Let 2018 annual_report

LATVIJAS ELEKTRISKIE TĪKLI AS – Annual Report 2018 1 from 42
2018
LATVIJAS ELEKTRISKIE TĪKLI AS
ANNUAL REPORT

* Financial Statements are prepared in accordance with International Financial Reporting Standards as
adopted by the EU
www.let.lv
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 40
FINANCIAL CALENDAR
Interim Condensed Financial Statements:
for the 3 months of 2019 (unaudited) – 31.05.2019.

KEY FIGURES
Operational figures
2018 2017 2016 2015 2014
Capital expenditure: EUR’000 87,298 63,170 26,841 17,561 31,716
including capital expenditure in transmission system assets EUR’000 86,204 61,191 23,964 16,661 30,579
capital expenditure in leased property, plant and equipment EUR’000 1,094 1,979 2,877 900 1,137
Number of employees at the end of the year 8 9 10 11 444
Financial figures EUR’000
2018 2017 2016 2015 2014
Revenue: 43,288 48,935 51,294 47,510 61,864
including revenues from lease of transmission system assets 39,264 44,556 46,014 44,263 38,009
revenues from management of transmission system assets – – – – 19,671
EBITDA 1)
39,297 42,790 44,367 42,240 38,099
Profit 13,394 50,463* 6,580 14,880 11,846
Total assets 551,193 475,612 422,035 405,181 430,789
Total equity 232,759 269,801 221,675 204,067 199,849
Borrowings 179,770 95,524 78,906 88,128 110,511
Net cash flows from operating activities 55,504 48,098 45,414 32,742 31,180
Financial ratios
2018 2017 2016 2015 2014
Return on assets (ROA) 2)
% 2,6 11,2 1,6 3,6 2,8
Capital ratio 3)
% 42 56,7 52,5 50,4 46,4
Return on equity (ROE) 4)
% 5,3 20,5 3,1 7,4 5,9
Net debt / EBITDA 3,5 2,2 1,8 2,1 2,9
Debt-to-capital ratio 5)
% 35 26,1 26,3 30,2 35,6
Dividends % 100 100 100 100 90
Profit margin 6)
% 30,9 103,1 12,8 31,3 19,1
1)
EBITDA – earnings before interest, income tax, 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 at the beginning of the year + borrowings at the end of the year) / 2 / ((borrowings + total equity at the beginning of the
year) + (borrowings + total equity at the end of the year) / 2 )
6)
Profit margin – profit / revenue
* in accordance with the changes of tax regulations and laws of the Republic of Latvia that came into force from 1 January 2018, in 2017 reversed deferred
tax liabilities in the amount of EUR 34 896 thousand

