51.00%	51.00%
18.	Przedsiębiorstwo Energetyki Cieplnej sp. z o.o. Zgierz	PGE Górnictwo i Energetyka Konwencjonalna S.A.	50.98%	50.98%
	SEGMENT: RENEWABLES
19.	PGE Energia Odnawialna S.A. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
20.	Elektrownia Wiatrowa Baltica-1 sp. z o.o. Warsaw	PGE Energia Odnawialna S.A.	100.00%	100.00%
21.	Elektrownia Wiatrowa Baltica-2 sp. z o.o. Warsaw	PGE Energia Odnawialna S.A.	100.00%	100.00%
22.	Elektrownia Wiatrowa Baltica-3 sp. z o.o. Warsaw	PGE Energia Odnawialna S.A.	100.00%	100.00%
23.	PGE Energia Natury sp. z o.o. Warsaw	PGE Energia Odnawialna S.A.	100.00%	100.00%
24.	PGE Energia Natury PEW sp. z o.o. Warsaw	PGE Energia Odnawialna S.A.	100.00%	100.00%
	SEGMENT: DISTRIBUTION
25.	PGE Dystrybucja S.A. Lublin	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
	SEGMENT: OTHER OPERATIONS
26.	PGE EJ 1 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	70.00%	70.00%
27.	PGE Systemy S.A. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
	EXATEL S.A. Warsaw	PGE Polska Grupa Energetyczna S.A.	-	100.00%
28.	PGE Sweden AB (publ) Stockholm	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
29.	PGE Obsługa Księgowo-Kadrowa sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
30.	"Elbest" sp. z o.o. Bełchatów	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
31.	Elbest Security sp. z o.o. Bełchatów	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
32.	PGE Inwest 2 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
33.	PGE Inwest 5 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
34.	PGE Centrum sp. z o.o. (previously PGE Inwest 6 sp. z o.o.) Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
35.	PGE Ventures sp. z o.o. (previously PGE Inwest 7 sp. z o.o.) Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
36.	PGE Inwest 8 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
37.	PGE Inwest 9 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
38.	PGE Inwest 10 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
39.	PGE Inwest 11 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
40.	PGE Inwest 12 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%

	Entity	Entity holding shares	Share of the Group entities as at September 30, 2017	Share of the Group entities as at December 31, 2016
41.	PGE Inwest 13 S.A. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
42.	PGE Inwest 14 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
43.	PGE Nowa Energia sp. z o.o. (previously PGE Inwest 15 sp. z o.o.) Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
44.	PGE Inwest 16 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
45.	PGE Inwest 17 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
46.	PGE Inwest 18 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
47.	PGE Inwest 19 sp. z o.o. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	-
48.	PGE Towarzystwo Funduszy Inwestycyjnych S.A. Warsaw	PGE Polska Grupa Energetyczna S.A.	100.00%	100.00%
	ENERGO-TEL S.A. Warsaw	EXATEL S.A.	-	100.00%
49.	BIO-ENERGIA sp. z o.o. Warsaw	PGE Energia Odnawialna S.A.	100.00%	100.00%
50.	Przedsiębiorstwo Transportowo-Usługowe "ETRA" sp. z o.o. Białystok	PGE Dystrybucja S.A.	100.00%	100.00%
51.	Energetyczne Systemy Pomiarowe sp. z o.o. Białystok	PGE Dystrybucja S.A.	100.00%	100.00%

The table above includes the following changes in the structure of the PGE Group companies subject to full consolidation which took place during the reporting period ended September 30, 2017:

On February 1, 2017 PGE Polska Grupa Energetyczna S.A. set up a company named PGE Inwest 19 sp. z o.o. which was registered in the National Court Register on February 24, 2017,
On March 29, 2017 PGE S.A. concluded agreement for sale of 100% shares of EXATEL S.A. Together with the sale of shares of EXATEL S.A. the Group lost control over its subsidiary ENERGO-TEL S.A.

2. Basis for preparation of the financial statements

2.1 Statement of compliance

These financial statements were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and in the scope required under the Minister of Finance Regulation of February 19, 2009 on current and periodic information provided by issuers of securities and conditions of recognition as equivalent information required by the law of a non-Member State (Official Journal 2014, item 133, with amendments).

International Financial Reporting Standards ("IFRS") include standards and interpretations accepted by the International Accounting Standards Board ("IASB") and the International Financial Reporting Standards Interpretations Committee ("IFRIC").

2.2 Presentation and functional currency

The functional currency of the parent company and presentation currency of these consolidated financial statements is Polish Zloty ("PLN"). All amounts are in PLN million, unless indicated otherwise.

For the purpose of translation of items denominated in currency other than PLN at the reporting date the following exchange rates were applied:

	September 30, 2017	December 31, 2016	September 30, 2016
USD	3.6519	4.1793	3.8558
EUR	4.3091	4.4240	4.3120

2.3 New standards and interpretations published, not yet effective

The following standards, changes in already effective standards and interpretations are not endorsed by the European Union or are not effective as at January 1, 2017:

Standard	Description of changes	Effective date
IFRS 9 Financial Instruments	Changes to the classification and measurement requirements – replacement of the existing categories of financial instruments with the two following categories: measured at amortized cost and at fair value. Changes to hedge accounting.	January 1, 2018
IFRS 14 Regulatory Deferral Accounts	Accounting and disclosure principles for regulatory deferral accounts.	Standard in the current version will not be effective in the EU
IFRS 15 Revenue from Contracts with Customers with explanations to IFRS 15	The standard applies to all contracts with customers, except for those within the scope of other IFRSs (e.g. lease contracts, insurance contracts and financial instruments). IFRS 15 clarifies principles of revenue recognition.	January 1, 2018
IFRS 16 Lease	The standard eliminates the classification of leases as either operating or finance lease in the lessee's accounts. All contracts which meet the criteria of lease will be recognized as finance lease.	January 1, 2019
Amendments to IAS 12	Clarification of the method of deferred tax asset settlement on unrealized losses.	January 1, 2017
Amendments to IAS 7	The initiative on changes to disclosures.	January 1, 2017
Amendments to IFRS 10 and IAS 28	Deals with the sale or contribution of assets between an investor and its joint venture or associate.	Has not been determined
Amendments to IFRS 2	Classification and measurement of share-based payment transactions	January 1, 2018
Amendments to IFRS 4	Application of IFRS 9 Financial instruments jointly with IFRS 4 Insurance contracts	January 1, 2018
Annual improvements to IFRS (cycle 2014-2016)	A collection of amendments dealing with: IFRS 1 – elimination of short-term exemption for entities using IFRS for the first time; IFRS 12 – clarification of the scope of disclosure requirements; IAS 28 – valuation of entities, in which an investment has been made, at fair value through profit or loss or using an individual method.	January 1, 2018/ January 1, 2017
Amendments to IAS 40	Changes to the classification of properties: i.e. transfer from investment property to other groups of assets.	January 1, 2018
IFRIC 22 Foreign Currency Transactions and Advance Consideration	Guidelines specifying determination of the date of a transaction and related spot foreign exchange rate to be used in case foreign currency payments are made or received in advance.	January 1, 2018
IFRS 17 Insurance contracts	Establishes new principles for recognition of revenues and profit/loss during the period of rendering insurance services.	January 1, 2021
IFRIC 23 Uncertainty over income tax treatment	The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.	January 1, 2019
Amendments to IFRS 9	Defines right of prepayment with negative compensation	January 1, 2019
Amendments to IAS 28	Regards long-term interest in associates and joint ventures	January 1, 2019

The PGE Group intends to adopt the above mentioned new standards, amendments to standards and interpretations published by the International Accounting Standards Board but not yet effective at the reporting date, when they become effective.

The influence of new regulations on future financial statements of the PGE Group

IFRS 9 Financial Instruments

IFRS 9 introduces fundamental changes in respect of classification, presentation and measurement of financial instruments. As part of IFRS 9, new model for calculating impairment will be introduced that will require more timely recognition of expected credit losses and rules for hedge accounting will be updated. These changes are intended to allow preparers of financial statements to reflect entities' actions more accurately.

Current analysis of the standard indicates that possible changes may refer to the following areas:

rules for calculating and recognition of impairment allowances concerning financial assets (change from incurred loss model to expected loss model),
classification of financial assets,
possible simplifications of hedge accounting.

Full analysis of the impact of IFRS 9 has not been finished yet, nonetheless according to the PGE Group the standard shall not have significant influence on the reported financial results.

IRFS 15 Revenue from Contracts with Customers

IFRS 15 is intended to unify and simplify principles of revenue recognition by introducing one model for revenue recognition. In particular, the standard will impact revenue recognition resulting from agreements or package agreements based on which clients are provided with separate services and/or goods.

Analysis of the impact of the standard indicates that changes may concern mainly the following areas:

revenues from connection to the distribution network. Currently, revenues from connection fees are recognized at one time when they become due i.e. at the moment of connection. Value of those revenues in the period ended September 30, 2017 amounts to PLN 69 million. The new standard may change principles for recognition of revenues from connection to the distribution network and related expenses depending on the final output of dependency analysis between connection agreement and distribution agreement concluded with the same client,
acting as an intermediary in respect of selected, separate services and goods offered to clients on the basis of electricity or gas sale agreement, or distribution agreement. The change will result in a decrease of sales revenues and related expenses, but it will not affect the reported profit or loss,
extending the scope of disclosures related to sales revenues.

Apart from the possible impact of changes in recognition of revenues and expenses resulting from connection to distribution network, the implementation of the standard should not significantly influence the Group's financial results. Analysis of the impact of the standard in this respect has not been finished yet.

IFRS 16 Lease

The new standard changes principles for recognition of contracts which meet the criteria of a lease. The main change is to eliminate the classification of leases as either operating leases or finance leases in the lessee's accounts. All contracts which meet the criteria of a lease will be recognized as a current finance lease. Adoption of the standard will have the following effect:

in the statement of financial position: increase of non-financial non-current assets and financial liabilities,
in the statement of comprehensive income: decrease of operating expenses (other than depreciation/amortization), increase of depreciation/amortization and financial expenses.

The PGE Group is in the process of analysis of IFRS 16's impact on the future financial statements. The issue of the possible impact of the standard on the perpetual usufruct of land received free of charge is particularly analysed. Pursuant to the currently applied accounting policy,PGE Capital Group have not recognised the perpetual usufruct of land as the lease contract.

Other standards and their changes should not have significant impact on future financial statements of the PGE Group.

2.4 Professional judgment of management and estimates

In the process of applying accounting rules with regards to the below issues, management has made judgments and estimates that have the most significant impact on the amounts presented in the consolidated financial statements, including in other explanatory information. These estimates were based on the best knowledge of the Management Board relating to current and future operations and events in particular areas. Detailed information on the assumptions taken was presented below or in the relevant explanatory notes.

In the previous reporting periods the PGE Group raised impairment allowances of assets, in particular of property, plant and equipment. In the current reporting period the Group has not identified any impairment indicators nor indicators to reverse previously recognized impairment allowances. Estimate of recoverable amount of property, plant and equipment is based on a number of significant assumptions to the factors, realization of which is uncertain and mostly beyond the PGE Group's control. The Group believes that it has assumed the most accurate volumes and values. Nevertheless, realization of the particular assumptions may diverge from the ones established by the Group.
Provisions are liabilities of uncertain amount or timing. During the reporting period, the Group changed estimates regarding the validity or amounts of some provisions. Changes in estimates are presented in note 17 of these financial statements.

3. Fair value hierarchy

The principles for valuation of inventories, stocks, shares and instruments not quoted on active markets, for which fair value may not be determined reliably, are the same as presented in the financial statements for the year ended December 31, 2016.

The Group measures derivatives at fair value using valuation models for financial instruments based on publicly available exchange rates, interest rates and discount curves in particular currencies (applicable also for commodities with prices denominated in these currencies) that derive from active markets. The fair value of derivatives is determined based on discounted future cash flows from concluded transactions, calculated based on the difference between the forward rate and transaction price. Forward exchange rates are not modelled as separate risk factor, but are derived from the spot rate and appropriate forward interest rate for foreign currencies in relation to PLN.

FAIR VALUE HIERARCHY	As at September 30, 2017		As at December 31, 2016
	Level 1	Level 2	Level 1	Level 2
CO2 emission rights	-	-	29	-
Inventories	-	-	29	-
Currency forward	-	2	-	1
Commodity forward	-	-	-	8
CCIRS valuation	-	116	-	231
IRS valuation	-	99	-	125
Derivatives - option	-	35	-	-
Financial assets	-	252	-	365
IRS valuation	-	27	-	30
Financial liabilities	-	27	-	30

During the current and comparative reporting periods, there have been no transfers of financial instruments between the first and the second level of the fair value hierarchy.

EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

EXPLANATORY NOTES TO THE OPERATING SEGMENTS

4. Information on operating segments

The PGE Group companies conduct their business activities based on relevant concessions, including primarily concession on: production, trading and distribution of electricity, generation, transmission and distribution of heat, granted by the President of Energy Regulatory Office and concessions for the extraction of lignite deposits, granted by the Minister of the Environment. Concessions, as a rule, are being issued for the period between 10 and 50 years. Main concessions in the PGE Group expire in the years 2020-2038.

Relevant assets are assigned to the held concessions on lignite mining and generation and distribution of electricity and heat, which is presented in detailed information on operating segments. For holding concessions concerning electricity and heat the Group incurs annual charges dependent on the level of turnover, whereas for conducting licensed extraction of lignite the exploitation charges as well as fees for the use of mining are borne. The exploitation charges depend on the current rate and the volume of the extraction.

The PGE Group presents information on operating segments in the current and comparative reporting periods in accordance with IFRS 8 Operating Segments. The PGE Group' segment reporting is based on the following business segments:

Conventional Generation comprises exploration and mining of lignite and production of electricity in the Group's power plants and heat and power plants as well as ancillary services.
Renewables comprise generation of electricity in pumped-storage power plants and from renewable sources.
Supply includes sales and purchases of electricity and gas on the wholesale market, trading in emissions certificates and energy origin rights, sales and purchases of fuel, as well as sales of electricity and rendering services to end users.
Distribution comprises management over local distribution networks and transmission of electricity.
Other operations comprise services rendered by the subsidiaries for the Group, e.g. fund raising, IT, telecommunication, accounting and HR, and transport services. Additionally, the other operations segment comprises the activities of a subsidiary whose main business is preparation and implementation of a nuclear power plant construction project.

