annual report 2004 - Severočeské doly a.s.

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Strategy and Outlook for 2005
The prospects of the market in brown coal are affected by developments in the gross domestic product
in the Czech economy and EU Member States, the energy requirements behind the formation of GDP,
the structure of power generation (the share of brown coal, hard coal, lignite, oil, hydro-energy, natural
gas, nuclear energy, and renewable resources), exports and imports of energy, and power consumption.
Forecasts of developments in demand for fuel and energy are connected with the general predictions
of economic development in the Czech Republic.
2005 will focus on reforms of the social, education, and healthcare system. We can assume that trading
in emissions will begin in accordance with the approved NAP, and that the bill on the promotion
of the generation of electricity from renewable energy sources will be passed. Following the appointment
of Mr Andris Piebalgs as the new EU Energy Commissioner, it is expected that a new energy platform
will be introduced – the Hydrocarbon Forum – and that, in this context, further discussions
will be held on hydrocarbon tax and clean coal technologies.
Energy management is currently undergoing privatization and restructuring. The liberalization
of the energy markets in the EU has started, and will gradually spread to the Czech Republic under
the relevant measures which have been adopted. An integral element of this process is to define
the legislative environment, especially in the fields of power engineering, the heat industry, the gas
industry, and environmental protection. In this respect, it is necessary to harmonize Czech law and
European regulations (e.g. the Energy Act, the Energy Management Act, the Clean Air Act).
The amendment to the Energy Act appoints time limits for the liberalization of the electricity market,
including the categorization of the corresponding customers.
When balancing all factors, developments in emissions of pollutants are taken into account. Every
year, there is a reduction in the production of SO 2 , NO X , and solids, but the quantity of CO 2 is rising.
Measures aimed at achieving the required effect of reduced emissions in the energy sector concentrate
on enhancing energy efficiency, implementing economical combustion technologies, and using
renewable energy sources and gas fuels.
These are the fundamental factors affecting the consumption of energy in the Czech Republic,
and they will have an impact on the demand for coal. Therefore, they determine Severočeské doly’s business
strategy.
Production Strategy and Sales Activities
Severočeské doly’s strategy in sales is centred on medium- and long-term contractual relations respecting
mutually beneficial business conditions. Contractual relations form the basis for long-term stable
use of brown coal as a source of quality, reasonably priced energy which is strategically important
today and will remain so in the future. Long-term business relations with ČEZ and several other
customers operating in North Bohemia remain the kernel of the company’s strategy in sales. The company
views the Czech market as its main territory of business interest. The sales policy includes ensuring
reliability in the fulfilment of contracts from the aspects of volume, range, and pricing. Relations
with consumers will continue to be cemented with activities aimed at finding solutions to the need
for more environmentally-friendly energy plants. In order to meet this goal, the company draws on stateof-the-art
technological facilities for coal mining and processing, and cutting-edge systems to control
the quality of production.
Financial Strategy
The company’s main goal is to ensure lasting, stable increases in the value of the capital invested
by shareholders. Severočeské doly will continue its successfully established policy of making cuts
in operating costs, and will strive to increase the profitability of its assets. The company’s financial
power will enable it to continue funding its investments solely out of its own resources. The company
regularly creates land cleanup and reclamation reserves and mining damage settlement reserves;
it puts its cash surpluses from these reserves and other sources to work by investing them in liquid
financial instruments a quality rating and with adequate investment terms. The company monitors