MANAGEMENT REPORT
Latvijas elektriskie tīkli AS (hereinafter 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 stations).
The electric power transmission system 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
investments in electric power transmission system assets, becoming their owner at the same time.
Business performance
The revenue of the Company in 2018 was EUR 43,288 thousand. The profit of the Company in 2018 was
EUR 13,394 thousand. The EBITDA of the Company in 2018 was EUR 39,297 thousand. In 2018, the Company
applies a return of capital rate of 4.43% to revenue gained from leasing out transmission system assets, included
in the electric power transmission system services fee by Decision No. 30 of the Public Utilities Commission
(SPRK) of 6 April 2017.
The total value of assets has grown as a result of
investment projects.
Capital investments in the transmission system assets are carried out in accordance with the Latvian electric
power transmission system development plan for the next 10 years developed by the transmission system
operator Augstsprieguma tīkls AS. This plan is approved by the Public Utilities Commission. Latvijas elektriskie
tīkli AS provides the financing necessary to complete capital investment projects, at the same time monitoring
the progress of performance.
At the end of 2018, the total length of electric transmission lines was 5243 km, of which 74% were 110 kV electric
transmission lines, and 26% were 330 kV electric transmission lines. Sixteen 330 kV substations with the total
capacity of their autotransformers amounting to 3950 MVA, and one hundred twenty-three 110 kV substations
with a total transformer capacity of 5215 MVA enable the operation of the transmission network.
Electric transmission line length
Unit Method* 2018 2017 2016 2015 2014
330 kV km n/a 1,346 1,346 1,346 1,360 1,381
110 kV km n/a 3,897 3,893 3,891 3,891 3,891
TOTAL km 5,243 5,239 5,237 5,251 5,273
* n – measured; a – calculated
Unit Method* 2018 2017 2016 2015 2014
Substations (330 kV) number n 16 16 16 16 16
Autotransformers (330 kV) number n 26 25 25 25 25
Autotransformer installed capacity (330 kV) MVA n/a 3,950 3,825 3,825 3,825 3,825
Transformer substations (110 kV) number n 123 123 121 121 121
Transformers (110 kV) number n 248 248 246 246 246
Transformer installed capacity (110 kV and
10 kV voltage-boosting transformers) MVA n/a 5,215 5,195 5,125 5,102 5,075
* n – measured; a – calculated
The total capital investment financing amount invested in 2018 in transmission system assets and the real estate
projects related thereto is EUR 87,29 thousand, which is EUR 24,128 thousand more than in 2017; this has been
mainly caused by the continuation of construction work for the final, Ventspils – Tume – Riga stage of the
Kurzemes loks project, and the initiation of the construction for the third intermediate connection between Latvia
and Estonia.
The total planned length of the Kurzemes loks transmission
network project (Grobina – Ventspils – Tume – Riga) is 330
km. Kurzemes loks comprises three stages. The first stage
was completed in 2012, and the Rīgas loks project was
implemented as part of it. In 2014, the Grobina – Ventspils
stage of the Kurzemes loks project was commissioned, with
a new 116.8 km, 330 kV electric transmission line.
During the accounting year, a number of line sections saw construction of 330 kV lines and reconstruction of 110
kV lines as part of the last, third stage, Ventspils – Tume – Riga. By the end of 2018, a total of 550 supports were
erected (77% of the planned amount), 155 km of cables were installed (62% of the planned amount), and the 110
kV Priedaine, Valdemarpils, Kandava and Dundaga substations were renovated. The construction of the Imanta
and Tume substations will continue.
Asset value: 551 million EUR
Construction of the final Ventspils
– Tume – Riga stage of the EU co-
financed Kurzemes loks project
continues