Organization and management over the PGE Group is based on segment reporting separated by nature of the products and services provided. Each segment represents a strategic business unit, offering different products and serving different markets. Assignment of particular entities to operating segments is described in note 1.3 of these financial statements. As a rule, intersegment transactions are disclosed as if they were concluded with third parties – under market conditions. The exception to this rule were new bonds issued by subsidiaries belonging the tax group with interest rates below market rates and settlements of tax losses within the tax group.

When analysing the results of particular business segments the management of the PGE Group draws attention primarily to EBITDA reached.

Seasonality of business segments

Main factors affecting the demand for electricity and heat are: weather conditions – air temperature, wind force, rainfall, socioeconomic factors – number of energy consumers, energy carriers prices, growth of GDP and technological factors – advances in technology, product manufacturing technology. Each of these factors has an impact on technical and economic conditions of production, distribution and transmission of energy carriers, thus influences the results obtained by the PGE Group.

The level of electricity sales is variable throughout a year and depends especially on weather conditions - air temperature and the length of the day. Increase in demand for electricity is particularly visible in winter and decline is observed in summer. Moreover, seasonal changes are evident among selected groups of end users. In particular, seasonality effects are more significant for households than for the industrial sector.

Sales of heat depend in particular on air temperature and are higher in winter and lower in summer.

4.1 Information on business segments

Information on business segments for the period ended September 30, 2017

	Conventional Generation	Renewables	Supply	Distribution	Other operations	Consolidation adjustments	Total
STATEMENT OF PROFIT OR LOSS
Sales revenues from external customers	4 222	445	10 229	1 639	131	27	16 693
Sales revenues from inter-segment transactions	5 176	85	1 011	3 088	206	(9 566)	-
TOTAL SEGMENT REVENUES	9 398	530	11 240	4 727	337	(9 539)	16 693
Cost of goods sold	(6 621)	(436)	(9 719)	(3 612)	(315)	9 072	(11 631)
EBIT *)	2 233	41	594	939	(28)	36	3 815
Financial income / (expenses), net							(202)
Share of profit /(loss) of entities
accounted for under the equity method							11
PROFIT BEFORE TAX							3 624
Income tax							(667)
NET PROFIT FOR THE REPORTING							2 957
PERIOD
Depreciation, amortization, disposal and impairment lossesrecognized in profit	1 168	198	20	868	68	(29)	2 293
or loss
EBITDA **)	3 401	239	614	1 807	40	7	6 108
ASSETS AND LIABILITIES
Segment assets excluding trade
receivables	36 477	3 418	939	16 757	548	(828)	57 311
Trade receivables	801	75	2 576	807	78	(1 898)	2 439
Sharesin entities accounted for under							626
the equity method
Unallocated assets							7 468
TOTAL ASSETS							67 844
Segment liabilities excluding trade liabilities	6 829	331	1 018	1 761	68	15	10 022
Trade liabilities	596	30	1 732	237	16	(1 808)	803
Unallocated liabilities							11 341
TOTAL LIABILITIES							22 166
OTHER INFORMATION ON BUSINESS
SEGMENT
Capital expenditure	3 041	49	9	1 060	85	(51)	4 193
Impairment allowances on financial and	152	13	9	5	-	-	179
non-financial assets
Other non-monetary expenses ***)	1 228	14	613	60	18	2	1 935

*) EBIT = operating profit (loss)

**) EBITDA = EBIT + depreciation, amortization, disposal and impairment losses (PPE, IA, goodwill) that are recognized in profit or loss

***) Non-monetary expenses include mainly changes in provisions such as: rehabilitation provision, provision for CO² emission rights, provision for jubilee awards and employee tariff that are recognized in profit or loss and other comprehensive income.

Information on business segments for the period ended September 30, 2016

	Conventional Generation	Renewables	Supply	Distribution	Other operations	Consolidation adjustments	Total
STATEMENT OF PROFIT OR LOSS
Sales revenues from external customers	8 198	456	10 130	1 448	303	28	20 563
Sales revenues from inter-segment transactions	333	40	1 702	2 918	208	(5 201)	-
TOTAL SEGMENT REVENUES	8 531	496	11 832	4 366	511	(5 173)	20 563
Cost of goods sold	(6 664)	(1 171)	(10 433)	(3 335)	(463)	4 727	(17 339)
EBIT *)	1 415	(733)	300	846	(39)	58	1 847
Financial income / (expenses), net							(202)
Share of profit/(loss) of entities
accounted for under the equity method							(61)
PROFIT/(LOSS) BEFORE TAX							1 584
Income tax							(385)
NET PROFIT/(LOSS) FOR THE
REPORTINGPERIOD							1 199
Depreciation, amortization, disposal and
impairment lossesrecognized in profit	1 031	989	20	839	95	(35)	2 939
or loss
EBITDA **)	2 446	256	320	1 685	56	23	4 786
ASSETS AND LIABILITIES
Segment assets excluding trade	34 470	3 690	1 128	16 257	927	(842)	55 630
receivables
Trade receivables	279	56	2 357	711	102	(1 086)	2 419
Shares in entities accounted for under							308
the equity method
Unallocated assets							7 275
TOTAL ASSETS							65 632
Segment liabilities excluding trade liabilities	8 994	352	1 917	1 883	119	90	13 355
Trade liabilities	541	20	995	202	53	(1 042)	769
Unallocated liabilities							10 433
TOTAL LIABILITIES							24 557
OTHER INFORMATION ON BUSINESS
SEGMENT
Capital expenditure	4 309	113	14	1 135	102	(76)	5 597
Impairment allowances on financial and
non-financial assets	60	782	4	8	1	4	859
Other non-monetary expenses***)	1 207	14	486	67	30	-	1 804

*) EBIT = operating profit (loss)

**) EBITDA = EBIT + depreciation, amortization, disposal and impairment losses (PPE, IA, goodwill) that are recognized in profit or loss

EXPLANATORY NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME

	Q1 not reviewed	Q2 not reviewed	Q3 not reviewed	Period ended September 30, 2017
Sales revenues	5 741	4 879	6 073	16 693
Cost of goods sold	(4 149)	(3 723)	(3 759)	(11 631)
GROSS PROFIT ON SALES	1 592	1 156	2 314	5 062
Other operating income / (expenses), net	89	40	7	136
EBIT –OPERATING PROFIT	1 201	731	1 883	3 815
Financial income / (expenses), net	(63)	(59)	(80)	(202)
Share of profit/(loss) of entities accounted for under the equity method	9	(8)	10	11
PROFIT BEFORE TAX	1 147	664	1 813	3 624
Income tax	(184)	(132)	(351)	(667)
NET PROFIT FOR THE REPORTING PERIOD	963	532	1 462	2 957

	Q1 not reviewed	Q2 not reviewed	Q3 not reviewed	Period ended September 30, 2016
Sales revenues	7 133	6 533	6 897	20 563
Cost of goods sold	(5 605)	(6 217)	(5 517)	(17 339)
GROSS PROFITON SALES	1 528	316	1 380	3 224
Other operating income / (expenses), net	157	77	28	262
EBIT –OPERATING PROFIT / (LOSS	1 123	(171)	895	1 847
Financial income / (expenses), net	(48)	(107)	(47)	(202)
Share of profit/ (loss) of entities accounted for under the equity method	-	(42)	(19)	(61)
PROFIT / (LOSS) BEFORE TAX	1 075	(320)	829	1 584
Income tax	(206)	(6)	(173)	(385)
NET PROFIT / (LOSS) FOR THE REPORTING PERIOD	869	(326)	656	1 199

5. Revenues and expenses

5.1 Sales revenues

	Q1 not reviewed	Q2 not reviewed	Q3 not reviewed	Period ended September 30, 2017
SALES REVENUES
Sales of merchandise and finished goods with excise tax	5 743	4 949	4 910	15 602
Excise tax	(125)	(116)	(114)	(355)
Revenues from sale of merchandise and finished goods, including	5 618	4 833	4 796	15 247
Sale of electricity	3 221	2 814	2 910	8 945
Sale of distribution services	1 574	1 453	1 473	4 500
Sale of heat	285	129	88	502
Sale of energy origin rights	158	87	(7)	238
Regulatory system services	147	125	124	396
Sale of gas	146	135	92	373
Other sale of merchandise and materials	87	90	116	293
Revenues from sale of services	123	46	66	235
Revenues from LTC compensations	-	-	1 211	1 211
TOTAL SALES REVENUES	5 741	4 879	6 073	16 693

	Q1 not reviewed	Q2 not reviewed	Q3 not reviewed	Period ended September 30, 2016
SALES REVENUES
Sales of merchandise and finished goods with excise tax	7 001	6 400	6 751	20 152
Excise tax	(126)	(120)	(122)	(368)
Revenues from sale of merchandise and finished goods, including	6 875	6 280	6 629	19 784
Sale of electricity	4 678	4 608	4 847	14 133
Sale of distribution services	1 433	1 332	1 365	4 130
Sale of heat	283	119	81	483
Sale of energy origin rights	185	(39)	59	205
Regulatory system services	137	113	123	373
Sale of gas	73	58	59	190
Other sale of merchandise and materials	86	89	95	270
Revenues from sale of services	128	130	137	395
Revenues from LTC compensations	130	123	131	384
TOTAL SALES REVENUES	7 133	6 533	6 897	20 563

The decline in sale of electricity in the period ended September 30, 2017 in comparison to the corresponding period of the previous year is mainly due to lower so called "power exchange obligation". Lower power exchange obligation starting from 2017 resulted in increased volume of electricity sales within the PGE Group. Such transactions are subject to eliminations on the level of consolidated financial statements.

Revenues from LTC compensations are described in note 22.1 of these financial statements.

5.2 Cost by nature and function

	Q1 not reviewed	Q2 not reviewed	Q3 not reviewed	Period ended September 30, 2017
COST BY NATURE
Depreciation, amortization and impairment losses	778	797	808	2 383
Materials and energy	758	589	634	1 981
External services	671	642	668	1 981
Taxes and charges	863	727	735	2 325
Employee benefits expenses	1 098	1 094	1 023	3 215
Other cost by nature	53	53	75	181
TOTAL COST BY NATURE	4 221	3 902	3 943	12 066
Change in inventories	(18)	2	8	(8)
Cost of products and services for the entity's own needs	(190)	(246)	(244)	(680)
Distribution and selling expenses	(304)	(296)	(282)	(882)
General and administrative expenses	(176)	(169)	(156)	(501)
Cost of merchandise and materials sold	616	530	490	1 636
COST OF GOODS SOLD	4 149	3 723	3 759	11 631

Decrease of sales of merchandise and finished goods (mainly purchased electricity) in the period ended September 30, 2017 in comparison to the corresponding period of the previous year is mainly due to lower revenues from sale of electricity (described in the table above).

Condensed interim consolidated financial statements of PGE Capital Group for the 3-month and 9-month period ended September 30, 2017 in accordance with IFRS EU(in PLN million)

	Q1 not reviewed	Q2 not reviewed	Q3 not reviewed	Period ended September 30, 2016
COST BY NATURE
Depreciation, amortization and impairment losses	731	1 522	782	3 035
Materials and energy	840	655	588	2 083
External services	593	617	638	1 848
Taxes and charges	811	773	873	2 457
Employee benefits expenses	1 117	1 059	1 022	3 198
Other cost by nature	63	65	66	194
TOTAL COST BY NATURE	4 155	4 691	3 969	12 815
Change in inventories	(29)	19	8	(2)
Cost of products and services for the entity's own needs	(264)	(269)	(251)	(784)
Distribution and selling expenses	(379)	(348)	(350)	(1 077)
General and administrative expenses	(183)	(216)	(163)	(562)
Cost of merchandise and materials sold	2 305	2 340	2 304	6 949
COST OF GOODS SOLD	5 605	6 217	5 517	17 339

5.2.1 Depreciation, amortization, disposal and impairment losses

Recognition of depreciation, amortization, disposal and impairment losses of property, plant and equipment and intangible assets in the statement of comprehensive income is presented below.

Period ended			Depreciation, amortization and disposal			Impairment losses
September 30, 2017	Property, plant and equipment	Intangible assets	Investment property	TOTAL	Property, plant and equipment	Intangible assets	TOTAL
Cost of goods sold	2 116	59	1	2 176	79	-	79
Distribution and selling expenses	9	4	-	13	-	-	-
General and administrative expenses	16	9	-	25	-	-	-
TOTAL DEPRECIATION, AMORTIZATION AND IMPAIRMENT LOSSES RECOGNIZED IN PROFIT OR LOSS	2 141	72	1	2 214	79	-	79
Cost of products and services for the entity's own needs	90	-	-	90	-	-	-
TOTAL DEPRECIATION, AMORTIZATION AND IMPAIRMENT LOSSES	2 231	72	1	2 304	79	-	79

Period ended			Depreciation, amortization and disposal		Impairment losses
September 30, 2016	Property, plant and equipment	Intangible assets	Investment property	TOTAL	Property, plant and equipment	Intangible assets	TOTAL
Cost of goods sold	1 969	60	1	2 030	557	282	839
Distribution and selling expenses	8	4	-	12	-	-	-
General and administrative expenses	48	9	-	57	-	1	1
TOTAL DEPRECIATION, AMORTIZATION AND IMPAIRMENT LOSSES RECOGNIZED IN PROFIT OR LOSS	2 025	73	1	2 099	557	283	840
Change in inventories	1	-	-	1	-	-	-
Cost of products and services for the entity's own needs TOTAL DEPRECIATION,	95	-	-	95	-	-	-
AMORTIZATION AND IMPAIRMENT LOSSES	2 121	73	1	2 195	557	283	840

5.3 Other operating income and expenses

	Period ended	Period ended
	September 30, 2017	September 30, 2016
OTHER OPERATING INCOME
Adjustment of revenues from LTC compensations	69	148
Penalties, fines and compensations received	64	73
Reversal of other provisions	25	32
Grants received	21	41
Reversal of impairment allowances on receivables	13	19
Profit on disposal of property, plant and equipment / intangible assets	8	10
Property, plant and equipment, intangible assets received free of charge	8	8
Revenues from illegal energy consumption	5	5
Refund of legal proceedings' costs	3	3
Surpluses / recognition of assets	2	3
Tax refund	2	5
Other	39	42
TOTAL OTHER OPERATING INCOME	259	389

Revenues from LTC compensations are described in note 22.1 of these financial statements.

