Latvijas elektriskie tīkli AS Annual Report 2017

LATVIJAS ELEKTRISKIE TĪKLI AS – Annual Report 2017 1 from 47
LATVIJAS ELEKTRISKIE TĪKLI AS
ANNUAL REPORT
2017AS “ENERĢIJAS PUBLISKAIS TIRGOTĀJS”
GADA PĀRSKATS
SAGATAVOTS SASKAŅĀ AR
LATVIJAS REPUBLIKAS GADA PĀRSKATU
UN KONSOLIDĒTO GADA PĀRSKATU LIKUMU
UN NEATKARĪGU REVIDENTU ZIŅOJUMS
2017
LATVIJAS ELEKTRISKIE TĪKLI AS
ANNUAL REPORT

* Financial Statements are prepared in accordance with International Financial Reporting Standards as
adopted by the EU
CONTENT
Key figures 3
Management report 4
Financial Statements*
Statement of Profit or Loss 8
Statement of Comprehensive Income 8
Statement of Financial Position 9
Statement of Changes in Equity 10
Statement of Cash Flows 11
Notes to the Financial Statements 12
Independent auditor’s report 46
FINANCIAL CALENDAR
Interim Condensed Financial Statements:
for the 3 months of 2018 (unaudited) – 31.05.2018.
www.let.lv

KEY FIGURES
Operational figures
2017 2016 2015 2014 2013
Capital expenditure: EUR’000 63,170 26,841 17,561 31,716 68,833
including capital expenditure in transmission system assets EUR’000 61,191 23,964 16,661 30,579 67,399
capital expenditure in leased property, plant and equipment EUR’000 1,979 2,877 900 1,137 1,434
Number of employees at the end of the year 9 10 11 444 444
Financial figures EUR’000
2017 2016 2015 2014 2013
Revenue: 48,935 51,294 47,510 61,864 59,728
including revenues from lease of transmission system assets 44,556 46,014 44,263 38,009 36,581
revenues from management of transmission system assets – – – 19,671 18,967
EBITDA 1)
42,790 44,367* 42,240 38,099 35,031
Profit 50,463** 6,580* 14,880 11,846 11,968
Total assets 475,612 422,035 405,181 430,789 407,573
Total equity 269,801 221,675* 204,067 199,849 198,774
Borrowings 95,177 78,906 88,128 110,511 104,949
Net cash flows from operating activities 45,265 45,414 32,742 31,180 37,491
Financial ratios
2017 2016 2015 2014 2013
Return on assets (ROA) 2)
% 11,2 1,6* 3,6 2,8 3,1
Capital ratio 3)
% 56,7 52,5* 50,4 46,4 48,8
Return on equity (ROE) 4)
% 20,5 3,1 7,4 5,9 4
Net debt / EBITDA 2,2 1,8* 2,1 2,9 3
Debt-to-capital ratio 5)
% 26,1 26,3 30,2 35,6 34,6
Dividends % 100 100 100 90 90
Profit margin 6)
% 103,1 12,8* 31,3 19,1 20,0
1)
EBITDA – earnings before interest, income tax, share of profit or loss of associates and subsidiaries, depreciation and amortisation, and impairment of
intangible assets and property, plant and equipment
2)
Return on assets (ROA) – profit / average value of assets ((total assets at the beginning of the year + total assets at the end of the year) /2)
3)
Capital ratio – total equity / total assets (at the end of the year)
4)
Return on equity (ROE) – profit / average value of equity ((total equity at the beginning of the year + total equity at the end of the year) / 2)
5)
Debt-to-capital ratio – borrowings / (borrowings + total equity)
6)
Profit margin – profit / revenue
* re-measured according to applied IFRS (see Note 2 point First–time adoption of International Financial)
** in accordance with the changes of tax regulations and laws of the Republic of Latvia came into force from 1 January 2018, in 2017 reversed deferred tax
in the amount of EUR 34 896 thousand

MANAGEMENT REPORT
Latvijas elektriskie tīkli AS (further referred to as the Company) is a subsidiary of Latvenergo AS founded on
10 February 2011. Latvijas elektriskie tīkli AS is the owner of the Latvian electric power transmission system (330 kV
and 110 kV electric power lines, substations and distribution points).
The electric power transmission systems and the corresponding real estate assets owned by the Company are
leased out to the transmission system operator – Augstsprieguma tīkls AS. The Company provides funding for the
investments in the electric power transmission system assets, simultaneously becoming their owner.
Business results
The total revenue of the Company in 2017 was EUR 48,935 thousand.
The Company’s EBITDA in 2017 was EUR 42,790 thousand. The
Company’s income and EBITDA were influenced mainly by the
lower return of capital rate on electricity transmission tariff which
was approved on 8 December 2016 by the Public Utilities Commission (SPRK) and which is used in the calculation
of the leasing fees for the transmission system assets. Electricity transmission tariff, in force as of 1 June 2017, the
return of capital rate was 4.43%.
The Company’s profit in 2017 was EUR 50,463 thousand, which consists of the annual operating result in the
amount of EUR 15,567 thousand and a deferred tax reversal in the amount of EUR 34,896 thousand as a result of
the tax reform. At the end of 2017, changes in the tax legislation of the Republic of Latvia were approved, and as
of 1 January 2018, the corporate income tax is applied to distributed profits. Accordingly deferred tax liabilities
previously incurred are reversed and recorded as income in the profit and loss and reserves statement for 2017,
thus Latvijas elektriskie tīkli AS profit in 2017 increased by EUR 34,896 thousand.
The capital investments in the transmission systems assets are carried out in accordance with the Latvian electric
power transmission network development plan for the next 10 years which is developed by the transmission system
operator Augstsprieguma tīkls AS. This plan was approved by the Public Utilities Commission. Latvijas elektriskie
tīkli AS provides the financing necessary for completing the capital investment projects, at the same time ensuring
the compliance of their development with the planned investments.
The total length of the electric transmission lines in 2017 was 5,239 km, of which 74 % were 110 kV lines, and 26 %,
330 kV lines. The operation of the transmission network was ensured by sixteen 330 kV substations with a total
autotransformer capacity of 3825 MVA, and one hundred twenty-three 110 kV substations with a total installed
transformer capacity of 5,195 MVA.
Electric power transmission line length
Unit Method 2017 2016 2015 2014 2013
330 kV km n/a 1,346 1,346 1,360 1,381 1,265
110 kV km n/a 3,893 3,891 3,891 3,891 4,010
TOTAL km 5,239 5,237 5,251 5,273 5275
n-measured, a-calculated
Number of transformer substations and transformers, installed capacity
Unit Method 2017 2016 2015 2014 2013
Substations (330 kV) number n 16 16 16 16 15
Autotransformers (330 kV) number n 25 25 25 25 23
Autotransformer installed
capacity (330 kV) MVA n/a 3,825 3,825 3,825 3,825 3,575
Transformer substations (110 kV) number n 123 121 121 121 122
Transformers (110 kV) number n 248 246 246 246 246
Transformer installed capacity
(110 kV and 10 kV voltage
boosting transformers) MVA n/a 5,195 5,125 5,102 5,075 4,968
n-measured, a-calculated
In 2017, the total amount of investments made in the transmission system assets and related real estate projects
was EUR 63,170 thousand, which is EUR 36,329 thousand more than in 2016; this increase was mainly due to the
continuation of the construction works of the final stage of the Kurzemes loks (Kurzeme Ring) project Ventspils—
Tume—Riga.
Asset value: EUR 476 million

