ANNUAL REPORT - HSE

• to ensure minimum deviations of production and of
the balancing group from schedules,
• to ensure an optimal distribution of power between
available turbines,
• to promptly activate reserve capacities in emergency
situations.
The quality of the management of the HSE balancing
group is reflected in the minimisation of deviation
costs thanks to the deviations of balancing group
members being reduced through the adjustment of
their production. In 2008 the HSE balancing group
was comprised of the Group's production units, including
small HPPs, PV and balancing subgroups of
four distribution companies, Elektroprodaja and a few
smaller consumers. The balancing group’s deviations
include all production and consumption deviations
from forecasted schedules. The HSE Group estimates
that the management of the HSE balancing group was
successful in 2008.
Financial risks
At the HSE Group, special attention is given to the financial
risks to which the Group is exposed in its operations
and to adopting measures for managing such
risks.
Solvency risk is the risk associated with insufficient
financial sources and the resulting inability of the
company to meet its commitments in due time. In the
situation of the financial crisis, the solvency risk is a
risk the management of which is one of the most important
for the company. Short-term solvency is ensured
by continuous matching and planning of cash
flows. The HSE Group has established the monitoring
and optimisation of short-term cash surpluses and
deficits of group companies. The above system, the
diversification of investments and liabilities, maturity
matching of receivables and liabilities, consistent
collection of receivables and a liquidity reserve in the
form of credit lines granted by domestic and foreign
banks facilitate the management of cash flows, which
ensures the company’s and the Group’s payment capacity
and a low level of short-term solvency risk.
Moreover, good access to financing and markets, a
high credit rating of the company thanks to its successful
operations and the ability to keep generating
cash flows from operating activities ensure that the
solvency risk is estimated as moderate.
In light of the conditions in the financial markets, the
company also began to manage the risks of financial
indiscipline of banks and financial institutions arising
from investing of surplus cash. The risk is managed
by observing the principle of dispersing deposits with
individual banks and by monitoring information on the
current operations of banks with which the company
occasionally deposits surplus cash.
The solvency risk is reduced by the high credit rating
of the company which stems from its successful operations
and by its ability to keep generating cash flows
from operating activities.
Credit risk represents the possibility that receivables
will be settled only in part or will not be settled at all.
The HSE Group manages credit risk through a thorough
verification of customers' credit ratings, setting
of limits, monitoring and managing of the credit exposure
of individual partners with regard to their limits,
and control over outstanding receivables.
The controlling company has in place strategies and
rules for the measurement and control of the company’s
exposure to credit risks. The need for collaterals
in respect of individual partners is determined based
on rules which, among other things, lay down the setting
of limits and monitoring of their utilisation. The
electricity transactions that are based on annual contracts
are mostly secured through bills of exchange or
bank guarantees, with issuing banks having to satisfy
strict credit rating criteria. Transactions with some
partners are regulated in detail using EFET agreements.
Short-term electricity trading transactions
that are carried out on power exchanges are already
secured through the obligatory membership system.
Interest rate risk exposure comprises the possibility
of an increase in the costs of variable interest rate financing
at the source as a result of changing interest
rates in the market. A portion of interest rates charged
on long-term loans is hedged using appropriate derivatives
through which a portion of variable interest
rates is changed to fixed rates. The appropriateness
and correctness of contracts aimed at hedging against
interest rate risks is managed through the monitoring
of developments in the European and global money
market. Due to changes in the money market brought
about by the global financial crisis, most interest rate
hedging contracts were cancelled early in 2008. We
estimate that thanks to the above measures regarding
ANNUAL REPORT HSE | BUSINESS REPORT
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