	Period ended September 30, 2017	Period ended September 30, 2016
OTHER OPERATING EXPENSES
Recognition of impairment allowances on receivables	37	38
Recognition of other provisions	17	32
Liquidation of damages / breakdowns	13	12
Donations granted	13	5
Compensations	9	5
Legal proceedings' costs	4	5
Liquidation of property, plant and equipment and intangible assets associated with other operations	3	3
Other	27	27
TOTAL OTHER OPERATING EXPENSES	123	127

5.4 Financial income and expenses

	Period ended September 30, 2017	Period ended September 30, 2016
FINANCIAL INCOME ON FINANCIAL INSTRUMENTS
Dividends	5	1
Interest	74	31
Revaluation of financial instruments / reversal of impairment allowances	35	14
Foreign exchange gains	28	14
FINANCIAL INCOME ON FINANCIAL INSTRUMENTS	142	60
OTHER FINANCIAL INCOME
Interest on budget receivables	2
Reversal of provisions	-	1
Other	1	2
OTHER FINANCIAL INCOME	3	3
TOTAL FINANCIAL INCOME	145	63

The Group recognizes interest income primarily on cash deposits. Increase of "Revaluation of financial instruments" is mainly due to revaluation of an option to acquire Polimex shares.

Condensed interim consolidated financial statements of PGE Capital Group for the 3-month and 9-month period ended September 30, 2017 in accordance with IFRS EU(in PLN million)

	Period ended	Period ended
	September 30, 2017	September 30, 2016
FINANCIAL EXPENSES ON FINANCIAL INSTRUMENTS
Interest	116	97
Revaluation of financial instruments	1	7
Loss on the disposal of an investment	92	-
Impairment loss	3	2
Foreign exchange losses	2	10
FINANCIAL EXPENSES ON FINANCIAL INSTRUMENTS	214	116
OTHER FINANCIAL EXPENSES
Interest expenses, including unwinding of the discount	126	132
Recognition of provisions (interest)	5	16
Other	2	1
OTHER FINANCIAL EXPENSES	133	149
TOTAL FINANCIAL EXPENSES	347	265

Interest expenses relates mainly to issued bonds, loans and borrowings. Interest expense (unwinding of the discount) on non-financial items relates mainly to rehabilitation provision and provision for employee benefits.

Loss on the disposal of an investment in the amount of PLN 92 million is related to the sale of EXATEL S.A. shares.

5.5 Share of profit of associates and joint arrangementsaccounted for under the equity method

	Polska Grupa Górnicza	Polimex Mostostal	ElectroMobility Poland	PEC Bogatynia
SHARE IN VOTES	15.76%	16.48%	25.00%	34.93%
PERIOD ENDED SEPTEMBER 30, 2017
Revenues	5 885	1 476	-	8
Result from continuing operations	58	45	-	-
Share of profit of associates and joint arrangements	9	7	-	-
Elimination of unrealized losses	(5)	-	-	-
SHARE OF PROFIT OF ASSOCIATESAND JOINT ARRANGEMENTS	4	7	-	-

The PGE Group has made a consolidation adjustment related to margin on sales of coal sale between Polska Grupa Górnicza and the Group.

Purchase of shares in Polimex Mostostal is described in more detail in note 22.4 of these financial statements.

6. Impairment allowances on assets

	Period ended September 30, 2017	Period ended September 30, 2016
IMPAIRMENT ALLOWANCES ON PROPERTY, PLANT AND EQUIPMENT
Impairment allowances raised	79	557
IMPAIRMENT ALLOWANCES ON INTANGIBLE ASSETS
Impairment allowances raised	-	283
IMPAIRMENT ALLOWANCES ON INVENTORIES
Impairment allowances raised	58	21
Impairment allowances reversed	18	14

Impairment allowance on property, plant and equipment mainly relates to replacement investments in generating units, for which the impairment allowance was recognised in previous reporting periods. Impairment allowances on property, plant and equipment and on intangible assets raised in previous period related mainly to assets of Renewables segment.

In the current reportin period the Group raised impairment allowances on certificates with a value of PLN 37 million, that were not registered on the account and in relation to which the ERO decisions on suspension of proceeding in case of issue of those certificates were issued in September 2017. Additionally, an impairment allowance of PLN 20 million was raised, due to the decreased substitute fee, which is a base for valuation of part of produced certificates. Impairment allowance in total amount of PLN 57 million decreased the revenues from sales.

7. Tax in the statement of comprehensive income

Main elements of income tax expense for the periods ended September 30, 2017 and September 30, 2016 are as follows:

	Period ended September 30, 2017	Period ended September 30, 2016
INCOME TAX RECOGNIZED IN THE STATEMENT OF PROFIT OR LOSS
Current income tax	354	349
Previous periods current income tax adjustments	2	20
Deferred income tax	311	16
INCOME TAX EXPENSE RECOGNIZED IN THE STATEMENT OF PROFIT OR LOSS	667	385
INCOME TAX RECOGNIZED IN OTHER COMPREHENSIVE INCOME
From valuation of hedging instruments	(12)	11
TAX BENEFIT RECOGNIZED IN OTHER COMPREHENSIVE INCOME	(12)	11

Previous periods current income tax adjustments relate mainly to sales of electricity for the previous year invoiced in the first half of the current year. In the previous period sales were recognized based on estimates, on which deferred tax was recognized.

EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

8. Significant additions and disposals of property, plant and equipment and intangible assets

During the current reporting period, the PGE Group purchased property, plant and equipment and intangible assets of a total amount of PLN 4 193 million. The largest expenditures were incurred by Conventional Generation segment (PLN 3 041 million) and Distribution segment (PLN 1 060 million). The main items of expenditure were: construction of units 5 and 6 in Opole power plant (PLN 1 469 million), construction of unit 11 in Turów power plant (PLN 372 million), modernization of units 1-3 in Turów power plant (PLN 99 million) and construction of gas and steam unit in Gorzów heat and power plant (PLN 58 million).

During the current reporting period, the Group sold 100% of EXATEL S.A. shares. At the same time, the Group lost control over its subsidiary ENERERGO-TEL S.A. As a result, property, plant and equipment and intangible assets decreased by PLN 340 million.

9. Future investment commitments

As at September 30, 2017 the PGE Group committed to incur capital expenditures on property, plant and equipment of approximately PLN 7 096 million. These amounts relate mainly to construction of new power units, modernization of Group's assets and purchase of machinery and equipment.

	As at September 30, 2017	As at December 31, 2016 restated *
Conventional Generation	5 806	7 647
Distribution	1 027	796
Renewables	71	38
Supply	2	2
Other operations	190	201
TOTAL FUTURE INVESTMENT COMMITMENTS	7 096	8 684

* optional scope of advisory agreement concluded by PGE EJ1 sp. z o.o. was excluded from information presented as at December 31, 2016

The most significant future investment commitments involve:

Conventional Generation:
Branch Opole Power Plant construction of power units no. 5 and 6 approximately PLN 1 576 million,
Branch Turów Power Plant construction of a new power unit approximately PLN 2 713 million,
Branch Turów Power Plant modernization of power units no. 1-3 approximately PLN 516 million,
Branch Rzeszów Heat and Power Plant construction of Thermal Processing Installation with Energy Recovery approximately PLN 238 million,
Distribution investment commitments related to network distribution assets with total value of approximately PLN 1 027 million,
Other operations, PGE EJ1 sp. z o.o. agreement for owners engineer in the investment process related to construction of the first Polish nuclear power plant – basic scope of PLN 177 million. The optional scope of the agreement amounts to PLN 1 100 million.

10. Shares in associatesand joint arrangementsaccounted for under the equity method

	As at	As at
	September 30, 2017	December 31, 2016
Polska Grupa Górnicza Sp. z o.o.	528	391
Polimex Mostostal S.A.	88	-
ElectroMobility Poland S.A.	2	3
PEC Bogatynia Sp. z o.o.	8	8
INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD	626	402

The Group is currently working on allocating the purchase price of Polimex. As a result, the aforesaid investment is recognized in the financial statements of the PGE Group for the three quarters of 2017 at acquisition cost, adjusted by valuation under the equity method for the period of having significant influence on Polimex-Mostostal Group. The acquisition of shares in Polimex Mostostal S.A. is described in note 22.4 of these financial statements.

New investment agreement concerning Polska Grupa Górnicza is described in note 22.2.

11. Deferred tax in the statement of financial position

11.1 Deferred tax assets

	As at September 30, 2017	As at December 31, 2016
Difference between tax value and carrying amount of property, plant and equipment	1 545	1 559
Difference between tax value and carrying amount of financial assets	11	16
Difference between tax value and carrying amount of liabilities	247	272
Difference between tax value and carrying amount of inventories	14	15
LTC compensations	-	253
Rehabilitation provision	501	472
Provision for CO2 emission rights	160	220
Provisions for employee benefits	543	529
Other provisions	87	129
Energy infrastructure acquired free of charge and connection payments received	114	129
Other	18	15
DEFERRED TAX ASSETS	3 240	3 609

11.2 Deferred tax liabilities

	As at	As at
	September 30, 2017	December 31, 2016
Difference between tax value and carrying amount of property, plant and equipment	3 228	2 945
Difference between tax value and carrying amount of energy origin rights	36	65
Difference between tax value and carrying amount of financial assets	334	377
CO2 emission rights	269	439
LTC compensations	589	680
Other	35	26
DEFERRED TAX LIABILITIES	4 491	4 532

AFTER OFF-SET OF THE ASSET AND THE LIABILITY IN PARTICULAR COMPANIES THE GROUP'S DEFFERED TAX IS PRESENTED AS:
Deferred tax assets	258	268
Deferred tax liabilities	(1 509)	(1 191)

12. CO² emission rights for own use

Power generating units belonging to the PGE Group, which are covered by the provisions of the Act dated June 12, 2015 on a scheme for greenhouse gas emission allowance trading, receive CO² emission rights (EUA). Starting from 2013, only part of EUA allowances will be granted unconditionally, namely those to cover CO2 emissions resulting from production of heat, while, as a rule, there are no free of charge EUA allowances to cover CO2 emissions resulting from production of electricity. Article 10c of Directive 2009/29/EC introduced the possibility of a derogation from the rule of lack of free of charge EUA allowances to cover CO2 emissions connected with production of electricity providing the realization of investment tasks included in the National Investment Plan ("NIP"). The condition under which free of charge EUA to cover CO² emissions connected with production of electricity can be obtained is annual submission of factualfinancial statements from realization of tasks included in the NIP.

In September 2016 the PGE Group submitted subsequent reports on the realization of the investments included in the NIP in order to obtain EUA to cover CO² emissions for units producing electricity. The allowances were issued in April 2017 and were used to cover CO² emissions in 2016 (approximately 19 million of EUA). The schedule of granting EUA to cover CO² emissions resulting from production of heat is different - in February 2017 EUA allowances were issued in order to cover CO² emissions in 2017 (approximately 750 thousand of EUA).

In September 2017, the PGE Capital Group submitted further reports on the implementation of investments included in the NIP in order to obtain EUA allowances for CO² emissions for electricity generating units, justified by the expenditures incurred for the realization of investment tasks included in the NIP in the period from July 1, 2016 to June 30, 2017. Formal assesment of the submitted documents should be completed by November 30, 2017.

	As at September 30, 2017		As at December 31, 2016
EUA	Amount (Mg million)	Value	Amount (Mg million)	Value
AS AT JANUARY 1	85	2 349	77	2 172
Purchase	10	224	40	937
Granted free of charge	20	-	26	-
Redemption	(56)	(1 156)	(58)	(760)
AS AT THE REPORTING DATE	59	1 417	85	2 349

Decrease in value of CO² emission rights possessed by PGE Capital Group as at September 30, 2017 results, among others, from commencement of purchase on forward market.

13. Other current and non-current assets

13.1 Other non-current assets

	As at September 30, 2017	As at December 31, 2016
Advances for construction in progress	552	713
Other non-current assets	14	17
OTHER ASSETS, TOTAL	566	730

Advances for construction in progress relate mainly to investment projects conducted by Conventional Generation segment.

13.2 Other current assets

	As at September 30,	As at December 31, 2016
	2017	data restated
PREPAYMENTS
Fees and commissions	36	34
Social Fund	36	2
Surplus of certificates redemption over the obligation	36	-
Long-term contracts	22	3
Fees for the exclusion of land from agricultural production / forestry	12	4
IT services	8	6
Property and tort insurance	5	2
Perpetual usufruct of land	4	-
Other prepayments	20	16
OTHER CURRENT ASSETS
VAT receivables	198	222
Excise tax receivables	75	100
Advances for deliveries	11	6
Other current assets	17	21
OTHER ASSETS, TOTAL	480	416

VAT receivables is related to estimation of electricity sales unread on measuring equipment as at the reporting date. The amount of excise tax receivables regards the exemption from excise tax of electricity generated from renewable energy sources on the basis of a document confirming the redemption of the certificate of origin.

14. Selected financial assets

The carrying amount of financial assets measured at amortized cost is a reasonable estimate of their fair value.

14.1 Trade and other financial receivables

		As at September 30, 2017		As at December 31, 2016
	Non-current	Current	Non-current	Current
Trade receivables	-	2 439	-	2 705
LTC compensations	-	938	-	1 241
Debt securities, including bonds	89	5	89	-
Deposits	147	4	136	2 300
Bails and security deposits	1	23	2	12
Other financial receivables	9	73	10	67
FINANCIAL RECEIVABLES, TOTAL	246	3 482	237	6 325

14.2 Cash and cash equivalents

Short-term deposits are made for different periods, from one day up to one month, depending on the Group's needs for cash, and are deposited at individually agreed interest rates.