The total planned length of the transmission network in the
Kurzeme loks project (Grobiņa—Ventspils—Tume—Riga) is
about 330 km. The Kurzeme loks project is carried out in three
stages. The first stage was completed in 2012, in which Rīgas
loks (Riga Ring) project was built. In 2014, Kurzemes loks
project’s 330 kV transmission line Grobiņa—Ventspils was
commissioned with a total length of 116.8 km.
In 2017, design works were continuing of the third and final stage 330 kV transmission line Grobiņa—Ventspils—
Tume—Riga, construction permits was received, and expansion works of the electric transmission lines in forest
areas continued. The construction of electric transmission line support foundations, as well as the installation of
poles and wires, continues. In total, 57 km of the 330 kV line was built in 2017. For the project co-financing is
attracted from the Innovation and Networks Executive Agency, ensuring co-funding in the amount of 45%. Project
coordinator in the territory of Latvia is Augstsprieguma tīkls AS. The project is scheduled for completion by the end
of 2019.
The new third electric power transmission network interconnection between Estonia and Latvia is an electric power
transmission infrastructure project that is important for the entire Baltic region. The new 330 kV line interconnection
will increase the transmission capacity between the electric systems of Latvia and Estonia. The planned length of
the 330 kV electric transmission interconnection line in Latvia is 190 km; it is planned to start the construction works
in Autumn 2018, and project is scheduled for completion in 2020; the planned construction costs of the project in
Latvia are about EUR 100 million. The assessment of the project’s environmental impact and the development of
the line’s pilot project were completed in 2016. A co-financing contract for the project was signed with the Innovation
and Networks Executive Agency, providing 65 % of co-financing of the construction cost. The project coordinator in
Latvia is Augstsprieguma tīkls AS. The project is scheduled for completion by the end of 2020.
To improve the stability of electric power supply for consumers, and to supply the demand for power at the
transmission network points, such significant projects as the reconstruction of the 110 kV switchboard of the
330/110 kV substation in Ventspils, and the 110 kV substation in Aloja were carried out in 2017. The reconstruction
of the 110 kV switchboards in Viskaļi continues, the reconstruction of the 330 kV substations in Daugavpils and
Aizkraukle, and the 110 kV Bolderāja substation was started. In order to ensure the increase of the distribution
network capacity, the Skanste and Koknese 110 kV substations were built, and the construction of the Stīpnieki
substation was started. The reconstruction of the 330 kV and 110 kV electric transmission lines, with the
replacement of line elements continues.
Company’s strategy for the period 2017—2022 was approved on 29 November 2016. Along with the strategy
approval, financial targets for Latvijas elektriskie tīkli AS have been set. The financial targets were divided into three
groups: profitability target, capital structure target and dividend policy. All financial targets for the 2017 were
achieved.
Capital ratio of the Company is sufficient (In 2017 net borrowing/ EBITDA is 2.2 2016: 1.8) to settle all liabilities
to creditors in a timely manner, to find options to attract new non-current borrowings and to ensure financing of
planned capital expenditures (debt-to-capital ratio 26.1 %, 2016: 26.3 %).
Further development
To improve the Latvian transmission system, the transmission system operator Augstsprieguma tīkls AS has
planned to build a new 330 kV transmission line connection between Riga CHP2 and Riga HPP substations that
will ensure full operation of the third interconnection between Estonia and Latvia in case of repairs and power
outages. This connection will reinforce the Riga node of the electric power transmission network in Latvia. On the
scale of the entire Baltic region, this reinforcement will play a significant role by increasing the transmission capacity
in the north-to-south direction. In 2012, the electric power market and network analysis showed that the connection
of the Baltic States with the electric power systems in the Nordic countries and Poland had resulted in the need for
strengthening the internal transmission network in the Baltics, to ensure the flow of power in the north-to-south
direction. Because of this, in 2014, as part of the European ten-year plan, the Baltic Corridor project was analysed:
it included the Riga CHP2 (LV) — Salaspils (LV) project; later, Riga HPP was chosen as the connection point. This
project is included in the list of European Projects of Common Interest under No 4.2.3 Internal line between Riga
CHP 2 and Riga HPP (LV), providing co-financing in the amount of 50 %. The operation of this line must begin by
2020, when the third intermediate connection between Latvia and Estonia is set up.
In order to ensure a higher total north-to-south transmission capacity in the Baltic region, and to increase the
transmission capacity of the electric power transmission networks in Latvia and the other Baltic States and the
reliability of its power supply, it is planned to rebuild the current 330 kV interconnection Tartu (EE) — Valmiera (LV)
and Tsirgulina (EE) — Valmiera (LV), which will also help synchronise the Baltic States with the transmission
networks of the continental Europe. Those electric power transmission lines were built in the 1960’s and 70’s, and
the standards that were observed back then are not sufficient for the modern operating requirements, and the
differences in the transmission capacity in the winter and summer seasons disrupt the effective and optimal electric
power market activities. It is planned to replace these lines with new ones, that have higher transmission capacity.
The project includes replacing the current conductors, insulators, suspension fittings, poles that do not comply with
Construction of the final stage of
the EU co-financed project
Kurzeme loks Ventspils—Tume—
Riga continues

the new loads, in order to ensure a transmission capacity of 1200 MVA in each of the electric power transmission
lines. Augstsprieguma tīkls AS plans to carry out this project as soon as the Third electric power transmission
network interconnection between Estonia and Latvia project is completed. The projects for rebuilding both of the
electric power transmission lines were approved with the European Commission Delegate Regulation (2016/89) on
18 November 2015 in the second common interest project list in the Estonian—Latvian and internal Lithuanian
network strengthening cluster; the projects are candidates for the EU 50 % co-financing as a part of the Connecting
Europe Facility programme.
Latvijas elektriskie tīkli AS makes funding available for the financial needs in the coming years — for carrying out
investment projects, and for paying off the current debt. As of 31 December 2017, the total debt of Latvijas elektriskie
tīkli AS was EUR 95 million (on 31 December 2016, it was EUR 79 million), which includes a loan from
Latvenergo AS.
Financial risk management
Activities of Latvijas elektriskie tīkli AS are exposed to a variety of financial risks, including market risk, interest
rate risk, credit risk and liquidity and cash flow risk. The Company's management minimizes the negative impact
of potential financial risks on the Company's financial position.
All financial risks are managed in accordance with the principles of the Financial risk management policy of
Latvenergo Group.
a) Currency risk
As the Company has no transactions, assets or liabilities measured in currencies other than the Euros, the
Company is not exposed to currency risk.
Foreign currency exchange risk arises when future transactions or recognised assets or liabilities are denominated
in a currency other than the Company’s functional currency. If for any reason a currency risk arises in the
Company, then it will be effectively limited in accordance with the principles set out in the Financial risk
management policy.
b) Interest rate risk
The interest rate risk for the Company mainly arises from the loans issued and received from the Parent Company
in accordance with the Latvenergo Group mutually concluded agreement ‘On provision of mutual financial
resources’ and with the concluded long-term borrowing agreements.
According to the agreement ‘On provision of mutual financial resources’ for mutual current loans and borrowings
the annual interest rate is applied, which is equal to the sum of the EONIA index and previous month’s weighted
average interest rate margin for the Parent Company’s current borrowings from financial institutions. In the
reporting period, the interest payable on mutual short-term borrowings has not been material and has not caused
significant interest rate risk. More significant interest rate risk arises on long-term borrowings of which 17 % in
2017 (2016: 29 %) consists of long-term borrowings with a floating interest rate influenced by change in 6-month
EURIBOR.
c) Credit risk
Financial assets that potentially create some level of credit risk concentration for the Company are primarily cash
and cash equivalents and outstanding trade receivables. The Company has a significant concentration of credit
risk with transmission system operator – Augstsprieguma tīkls AS, the Parent Company Latvenergo AS and the
related company Sadales tīkls AS. The Company considers that trade receivables of the related parties are fully
recoverable and therefore assesses that they do not cause significant credit risk. Trade and other receivables are
stated at their recoverable amount. Furthermore, the Company's partners in cash transactions are the largest
local banks with good reputation and with assigned investment grade credit ratings to their parent companies.
d) Liquidity and cash flow risk
The Company follows the precautionary approach in management of liquidity risk by ensuring that adequate
financial resources are available to meet its obligations within the deadlines. The Company receives the necessary
financial resources from the parent company in accordance with the agreement "On Provision of Mutual Financial
Resources" concluded between the Parent Company and its wholly owned subsidiaries. The Company sources
borrowings to cover refinancing needs and financing of investments on a timely basis, concluding respective long-
term loan agreements with the Parent company Latvenergo AS. On June 10, 2016, long-term loan agreement in
the amount of EUR 156.5 million was signed between the Company and Latvenergo AS to ensure the long-term
borrowing requirements for the period from 2016 to 2019.
The management of the Company estimates that it will not have any liquidity problems and that the Company will
be able to settle its liabilities to creditors within the respective deadlines. The management believes that the
Company will have sufficient financial resources to ensure that its liquidity is not endangered.

NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION ON THE COMPANY
Latvijas elektriskie tīkli AS (hereinafter – Latvijas elektriskie tīkli AS or the Company) operation is to lease transmission
system assets to transmission system operator – Augstsprieguma tīkls AS, including management, maintenance
and construction of 330 kV and 110 kV transmission lines, substations, distribution points and other equipment
needed for transmission system operations. The registered address of the Company is 86 Dārzciema Street, Riga,
Latvia, LV–1073. Registered in Commercial Register of the Republic of Latvia on 10 February 2011,
No. 40103379313. Objects of the Company are located throughout the territory of Latvia.
The sole shareholder holding all of shares of Latvijas elektriskie tīkli AS and preparing consolidated annual report
including Latvijas elektriskie tīkli AS as its subsidiary, is Latvenergo AS (The registered address of the Company is
12 Pulkveža Brieža Street, Riga, Latvia, LV–1230). Copy of consolidated annual report is available in the Register of
Entities of the Republic of Latvia.
The main objectives of Latvijas elektriskie tīkli AS, according to the Energy Law of the Republic of Latvia, Electricity
Market Law of the Republic of Latvia and Network Code is to carry out intended functions of power supply system
owner. The Company owns transmission system infrastructure (transmission system network and its related
equipment), and its task, considering instructions of transmission system operator, is to provide financing to
investments in transmission system assets and its lease to transmission system operator.
The Management Board of Latvijas elektriskie tīkli AS: Vita Andersone (Chairman of the Management Board).
The accounting service is provided by Latvenergo AS in accordance with the concluded accounting service
agreement.
The Company’s auditor is the certified audit company Ernst & Young Baltic SIA (licence No. 17) and certified auditor
in charge is Diāna Krišjāne (Latvian certified auditor with certificate No. 124).
The Management Board of Latvijas elektriskie tīkli AS has approved 2017 Annual report, including the Financial
Statements on 15 March 2018. The Company’s Financial Statements are subject to Shareholder’s approval after the
issue. (see on webpage www.let.lv section Financial Reports).
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these Company’s Financial Statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated. Where it is
necessary comparatives are reclassified.
2.1. Basis of preparation of the financial statements
The Company’s Financial Statements are prepared in accordance with the International Financial Reporting
Standards as adopted for use in the European Union (IFRS). Due to the European Union’s endorsement procedure,
the standards and interpretations not approved for use in the European Union are also presented in this note as they
may have impact on the Company’s Financial Statements in the following periods if endorsed.
The Company’s Financial Statements are prepared under the historical cost convention, except for some financial
assets and liabilities measured at fair value through profit or loss and for the revaluation of property, plant and
equipment carried at revalued amounts through other comprehensive income as disclosed in accounting policies
presented below.
The Company’s Financial Statements are presented in thousands of euros (EUR'000 or EUR thousand).
The preparation of the Company’s Financial Statements in conformity with IFRS requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Although these estimates are based on the Company’s Management’s best knowledge of current events and
actions, actual results ultimately may differ from those. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant to the Company’s Financial Statements are
disclosed in Note 4.

