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Respect for the Law

Legislation

The basic set of standards regulating the economic and commercial aspects of CEZ Group’s business activities is contained in Act No. 513/1991 Sb., the Commercial Code, and as an issuer of a security accepted for trading in a public market, ČEZ is also subject to Act No. 256/2004 Sb. on Doing Business in the Capital Market. Both acts were amended several times in 2011. In selecting its suppliers, ČEZ is bound by Act No. 137/2006 Sb. on Public Procurement, which was also amended several times in 2011 as well as being the subject of several new Government decrees and regulations.

In addition to the general legislative framework described above, legislation specifically treating the power industry is of key importance for CEZ Group. This sector-specific legislative framework is based on the following:

In addition to the four core acts listed above for the power sector, the energy business in general – and the generation of electricity and heat in particular – is being affected more and more by environmental legislation and legislation implementing the European Union’s efforts to bring about a global improvement in the environment. Of this legislation, the following acts are of key importance:

International Controls

CEZ Group’s electricity and heat generation operations are regularly subjected to international controls, particularly in relation to nuclear power plants.

2011 saw the third IAEA (International Atomic Energy Agency in Vienna) review in the history of Dukovany Nuclear Power Station. The review team stated that the plant is a very well-operated installation, and recommended that it make three changes. In eleven cases, the review team proposed additional improvements to existing procedures. However, the OSART (Operational Assessment Review Team) review also took back with it ten good practices that it will recommend to other nuclear plant operators at an international forum.

The OSART review vets the manner in which the plant is operated and developed. It takes place at the IAEA’s recommendation once every year, based on an invitation from the Government of the Czech Republic. Upon being discussed by the Governments of nuclear countries, the recommendations and good practices of all OSART reviews become public and can be found in the database at www.iaea.org.

Also in 2011, Temelín Nuclear Power Station and Dukovany Nuclear Power Station were subjected to stress tests. The nuclear plant stress test mandated by the European Commission is defined as a targeted assessment of nuclear power plant safety margins and resistance in the face of events like those that took place at the Fukushima Daiichi plant in Japan after the earthquake and subsequent tsunami on March 11, 2011. The mandate calls for the tests to analyze combinations of extreme situations that could lead to a nuclear disaster, even though the probability of such a combination actually occurring is low.

The assessment was carried out by specialists in nuclear safety, design of nuclear installations, accident management, disaster preparedness, and disaster phenomenology research, all fully qualified for this work. In assessing the extreme scenarios, they took a deterministic approach, proceeding from the assumption of successive failures of all preventive measures.

The results of the stress tests confirm that Temelín Nuclear Power Station’s robustness provides a considerable margin of safety to withstand serious accidents. The results of the stress tests reaffirm the effectiveness and correctness of earlier decisions to implement measures leading to increased resistance compared to the original design. No shortcomings were found that would require immediate corrective measures. The plant is able to safely withstand even highly improbable, extreme accident conditions without posing any threat to its surroundings.

The Final Report provides a description of Dukovany Nuclear Power Station and its location in light of the knowledge gained from safety studies, analyses, surveys, historical experience, and engineering estimates relating to a concurrence of several unexpected (i.e., exceeding design parameters) and improbable situations and failures – combinations of conditions that could result in a hypothetical catastrophic failure of a generating unit with an estimated frequency of occurrence of once every 1,000,000 years of plant operation (or even lower).

Internal Control Mechanisms

CEZ Group’s system of internal controls consists of a number of rules and procedures put in place by management. The purpose is to help meet targets in terms of proper and effective company operation, which means monitoring, in particular, the following:

The system applies throughout the company and provides crucial feedback in the management process. It includes all activities of executives at all levels of management, through which it determines, on an ongoing basis, whether achieved results are in line with plan.

Company management endeavors to continuously improve the system of internal controls in line with changing internal and external business conditions. The state and effectiveness of the internal control system are monitored and assessed by the Internal Audit Section, based on the principles of internationally recognized standards, and are evaluated by the external auditor as well. The ČEZ Audit Committee coordinates activities between the external and internal auditors, and vets the objectiveness of the assessment of the internal control system.

In 2011, a total of 64 audits were conducted: 18 at ČEZ itself and 46 in the subsidiaries (including 11 audits in international holdings), where they are conducted by the Internal Audit Section of ČEZ under contract. In 2010, 63 audits were conducted, five of which took place abroad.

Also in 2011, CEZ Group published its Report on the Application of GPW (Warsaw Stock Exchange) Principles, which includes a list of aspects where the application differs from the provisions of the Corporate Governance Codex, along with the company’s rationale. The document is public and can be found on the CEZ Group website.

Certifications

CEZ Group proves that it is serious about compliance and maintaining high levels of safety and quality by obtaining and regularly renewing various certificates.

Selected CEZ Group companies which have been determined to have increased risk in individual safety-related areas are certified for compliance with the ISO 9001, ISO 14001, and OHSAS 18001 standards. International holdings, too, are gradually being integrated into the CEZ Group safety management system.

All ČEZ conventional, nuclear, and hydro power stations are long-standing holders of ISO 14001 and Safe Enterprise certifications. One half of the subsidiaries subject to the new safety management system are holders of Safe Enterprise and/or OHSAS 18001 certifications, and depending on the character of their business nearly one half (43%) hold ISO 14001 certification.

International members of CEZ Group, too, are subject to certification processes. In 2011, we began the process of certifying the Bulgarian companies CEZ Bulgaria, CEZ Elektro Bulgaria, and CEZ Razpredelenie Bulgaria. In early 2012 they obtained a final report according to which they successfully passed the compliance vetting process according to the EN ISO 9001:2008 international standard.

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