	As at September 30, 2017	As at December 31, 2016
Cash on hand and cash at bank	967	808
Overnight deposits	21	42
Short-term deposits	4 615	1 819
TOTAL	5 603	2 669
Interest accrued on cash, not received at the reporting date	(1)	(2)
Exchange differences on cash in foreign currencies	(1)	(1)
Cash and cash equivalents presented in the statement of cash flows	5 601	2 666
including restricted cash	98	107

Undrawn borrowing facilities	6 573	6 081
including overdraft facilities	2 001	2 001

For detailed description of bank agreements please refer to note 18.1 of these financial statements.

Restricted cash disclosed in the consolidated statement of cash flows relates primarily to:

cash received as a guarantee of proper execution of the contract and cash received as a tender deposit,
cash deposit securing the settlements of the PGE Group entities with Izba Rozliczeniowa Giełd Towarowych S.A. (Warsaw Commodity Clearing House).

15. Derivatives

	As at September 30, 2017		As at December 31, 2016
	Assets	Liabilities	Assets	Liabilities
DERIVATIVES TO WHICH HEDGE ACCOUNTING IS NOT APPLIED
Currency forward	2	-	1	-
Commodity forward	-	-	8	-
IRS transactions	-	11	-	30
Options	35	-	-	-
DERIVATIVES TO WHICH HEDGE ACCOUNTING IS NOT APPLIED
CCIRS hedging transactions	116	-	231	-
IRS hedging transactions	99	16	125	-
DERIVATIVES, TOTAL	252	27	365	30
current	2	-	9	-
non-current	250	27	356	30

Options

On January 20, 2017 the PGE Group acquired from Towarzystwo Finansowe Silesia Sp. z o.o. a call option for purchase of Polimex-Mostostal S.A. shares. Dates of realization of the option were set at: July 30, 2020, July 30, 2021 and July 30, 2022.

IRS transactions

In the current reporting period, PGE S.A. entered into an IRS transaction hedging the interest rate on a bank loan with a nominal value of PLN 500 million. For the recognition of this IRS transaction, the Company applies hedge accounting.

In 2016 the PGE Group concluded IRS transactions hedging the interest rate on bank loans with a total nominal value of PLN 4 630 million. For recognition of these IRS transactions the Company applies hedge accounting.

The impact of hedge accounting is described in note 16.2 of these financialstatements.

In 2014 PGE S.A. concluded IRS transactions hedging the interest rate on bonds issued with a total nominal value of PLN 1 billion. Payments arising from the IRS transactions are correlated with interest payments on bonds. Change in fair value of these IRS transactions is fully recognized in profit or loss.

In 2003, Elektrownia Turów S.A. (currently a branch of PGE Górnictwo i Energetyka Konwencjonalna S.A.) concluded IRS-swap hedge transaction. This transaction is aimed to hedge variable interest rates (USD LIBOR 6m) on investment loan of USD 80 million drawn from Nordic Investment Bank to finance investments in Turów power plant. Change in fair value of this IRS transaction is fully recognized in profit or loss.

CCIRS hedging transaction

In connection with loans received from PGE Sweden AB (publ), PGE S.A. concluded CCIRS transactions, hedging both the exchange rate concerning payments of principal and interest and interest rate. In these transactions, banks-contractors pay PGE S.A. interest based on a fixed rate in EUR and PGE S.A. pays interest based on a fixed rate in PLN. In the consolidated financial statements the relevant part of CCIRS transactions is recognized as a hedge of bonds issued by PGE Sweden AB (publ).

The Group applies hedge accounting to the above CCIRS transactions. The impact of hedge accounting is presented in note 16.2 of these financial statements.

16. Equity

The basic assumption of the Group's policy regarding equity management is to maintain an optimal equity structure over the long term perspective in order to assure a good financial standing and secure equity structure ratios that would support the operating activity of the PGE Group. It is also crucial to maintain a sound equity base that would be the basis to win confidence of potential investors, creditors and the market and assure further development of the Group.

16.1 Share capital

	As at	As at
	September 30, 2017	December 31, 2016
1 470 576 500 Series A ordinary Shares with a nominal value of PLN 10.25 each	15 073	15 073
259 513 500 Series B ordinary Shares with a nominal value of PLN 10.25 each	2 660	2 660
73 228 888 Series C ordinary Shares with a nominal value of PLN10.25 each	751	751
66 441 941 Series D ordinary Shares with a nominal value of PLN10.25 each	681	681
TOTAL SHARE CAPITAL	19 165	19 165

All shares of the Company have been paid up.

After the reporting date until the date of preparation of these financial statements there have been no changes in the amount of the Company's share capital.

Rights of the shareholders – Rights of the State Treasury regarding the Company's operations

The Company is a part of the PGE Polska Grupa Energetyczna S.A. Group, to which State Treasury holds special rights as long as it remains a shareholder.

Special rights of the State Treasury that are applicable to the PGE Group entities derive from the Act of March 18, 2010 on special rights of the minister competent for energy and their performance in certain companies and groups operating in the electricity, oil and gaseous fuels sectors (Official Journal from 2016, item 2012). The aforesaid Act specifies the particular rights entitled to the minister competent for energy related to companies and groups operating in the electricity, oil and gaseous fuels sectors whose property was disclosed within the register of buildings, installations, equipment and services included in critical infrastructure.

Based on this act the minister competent for energy has the right to object to any resolution or legal action of the Management Board that relates to the ability to dispose a part of company's property, which may result in threat to functioning, continuity of operations and integrity of critical infrastructure. The objection can also be expressed against any resolutions adopted that relates to:

liquidation of the Company,
changes of the use or discontinuance of exploitation of the company's asset, which is a component of critical infrastructure,
change in the scope of activities of the Company,
sale or lease of the enterprise or its organized part or establishment of legal restrictions,
approval of operational and financial plan, investment plan, or long-term strategic plan,
movement of the Company's seat abroad,

if the enforcement of such a resolution resulted in an actual threat to the operation continuity or integrity of the critical infrastructure. The objection is expressed in the form of an administrative decision.

16.2 Hedging reserve

	Period ended September 30, 2017	Year ended December 31, 2016
AS AT JANUARY 1	147	(21)
Change of hedging reserve	(61)	207
Valuation of hedging instruments, including:	(60)	206
Deferral of changes in fair value of hedging instruments recognized as an effective hedge	(146)	313
Accrued interest on derivatives transferred from hedging reserve and recognized in interest expense	12	1
Currency revaluation of CCIRS transaction transferred from hedging reserve and recognized in the result on foreign exchange differences	76	(107)
Ineffective portion of change in fair value of hedging derivatives recognized in profit or loss	(2)	(1)
Valuation of other financial instruments	(1)	1
Deferred tax	12	(39)
HEDGING RESERVE INCLUDING DEFERRED TAX	98	147

Hedging reserve includes mainly valuation of hedging instruments to which cash flow hedge accounting is applied.

16.3 Dividends paid and dividends declared

	Dividend paid or declared from the profit for the period ended
	September 30, 2017	December 31, 2016	December 31, 2015
CASH DIVIDENDS FROM ORDINARY SHARES
Dividend paid from retained earnings	-	-	467
Cash dividends per share (in PLN)	-	-	0.25

Dividend from the profit for the year 2017

During the reporting period and until the date of preparation of these financial statements the Company has made no advance payments of dividends.

On May 11, 2017, the Management Board of the Company decided to change dividend policy. Taking into consideration the ambitious development plan and limitations of debt ratio growth, the Management Board of the Company recommended suspension of dividends payments for the years 2016, 2017 and 2018.

After that period, the Management Board of the Company intends to provide a recommendation for the General Shareholders' Meeting of the Company to pay dividends at the level of 40-50% of the consolidated net profit attributable to equity holders of the parent, adjusted by impairment allowances on property, plant and equipment and intangible assets.

Every dividend payment will depend on total debt amount of the Company, expected capital expenditures and potential acquisitions.

Dividend from the profit forthe year 2016

According to the updated dividend policy, on June 27, 2017 the Ordinary Shareholders' Meeting of PGE S.A. resolved to allocate the whole net profit for 2016 of PLN 1 598 million to reserve capital.

Dividend from the profit for the year 2015

On June 28, 2016, the General Shareholders' Meeting of PGE S.A. resolved to distribute PLN 467 million from the net profit of 2015 as a dividend (that comprises dividend of PLN 0.25 per share). Dividend was paid off on October 14, 2016.

17. Provisions

The carrying amount of provisions is as follows:

	As at September 30, 2017		As at December 31, 2016
	Non-current	Current	Non-current	Current
Employee benefits	2 138	688	2 148	543
Rehabilitation provision	2 827	4	2 666	4
Provision for deficit of CO2 emission rights	-	844	-	1 154
Provisions for energy origin units held for redemption	-	198	-	416
Provision for non-contractual use of property	77	11	91	12
Other provisions	105	60	99	52
TOTAL PROVISIONS	5 147	1 805	5 004	2 181

Changes in provisions

	Employee benefits	Rehabilitation provision	Provision for deficit of CO2 emission rights	Provisions for energy origin units held for redemption	Provision for non-contractual use of property	Other provisions	Total
JANUARY 1, 2017	2 691	2 670	1 154	416	103	151	7 185
Current service costs	48	-	-	-	-	-	48
Past service costs	(2)	-	-	-	-	-	(2)
Interest costs	60	66	-	-	-	-	126
Benefits paid / Provisions used	(392)	-	(1 156)	(776)	-	(15)	(2 339)
Provisions reversed	(21)	-	-	(12)	(22)	(10)	(65)
Provisions raised in correspondence with costs	458	35	844	570	7	36	1 950
Provisions raised in correspondence with property, plant and equipment	-	58	-	-	-	-	58
Change in the Group composition	(8)	-	-	-	-	(4)	(12)
Other changes	(8)	2	2	-	-	7	3
SEPTEMBER 30, 2017	2 826	2 831	844	198	88	165	6 952

	Employee benefits	Rehabilitation provision	Provision for deficit of CO2 emission rights	Provisions for energy origin units held for redemption	Provision for non-contractual use of property	Other provisions	Total
JANUARY 1, 2016	3 013	3 350	760	380	117	233	7 853
Actuarial gains and losses excluding discount rate adjustment	(175)	-	-	-	-	-	(175)
Current service costs	74	-	-	-	-	-	74
Past service costs	(23)	-	-	-	-	-	(23)
Interest costs	82	99	-	-	-	-	181
Discount rate and other assumptions adjustment	(121)	(460)	-	-	-	-	(581)
Benefits paid / provisions used	(691)	(1)	(760)	(336)	-	(104)	(1 892)
Provisions reversed	(59)	(449)	-	(3)	(30)	(27)	(568)
Provisions raised in correspondence with costs	577	34	1 154	375	16	67	2 223
Provisions raised in correspondence with property, plant and equipment	-	92	-	-	-	-	92
Other changes	14	5	-	-	-	(18)	1
DECEMBER 31, 2016	2 691	2 670	1 154	416	103	151	7 185

17.1 Provision for employee benefits

The PGE Group companies raise provisions for:

post-employment benefits PLN 1 588 million (PLN 1 570 million as at December 31, 2016);
jubilee awards PLN 765 million (PLN 788 million as at December 31, 2016);
other benefits (bonuses, unused holidays, etc.) PLN 473 million (PLN 333 million as at December 31, 2016).

17.2 Rehabilitation provision

Provision for rehabilitation of post-exploitation mining properties

After the completion of the lignite mining, the area of the surface mines belonging to the PGE Group will be rehabilitated. According to the current plans, costs will be incurred in the years 2023 - 2069 (in case of PGE Górnictwo i Energetyka Konwencjonalna S.A. Branch Bełchatów Lignite Mine) and in years 2045-2087 (in case of PGE Górnictwo i Energetyka Konwencjonalna S.A. Branch Turów Lignite Mine).

The PGE Group creates provisions for rehabilitation of post-exploitation mining properties. The amount of the provision recognized in the financial statements includes also the value of Mine Liquidation Fund created in accordance with the Geological and Mining Law Act. The value of the provision as at September 30, 2017 amounted to PLN 2 503 million and as at December 31, 2016 to PLN 2 366 million.

Provision for rehabilitation of ash storages

The PGE Group power generating units raise provision for rehabilitation of ash storages. As at the reporting date, the value of provision amounted to PLN 117million and as at December 31, 2016 to PLN 98 million.

Provisions for rehabilitation of post-construction grounds of wind farms

The companies which own wind farms raise provisions for rehabilitation of post-construction grounds of wind farms. As at the reporting date, the value of provision amounted to PLN 51 million and as at December 31, 2016 to PLN 49 million.

Liquidation of property, plant and equipment

The obligation to liquidate assets and rehabilitate the area results from "The integrated permission for running electric energy and heat energy producing installation" in which the restitution of the area was specified. As at the reporting date, the value of the provision amounts to PLN 160 million (PLN 157 million as at December 31, 2016) and refers to some assets of Conventional Generation and Renewables segments.

17.3 Provision for deficit of CO² emission rights

As a general rule, the PGE Group entities recognize provision for the shortfall of CO² emission rights granted free of charge. In estimating the value of the provision the Group takes into account EUA purchased. As described in note 12 of these financial statements the PGE Group is entitled to receive CO² emissions rights granted free of charge in connection with expenditures incurred for investments included in the National Investment Plan. The calculation of the provision includes also these rights.

17.4 Provision for energy origin rights held for redemption

Companies within the PGE Group create provision for energy origin rights related to sale realized during the reporting period or in prior reporting periods, in the amount of non-depreciated part until the reporting date. The total value of provision as at September 30, 2017, amounted to PLN 198million (PLN 416 million in the comparative period) and was created mainly by PGE Obrót S.A.

17.5 Provision for non-contractual use of property

Entities of the PGE Group recognize provision for damages related to a non-contractual use of property that are claimed under court proceedings. This issue mainly relates to distribution company, which owns distribution networks. As at the reporting date the provision amounted to approximately PLN 88 million (of which 42 million related to litigations). In the comparative period the provision amounted to PLN 103 million (of which PLN 43 million related to litigations).

17.6 Other provisions

Other provisions comprise mainly provisions raised for claims relating to real estate tax of PLN 93 million (PLN 90 million in the prior year). These provisions mainly relate to PGE GiEK S.A. Branch Opole Power Plant.