2.2. Summary of significant accounting policies
2.2.1. Statement of compliance
These financial statements represent the first annual financial statements of the Company prepared in accordance
with IFRS as issued by the International Accounting Standards Board (IASB) and as adopted by European Union.
The Company adopted IFRS in accordance with IFRS 1: First–time adoption of International Financial Reporting
Standards. The date of transition to IFRS is 1 January 2016 (see Note 2.3.).
In accordance with IFRS, the Company has:
 Applied the same accounting policies throughout all periods presented;
 Retrospectively applied all effective IFRS standards as of 31 December 2017, as required; and
 Has not applied any of certain optional exemptions and certain mandatory exceptions as applicable for the first–
time IFRS adopters (see Note 2.3.).
The Company has adopted all relevant new and/or amended International Financial Reporting Standards or
interpretations that are published or revised, which became effective for annual periods beginning on or after 1
January 2017, the Company has early adopted IFRS 15 that is issued but not yet effective.
2.2.2. New or revised standards and interpretations issued but not yet effective
a) Standards issued and not yet effective, but early adopted by the Company
 IFRS 15: Revenue from Contracts with Customers
The standard is effective for annual periods beginning on or after 1 January 2018.
IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited
exceptions), regardless of the type of revenue transaction or the industry. The standard’s requirements will also apply
to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an
output of the entity’s ordinary activities (e.g., sales of property, plant and equipment or intangibles).
The Company has applied IFRS 15 Revenue from contracts with customers for the first time in the 2017 financial
statements with initial application date as of 1 January 2017 and has chosen a modified retrospective application of
IFRS 15 (point 2.2.25.).
Implementation of standard has not changed the total amount of revenue recognised from customer contracts nor
assets or liabilities, as well as timing of revenue recognition. The Company does not have significant impact on its
Financial Statements as the Company does not have long–term contracts with multi–element arrangements, that
would have to be accounted under IFRS 15 and main revenue of the Company consists from lease income under
IAS 17.
b) Standards issued and not yet effective, but are relevant for the Company’s operations and not early
adopted by the Company
 IFRS 9: Financial Instruments: Classification and Measurement
The standard is effective for annual periods beginning on or after 1 January 2018, with early application permitted.
The final version of IFRS 9 Financial Instruments reflects all phases of the financial instruments project and replaces
IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard
introduces new requirements for classification and measurement, impairment, and hedge accounting. The
Company’s Management has made an assessment of the effect of the standard by preparing business model tests
respecting its financial assets – trade receivables and other financial receivables and cash and cash equivalents. The
purpose of business model is hold-to-collect contractual cash flows from these financial assets. During the SPPI
(Solely Payments of Principle and Interest) tests has determined that contractual cash flows consist only from
payments of the principal and interest. By evaluating results of tests is expected that implementation of Standard will
not change the classification of financial assets and they will be recognised in financial statements at amortised cost.
The Company has elected to use a simplified approach for impairment calculation for financial assets. The Company’s
management expects that implementation of expected credit losses (ECL) model will not have a significant impact
on financial statements as of 1 January 2018 because impairment of trade and other receivables has been historically
not material considering that the Company has limited amount of clients (basically two – Latvenergo AS and
Augstsprieguma tīkls AS). Major macro elements that could affect the future growth of credit risk are negative
changes of legislation, technology and business environment factors as well as decrease of the credit rating of State.
 IFRS 16: Leases
The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for
the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer
(‘lessee’) and the supplier (‘lessor’). The new standard requires lessees to recognize most leases on their financial
statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting
is substantially unchanged.
The Company will adopt IFRS 16 for the financial year beginning as of 1 January 2019. The Company has assessed
the impact of adoption of this Standard on the Company’s Financial Statements, and considers that as the lessee the

Company will have to recognize lease assets in its financial statements, therefore the effect is expected to be
significant. Upon implementation of IFRS 16, among other considerations, the Company will make an assessment
on the identified lease assets, non–cancellable lease terms (including the extension and termination options) and
lease payments (including fixed and variable payments, termination option penalties etc.). Detailed analysis on
implementation of IFRS 16 will be finished in 2018.
 IAS 40: Transfers to Investment Property (Amendments)
The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application
permitted. The Amendments clarify when an entity should transfer property, including property under construction or
development into, or out of investment property. The Amendments state that a change in use occurs when the
property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use.
A mere change in management’s intentions for the use of a property does not provide evidence of a change in use.
These Amendments have not yet been endorsed by the EU. The Company’s Management has assessed the impact
of the implementation of the Amendments, but does not consider that these Amendments will have a significant effect
to the Company’s Financial Statements.
 IFRIC INTERPRETATION 22: Foreign Currency Transactions and Advance Consideration
The Interpretation is effective for annual periods beginning on or after 1 January 2018 with earlier application
permitted. The Interpretation clarifies the accounting for transactions that include the receipt or payment of advance
consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizes
a non-monetary asset or a non-monetary liability arising from the payment or receipt of advance consideration before
the entity recognizes the related asset, expense or income. The Interpretation states that the date of the transaction,
for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment
asset or deferred income liability. If there are multiple payments or receipts in advance, then the entity must determine
a date of the transactions for each payment or receipt of advance consideration. This Interpretation has not yet been
endorsed by the EU. The Company’s Management has assessed the impact of the implementation of the IFRIC
Interpretation, but does not consider that it will have a significant effect to the Company’s Financial Statements, as
the Company has not transactions in foreign currencies.
 IFRIC INTERPRETATION 23: Uncertainty over Income Tax Treatments
The Interpretation is effective for annual periods beginning on or after 1 January 2019 with earlier application
permitted. The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that
affects the application of IAS 12. The Interpretation provides guidance on considering uncertain tax treatments
separately or together, examination by tax authorities, the appropriate method to reflect uncertainty and accounting
for changes in facts and circumstances. This Interpretation has not yet been endorsed by the EU. The Company’s
Management has not yet evaluated the impact of the implementation of the IFRIC Interpretation, but does not consider
that it will have a significant effect to the Company’s Financial Statements.
 IFRS 9: Prepayment features with negative compensation (Amendment)
The Amendment is effective for annual reporting periods beginning on or after 1 January 2019 with earlier application
permitted. The Amendment allows financial assets with prepayment features that permit or require a party to a
contract either to pay or receive reasonable compensation for the early termination of the contract (so that, from the
perspective of the holder of the asset there may be ‘negative compensation’), to be measured at amortized cost or at
fair value through other comprehensive income. These Amendments have not yet been endorsed by the EU. The
Company’s Management has not yet evaluated the impact of the implementation of the IFRIC Interpretation, but does
not consider that it will have a significant effect to the Company’s Financial Statements.
c) Standards issued but not yet effective and not applicable for the Company
 IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments)
The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application
permitted. The Amendments provide requirements on the accounting for the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments, for share-based payment transactions with a
net settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share-
based payment that changes the classification of the transaction from cash-settled to equity-settled. These
Amendments have not yet been endorsed by the EU. Management has assessed that these Amendments of the
Standard will not have a significant effect to the Company’s Financial Statements, as the Company does not
accomplishes share-based payment transactions.
 IAS 28: Long-term Interests in Associates and Joint Ventures (Amendments)
The Amendments are effective for annual reporting periods beginning on or after 1 January 2019 with earlier
application permitted. The Amendments relate to whether the measurement, in particular impairment requirements,
of long-term interests in associates and joint ventures that, in substance, form part of the ‘net investment’ in the
associate or joint venture should be governed by IFRS 9, IAS 28 or a combination of both. The Amendments clarify
that an entity applies IFRS 9 Financial Instruments, before it applies IAS 28, to such long-term interests for which the
equity method is not applied. In applying IFRS 9, the entity does not take account of any adjustments to the carrying
amount of long-term interests that arise from applying IAS 28. These Amendments have not yet been endorsed by
the EU. Management has assessed that these Amendments of the Standard will not have a significant effect to the
Company’s Financial Statements, as the Company does not have such long-term interests.