It is planned to complete Kurzemes loks in 2019. The expected total costs of the project are almost
EUR 230 million. The construction of the first and second stages of the project has cost 95 million EUR, while the
completion of the third stage by 2018 has taken EUR 103 million in investments. An agreement has been
concluded with the EC Innovation and Networks Executive Agency, to co-finance 45% of the last stage of the
project. Furthermore, the transmission system operator, Augstsprieguma tīkls AS intends to use EUR 11.5 million
of the income from overload fees to finance the project.
The new third electric transmission network intermediate connection between Estonia and Latvia is an essential
electric power transmission infrastructure project for the entire Baltic region. The new 330 kV electric transmission
line intermediate connection is set to increase the transmission capacity between the electric power systems of
Latvia and Estonia available. The intended length of the 330 kV electric transmission network intermediate
connection in Latvia is to be around 190 km; the delivery of the project is planned to take place by the end of
2020. The total construction costs in Latvia are expected to be some EUR 100 million. The environmental
assessment of the project and the pilot project development concluded in 2016. In 2018, the development of the
construction design began, and design reviews were completed for certain stages of the line. Monitoring and wood
clearing is carried out for the new 330 kV electric line. By the end of 2018, EUR 5.3 million were invested in
implementing the project.
An agreement has been concluded with the Innovation and Networks Executive Agency to provide co-financing
to this project, in the amount of 65 %. Augstsprieguma tīkls AS is the project coordinator in Latvia. The plan is to
complete the project by the end of 2020. Furthermore, the transmission system operator, Augstsprieguma tīkls
AS intends to use EUR 31 million in income from overload fees to finance the project.
In order to improve Latvia’s transmission system, the operator of the transmission system, Augstsprieguma tīkls
AS has started working on construction of a new 330 kV electric transmission line connection between the CHPP-
2 and Riga HPP substations, which will ensure full functionality of the third intermediate connection between
Estonia and Latvia in the event of repairs and blackouts. Said connection is meant to reinforce the Riga node of
Latvia’s electric transmission network. On a regional scale, this network reinforcement will have a significant
impact on increasing the North-to-South transmission capacity in the Baltics. Since 2012, electric power market
and network analyses have shown that because the electric power systems of the Baltic States were now
connected to those of the Nordic countries and Poland, a necessity for reinforcing the internal transmission
networks of the Baltics arose, in order to enable the flow of capacity in the North-South direction. In view of this,
as early as 2014, the Baltic Corridor project was studied as part of the European ten-year plan, including the Riga
CHPP (LV) – Salaspils (LV) project; later, preference was given to Riga HPP as the connection point. This project
is included in the list of Projects of Common Interest of the European Union, as No 4.2.3 ‘Internal line between
Riga CHPP-2 and Riga HPP (LV)’. During the reporting period, an agreement was concluded regarding the
construction of a Riga CHPP-2 – Riga HPP 330 kV electric line; design work and the development of the
topographic map began. An agreement to rebuild the Rigas HPP 330 kV substation switchgear has been
concluded; design work on this project continues. An agreement has been concluded with the Innovation and
Networks Executive Agency to provide co-financing to this project, in the amount of 50%. Augstsprieguma tīkls
AS is the project coordinator in Latvia. The project is expected to be completed by the end of 2020, when the third
direct intermediate connection between Estonia and Latvia is commissioned. Furthermore, the transmission
system operator, Augstsprieguma tīkls AS intends to use 9.9 million EUR of the income from overload fees to
finance the project. The reconstruction of the transmission line is expected to finish by the end of 2020. By the
end of 2018, EUR 0.24 million was invested in implementing the project.
In order to improve the stability of the electric power supply, and to ensure the availability of the power required
at individual nodes of the transmission network, the reconstruction of the “Viskali” substation 110 kV continues,
while the reconstruction of the 330 kV “Daugavpils” and “Aizkraukle” substations, and the 110 kV “Bolderaja” and
“Tume” substations has begun. The construction of the “Stipnieki” substation has been completed, and the
construction of the “Skrunda” substation has continued in order to increase the capacity at the distribution system
connections. The reconstruction of the 330 kV and 110 kV electric transmission line also continues, and includes
the renovation of elements of the line.
The Company's strategy for 2017 – 2022 was approved on 29 November 2016. The financial goals of Latvijas
elektriskie tīkli AS were determined together with the strategy. The financial goals were divided into three target
groups: profitability, capital structure and dividend policy.
Taking into account the capital investment programme funding, the capital structure of the Company is sufficient
(net borrowing/EBITDA is 3.5 (2.2 in 2017) to settle obligations with its creditors in due time, and be able to
acquire new long-term loans optimally and securely, and gain the financing necessary to carry out the planned
capital investment projects (the ratio of borrowed capital was 35% in 2018, and 26% in 2017)).
Further development
In order to ensure better total North-to-South throughput capacity in the Baltics, to increase the transmission
capacity of the electric transmission network in Latvia and the Baltic States, thus improving the reliability of power
supply, and to synchronise the transmission networks of the Baltic States with those of continental Europe even
further, a reconstruction of the current 330 kV intermediate connections between Tartu (EE) and Valmiera (LV),