18. Financial liabilities

The value of financial liabilities measured at amortized cost is a reasonable approximation of their fair value, excluding bonds issued by PGE Sweden AB (publ).

Bonds issued by PGE Sweden AB (publ) are based on a fixed interest rate. Their value at amortized cost presented in these financial statements as at September 30, 2017 amounted to EUR 640 million whereas their assessed fair value amounted to EUR 655 million. The indicators used in the valuation belong to Level 2 of the fair value hierarchy.

18.1 Loans, borrowings, bonds and lease

	As at September, 30 2017		As at December 31, 2016
	Non-current	Current	Non-current	Current
Loans and borrowings	5 729	300	5 839	332
Bonds issued	2 705	1 058	3 764	78
Lease	-	-	-	1
TOTAL LOANS, BORROWINGS, BONDS AND LEASE	8 434	1 358	9 603	411

Loans and borrowings

Among loans and borrowings presented above as at September 30, 2017, the PGE Group presents mainly the following facilities:

investment credit facility taken out by PGE Górnictwo i Energetyka Konwencjonalna S.A. from Nordic Investment Bank to finance construction of 858 MW power unit in Bełchatów Power Plant of PLN 526 million,
investment credit facilities taken out by PGE Górnictwo i Energetyka Konwencjonalna S.A. from Nordic Investment Bank and UBS Investment Bank AG to finance the modernization of power blocks no. 1-6 in Turów Power Plant of PLN 74 million,
investment credit facility taken out by PGE S.A. from Bank Gospodarstwa Krajowego S.A. in total value of PLN 1 512 million,
long-term loan agreement taken out by PGE S.A. from a syndicate of banks composed of: BNP Paribas S.A., Société Générale S.A., Bank Handlowy w Warszawie S.A., ING Bank Śląski S.A., Bank Zachodni WBK S.A., mBank S.A., Powszechna Kasa Oszczędności Bank Polski S.A., Bank Polska Kasa Opieki S.A. concluded on September 7, 2015. Subject matter of the agreement is granting a loan in two parts, i.e. term loan facility and revolving loan facility. Part of the term loan facility was paid out and debt amounts to PLN 3 625 million as at September 30, 2017. The revolving loan facility of up to PLN 1 870 million is available, but not used by PGE S.A.

On June 7, 2017, PGE S.A. concluded loan agreement with European Bank for Reconstruction and Development Bank for the total amount of PLN 500 million with the maturity date of June 7, 2028. The funds obtained on the basis of the agreement will be used for projects relating to the modernization and development of distribution grid. As at September 30, 2017 the loan was not used.

Additionally, on October 27, 2015, PGE S.A. concluded two loan agreements with the European Investment Bank for the total amount of nearly PLN 2 000 million. The amount of PLN 1,500 million, obtained on the basis of the first of the two agreements, will be used for projects relating to the modernization and development of distribution grid. The funds from the second agreement, i.e. the remaining PLN 490 million, will be used to finance and refinance the construction of cogeneration units Gorzów Heat and Power Plant and Rzeszów Heat and Power Plant. The European Investment Bank loans will be available for disbursement over a period of up to 22 months from the date of signing of the agreements. The funds shall be repaid within 15 years from the date of the last tranche. As at September 30, 2017 the aforesaid loans were not used.

The value of overdraft facilities at the disposal of significant PGE Group entities amounted to PLN 2 001 million as at September 30, 2017.

Bonds issued

The Group has the ability to finance its operations through two bond issue programs:

The bond issue program for the amount of PLN 5 billion directed towards investors from the Polish capital market. On June 27, 2013, the first non-public issuance of 5-year bonds under this program took place, the coupon bearer bonds with a variable interest rate. The nominal value of the issue was PLN 1 billion and the maturity of the bonds is June 27, 2018. On August 29, 2013, the bonds were floated in the Alternative Trading System organized by BondSpot S.A. and Giełda Papierów Wartościowych w Warszawie S.A. (Warsaw Stock Exchange).
The medium term Eurobonds Issue Program of EUR 2 billion established on May 22, 2014 by PGE S.A. together with PGE Sweden AB (publ), a 100% subsidiary of PGE S.A. Under the Program, PGE Sweden AB (publ) may issue eurobonds up to the amount of EUR 2 billion with a minimum maturity of 1 year. On June 9, 2014, PGE Sweden AB (publ) issued Eurobonds in the total amount of EUR 500 million and a five year maturity and on August 1, 2014 it has issued bonds in the amount of EUR 138 million and fifteen-year maturity.

18.2 Trade and other financial liabilities

	As at September 30, 2017		As at December 31, 2016
	Non-current	Current	Non-current	Current
Trade liabilities	-	803	-	976
Purchase of property, plant and equipment and intangible assets	5	707	12	1 225
Bails and security deposits received	22	67	21	65
Liabilities related to LTC	-	-	-	1 253
Other	1	47	-	37
TOTAL TRADE AND OTHER FINANCIAL LIABILITIES	28	1 624	33	3 556

Decline in liabilities related to LTC results from the favourable decision regarding so called final adjustment. LTC issue is described in note 22.1 to these financial statements.

OTHER EXPLANATORY NOTES

19. Contingent liabilities and receivables. Legal claims

19.1 Contingent liabilities

	As at	As at
	September 30, 2017	December 31, 2016
Contingent return of grants from environmental funds	474	469
Contingent return of CO2 emission rights received free of charge	115	115
Legal claims	116	73
Employees' claims	1	1
Contractual fines and penalties	12	12
Other contingent liabilities	38	61
TOTAL CONTINGENT LIABILITIES	756	731

Contingent return of grants from environmental funds

The liabilities represent the value of possible future reimbursements of funds received by the PGE Group companies from environmental funds for the particular investments. The funds will be reimbursed, if investments for which they were granted, will not bring the expected environmental effect.

Contingent return of CO² emission rights received free of charge

The contingent liability results from the risk of a return of the equivalent of CO² emission rights (including interest) balanced in 2013 and 2014 by capital expenditure that may not obtain the approval of compliance indicators.

Legal claims

The contingent liability is mainly related to the dispute with WorleyParsons. WorleyParsons made a claim for the remuneration of PLN 59 million due to the claimant, and for the return of the amount that in the claimant's opinion was unduly collected by PGE EJ 1 sp. z o.o. from a bank guarantee. PGE EJ 1 sp. z o.o. filed a response to the lawsuit. Moreover, the value of the claims mentioned in the WorleyParsons' lawsuit of PLN 54 million has been included in a request for payment of PLN 92 million related to termination of the agreement, that was filed by WorleyParsons on March 13, 2015. On March 24, 2017 WorleyPersons extended its claim from PLN 59 million up to PLN 104 million (i.e. by PLN 45 million). The Group does not accept the claim and regards its possible admission by the court as unlikely. The next hearing was set for December 8, 2017.

Claims related to contractual fines and penalties

The contingent liability comprises mainly accrued contractual fines relating to the delay in realization of the investment issued by the Mayor of the City and Municipality of Gryfino to Zespół Elektrowni Dolna Odra S.A. (currently PGE Górnictwo i Energetyka Konwencjonalna S.A.). The Group committed to the Municipality of Gryfino to accomplish two investments with the total value of not less than almost PLN 8 million until the end of 2018. Failure to realize investments included in the agreement will result in claims relating to contractual fines and penalties by the Municipality of Gryfino.

19.2 Other significant issues related to contingent liabilities

Non-contractual use of property

As described in note 17.5, the PGE Group recognizes provision for disputes under court proceedings, concerning non-contractual use of properties utilized for distribution activities. In addition, in the PGE Group, there are disputes at an earlier stage of proceedings and it cannot be excluded that the number and value of similar disputes will grow in the future.

Contractual liabilities related to purchase of fuels

According to the concluded agreements on the purchase of fuels (mainly coal and gas), the PGE Group companies are obliged to collect the minimum volume of fuels and not to exceed the maximum level of collection of gas fuel in particular hours and months. A failure to collect a minimum volume of fuels specified in the contracts, may result in a necessity to pay some extra fee (in case of gas fuel, the volume not collected by power plants but paid up, may be collected within the next three contractual years).

In the PGE Group's opinion, the terms described above and conditions of fuel deliveries to its power generating units do not differ from terms and conditions of fuel deliveries to other power generating units on the Polish market.

19.3 Contingent receivables

As at reporting date the Capital Group recognised contingent liabilities of PLN 5 million due to not balanced transactions for purchase and sale of electricity on the domestic market. In the previous year as at December 31, 2016 this transactions were recorded in contingent liabilities and amounted to PLN 19 million.

19.4 Other legal claims and disputes

The issue of compensation for conversion of shares

Former shareholders of PGE Górnictwo i Energetyka S.A. present to the courts a motions to summon PGE S.A. to a conciliation hearing concerning payment of compensation for incorrect (in their opinion) determination of the exchange ratio of shares of PGE Górnictwo i Energetyka S.A. into shares of PGE S.A. during consolidation process that took place in 2010. The total value of claims resulting from summons to a conciliation hearing directed by the former shareholders of PGE Górnictwo i Energetyka S.A. amounts to over PLN 10 million.

Regardless of the above, on November 12, 2014 Socrates Investment S.A. (an entity which purchased claims from former PGE Górnictwo i Energetyka S.A. shareholders) filed a lawsuit to impose a compensation in the total amount of over PLN 493 million (plus interest) for damages incurred in respect of incorrect (in their opinion) determination of the exchange ratio of shares in the merger of PGE Górnictwo i Energetyka S.A. and PGE S.A. The Company has responded to the lawsuit. Currently the proceedings before the court of first instance are in progress.

Additionally, Pozwy sp. z o.o. (an entity which purchased claims from former PGE Elektrownia Opole S.A.'s shareholders) filed a similar claim to the District Court in Warsaw. It demands payment of over PLN 260 million (plus interest) from PGE Górnictwo i Energetyka Konwencjonalna S.A., PGE S.A. and PwC Polska sp. z o.o. based on "in solidum" rule alternatively based on joint and several liability. The claim concerns compensation for the allegedly incorrect (in their opinion) determination of the exchange ratio of shares of PGE Elektrownia Opole S.A. into shares of PGE Górnictwo i Energetyka Konwencjonalna S.A. in the process of merging these companies. The lawsuit was received by PGE S.A. on March 9, 2017. The date to respond to the lawsuit was established by the court for July 9, 2017. On July 8, 2017 PGE S.A. and PGE GiEK S.A. filed a response to the lawsuit and court proceeding at first instance is in progress.

The PGE Group entities do not recognize the claims of Socrates Investment S.A., Pozwy Sp. z o.o. and other shareholders who call for trial settlements. These claims are unfounded. In PGE S.A.'s opinion the consolidation process was conducted fairly and properly. The value of shares which were subject to the process of consolidation (merger) was established by an independent company PwC Polska sp. z o.o. Additionally, merger plans of the companies mentioned above, including the share exchange ratios were examined for accuracy and reliability by an expert appointed by the registration court. No irregularities were found. Then, the court registered the merger of the companies mentioned above.

For the reported claims, the Company has not created any provision.

Claims for annulment of the resolutions of the General Shareholders' Meetings

On April 1, 2014, PGE S.A. received a copy of a lawsuit filed to the District Court in Warsaw by one of the shareholders. In the lawsuit, the shareholder is seeking for annulment of the resolutions 1, 2 and 4 of the Extraordinary General Shareholders' Meeting of the Company held on February 6, 2014. The Company filed a response to the claim. On June 22, 2015, the District Court in Warsaw issued a judgment dismissing the shareholder's claim in its entirety. The shareholder filed an appeal and the Company filed a response to the appeal. On March 24, 2017 a hearing was held before the Court of Appeal in Warsaw. The Court discontinued the proceedings due to withdrawal of a legal action without waiving the claim.

On August 21, 2015, PGE S.A. received a copy of a lawsuit filed to the District Court in Warsaw by one of the shareholders. In the lawsuit, the shareholder is seeking for annulment of the resolution 5 of the Ordinary General Shareholders' Meeting of the Company held on June 24, 2015. The Company filed a response to the lawsuit. The District Court in Warsaw dismissed the shareholder's claim in its judgement issued on April 26, 2016. On April 3, 2017, the shareholder filed an appeal. The District Court dismissed the appeal on April 18, 2017 due to failure to meet the deadline for submitting of the appeal. The verdict became valid on May 6, 2017.

On September 17, 2014 PGE S.A. received a copy of a lawsuit filed to the District Court in Warsaw by one of the shareholders. In the lawsuits, the shareholder is seeking for annulment of the resolution 4 of the Ordinary General Shareholders' Meeting of the Company held on June 6, 2014. The Company filed a response to the lawsuit. On August 13, 2015, the District Court in Warsaw issued a judgment dismissing the shareholder's claim in its entirety. The shareholder appealed and the Company filed a response to the appeal. On March 2, 2017 the Court of Appeal in Warsaw dismissed the appeal. The shareholder filed a cassation appeal dated June 10, 2017. On August 3, 2017 the Company replied to the cassation appeal. The date of the hearing has not been set.

On October 23, 2015 PGE S.A. received a copy of a lawsuit filed to the District Court in Warsaw by one of the shareholders. In the lawsuit, the shareholder is seeking for annulment of the resolution 1 of the Extraordinary General Shareholders' Meeting of the Company held on September 14, 2015. The Company filed a response to the lawsuit. On April 24, 2017 the hearing was conducted before the District Court in Warsaw. The court dismissed the shareholder's claim in its judgement issued on May 8, 2017. The shareholder filed an appeal on July 3, 2017. On August 27, 2017 the District Court dismissed the appeal of the shareholder. The verdict became valid on September 13, 2017.

On May 20, 2016 PGE S.A. received a copy of a lawsuit filed to the District Court in Warsaw by one of the shareholders. In the lawsuit, the shareholder is seeking for annulment of the resolution 1 of the Extraordinary General Shareholders' Meeting of the Company held on March 1, 2016. The Company filed a response to the lawsuit. On March 14, 2017, the proceedings were discontinued due to withdrawal of a legal action before the first trial.