 Amendment in IFRS 10: Consolidated Financial Statements and IAS 28: Investments in Associates and
Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS
28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main
consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business
(whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets
that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB
postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity
method of accounting. The amendments have not yet been endorsed by the EU. Management has assessed that
these Amendments of the Standard will not have a significant effect to the Company’s Financial Statements, as the
Company does not estimate to sell or invest such assets.
The Management of the Company will not adopt these amendments because they will not be applicable for the
Company.
d) Improvements to IFRSs
 The IASB has issued the Annual Improvements to IFRSs 2014 – 2016 Cycle, which is a collection of
amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2018
for IFRS 1 First-time Adoption of International Financial Reporting Standards and for IAS 28 Investments in
Associates and Joint Ventures. Earlier application is permitted for IAS 28 Investments in Associates and Joint
Ventures. These annual improvements have not yet been endorsed by the EU.
 IFRS 1 First-time Adoption of International Financial Reporting Standards. This improvement deletes the
short-term exemptions regarding disclosures about financial instruments, employee benefits and investment
entities, applicable for first time adopters.
 IAS 28 Investments in Associates and Joint Ventures. The amendments clarify that the election to measure
at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that
is venture capital organization, or other qualifying entity, is available for each investment in an associate or
joint venture on an investment-by-investment basis, upon initial recognition.
The Company has assessed that these improvements will have no impact on the Company's financial statements.
 The IASB has issued the Annual Improvements to IFRSs 2015 – 2017 Cycle, which is a collection of
amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2019
with earlier application permitted. These annual improvements have not yet been endorsed by the EU.
 IFRS 3 Business Combinations and IFRS 11 Joint Arrangements: The amendments to IFRS 3 clarify
that when an entity obtains control of a business that is a joint operation, it re-measures previously held
interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint control of a
business that is a joint operation, the entity does not re-measure previously held interests in that business.
 IAS 12 Income Taxes: The amendments clarify that the income tax consequences of payments on financial
instruments classified as equity should be recognized according to where the past transactions or events
that generated distributable profits has been recognized.
 IAS 23 Borrowing Costs: The amendments clarify paragraph 14 of the standard that, when a qualifying
asset is ready for its intended use or sale, and some of the specific borrowing related to that qualifying asset
remains outstanding at that point, that borrowing is to be included in the funds that an entity borrows
generally.
The adoption of these amendments may result in changes to accounting policies or disclosures but impact of
adoption on the financial position or performance of the Company has not assessed.
2.2.3. Going concern
As of 31 December 2017 Company’s current liabilities exceeded current assets by EUR 3,929 thousand (31/12/2016:
EUR 16,645 thousand).
The Management of the Company foresees that in 2018 the Company will not have liquidity problems and will settle
its liabilities to creditors within set terms as it is foreseen that the Company will have positive operating cash flow.
Credit risk exposure in connection with trade receivables is managed by the Company’s Management. This exposure
has significantly concentrated on trade transactions with Augstsprieguma tīkls AS (operating lease of transmission
system assets) and is consistently monitored. The Company will not be influenced by significant liquidity risk as the
liabilities mainly comprise of liabilities from related parties.
On 7 March 2018 the Company has received support letter from the Parent Company. The letter verifies that annual
report for the year 2017 of Latvijas elektriskie tīkli AS is prepared in accordance with going concern principle,
acknowledging that Latvenergo AS position as 100 % shareholder is to ensure that subsidiary is managed so that it
has sufficient financial resources and is able to carry its operations and settle its obligations, as well if necessary, not
to request principal amount of the loan, as well repayment of accrued interest from Latvijas elektriskie tīkli AS, if that
would cause doubt for Latvijas elektriskie tīkli AS to continue its operations at least 12 months after the approval of
Latvijas elektriskie tīkli AS year 2017 annual report.

The management of the Company assess that going concern principle is applicable for preparation of these financial
statements.
2.2.4. Financial investments
Other financial investments are investments within other entities’ share capital not exceeding 20 % of entities ‘share capital.
The Company has applied judgement in determining that it has a financial investment with 0.62 % interest held in the
company Pirmais Slēgtais Pensiju Fonds AS that manages closed pension plan in Latvia and has classified it as available
for sale. Equity investments classified as financial assets available for sale are those that are neither classified as held for
trading nor designated at fair value through profit or loss.
After initial measurement, financial assets available for sale are subsequently measured at fair value with unrealised gains
or losses recognised in other comprehensive income and credited in the available for sale reserve until the investment is
derecognised. If a financial asset available for sale is determined to be impaired or the investment is derecognised, the
cumulative gain or loss previously recognised in the statement of comprehensive income is recognised in the statement of
comprehensive income.
Given that the particular investment does not have a quoted price in active market, the company decided to measure it at
cost. The Company is only a nominal shareholder as all risks and benefits arising from management of pension plan will
accrue to the Company’s employees who are members of the pension plan and the Company does not have existing rights
that give it the current ability to direct the relevant activities of the investee.
At the moment the Company does not have investment in associates.
2.2.5. Foreign currency translation
a) Functional and presentation currency
Items included in these Financial Statements are measured using the currency of the primary economic environment
in which the Company operates (“the functional currency”). The Company’s Financial Statements have been prepared
in euros (EUR), which is the Company’s functional currency. All figures, unless stated otherwise are rounded to the
nearest thousand.
b) Transactions and balances
All transactions denominated in foreign currencies are translated into the functional currency according to the
European Central bank (ECB) exchange rates prevailing at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated into functional currency using the exchange rate of the European
Central bank at the last day of the reporting year. The resulting gain or loss is charged to the Company’s Statement
of Profit or Loss.
2.2.6. Intangible assets
Intangible assets are measured on initial recognition at cost. Following initial recognition, intangible assets are carried
at cost less any accumulated amortisation and accumulated impairment losses.
Gains or losses arising from de–recognition of an intangible asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and are recognised in the Company’s Statement of Profit or
Loss when the asset is derecognised.
a) Connection usage rights
Connection usage rights are measured at cost net of accumulated amortisation and impairment that is calculated
using the straight–line method to allocate the cost of connection usage rights to the residual value over the estimated
period of relationship with a service supplier (connection installer) – 20 years.
b) Licenses and software
Licenses and software, which meet an asset recognition criteria, are measured at cost less accumulated amortisation
and accumulated impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of
licenses and software over their estimated useful lives (5 years).
2.2.7. Property, plant and equipment
Property, plant and equipment (PPE) are measured on initial recognition at cost. Following initial recognition PPE are
stated at historical cost or revalued amount (see point 2.2.8.), less accumulated depreciation and accumulated
impairment losses, if any.
Cost of property, plant and equipment comprises the purchase price, transportation costs, installation, and other direct
expenses related to the acquisition or implementation. The cost of the self–constructed item of PPE includes the cost
of materials, services and workforce. Subsequent costs are included in the asset’s carrying amount or recognised as
a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will
flow to the Company and the cost of an item can be measured reliably. All other repair and maintenance expenses
are charged directly to the Company’s Statement of Profit or Loss when the expenditure is incurred. Borrowing costs

on qualifying assets are capitalised proportionally to the part of the cost of fixed assets under construction over the
period of construction.
If an item of PPE consists of components with different useful lives and the cost of these components are significant
against the cost of an PPE item, these components are recognised separately.
Land is not depreciated. Depreciation on the other assets is calculated using the straight–line method to allocate their
cost over their estimated useful lives, as follows:
Type of property, plant and equipment (PPE) Estimated useful life, years
Buildings and facilities:
– electricity transmission lines 20 – 50
Technology equipment and machinery (TEM):
– transmission machinery and equipment 10 – 40
Other property, plant and equipment 2 – 5
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount (see point 2.2.9.).
Gains or losses on property, plant and equipment disposals are determined by comparing proceeds with carrying
amounts. Those are included in the Company’s Statement of Profit or Loss. If revalued property, plant and equipment
have been sold or disposed, appropriate amounts are reclassified from revaluation reserve to retained earnings.
All fixed assets under construction are stated at historical cost and comprised costs of construction of assets. The
initial cost includes construction and installation costs and other direct costs related to construction of fixed assets.
Assets under construction are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, either individually or at the cash-generating unit level. The amount of any
impairment loss identified is measured as the difference between the asset’s carrying amount and the recoverable
amount.
2.2.8. Revaluation of property, plant and equipment
Revaluations have been made with sufficient regularity to ensure that the carrying amount of property, plant and
equipment items subject to valuation does not differ materially from that which would be determined using fair value
at the end of reporting period.
Electricity transmission system property, plant and equipment categories grouped by following groups are revalued
regularly but not less frequently than every five years:
 buildings and facilities,
 technology equipment and machinery,
 other property, plant and equipment.
Increase in the carrying amount arising on revaluation net of deferred tax is credited to the ‘Other comprehensive
income’ as “Property, plant and equipment revaluation reserve” in the Shareholder’s equity. Decreases that offset
previous increases of the same asset are charged in ‘Other comprehensive income’ and debited against the
revaluation reserve directly in equity; all other decreases are charged to the Company’s current year’s Statement of
Profit or Loss. Any gross carrying amounts and accumulated depreciation at the date of revaluation is restated
proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset
after the revaluation equals its revalued amount.
Property, plant and equipment revaluation reserve is decreased at the moment, when revalued asset has been
eliminated or disposed, and transferred to retained earnings.
Revaluation reserve cannot be distributed in dividends, share capital, used for indemnity, reinvested in other reserves,
or used for other purposes.
2.2.9. Impairment of assets
Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher
amount of the asset’s fair value less costs to sell and value in use. In assessing the value in use, the estimated future
post-tax cash flows are discounted to their present value using a post–tax discount rate that reflects the current
market expectations regarding the time value of money and the risks specific to the asset. For an asset that does not
generate largely independent cash inflows, the recoverable amount is determined for the cash–generating unit to
which the asset belongs. Impairment losses are recognised in the ‘Other comprehensive income’ within PPE
revaluation reserve for the assets accounted at revalued amount and in the Company’s Statement of Profit or Loss
within amortisation, depreciation and impairment charge expenses for the assets that are accounted at cost, less