On September 12, 2016 PGE S.A. received a copy of a lawsuit filed to the District Court in Warsaw by one of the shareholders. In the lawsuit, the shareholder is seeking for annulment of the resolution 1 of the Ordinary General Shareholders' Meeting of the Company held on June 28, 2016. The Company filed a response to the lawsuit. On March 17, 2017, the proceedings were discontinued due to withdrawal of a legal action before the first trial.

On December 30, 2016 PGE S.A. received a copy of a lawsuit filed to the District Court in Warsaw by one of the shareholders. In the lawsuit, the shareholder is seeking for annulment of the resolution 1 of the Extraordinary General Shareholders' Meeting of the Company held on September 5, 2016. The Company filed a response to the lawsuit. On March 16, 2017, the proceedings were discontinued due to withdrawal of a legal action before the first trial.

On March 15, 2017 PGE S.A. received a copy of a lawsuit filed to the District Court in Warsaw by one of the shareholders. In the lawsuit, the shareholder is seeking for annulment of the resolution 4 of the Extraordinary General Shareholders' Meeting held on September 5, 2016. The Company filed a response to the lawsuit. The District Court in Warsaw, after hearing of October 11, 2017 at a closed-down meeting of a case filed by the shareholder, issued a decision on referring the parties to the mediation. PGE S.A. decided not to enter the mediation.

Termination by Enea S.A.of contracts for sale of energy origin rights

In October 2016 PGE Górnictwo i Energetyka Konwencjonalna S.A., PGE Energia Odnawialna S.A. and PGE Energia Natury PEW sp. z o.o. received from Enea S.A. termination of long-term contracts for sale of renewable energy origin rights, so called "green certificates"

In the opinion of the PGE Group, notices of termination of contracts presented by Enea S.A. were filled in with a violation of terms of the agreements. The companies took appropriate steps to enforce their rights. In particular, in the opinion of the Management Board of PGE GiEK S.A. the termination of the contract by Enea S.A. is ineffective and against the earlier agreement between the parties (a letter of intent) and on that ground PGE GiEK S.A. will demand compensation for termination of the long-term contract.

Estimated volume of the green certificates, covered by the contracts with Enea S.A., amounts to approximately 3,115 thousand MWh. The above amount was calculated based on the estimated production volume as at the termination date for the period from December 2016 (i.e. the month from which Enea S.A. stopped purchasing of green certificates - after taking into account the notice period) until the initial maturity dates of the contracts.

Additionally, PGE Górnictwo i Energetyka Konwencjonalna S.A. is a part to the dispute with ENEA S.A. in connection to damage resulting from inadequate (according to ENEA) execution of agreement for sales of energy origin rights by not participating in renegotiations of the agreement within a contract procedure. In PGE GiEK S.A.'s opinion, there is no reasonable basis to acknowledge ENEA S.A.'s viewpoint that inadequate execution of any contractual obligations by PGE GiEK S.A. occured. Therefore, the Company does not accept the claim in principle, nor the amount. ENEA S.A. disagrees with the opinion of PGE GiEK S.A. and thus it deducted the amount of its claim from its liabilities to PGE GiEK S.A. The parties did not reach an agreement in mediation proceedings, therefore court proceedings were instituted. The court set the date of the hearing for December 12, 2017. The disputed amount is PLN 42 million.

In the PGE Group's opinion, notices of termination of contracts presented by Enea S.A. were filed in with a violation of terms of the agreements. Therefore, as at the reporting date, the Group, has not revalued inventories or trade receivables nor created any impairment allowances.

Termination by Energa-Obrót S.A.of contracts for sale of energy origin rights

On October 4, 2017 PGE Energia Odnawialna S.A. received a lawsuit, in which Energa-Obrót S.A. requests determining of non-existance of legal relation, which was to occur as a result of signing of agreement for sale of property rights from certificates of energy origin from Kisielice wind farm in 2009 (the "Agreement"). The claim of Energa-Obrót is based on the conclusion that the execution agreements to the Agreement (agreements for sale of particular certificates) were signed excuding the Public Procurement Law. Alternatively, in case of recognition that the Agreement is a contract award for public procurement, Energa-Obrót S.A. alleges absolute invalidity of the Agreement, because it was signed excluding the Public Procurement Law.

On Octoebr 26, 2017 similar lawsuits were received by PGE Energia Odnawialna S.A. - in relation to agreement for sale of property rights from certificates of energy origin from Koniecwałd (Malbork) wind farm - and by PGE Energia Natury sp.z o. o. - in relation to agreement for sale of property rights from certificates of energy origin from Galicja wind farm.

Total installed capacity of the three above wind farms amounts to 71.34 MW as at the end of the reporting period.

Certificates for period July-August 2017 connected with electricity produced by Koniecwałd (Malbork) wind farm and certificates for August 2017 connected with electricity produced by Galicja wind farm – contrary to the agreement – were not purchased by Energa-Obrót S.A. It is also likely that the certificates for September 2017 will not be purchased, because Energa-Obrót S.A. informed that, in its opinion, the company is not obliged to conclude OTC deals to perform the agreements.

In the opinion of the PGE Capital Group, the claims of Energa-Obrót S.A. are unfounded, therefore, as at the reporting date, the Group did not revalue inventories and recognizes them in statement on financial situation according to prices resulting from concluded agreements. The Group did not create any provisions for potential claims by Energa-Obrót S.A.

Currently companies are preparing replies to the lawsuits.

20. Tax settlements

Tax obligations and rights are specified in the Constitution of the Republic of Poland, tax regulations and ratified international agreements. According to the tax ordinance, tax is defined as public, unpaid, obligatory and non-returnable cash liability toward the State Treasury, provincial or other regional authorities resulting from the tax regulation. Taking into account the subject criterion, current taxes in Poland can be divided into five groups: taxation of incomes, taxation of turnover, taxation of assets, taxation of activities and other, not classified elsewhere.

From the point of view of economic units, the most important is the taxation of incomes (corporate income tax), taxation of turnover (value added tax, excise tax) followed by taxation of assets (real estate tax and vehicle tax). Other payments classified as quasi – taxes cannot be omitted. Among these there are social security charges.

Basic tax rates were as follows: in 2017 corporate income tax rate – 19%, for small entrepreneurs income tax rate of 15% is possible, basic value added tax rate – 23%, lowered: 8%, 5%, 0%, furthermore some goods and services are subject to the tax exemption.

The tax system in Poland is characterized by a significant changeability of tax regulations, their high complexity, high potential fees foreseen in case of commitment of a tax crime or violation. Tax settlements and other activity areas subject to regulations (customs or currency controls) can be subject to controls of respective authorities that are entitled to issue fines and penalties with penalty interest. Controls may cover tax settlements for the period of 5 years after the end of calendar year in which the tax was due.

Tax Group

On September 18, 2014 an agreement concerning a tax group, named "TG PGE 2015" was executed for a 25-year period. PGE S.A. is the representing company of this group.

The companies forming a tax group are obligated to meet a number of requirements including: the appropriate level of equity, the parent company's share in companies included in the group at least at the level of 95%, no equity relationships between subsidiaries, no tax arrears and share of profits in revenues at least at the level of 3% (calculated for the whole Tax Group) as well as concluding transactions with entities not belonging to Tax Group solely on market terms. The violation of these requirements will affect in termination of the Tax Group and the loss of status of the taxpayer. Since the termination, each of the companies included in the tax group becomes an independent taxpayer for CIT tax purpose.

Excise tax

Due to incorrect implementation of EU regulations to the Polish legal system, in 2009 PGE GiEK commenced proceedings regarding the return of unduly paid excise tax in period January 2006 – February 2009. Irregularity consisted of taxation of electricity on the first stage of sale i.e. by the producers, while the tax should be imposed on sale to so called final consumers.

Administrative courts, examining the company's complaints regarding the restitution claims for decisions of the tax authorities refusing to declare the overpayment of excise duty, ruled that the company did not economical burden of the unduly paid excise tax (what in view of the resolution of the Supreme Administrative Court of June 22, 2011 signature of acts I GPS 1/11 eliminates the possibility of return of excess payment). In the opinion of the Supreme Administrative Court the claims, which the company indicated particularly by economic analyses, are of compensation character and therefore can only be prosecuted before civil courts. In view of the above, PGE GiEK S.A. decided to withdraw from the proceedings with regard to the restitution claims. Currently activities regarding the overpayment of the excise tax are prosecuted before civil courts.The company intends to present the proposal of settlement to the State Treasury regarding the compensation claims.

Taking into account a significant uncertainty related to final decision on the above described matter, the Group does not recognize in the financial statements any results of possible compensation before civil courtsin relation with the unduly paid excise tax.

Real estate tax

Taking into account pending disputes the PGE Group created at the reporting date the provision for property tax of PLN 93 million. The provision relates mainly to tax proceedings with regards to property tax in PGE GIEK S.A. Branch Opole Power Plant. The dispute is related to the subject of taxation and concerns mainly a decision whether installations in buildings and detached technical machinery should be taxed as autonomous constructions. Tax proceedings are currently at various stages of tax authorities proceedings, i.e. in front of first instance authorities (village mayor, mayor), local government board of appeals and administrative courts.

21. Information on related parties

The PGE Group's transactions with related entities are concluded based on market prices for provided goods, products and services or are based on the cost of manufacturing.

21.1 Associates and joint arrangements

The total value of transactions with such entities is presented in the table below.

	Period ended September 30, 2017	Period ended September 30, 2016
Sales to associates and joint arrangements	7	61
Purchases from associates and joint arrangements	1 217	339

	As at September 30, 2017	As at December 31, 2016
Trade receivables from associates and joint arrangements	2	41
Trade liabilities to associates and joint arrangements	113	16

The increase in turnover and balances results from the inclusion of Polska Grupa Górnicza sp. z o.o. and Polimex-Mostostal S.A. in these financial statements.

21.2 Subsidiaries of the State Treasury

The State Treasury is the dominant shareholder of PGE Polska Grupa Energetyczna S.A. and as a result in accordance with IAS 24 Related Party Disclosures, the State Treasury companies are treated as related entities. The PGE Group entities identify in detail transactions with approximately 40 of the biggest State Treasury subsidiaries.

The total value of transactions and balances with such entities is presented in the table below.

	Period ended September 30, 2017	Period ended September 30, 2016
Sales to related parties	1 516	1 551
Purchases from related parties	2 804	2 572

	As at	As at
	September 30, 2017	December 31, 2016
Trade receivables from related parties	208	313
Trade liabilities to related parties	377	418

The largest transactions with the State Treasury companies involve Polskie Sieci Elektroenergetyczne S.A., Polskie Górnictwo Naftowe i Gazownictwo S.A., ENERGA S.A. Group companies, Zakłady Azotowe PUŁAWY S.A., PKN Orlen S.A., Enea S.A. Group companies and purchases of coal from Polish mines. Moreover, the PGE Group concludes significant transactions on the energy market via Towarowa Giełda Energii S.A. (Polish Power Exchange). Due to the fact that this entity only deals with the organization of trading, purchases and sales transacted through this entity are not recognized as transactions with related parties.

On March 29, 2017 an agreement for sale of 100% shares of EXATEL S.A. to the State Treasury was signed. The sale revenue of PLN 369 million is not presented in the above tables.

21.3 Management personnel remuneration

The key management includes the Management Boards and Supervisory Boards of the parent company and significant Group entities.

	Period ended	Period ended
PLN thousand	September 30, 2017	September 30, 2016
Short-term employee benefits (salaries and salary related costs)	23 756	24 722
Post-employment benefits	2 035	7 912
TOTAL REMUNERATION OF KEY MANAGEMENT PERSONNEL	25 791	32 634
Remuneration of key management personnel of entities of non-core operations	10 734	10 617
TOTAL REMUNERATION OF MANAGEMENT PERSONNEL	36 525	43 251

PLN thousand	Period ended September 30, 2017	Period ended September 30, 2016
Management Board of the parent company	5 388	9 405
Including post-employment benefits	116	3 066
Supervisory Board of the parent company	595	368
Management Boards – subsidiaries	17 917	21 147
Supervisory Boards – subsidiaries	1 891	1 714
TOTAL	25 791	32 634
Remuneration of key management personnel of entities of non-core operations	10 734	10 617
TOTAL REMUNERATION OF MANAGEMENT PERSONNEL	36 525	43 251

The Members of the Management Boards of some of the Group companies are employed on the basis of civil law contracts for management (so called management contracts). The above remuneration is included in other cost by nature disclosed in note 5.2 Cost by nature and function.

22. Significant events of the reporting period and subsequent events

22.1 Compensation resulting from termination of long term contracts

Due to the termination of long-term contracts for sale of capacity and electricity ("LTC"), pursuant to the LTC Act, power generating units who once served as parties to such contracts have acquired the right to compensations for the coverage of the so-called stranded costs. Stranded costs are the expenses of the power generating units, borne until May 1, 2004 for property, plant and equipment related to the production of electricity, uncovered by revenue from the sales of the electricity produced, capacity reserves and system services on the competitive market, after the premature termination of the long-term contract. The LTC Act limits the total resources which can be paid out to all power generating units to cover stranded costs discounted as of January 1, 2007 to the sum of PLN 11.6 billion, with PLN 6.3 billion attributable to PGE.

The table below presents basic data for Group power generating units assumed with the LTC Act.

Power generating unit	Effective term of LTC	Maximum stranded and extra costs (in PLN million)
Turów Power Plant	Until 2016	2 571
Opole Power Plant	Until 2012	1 966
Dolna Odra Power Plant Complex ("ZEDO")	Until 2010	633
Lublin Wrotków Heat and Power Plant	Until 2010	617
Rzeszów Heat and Power Plant	Until 2012	422
Gorzów Heat and Power Plant	Until 2009	108
TOTAL		6 317

Within the term stipulated by the LTC Act, i.e. until December 31, 2007, PGE S.A. signed contracts terminating its long-term capacity and electricity sales contracts with power generating units that once served as parties to the then effective LTC. Therefore, the power generating units have gained the right to receive resourcesto cover stranded costs.

In December 2016, the adjustment period for power generating units involved in the compensation system in PGE GiEK S.A. ended.

On April 5, 2017, PGE GiEK S.A. received information about the initiation of a proceeding regarding the amount of annual adjustment of stranded costs for 2016. On April 10, 2017, PGE GiEK S.A. received information about the initiation of a proceeding regarding the amount of final adjustment of stranded costs.