depreciation and impairment, and for the assets accounted at revalued amount in case if impairment charge exceeds
revaluation surplus previously recognised on individual asset.
The key assumptions used in determining recoverable amount of the asset are based on the Company’s management
best estimation of the range of economic conditions that will exist over the remaining useful life of the asset, on the
basis of the most recent financial budgets and forecasts approved by the Company’s management for a maximum
period of 10 years. Estimates are based on Latvian regulatory authority (Public Utilities Commission) stated
methodology. Assets are reviewed for possible reversal of the impairment whenever events or changes in
circumstances indicate that impairment must be reviewed. The reversal of impairment for the assets that are
accounted at cost, less depreciation and impairment, is recognised in the Company’s Statement of Profit or Loss.
Reversal of impairment loss for revalued assets is recognised in the Company’s Statement of Profit or Loss to the
extent that an impairment loss on the same revalued asset was previously recognised in the Company’s Statement
of Profit or Loss; the remaining reversals of impairment losses of revalued assets are recognised in ‘Other
comprehensive income’.
2.2.10. Leases
a) The Company is the lessee
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases and can’t be classified as finance lease if does not provide that lessee overtakes all risks and
benefits associated with the overtaking of lease object in its possession. Lease payments are charged to Statement
of Profit or Loss over the period of the lease (see Note 11 d).
b) The Company is the lessor
Assets leased out under operating leases are recorded within property, plant and equipment at historic cost less
depreciation and accumulated impairment loss, if any. Depreciation is calculated on a straight–line basis to write
down each asset to its estimated residual value over estimated useful life. Rental income from operating lease and
advance payments received from clients (less any incentives given to lessee) are recognised in accordance with
IAS 17 in the Company’s Statement of Profit or Loss on a straight–line basis over the period of the lease (see Note
11 d).
2.2.11. Inventories
Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price
in the ordinary course of business, less applicable variable selling expenses. Cost is determined using the weighted
average method.
2.2.12. Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently carried at amortised cost. An allowance for
impairment of trade receivables is established when there is objective evidence that the Company will not be able to
collect all amounts due according to the original terms of repayment. Significant financial difficulties of the debtor,
probabilities that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments
(more than 30 days overdue) are considered as indicators that the trade receivable is impaired.
An allowance for impairment of doubtful debts is calculated on the basis of trade receivables aging analysis according
to estimates defined by the Company’s management, which are revised at least once a year. Allowances for trade
receivables are calculated for debts overdue 30 days, and, if the debt is overdue for more than 181 day, allowances
are established at 100%. If debtor has been announced as insolvent, allowances are established at 100%.
2.2.13. Cash and cash equivalents
Cash and cash equivalents include cash balances on bank accounts, demand deposits at bank and other short–term
deposits with original maturities of three months or less.
2.2.14. Dividend distribution
Dividend distribution to the Shareholder of the Company is recognised as a liability in the Company’s Financial
Statements in the period in which the dividends are approved by the Company’s Shareholder.
2.2.15. Pensions and employment benefits
a) Pension obligations
The Company makes monthly contributions to a closed defined contribution pension plan on behalf of its employees.
The plan is managed by the non–profit public limited company Pirmais Slēgtais Pensiju Fonds, with the participation
of Latvijas elektriskie tīkli AS amounting for 0.62% of its share capital. A defined contribution plan is a pension plan
under which the Company pays contributions into the plan. The Company has no legal or constructive obligations to
pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee
service in the current and prior periods. The contributions amount to 5% of each pension plan member’s salary. The
Company recognises the contributions to the defined contribution plan as an expense when an employee has
rendered services in exchange for those contributions.

b) Provisions for post-employment obligations arising from collective agreement
In addition to the aforementioned plan, the Company provides certain post–employment benefits to employees whose
employment meets certain criteria. Obligations for benefits are calculated taking into account the current level of
salary and number of employees eligible to receive the payment, historical termination rates as well as number of
actuarial assumptions.
The defined benefit obligations are calculated annually by independent actuaries using the projected unit credit
method.
The liability is recognised in the Company’s Statement of Financial Position in respect of post–employment benefit
plan is the present value of the defined benefit obligation at the end of the reporting period. The present value of the
defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
government bonds. The Company uses projected unit credit method to establish its present value of fixed benefit
obligation and related present and previous employment expenses. According to this method it has been stated that
each period of work makes benefit obligation extra unit and the sum of those units comprises total Company’s
obligations of post–employment benefits. The Company uses available and mutually compatible actuarial
assumptions on variable demographic factors and financial factors (including expected remuneration increase and
determined changes in benefit amounts).
Actuarial gains or losses arising from experience adjustments and changes in actuarial assumptions net of deferred
income tax are charged or credited to the Company’s Statement of Comprehensive Income in the period in which
they arise. Past service costs are recognised immediately in the Statement of Profit or Loss.
2.2.16. Income tax
Corporate income tax includes current and deferred taxes. Current corporate income tax is applied at the rate of 15%
on taxable income generated by the Company during the taxation period.
a) Corporate income tax
Legal entities will not be required to pay income tax on earned profits starting from 1 January 2018 in accordance
with amendments made to the Corporate Income Tax Law of the Republic of Latvia issued on 28 July 2017. Corporate
income tax will be paid on distributed profits and deemed profit distributions. Consequently, current and deferred tax
assets and liabilities are measured at the tax rate applicable to undistributed profits. Starting from 1 January 2018,
both distributed profits and deemed profit distributions will be subject to the tax rate of 20% of their gross amount, or
20/80 of net expense. Corporate income tax on dividends is recognized in the statement of profit or loss as expense
in the reporting period when respective dividends are declared, while, as regards other deemed profit items, at the
time when expense is incurred in the reporting year.
b) Deferred corporate income tax liabilities
Deferred corporate income tax assets and liabilities were determined on the basis of the tax rates that were expected
to apply when the timing differences reverse. The principal temporary timing differences arose from differing rates of
accounting and tax amortization and depreciation on the Company’s non-current assets, the treatment of temporary
non-taxable provisions and reserves, as well as temporary difference in interest in excess of set limits and tax losses
carried forward for the subsequent years.
Deferred tax assets and liabilities are not recognized for the year 2017 in accordance with amendments to the
legislation of the Republic of Latvia, which entered into force on 1 January 2018. Accordingly, deferred tax liabilities
which have been calculated and recognized in previous reporting periods are reversed through the current statement
of profit or loss or reserves (depending on whether the original entry was recorded in the statement of profit or loss
or reserves) in the financial statements for the year ended 31 December 2017, as it is laid down in the IAS 12,
changes in the tax legislation must be presented in financial statements in the period when they are adopted (Note
10).
2.2.17. Borrowing costs
General and specific borrowing costs directly attributable to the acquisition or construction of qualifying assets, which
are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to
the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing
costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that the
Company incurs in connection with the borrowing of funds.
2.2.18. Provisions
Provisions are recognised when the Company has a present obligation as a result of past event; it is probable that
an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable
estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