According to the provisions of the LTC Act, the process of establishing the annual adjustment of stranded costs for 2016 was completed on July 31, 2017 by way of the ERO President decision, while the process of establishing the final adjustment of stranded costs by way of the ERO President decision of August 25, 2017. Due to lack of disputes in above cases, decisions issued by the ERO President ultimately concluded the participation of PGE GiEK S.A. producers in the compensation system.

Decisions of the President of the Energy Regulatory Office and disputes related to realisation of the LTC Act

Until the date of preparation of these financial statements, power generating units received decisions on annual adjustments of stranded costs and costs generated in gas-fired units for the years 2008-2016 and decision on final adjustment. During the whole adjustment period many court cases were held regarding the disputes related to decisions issued by the ERO President. As at the preparation date of these statements all court proceedings have been finished.

In the period from 2009 to the date on which these financial statements were prepared:

19 court cases were initiated by PGE GiEK S.A., including: (i) regarding unfavourable decisions relating to the amounts of annual adjustments of stranded costs – 14 cases, (ii) regarding unfavourable decisions relating to the amounts of annual adjustments of gas costs – 5 cases,
7 proceedings ended with favourable verdict for PGE GiEK; 5 proceedings ended with favourable verdict for the ERO President; 7 proceedings ended with partly favourable verdict for PGE GiEK.

During the reporting period and until the date of preparation of these financial statements, the following events took place regarding annual adjustments of stranded costs and costs generated in gas-fired units:

On January 10, 2017, the Supreme Court: (i) refused to accept for examination the cassation appeal of PGE GiEK S.A. against the judgement of the Court of Appeal concerning the determination of annual adjustment of stranded costs for Branch ZEDO for 2008. The verdict ended the proceedings in that case, (ii) overruled judgement of the Court of Appeal regarding the determination of annual adjustment of stranded costs for Branch Gorzów Heat and Power Plant for 2009. The case was submitted for re-examination by the Court of Appeal. On May 25, 2017, the Court of Appeal overruled the judgement of the CCP Court and discontinued the proceedings. The above means validation of the ERO President's decision. As a result of the above Zarządca Rozliczeń S.A. returned the amount of approx. PLN 8 million.
On January 26, 2017, the Supreme Court issued an alter decision concerning: (i) the annual adjustment of stranded costs for Branch Lublin Wrotków Heat and Power Plant for 2008 in which it determined its value at approx. PLN (+) 9 million. As a result, PGE GiEK S.A. returned to Zarządca Rozliczeń S.A. the amount of approx. PLN 1 million, (ii) the annual adjustment of stranded costs for Branch Rzeszów Heat and Power Plant for 2009, in which it determined its value at PLN 0. As a result, PGE GiEK S.A. returned to Zarządca Rozliczeń S.A. the amount of approx. PLN 7 million.
On March 14, 2017, the Supreme Court, as a result of examination of a cassation appeal of the ERO President issued a judgement regarding the determination of annual adjustment of the stranded costs for 2008 for Branch Opole Power Plant, in which it determined its value at approximately PLN (+) 129 million. As a result, PGE GiEK S.A. returned to Zarządca Rozliczeń S.A. approximately PLN 6 million.
On April 11, 2017, the Court of Appeal issued a ruling regarding refusal to issue a decision on a final adjustment for Branch Gorzów Heat and Power Plant, which was in line with the position of PGE GiEK S.A., through which: (i) it annulled the contested ruling of the CCP Court in its entirety and (ii) discontinued the proceedings in this case. This ruling ended the proceedings in this case.
On April 27, 2017, the Court of Appeal issued a verdict regarding determination of annual adjustment of the stranded costs for 2009 for Branch Lublin-Wrotków Heat and Power Plant, in which it determined its value at PLN 0. As a result, the Branch will receive from Zarządca Rozliczeń S.A. the amount of PLN 61 million. The verdict is final and binding, however the ERO President is entitled to file a cassation appeal to the Supreme Court.
On May 11, 2017, the PGE Group filed an appeal to the Court of Appeal from the decision of the District Court in the case against the State Treasury - the ERO President for compensation for lost profits as a result of unfavourable decision issued by the ERO President regarding stranded costs for 2008. Value of the subject matter of the dispute amounts to PLN 57 million.
On August 3, 2017 PGE GiEK S.A. received an administrative decision of the ERO President, concerning the annual adjustment of the stranded costs for the year 2016. According to the decision of the ERO President, annual adjustment of the stranded costs generated in PGE GiEK S.A. for the year 2016 is positive and amounts to approximately PLN (+)276 million. The Management Board of PGE GiEK S.A. decided not to appeal against the decision.
Zarządca Rozliczeń paid the above amount to the account of the company on September 29, 2017.
On August 28, 2017 PGE GiEK S.A. received an administrative decision of the ERO President, concerning the final adjustment of the stranded costs for PGE GiEK S.A. in amount of PLN (+) 938 million. The Management Board of PGE GiEK S.A. decided not to appeal against the ERO President decision. Zarządca Rozliczeń will pay the above amount to the account of the company by December 31, 2017.
On August 28, 2017 the company withdraw from the Court of Appeal its appeal and in fact resigned from claiming compensations from the State Treasury – the ERO President in relation to issue of decisions of the ERO President for the company in cases of annual adjustments of stranded costs and gas-related costs for years: 2009, 2010 and 2011, initiated by the company's petition to call the State Treasury – the ERO President for mediation.

Impact on the financial statements for the period ended September 30, 2017

In the financial statements for the period ended September 30, 2017 the PGE Group recognized PLN 1 211 million revenues from LTC compensations in sales revenues.

According to the applied accounting rules, the value of the final adjustment forecasted by the Group was settled in revenues for years 2008-2016. The decision on the final adjustment of the ERO President issued in 2017 differed from the Groups' forecast. It was connected mainly with taking into account a verdict of EU Court of Justice of September 15, 2016 that indicated dynamic attitude to the composition of the capital group in LTC settlements, i.e. taking into account actual composition of the capital group in a given year. Therefore, the issued decision acknowledged the prolongation of the adjustment period for all generating units. In addition, the ERO President in the final adjustment used liquidity method approach towards funds collected in form of advances and annual adjustments, what was also favourable for the Group. It resulted in recognistion of the additional revenues by the Group.

Moreover, the court verdicts, which were issued by September 30, 2017, resulted in adjustment of LTC compensations in amount of PLN 69 million in the financial statements for the period ended September 30, 2017. The value of adjustment was recognized in the statement of comprehensive income net out in item other operating revenues.

Value of funds collected in the whole adjustment period amounted to PLN 9 035 million, including PLN PLN 8 749 million of stranded costs and PLN 286 million of gas-related costs.

22.2 Capital investmentin Polska Grupa GórniczaS.A.

On March 31, 2017, PGE GiEK S.A. signed the subsequent investment agreement determining the conditions of the financial investment in Polska Grupa Górnicza Sp. z o.o. ("PGG") ("Investment") ("Investment Agreement").

The parties of the Investment Agreement are PGE GiEK S.A., Enea S.A., ENERGA Kogeneracja sp. z o.o., PGNiG TERMIKA S.A., Węglokoks S.A., Towarzystwo Finansowe Silesia sp. z o.o., Fundusz Inwestycji Polskich Przedsiębiorstw Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych (jointly referred later to as the "Investors") and PGG. The Investment Agreement provides that PGG will acquire selected mining assets from Katowicki Holding Węglowy S.A. ("KHW") on the ground of the promised contract, which was signed on April 1, 2017.

The Investment Agreement determines method of investment, operating rules of PGG and its bodies, as well as rules for withdrawal from the Investment. The Investment Agreement assumes recapitalisation of PGG in three stages by PGE GiEK, Enea S.A., ENERGA Kogeneracja sp. z o.o., PGNiG TERMIKA S.A. and Towarzystwo Finansowe Silesia sp. z o.o. with total amount of PLN 1 billion.

Within the recapitalisation of PGG, PGE GiEK committed itself to acquire new shares of PGG with a total nominal value of PLN 100 million in exchange for the cash contribution of PLN 100 million, in three tranches:

within the first tranche PGE GiEK S.A. acquired new shares in PGG in exchange for the cash contribution of PLN 50 million. Recapitalisation within the first tranche took place on April 6, 2017,
within the second tranche PGE GiEK S.A. acquired new shares in PGG in exchange for the cash contribution of PLN 20 million. Recapitalisation within the second tranche took place on June 23, 2017,
within the third tranche PGE GiEK S.A. will acquire new shares in PGG in exchange for the cash contribution of PLN 30 million. Recapitalisation within the third tranche will take place until the end of first quarter of 2018.

After acquisition of the above mentioned shares within the third tranche PGE GiEK S.A. will have 15.3% in the share capital of PGG in comparison to 15.8% as at September 30, 2017.

As in the case of the Agreement from 2016, the Investment Agreement determines the rules for appointing the Supervisory Board members, according to which each Investor and the State Treasury will be entitled to appoint one member in the Supervisory Board which will consist of up to 8 members. Additionally, key decisions concerning equity management and transformation require Investors permission. Taking into account the entitlements mentioned above, the investment in PGG is recognized as joint arrangement and accounted for under the equity method.

22.3 Acquisitionof EDF assets in Poland

On May 11, 2017, PGE S.A. together with EDF International SAS and EDF Investment II B.V. (together "EDF") signed Put Option Agreement ("POA Agreement") concerning sale of EDF's assets in Poland. Pursuant to the POA Agreement, EDF obtained option to call PGE S.A. to sign up agreement concerning sale of shares in respect of assets described below after meeting certain conditions, including obtaining corporate permissions of EDF for the sale transaction.

On May 19, 2017, as a result of execution of put option resulting from the POA Agreement by EDF, EDF and PGE signed a conditional sale agreement ("Sale Agreement").

The Sale Agreement concerns mainly ("Transaction"):

purchase of 99.51% shares of EDF Polska S.A.,
purchase of 100% shares of EDF Investment III B.V.,
indirect purchase of 50% and 1 share of ZEW Kongeneracja S.A. (shares owned by EDF Polska S.A. and EDF Investment III B.V.) and purchase of shares in subsidiaries of EDF Polska, providing auxiliary activities.

As a result of the Agreement, PGE S.A. will acquire a series of manufacturing assets, including: 4 heat and power plants (Kraków, Gdańsk, Gdynia, Toruń), heat distribution grid in Toruń and Rybnik power plant (currently controlled by EDF Polska S.A.) as well as 4 heat and power plants (Wrocław, Zielona Góra, Czechnica, Zawidawie) and heat distribution grids in Zielona Góra, Siechnice and Zawidawie, currently controlled by EDF Polska S.A. and EDF Investment III B.V.

The Enterprise Value for all assets was established under the Locked-Box Date formula as at December 31, 2016 and amounts to PLN 4.51 billion, of which PLN 2.45 billion stands for the share capital and PLN 2.06 billion stands for the net debt.

Total PGE S.A. expenses related to the Transaction will include:

share capital amount of PLN 2.45 billion ("Share Capital Amount"),
interest costs from the Share Capital Amount, settled pro-rata starting from January 1, 2017 until the end of the Transaction, in the maximum amount of PLN 107 million due to economic benefits achieved by the Company from the operation of the subject of the Sale Agreement after the Date of price settlement,
intergroup debt as at the closing date of the Transaction, at the maximum amount of PLN 1.68 billion and approximately USD 40 million ("Intergroup debt"),
outstanding Intergroup debt interest as at the closing date of the Transaction.

After closing of the Transaction, according to the Polish regulations regarding the capital market, as a consequence of purchase of ZEW Kogeneracja S.A. shares, the PGE Group will be obligated to announce a tender offer for the sale of shares in ZEW Kogeneracja S.A. in quantity sufficient to exceed the 66% threshold of voting rightsin ZEW Kogeneracja S.A. The costs of announcement are not included in the value of the Transaction.

On October 31, 2017 PGE S.A. received a notification from EDF companies on a statement by the General Director of the National Center for Agricultural Support (Krajowy Ośrodek Wsparcia Rolnictwa - KOWR), the legal successor of the Agricultural Property Agency (ANR), that it does not exercise the pre-emption right. EDF has already received a clearance on the transaction from the relevant governmental authorities in France. PGE received consent for the transaction from the Minister of Energy and obtained the conditional consent of the Office of Competition and Consumer Protection. Due to fulfilment of all conditions precedent, the closing date of the transaction, pursuant to the Conditional Share Sale Agreement, is November 13, 2017.

Payments for assets will be proceeded at the moment of the Transaction's closing.

22.4 Capital investment in Polimex-Mostostal S.A.

On January 18, 2017, PGE S.A. signed the following agreements concerning capital investment in Polimex-Mostostal S.A. ('Polimex"):

investment agreement with ENEA S.A., Energa S.A., PGNiG Technologie S.A. (jointly with PGE referred to as "Investors") and Polimex, on the basis of which, subject to conditions precedent specified in the agreement, Investors are obligated to make an investment in Polimex. The investment includes taking by Investors up to 150 000 000 of series T ordinary shares with a nominal value of PLN 2 each and an issue price of PLN 2 each ("New Shares") issued by Polimex as the increase of share capital of Polimex by up to PLN 300 million ("Investment Agreement"). Under the terms of the Agreement PGE committed to purchase 37 500 000 New Shares at the total issue price amounting to PLN 75 million,
agreement between Investors, defining the terms of cooperation together with mutual rights and obligations of Investors relating to the investment carried out on the basis of Investment Agreement,
agreement between Investors and SPV Operator Sp. z o.o. ("SPV Operator") obliging the parties, subject to fulfillment of conditions precedent, to conduct a sale transaction of 6 000 001 Polimex shares by SPV Operator to Investors, whereas PGE obligated to acquire a number of 1 500 001 aforesaid shares,
agreement between Investors and Towarzystwo Finansowe Silesia ("TFS") whereby TFS granted Investors, for remuneration, a possibility to acquire Polimex shares provided that TFS realizes conversion right in respect of convertible bonds issued by Polimex. Moreover, TFS has committed not to converse possessed convertible bonds of series A issued by Polimex without prior written request made by Investors.