Provisions are presented in the Company’s Statement of Financial Position at the best estimate of the expenditure
required to settle the present obligation at the end of reporting period. Provisions are used only for expenditures for
which the provisions were originally recognised and are reversed if an outflow of resources is no longer probable.
Provisions are measured at the present value of the expenditures expected to be required for settling the obligation
by using pre–tax rate that reflects current market assessments of the time value of the money and the risks specific
to the obligation as a discount rate. The increase in provisions due to passage of time is recognised as interest
expense.
2.2.19. Grants
Government grants are recognised as income over the period necessary to match them with the related costs, for
which they are intended to compensate, on a systematic basis. A government grant is not recognised until there is
reasonable assurance that the entity will comply with the conditions attaching to it, and that the grant will be received.
Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant have been
or will be fulfilled.
Financing provided by European Union funds
The Company ensures the management, application of internal controls and accounting for the Company’s projects
financed by the European Union funds, according to the guidelines of the European Union and legislation of the
Republic of Latvia.
Accounting of the transactions related to the projects financed by the European Union is ensured using separately
identifiable accounts. The Company ensures separate accounting of financed projects with detailed income and
expense, non–current investments and value added tax in the relevant positions of the Company’s Statement of Profit
or Loss and Statement of Financial Position.
2.2.20. Financial instruments – initial recognition, subsequent measurement and de–recognition
a) Financial assets
I) Initial recognition and measurement
Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans
and receivables, held–to–maturity investments, available–for–sale financial assets, or as derivatives designated as
hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial
assets at initial recognition.
All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets
recorded at fair value through profit or loss.
The Company’s financial assets include loans and receivables.
II) Subsequent measurement
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets
designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading
if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are also categorised as
held for trading unless they are designated as hedges. Assets in this category are classified as current assets if
expected to be settled within 12 months; otherwise, they are classified as non–current. Financial assets at fair value
through profit or loss are carried in the statement of financial position at fair value with net changes in fair value
presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value)
in the Company’s Statement of Profit or Loss. Financial assets designated upon initial recognition at fair value through
profit or loss are designated at their initial recognition date and only if the criteria under IAS 39 are satisfied. The
Company has not designated any financial assets at fair value through profit or loss.
Loans and receivables
Loans and receivables are non–derivative financial assets with fixed or determinable payments that are not quoted
in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost
using the effective interest rate (hereinafter – EIR) method, less impairment. The losses arising from impairment are
recognised in the Company’s Statement of Profit or Loss in finance costs for loans and in other operating expenses
for receivables.
This category applies to trade and other receivables.
Held–to–maturity investments
Non–derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to
maturity when the Company has the positive intention and ability to hold them to maturity. After initial measurement,
held to maturity investments are measured at amortised cost using the effective interest rate (hereinafter – EIR), less
impairment. If the Company were to sell other than an insignificant amount of held–to–maturity financial assets, the
whole category would be tainted and reclassified as available for sale. Held–to–maturity financial assets with

maturities more than 12 months from the end of the reporting period are included in non–current assets; however
those with maturities less than 12 months from the end of the reporting period are classified as current assets.
The Company does not have Held–to–maturity investments.
Available–for–sale financial assets
Available–for–sale financial assets include equity instruments and debt securities. After initial measurement
available–for–sale financial assets are subsequently measured at fair value with unrealised gains or losses
recognised in other comprehensive income and credited in the available–for–sale financial assets reserve until the
investment is derecognised. The Company does not have such assets.
III) De–recognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
derecognised when:
 the rights to receive cash flows from the asset have expired,
 the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and
either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company
has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control
of the asset.
b) Financial liabilities
I) Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss,
loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The
Company determines the classification of its financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly
attributable transaction costs.
The Company’s financial liabilities include trade and other payables and loans and borrowings.
II) Subsequent measurement
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through profit or loss. This category includes derivative financial
instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as
defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated
as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the Company’s
Statement of Profit or Loss. The Company has not designated any financial liabilities at fair value through profit or
loss.
Loans and borrowings
Loans and borrowings are recognised initially at fair value. After initial recognition, interest bearing loans and
borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is
calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part
of the EIR. The EIR amortisation is included as finance costs in the Company’s Statement of Profit or Loss, except
for the capitalised part. Borrowings are classified as current liabilities unless the Company has an unconditional right
to defer settlement of the liability at least for 12 months after the end of reporting period.
Trade and other payables
The Company’s trade payables are recognised initially at fair value and subsequently measured at amortised cost
using the EIR method.
III) De–recognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as the de–recognition of
the original liability and the recognition of a new liability. The difference in the respective carrying amounts is
recognised in the Company’s Statement of Profit or Loss.
2.2.21. Revenue recognition
Lease of transmission system assets (IAS 17)
Revenues from lease of transmission system assets are recognised on the basis of invoices which are prepared for
transmission system operator accordingly to determined fee per lease agreement. Lease of transmission system
assets is a lease contract within the scope of IAS 17 Leases. Revenue disclosed per Note 5 and 11 d.

Connection fees (IAS 17)
Revenue from connection fees are within the scope of IAS 17. Connection fees are received upfront payments from
lessee under operating lease agreement as disclosed in Note 11 d. Upfront payments are recognized as deferred
income (Note 19).
Connection fees are carried in the Statement of Financial Position as deferred income and amortised to Statement
of Profit or Loss on a straight–line basis over 20 years, which is the estimated customer relationship period (see Note
4 d)).
Electricity connection fees are recognised by the Company based on the necessity for a connection to the electricity
network based on the request of lessee, which acts on behalf of users. For each connection fee a separate
arrangement within the base lease agreement (Note 11 d) is concluded. Connection fee partly reimburses the cost
of infrastructure to be built and is needed for connection of transmission system user to the network. Connection
service fee is calculated in accordance with Latvian regulatory authority (Public Utilities Commission) stated
methodology.
Revenue from contracts with customers (IFRS 15)
Revenue from contracts with customers are sold goods or services provided as output of the entity’s ordinary
activities, only when all of the following criteria are met:
 the parties to the contract have approved the contract (in writing, orally or in accordance with other customary
business practices) and are committed to perform their respective obligations;
 can be identified each party’s rights regarding the goods or services to be transferred;
 can be identified the payment terms for the goods or services to be transferred;
 the contract has commercial substance (i.e. the risk, timing or amount of the entity’s future cash flows is expected
to change as a result of the contract);
 it is probable that the company will collect the consideration to which it will be entitled in exchange for the goods
or services that will be transferred to the customer.
In evaluating whether collectability of an amount of consideration is probable. The company shall consider only the
customer’s ability and intention to pay that amount of consideration when it is due. The amount of consideration to
which the company will be entitled may be less than the price stated in the contract if the consideration is variable
because the entity may offer the customer a price concession.
A company shall recognise revenue when (or as) the company satisfies a performance obligation to transfer a
promised good or service (i.e. an asset) to a customer. An asset is transferred when or as the customer obtains
control of that asset.
Revenue for provided continuous services and goods are recognised over time or at a point in time.
Performance obligation is recognised over time, if one of the following criteria is met:
 customer simultaneously receives and consumes the benefits;
 customer controls the asset as it is created or enhanced (e.g. asset maintenance or repair);
 company’s performance does not create an asset and has a right to payment for performance completed (e.g.
contract termination fee).
If a performance obligation is not satisfied over time, a company satisfies the performance obligation at a point in
time, considering following:
 company has a present right to receive payment;
 customer has legal title;
 company has transferred physical possession of the asset;
 customer has the significant risks and rewards of ownership of the asset;
 customer has accepted the asset.
I) Revenue recognised at a point in time
Construction services
Revenue from construction services are recognised when the customer has approved actually performed works, the
Company has transferred control to a customer and the Company is entitled to receive payment. Payments for the
works performed is received within one month.
2.2.22. Related parties
All shares of the Company belong to Latvenergo AS which is the Parent Company. The parties are considered related
when one party has a possibility to control the other one or has significant influence over the other party in making
financial and operating decisions. Related parties of the Company are other Latvenergo Group Companies, the parent
Company who could control or who has significant influence over the Company in accepting operating business
decisions, members of Management board and close family members of any above–mentioned persons, as well as
entities over which those persons have control or significant influence. As the shares of the Company’s Parent belong
100 % to the Republic of Latvia, the related parties also include entities under the control or significant influence of
the state (Note 21).

2.2.23. Share capital
The Company’s share capital consists of ordinary shares. All shares have been fully paid.
2.2.24. Events after the reporting period
Events after the reporting period that provide additional information about the Company’s position at the balance
sheet date (adjusting events) are reflected in the financial statements. Events after the reporting period that are not
adjusting events are disclosed in the notes when material.
2.2.25. Changes in accounting policies
The Company has applied IFRS 15 Revenue from contracts with customers for the first time in the 2017 financial
statements with initial application date: of 1 January 2017 and has chosen a modified retrospective application of
IFRS 15. In accordance with the transition provisions in IFRS 15 the Company has adopted the standard using the
modified retrospective approach with cumulative effect only for the agreements that are not completed as of initial
application date.
All figures in the financial statements for the year ended 31 December 2017 have been presented in accordance with
IFRS 15. The Company has assessed its revenue, however implementation of standard has not changed the total
amount of revenue recognized for a customer contracts, as well as timing of revenue recognition, thus no adjustments
arise compared to previous used standards, as well cumulative effect upon adoption of IFRS 15 is nil. Adoption of
standard does not have impact on Company’s Financial Statements as the Company does not have many long–term
contracts with multi–element arrangements and main revenue of the Company consists from lease income that
applies under IAS 17.
Disaggregation of revenue from contracts with customers has not changed existing categorising and presents the
nature of the revenue as reviewed by the Company’s management and Latvian regulatory authority (Public Utilities
Commission).
2.3. First–time adoption of IFRS
These Financial Statements, for the year ended 31 December 2017, are the first the Company has prepared in
accordance with IFRS. For periods up to and including the year ended 31 December 2016, the Company prepared
its Financial Statements in accordance with local generally accepted accounting principles as defined by the “Annual
Accounts and Consolidated Annual Accounts Law of the Republic of Latvia” (Local GAAP).
Accordingly, the Company has prepared its Financial Statements that comply with IFRS applicable as at 31 December
2017, together with the comparative period data for the year ended 31 December 2016, as described in the summary
of significant accounting policies. In preparing the Financial Statements, the Company’s opening Statement of
Financial Position was prepared as of 1 January 2016, the Company’s date of transition to IFRS.
This note explains the principal adjustments (‘Remeasurements’) made by the Company in restating its Local GAAP
Financial Statements in accordance with IFRS, including the Statement of Financial Position as of 1 January 2016
and the Financial Statements for the year ended 31 December 2016. All other position transitions which have no
material impact on financial results are disclosed as ‘Positions reclassified’.
Exemptions applied
IFRS 1 allows first–time adopters certain exemptions from the retrospective application of certain requirements under
IFRS, but the Company has not applied any of these exemptions.
Estimates
The estimates at 1 January 2016 and at 31 December 2016 are consistent with those made for the same dates in
accordance with Local GAAP (after adjustments to reflect any differences in accounting policies).

Reconciliation of the statement of financial position as of 1 January 2016 (date of transition to IFRS)
EUR’000
Local GAAP
01/01/2016
Remea–
surements*
Positions
reclassified
IFRS
01/01/2016
ASSETS
Non–current assets
Intangible assets 194 – – 194
Property, plant and equipment – – 395,869 395,869
Buildings and facilities 200,015 – (200,015) –
Technology equipment and machinery 191,179 – (191,179) –
Other property, plant and equipment 1,790 – (1,790) –
Creation of property, plant and equipment and assets under
construction 2,885 – (2,885) –
Financial investments – – 1 1
Other shares and non-current investments 1 – (1) –
Total non–current assets 396,064 – – 396,064
Current assets
Inventories – – 33 33
Finished products and goods for sale 33 – (33) –
Trade receivables and other receivables – – 8,777 8 777
Trade receivables 8 316 – (8,316) –
Receivables from related companies 459 – (459) –
Other receivables 2 – (2) –
Deferred expenses 6 – – 6
Cash and cash equivalents 300 – – 300
Total current assets 9,116 – – 9,116
TOTAL ASSETS 405,180 – – 405,180
EQUITY
Share capital 185,624 – – 185,624
Other reserves* 3,563 – (3,563) –
Profit for the year* 14,880 – (14,880) –
Retained earnings* – – 18,443 18,443
Total equity 204,067 – – 204,067
PROVISIONS
Provisions for pensions and similar obligations 52 – (52) –
Total provisions 52 – (52) –
LIABILITIES
Non–current liabilities
Accounts payable to related companies 60,229 – (60,229) –
Borrowings – – 60,229 60,229
Deferred income tax liabilities 36,663 – – 36,663
Provisions – – 52 52
Deferred non-current income 68,791 – (68,791) –
Other liabilities and deferred income – – 68,791 68,791
Total non–current liabilities 165,683 – 52 165,735
Current liabilities
Borrowings – – 27,900 27,900
Trade and other payables – – 3,634 3,634
Trade payables 793 – (793) –
Taxes and the state social security contributions 989 – (989) –
Income tax payable – – 376 376
Other payables 26 – (26) –
Deferred income 3,468 – – 3,468
Accrued liabilities 1,162 – (1,162) –
Total current liabilities 35,378 – – 35,378
Total liabilities 201,061 – 52 201,113
TOTAL EQUITY AND LIABILITIES 405,180 – – 405,180
* under the Local GAAP Latvijas elektriskie tīkli AS transferred profit in amount of EUR 3,563 accumulated before 1 January 2016 and profit for the
reporting year in the amount of EUR 14,880 to ‘Other reserves’, according to IFRS have been recognised at 31 December 2016 as retained earnings

Reconciliation of the statement of financial position as of 31 December 2016 EUR’000
Local GAAP
31/12/2016
Remea–
surements*
Positions
reclassified
IFRS
31/12/2016
ASSETS
Non–current assets
Intangible assets 5 – – 5
Property, plant and equipment – – 414,397 414,397
Buildings and facilities 208,649 – (208,649) –
Technology equipment and machinery 191,850 – (191,850) –
Other property, plant and equipment 2,015 – (2,015) –
Creation of property, plant and equipment and assets under
construction 11,883 – (11,883) –
Financial investments – – 1 1
Other shares and non-current investments 1 – (1) –
Total non–current assets 414,403 – – 414,403
Current assets
Inventories – – 86 86
Finished products and goods for sale 86 – (86) –
Trade receivables and other receivables – – 7,235 7,235
Trade receivables 3,911 – (3,911) –
Receivables from related companies 1,619 – (1,619) –
Other receivables 1,705 – (1,705) –
Deferred expenses 11 – – 11
Cash and cash equivalents 300 – – 300
Total current assets 7,632 – – 7,632
TOTAL ASSETS 422,035 – – 422,035
EQUITY
Share capital 185,624 – – 185,624
Reserves – – 25,631 25,631
Non–current assets revaluation reserve 25,631 – (25,631) –
Other reserves* 3,563 – (3,563) –
Profit for the year* 6,852 – (6,852) –
Retained earnings* – 5 10,415 10,420
Total equity 221,670 5 – 221,675
PROVISIONS
Provisions for pensions and similar obligations 76 – (76) –
Total provisions 76 – (76) –
LIABILITIES
Non–current liabilities
Borrowings from the Parent Company – – 63,883 63,883
Deferred income tax liabilities 39,419 (5) – 39,414
Provisions – – 76 76
Deferred non-current income 72,710 – (72,710) –
Other liabilities and deferred income – – 72,710 72,710
Total non–current liabilities 176,012 (5) 76 176,083
Current liabilities
Borrowings from the Parent Company – – 15,023 15,023
Trade and other payables – – 4,853 4,853
Trade payables 2,465 – (2,465) –
Taxes and the state social security contributions 1,021 – (1,021) –
Income tax payable – – 893 893
Other payables 15 – (15) –
Deferred income 3,508 – – 3,508
Accrued liabilities 1,120 – (1,120) –
Total current liabilities 24,277 – – 24,277
Total liabilities 200,289 (5) 76 200,360
TOTAL EQUITY AND LIABILITIES 422,035 – – 422,035
* under the Local GAAP Latvijas elektriskie tīkli AS transferred profit in amount of EUR 3,563 accumulated before 31 December 2016 and profit for the
reporting year in the amount of EUR 6,852 to ‘Other reserves’, according to IFRS have been recognised at 31 December 2016 as retained earnings

Reconciliation of profit or loss for the year ended 31 December 2016 EUR’000
Local GAAP
for the
31/12/2016
Remea–
surements*
Positions
reclassified
IFRS for the
31/12/2016
Revenue 51,294 – – 51,294
Capitalised costs attributable to non-current assets 23 – (23) –
Other income – (359) 1,697 1,338
Other operating income 1,697 – (1,697) –
Personnel expenses: (431) 33 21 (377)
Adjustment for impairment of property, plant and equipment
and intangible assets (35,588) – 35,588 –
Depreciation, amortisation and impairment of intangible assets
and property, plant and equipment – – (35,588) (35,588)
Other operating expenses (7,890) – 2 (7,888)
Operating profit 9,105 (326) – 8,779
Interest costs and similar costs (1,837) – 1,837 –
Finance costs – – (1,837) (1,837)
Profit before tax 7,268 (326) – 6,942
Corporate income tax for the year (2,182) – 2,182 –
Profit after tax for the year 5,086 (326) 2,182 6,942
Revenue or cost of deferred income tax assets or liabilities
changes 1,766 – (1,766) –
Income tax – 54 (416) (362)
Profit for the year 6,852 (272) – 6,580
* under Local GAAP, the Company recognised costs or income related to re–measurement on defined post–employment benefit plan in profit or loss
as ‘Personnel expenses’ and revenue from disposal of property, plant and equipment revaluation reserve when revalued asset has been eliminated or
disposed in profit or loss as ‘Other income’
Reconciliation of the comprehensive income for the year ended 31 December 2016 EUR’000
Local GAAP
for the
31/12/2016
Remea–
surements*
Positions
reclassified
IFRS for the
31/12/2016
Profit for the year 6,852 (272) – 6,580
Other comprehensive income / (loss) not to be reclassified to
profit or loss in subsequent periods (net of tax):
Gains on revaluation of property, plant and equipment – 25,936 – 25,936
Loss as a result of re–measurement on defined post–
employment benefit plan – (28) – (28)
Other comprehensive income for the year, net of tax – 25,908 – 25,908
Total comprehensive income for the year – 25,636 – 32,488
* under IFRS gains on revaluation of property, plant and equipment and results of re–measurement on defined post–employment benefit plan are
recognised as ‘Other comprehensive income’, but disposal of property, plant and equipment revaluation reserve as a direct transfer from reserve to
retained earnings of the Company