On January 18, 2017, the President of the Office for Competition and Consumer Protection issued a permission for Investors to take joint control over Polimex.

On January 20, 2017, due to the fulfillment of conditions precedent specified in the Investment Agreement, PGE accepted the offer made by Polimex's Management Board to acquire 37 500 000 series T ordinary shares issued by Polimex with a nominal value of PLN 2 each and an issue price of PLN 2 each and the total issue price of PLN 75 million.

Additionally, on January 20, 2017, on the terms of agreement with SPV Operator and due to the fulfillment of conditions precedent specified in the Investment Agreement, the Company acquired 1 500 001 Polimex shares from SPV Operator at the total amount of approximately PLN 5.6 million.

On March 21, 2017, the Investors announced a tender offer to subscribe for the sale of Polimex shares in quantity sufficient to exceed the 66% threshold of voting rights pursuant to art. 73 sec. 2 of the Act of July 29, 2005, on public offerings and the terms for introducing financial instruments to an organised trading system and on public companies, as a result of which PGE will be able to purchase 42,102 shares of Polimex at the price of PLN 4.90. On March 28, 2017, the investors adjusted their price proposed in the tender offer from PLN 4.90 to PLN 4.91 per one share of Polimex. The settlement by the National Depository of Securities (KDPW) of purchase of shares under the tender offer took place on April 28, 2017. As a result of the tender offer PGE S.A. acuired 24 shares for PLN 117.84 and currently holds 39,000,025 shares representing 16.48% of the share capital of Polimex and entitling to 16.48% of total votes at the General Meeting of Polimex.

The investment agreement gives the Investors influence over Polimex's financial and operating policies. These entitlements are exercised by the Supervisory Board. Under the agreement, the Supervisory Board will consist of 7 members maximum, including 4 indicated by the Investors. Moreover, the Investors signed an agreement regarding the investment in Polimex ("Agreement"). The aim of the Agreement is to ensure greater control over Polimex to the Investors that hold together a majority stake in Polimex's voting rights (65.93%). The Agreement addresses issues such as agreeing, by vote, of a joint position in making key decisions at General Meeting and Supervisory Board level, including the composition of Polimex's Management Board.

Given the Investors' entitlements mentioned above, which provide for significant influence, the stake in Polimex was classified as associate accounted for underthe equity method.

The Group is currently working on allocating the purchase price paid for Polimex in accordance with IFRS 3. Because of this, the aforesaid investment is recognized in the consolidated financial statements of the PGE Group as at September 30, 2017 at acquisition cost adjusted by the Group's share in Polimex's result, without taking into account potential adjustments required to bring assets and liabilities to fair values.

23. Quarterly condensed separate financial information of PGE Polska Grupa Energetyczna S.A.

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

	3 months ended September 30, 2017 (not audited)	9 months ended September 30, 2017 (not audited)	3 months ended September 30, 2016 (not audited)	9 months ended September 30, 2016 (not audited)
STATEMENT OF PROFIT OR LOSS
SALES REVENUES	2 213	6 804	2 540	8 166
Cost of goods sold	(2 031)	(6 243)	(2 419)	(7 611)
GROSS PROFIT ON SALES	182	561	121	555
Distribution and selling expenses	(3)	(13)	(11)	(37)
General and administrative expenses	(37)	(109)	(35)	(106)
Other operating income	1	2	(1)	1
Other operating expenses	(1)	(9)	-	(1)
OPERATING PROFIT	142	432	74	412
Financial income	94	4 468	102	1 293
Financial expenses	(75)	(302)	(89)	(189)
PROFIT BEFORE TAX	161	4 598	87	1 516
Current income tax	(11)	7	5	(68)
Deferred income tax	1	(2)	7	3
NET PROFIT FOR THE REPORTING PERIOD	151	4 603	99	1 451

OTHER COMPREHENSIVE INCOME
Items, which may be reclassified to profit or loss, including:
Valuation of hedging instruments	11	(59)	19	59
Deferred tax	(2)	11	(3)	(11)
Items, which will not be reclassified in future to profit or loss:
Actuarial gains and losses from valuation of provision for	-	-	-	-
employee benefits
Deferred tax	-	-	-	-
OTHER COMPREHENSIVE INCOME FOR THE REPORTING PERIOD, NET	9	(48)	16	48
TOTAL COMPREHENSIVE INCOME	160	4 555	115	1 499

EARNINGS AND DILUTED EARNINGS PER SHARE (IN PLN)	0.08	2.46	0.05	0.78

SEPARATE STATEMENT OF FINANCIAL POSITION

	As at	As at	As at
	September 30,	December 31,	September 30,
	2017	2016	2016
	(not audited)	(audited)	(not audited)
NON-CURRENT ASSETS
Property, plant and equipment	178	186	186
Intangible assets	3	5	6
Loans and receivables	11 926	8 848	6 091
Derivatives	250	356	132
Shares in subsidiaries and associates	30 964	29 678	29 655
Available-for-sale financial assets	3	6	3
Deferred tax asset	-	-	15
	43 324	39 079	36 088
CURRENT ASSETS
Inventories	20	76	107
Income tax receivables	-	-	-
Derivatives	10	9	9
Trade and other receivables	834	3 474	3 147
Other current assets	112	81	205
Cash and cash equivalents	5 128	1 932	4 738
	6 104	5 572	8 206
TOTAL ASSETS	49 428	44 651	44 294

EQUITY
Share capital	19 165	19 165	18 698
Reserve capital to increase share capital	-	-	467
Hedging and valuation reserve	101	149	31
Reserve capital	15 328	13 730	13 730
Retained earnings	4 599	1 594	1 447
	39 193	34 638	34 373
NON-CURRENT LIABILITIES
Non-current provisions	19	22	21
Interest bearing bank loans, borrowings, bonds and lease	7 841	8 854	8 292
Deffered tax liability	24	33	-
Derivatives	23	23	39
Other financial liabilities	-	-	-
	7 907	8 932	8 352
CURRENT LIABILITIES
Current provisions	28	30	32
Current part of interest bearing bank loans, borrowings, bonds and lease	1 591	704	684
Derivatives	-	-	-
Trade and other liabilities	619	189	159
Income tax liabilities	11	4	98
Deferred income and governments grants	-	-	-
Other current non-financial liabilities	79	154	596
	2 328	1 081	1 569
TOTAL LIABILITIES	10 235	10 013	9 921
TOTAL EQUITY AND LIABILITIES	49 428	44 651	44 294

SEPARATE STATEMENT OF CHANGES IN EQUITY

	Share capital	Reserve capital for increase of the share capital	Hedging and valuation reserve	Reserve capital	Retained earnings	Total
AS AT JANUARY 1, 2016	18 698	-	(17)	13 009	1 764	33 454
Net profit for the reporting period	-	-	-	-	1 598	1 598
Other comprehensive income	-	-	166	-	-	166
COMPREHENSIVE INCOME	-	-	166	-	1 598	1 764

Retained earnings distribution	-	-	-	1 301	(1 301)	-
Dividend	-	-	-	-	(467)	(467)
Increase of share capital from the Company's own funds	467	-	-	(467)	-	-
Tax on increase of share capital	-	-	-	(110)	-	(110)
Other changes	-	-	-	(3)	-	(3)
AS AT DECEMBER 31, 2016	19 165	-	149	13 730	1 594	34 638
Net profit for the reporting period	-	-	-	-	4 603	4 603
Other comprehensive income	-	-	(48)	-	-	(48)
COMPREHENSIVE INCOME	-	-	(48)	-	4 603	4 555

Retained earnings distribution	-	-	-	1 598	(1 598)	-
AS AT SEPTEMBER 30, 2017	19 165	-	101	15 328	4 599	39 193

	Share capital	Reserve capital for increase of the share capital	Hedging and valuation reserve	Reserve capital	Retained earnings	Total
AS AT JANUARY 1, 2016	18 698	-	(17)	13 009	1 764	33 454
Net profit for the reporting period	-	-	-	-	1 451	1 451
Other comprehensive income	-	-	48	-	-	48
COMPREHENSIVE INCOME	-	-	48	-	1 451	1 499
Retained earnings distribution Dividend	- -	- -	- -	1 301 -	(1 301) (467)	- (467)
Increase of share capital from the Company's own funds	-	467	-	(467)	-	-
Tax on increase of share capital	-	-	-	(110)	-	(110)
Other changes	-	-	-	(3)	-	(3)
AS AT SEPTEMBER 30, 2016	18 698	467	31	13 730	1 447	34 373

SEPARATE STATEMENT OF CASH FLOWS

	Period ended	Period ended
	September 30, 2017	September 30, 2016
	(not audited)	(not audited)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax	4 598	1 516
Settlement wit tax capital group ("TCG")	-	23
Income tax paid by PGE S.A. (including benefit due to loss of TCG)	(116)	(15)

Adjustments for:
Depreciation, amortization and impairment losses	11	11
Interest and dividend, net	(2 856)	(1 080)
Profit / (loss) on investment activities	(1 265)	(46)
Change in receivables	(123)	278
Change in inventories	57	84
Change in liabilities, excluding loans and borrowings	391	(211)
Change in other non-financial assets	23	212
Change in provisions	(6)	(2)
Other	-	1
NET CASH FROM OPERATING ACTIVITIES	714	771

CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property, plant and equipment and intangible assets	-	-
Acquisition of property, plant and equipment and intangible assets	(2)	(8)
Redemption of bonds issued within the PGE Capital Group	2 320	1 179
Acquisition of bonds issued within the PGE Capital Group	(5 200)	(3 480)
Proceeds from sale of other financial assets	369	-
Acquisition of shares	(107)	(16)
Deposits with a maturity over 3 months	(50)	-
Termination of deposits with a maturity over 3 months	2 340	-
Dividends received	2 872	1 058
Interest received	27	18
Repayment of loans granted		1
Other loans granted	(285)	(18)
Loans granted under cash-pooling agreement		(808)
Other	-	1
NET CASH FROM INVESTING ACTIVITIES	2 284	(2 073)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans, borrowings and issue of bonds	-	4 148
Proceeds from cash-pooling	431	-
Repayment of loans, borrowings, bonds and financial lease	(17)	-
Dividends paid to shareholders	-	-
Interest paid	(212)	(114)
Other	(4)	(6)
NET CASH FROM FINANCING ACTIVITIES	198	4 028

NET CHANGE IN CASH AND CASH EQUIVALENTS	3 196	2 726
Effect of movements in exchange rates on cash held	1	1
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD	1 930	2 010
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD	5 126	4 736
Restricted cash	-	-

24. Approval of the financial statements

These consolidated financial statements, including quarterly separate financial information, were authorized for issue by the Management Board on November 7, 2017.

Warsaw, November 7, 2017

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

Henryk Baranowski


Wojciech Kowalczyk Wojciech Kowalczyk


Marek Pastuszko


Paweł Śliwa


Ryszard Wasiłek


Emil Wojtowicz

Signature of the person responsible for preparation of the financial statements

Michał Skiba - Director of Financial Reporting and Tax Department

AI Terminal

PGE Polska Grupa Energetyczna S.A.

5758_rns_2017-11-08_15e4a09a-e5e7-4a4f-98df-2bc5e1bd276a.pdf

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

GENERAL INFORMATION, BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS AND OTHER EXPLANATORY INFORMATION

1. General information

1.1 Information about the parent company

Separate quarterly report of PGE S.A.

Ownership structure

1.2 Information about the PGE Group

Going concern

1.3 Structure of the PGE Group

2. Basis for preparation of the financial statements

2.1 Statement of compliance

2.2 Presentation and functional currency

2.3 New standards and interpretations published, not yet effective

The influence of new regulations on future financial statements of the PGE Group

IFRS 9 Financial Instruments

IRFS 15 Revenue from Contracts with Customers

IFRS 16 Lease

2.4 Professional judgment of management and estimates

3. Fair value hierarchy

EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

EXPLANATORY NOTES TO THE OPERATING SEGMENTS

4. Information on operating segments

Seasonality of business segments

4.1 Information on business segments

Information on business segments for the period ended September 30, 2017

Information on business segments for the period ended September 30, 2016

EXPLANATORY NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME

5. Revenues and expenses

5.1 Sales revenues

5.2 Cost by nature and function

Condensed interim consolidated financial statements of PGE Capital Group for the 3-month and 9-month period ended September 30, 2017 in accordance with IFRS EU(in PLN million)

5.2.1 Depreciation, amortization, disposal and impairment losses

5.3 Other operating income and expenses

5.4 Financial income and expenses

Condensed interim consolidated financial statements of PGE Capital Group for the 3-month and 9-month period ended September 30, 2017 in accordance with IFRS EU(in PLN million)

5.5 Share of profit of associates and joint arrangementsaccounted for under the equity method

6. Impairment allowances on assets

7. Tax in the statement of comprehensive income

EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

8. Significant additions and disposals of property, plant and equipment and intangible assets

9. Future investment commitments

10. Shares in associatesand joint arrangementsaccounted for under the equity method

11. Deferred tax in the statement of financial position

11.1 Deferred tax assets

11.2 Deferred tax liabilities

12. CO2 emission rights for own use

13. Other current and non-current assets

13.1 Other non-current assets

13.2 Other current assets

14. Selected financial assets

14.1 Trade and other financial receivables

14.2 Cash and cash equivalents

15. Derivatives

Options

IRS transactions

CCIRS hedging transaction

16. Equity

16.1 Share capital

Rights of the shareholders – Rights of the State Treasury regarding the Company's operations

16.2 Hedging reserve

16.3 Dividends paid and dividends declared

Dividend from the profit for the year 2017

Dividend from the profit forthe year 2016

Dividend from the profit for the year 2015

17. Provisions

Changes in provisions

17.1 Provision for employee benefits

17.2 Rehabilitation provision

Provision for rehabilitation of post-exploitation mining properties

Provision for rehabilitation of ash storages

Provisions for rehabilitation of post-construction grounds of wind farms

Liquidation of property, plant and equipment

17.3 Provision for deficit of CO2 emission rights

17.4 Provision for energy origin rights held for redemption

12. CO² emission rights for own use

17.3 Provision for deficit of CO² emission rights

Contingent return of CO² emission rights received free of charge