Reconciliation of the cash flows for the year ended 31 December 2016
The transition from Local GAAP to IFRS has not had a material impact on the Company’s Statement of Cash Flows
except remeasurement effect on ‘Profit before tax’ arising from remeasurement on defined post–employment benefit
plan which is recognised as ‘Other comprehensive income’ and disposal of property, plant and equipment revaluation
reserve as a direct transfer from reserve to retained earnings of the Company.
EUR’000
Local GAAP
for the
31/12/2016
Remea–
surements
Positions
reclassified
IFRS for the
31/12/2016
Cash flows from operating activities
Profit before tax 7,268 (326) – 6,942
Adjustments:
– Amortisation, depreciation and impairment of intangible
assets and property, plant and equipment – – 35,588 35,588
– Impairment of property, plant and equipment 35,341 – (35,341) –
– Loss from disposal of non–current assets – 359 (58) 301
– Disposal of intangible assets 189 – (189) –
– Interest costs 1,837 – – 1,837
– Increase / (decrease) in provisions 24 (33) – (9)
Operating profit before working capital adjustments 44,659 – – 44,659
Decrease in current assets 2 947 – – 2 947
Increase in trade and other payables 1,641 – – 1,641
Cash generated from operating activities 49,247 – – 49,247
Interest paid (2,168) – – (2,168)
Corporate income tax paid (1,666) – – (1,666)
Net cash flows generated from operating activities 45,413 – – 45,413
Cash flows from investing activities
Purchase of intangible assets and property, plant and
equipment (21,802) – – (21,802)
Proceeds from sales of intangible assets and property, plant
and equipment 249 – – 249
Net cash flows used in investing activities (21,553) – – (21,553)
Cash flows from financing activities
Borrowings received 15,000 – (15,000) –
Repayment of borrowings received from the Parent Company (24,222) – 15,000 (9,222)
Proceeds on financing from EU funds 242 – – 242
Dividends paid (14,880) – 14,880 –
Dividends paid to the Parent Company – – (14,880) (14,880)
Net cash flows used in financing activities (23,860) – – (23,860)
Net increase in cash and cash equivalents – – – –
Cash and cash equivalents at the beginning of the reporting
year 300 – – 300
Cash and cash equivalents at the end of reporting year 300 – – 300
3. FINANCIAL RISK MANAGEMENT
3.1. Financial risk factors
The Company’s activities expose it to a variety of financial risks: market risks (including pricing risk for regulated
activities, currency risk and interest rate risk), credit risk, liquidity and cash flow risk.
Risk management (except for pricing risk for regulated activities) is carried out by the Parent Company’s Treasury
department (the Latvenergo AS Treasury) according to Latvenergo Group’s Financial Risk Management Policy
approved by the Management Board of the Parent Company. The overall financial risk management programme
focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial
performance of Group Companies. The Latvenergo AS Treasury identifies, evaluates and hedges financial risks in
close co–operation with the Company’s operating units. The Management Board of the Parent Company by approving
Latvenergo Group’s Financial Risk Management Policy provides written principles for overall risk management, as
well as written policies covering specific areas, such as interest rate risk, foreign exchange risk, liquidity risk, and
credit risk, use of investment for excess liquidity.

Financial assets by categories: EUR’000
Financial liabilities by categories: EUR’000
a) Market risk
I) Foreign currencies exchange risk
The introduction of euro in Latvia as of 1 January 2014 prevented the euro currency risk, which primarily was arising
from settlements in foreign currencies for capital expenditures.
Latvenergo Group’s Financial Risk Management Policy foresees management of the foreign currencies exchange risk
against functional currency. Foreign currencies exchange risk arises when future transactions or recognised assets
or liabilities are denominated in a currency that is not the Company’s functional currency. During 2017 the Company
had no substantial foreign currency risk as all financial transactions were completed in euros only.
Latvenergo Group’s Financial Risk Management Policy is to hedge all anticipated cash flows (capital expenditure and
purchase of goods and services) in each major foreign currency that might create significant currency risk. During
2017 the Company had no capital expenditure project which expected transactions would create significant currency
risk.
In 2017 the Company had no certain investments, which were exposed to foreign currency risks.
II) Cash flow and fair value interest rate risk
As the Company has not significant floating interest–bearing assets and liabilities exposed to interest rate risk, the
Company’s financial income / costs and operating cash flows are not substantially dependent on changes in market
interest rates.
During 2017, if euro interest rates had been 50 basis points higher or lower with all other variables held constant, there
would not have been significant impact on the Company’s income from the cash reserves held at bank for the year.
Notes
Non–current
financial
investments
Trade receivables
and other
receivables
Cash and cash
equivalents
Financial assets as of 31 December 2017
Non–current financial investments 12 1 ‒ ‒
Non–current financial receivables 13 b ‒ 2,941 ‒
Trade receivables and other receivables 13 a ‒ 6,511 ‒
Current financial receivables 13 b ‒ 12,749 ‒
Cash and cash equivalents 14 ‒ ‒ 1,500
1 22,201 1,500
Financial assets as of 31 December 2016
Current financial receivables 13 b ‒ 1,702 ‒
Cash and cash equivalents 14 ‒ ‒ 300
1 7,232 300
Financial assets as of 1 January 2016
Current financial receivables 13 b ‒ 2 ‒
Cash and cash equivalents 14 ‒ ‒ 300
1 8,777 300
Notes Borrowings
Other financial
liabilities at
amortised cost
Financial liabilities as of 31 December 2017
Borrowings from the Parent Company 17 a 95,177 ‒
Trade and other financial payables 20 ‒ 11,160
95,177 11,160
Financial liabilities as of 31 December 2016
78,906 4,714
Financial liabilities as of 1 January 2016
88,128 3,007

The Company’s cash flow interest rate risk mainly arises from long–term borrowings at variable rates. They expose
the Company to a risk that finance costs might increase significantly when interest rates rise up. The Company’s policy
is to maintain at least 35 % of its borrowings as fixed interest rates borrowings with duration between 2–4 years.
As of 31 December 2017 18 % of the total Company’s borrowings (31/12/2016: 32 %; 01/01/2016: 50 %) had fixed
interest rate and average fixed rate duration was 6.46 years (2016: 5.23 years).
The Company analyses its interest rate risk exposure on a dynamic basis. Various scenarios are simulated taking into
consideration refinancing, renewal of existing positions and hedging. Based on these scenarios, the Company
calculates the impact on profit and loss as well as on cash flows of a defined interest rate shift.
During 2017, if interest rates on euro denominated borrowings at floating base interest rate (after considering hedging
effect) had been 50 basis points higher or lower with all other variables held constant, the Group’s profit for the year
net of taxes would have been EUR 110.555 thousand lower or higher (2016: EUR 153.281 thousand).
The Company’s borrowings with floating rates do not impose fair value interest rate risk.
III) Price risk
Price risk is the risk that the fair value and cash flows of financial assets and liabilities will fluctuate in the future due
to reasons other than changes in the market prices resulting from interest rate risk or foreign exchange risk. The
purchase and sale of the services provided by the Company under the free market conditions, as well as the purchases
of resources used in capital expenditure are impacted by the price risk.
b) Credit risk
Company’s credit risk arises from cash and cash equivalents and outstanding receivables. Credit risk exposure in
connection with cash and cash equivalents is managed by the Latvenergo AS Treasury according to Latvenergo
Group’s Financial Risk Management Policy.
Credit risk exposure in connection with trade receivables is managed by the Company’s Management. This exposure
has significantly concentrated on trade transactions with Augstsprieguma tīkls AS (operating lease of transmission
system assets). Impairment loss has been deducted from gross accounts receivable (Note 13).
The maximum credit risk exposure related to financial assets comprises of carrying amounts of cash and cash
equivalents (see table below and Note 14) and trade and other receivables (Note 13).
Assessment of maximum possible exposure to credit risk EUR’000
Notes 31/12/2017 31/12/2016 01/01/2016
Non–current financial receivables 13 b 2,941 ‒ ‒
Trade receivables and other receivables 13 a 6,511 5,530 8,775
Current financial receivables 13 b 12,749 1,702 2
Cash and cash equivalents 14 1,500 300 300
23,701 7,532 9,077
For banks and financial institutions, independently rated parties with own or parent bank’s minimum rating of
investment grade are accepted. Otherwise, if there is no independent rating, Latvenergo AS Treasury according to
Latvenergo Group’s Financial Risk Management Policy performs risk control to assess the credit quality of the financial
counterparty, taking into account its financial position, past co–operation experience and other factors and after
performed assessment individual credit limits are set based on internal ratings in accordance with principles set by
the Financial Risk Management Policy. The basis for estimating the credit quality of financial assets not past due and
not impaired is credit ratings assigned by the rating agencies or, in their absence, the earlier credit behaviour of clients
and other parties to the contract.
For estimation of the credit quality of fully performing trade receivables two rating categories are used:
 Customers with no overdue receivables,
 Customers with overdue receivables.
Credit limits are regularly monitored.
Credit risk related to cash and cash equivalents is managed by balancing the placement of financial assets in order
to maintain the possibility to choose the best offers and to reduce probability to incur losses.
All cash and cash equivalents at the end of the reporting period in the amount of EUR 1,500 thousand (31 December
2016: EUR 300 thousand; 1 January 2016: EUR 300 thousand) are placed in SEB Banka AS with investment level
credit rating assigned for the parent company of this bank.
No credit limits were exceeded during the reporting period, and the Company’s management does not expect any
losses due to occurrence of credit risk.

Latvijas elektriskie tīkli AS Annual Report 2017

Latvijas elektriskie tīkli AS Annual Report 2017

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