and between Tsirgulina (EE) and Valmiera (LV) has been planned. Said electric power transmission lines were
built in the 1960’s and 1970’s: the standards used back then do not comply with modern operating requirements;
for example, the differences in the transmission capacity in winter and in summer prevent electric power market
activities from being efficient and optimal. The plan is to replace these lines with new lines that have more
transmission capacity. The project includes replacing the current conductors, insulators, suspension fittings,
supports that are not suitable for the new loads, in order to ensure a transmission capacity of up to 1200 MVA.
Augstsprieguma tīkls AS plans to initiate the implementation of the project after the completion of the “Third
electric transmission network intermediate connection between Estonia and Latvia” project. Subject to
Commission Regulation 2016/89 of 18 November 2015, both the projects have been included and approved in
the second list of common interest, as part of the Estonian/Latvian and internal Lithuanian network reinforcement
cluster, in a bid to obtain 50% co-financing from the Connecting Europe Facility.
In accordance with the approved plan, 226.26 million euros is planned to be invested in projects that pertain to
maintaining the operating capacity of the transmission system (reconstruction of 330 kV and 110 kV substations
and distribution nodes, 330 kV and 110 kV electric transmission lines, and replacement of 330 kV
autotransformers and 110 kV transformers) within the 2019–2028 period. The financial investments are planned
such that the transmission equipment does not become obsolete long-term; i.e. so that the number of facilities
that are over the critical age does not grow, and that none of the facilities exceeds its critical age in the long run.
Latvijas elektriskie tīkli AS is raising capital for its financial needs in the coming years — to carry out investment
projects (in accordance with Resolution 111 “Regarding the electric power transmission system development
plan” of 28 September 2018, issued by the Public Utilities Commission), and to pay off its current debt.
As of 31 December 2018, the total debt of Latvijas elektriskie tīkli AS was EUR 180 million (on 31 December
2017, it was EUR 96 million), borrowings are 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 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
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 non–current 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 non-current borrowings of which 17% in
2018 (2017: 18%) consists of non–current borrowings with a floating interest rate influenced by change in 6
months EURIBOR interbank fluctuations.
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 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

NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION ON THE COMPANY
Latvijas elektriskie tīkli AS (the Company) as the owner of electricity transmission system assets leases out system
assets to transmission system operator – Augstsprieguma tīkls AS. 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 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 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), (see on Latvenergo AS web page section “Investors” –
http://www.latvenergo.lv/eng/investors/reports/).
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 PricewaterhouseCoopers SIA (licence No. 5) and certified auditor
in charge is Juris Lapše, certificate No. 116.
The Management Board of Latvijas elektriskie tīkli AS has approved 2018 Annual report, including the Financial
Statements on 20 March 2019. 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.
2.1. Basis of preparation
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 non-current financial
investments and for the revaluation of property, plant and equipment carried at revalued amounts as disclosed in
accounting policies presented below.
The Statement of cash flows is prepared using the indirect method by adjusting the profit before tax with the cash flows
generated from operating activities.
As of 31 December 2017 the Company has reclassified individual positions in the Statement of Financial Position for
post-employment benefit plan revaluation reserve, retained earnings, borrowings and trade and other payables and
positions in the Statement of Cash Flows for the year 2017 for the mutual offsetting with related parties.

Reclassification of individual positions in the Company's Statement of Financial Position as of 31 December 2017:
EUR'000
31/12/2017 before
reclassification Reclassification
31/12/2017 after
reclassification
EQUITY AND LIABILITIES
Equity
Reserves 29,571 (32) 29,539
Retained earnings 54,606 32 54,638
Total equity 269,801 – 269,801
Current liabilities
Borrowings 9,783 347 10,130
Trade and other payables 11,190 (347) 10,843
Total current liabilities 24,821 – 24,821
TOTAL EQUITY AND LIABILITIES 457,612 – 457,612
Reclassification of individual positions in the Company's Statement of Cash Flows for the year ended 31 December
2017: EUR'000
2017 before
reclassification
Reclassification
2017 after
reclassification
Operating profit before working capital adjustments 43,105 – 43,105
(Decrease) / increase in trade and other payables 7,507 (1,978) 5,529
Increase of borrowings from the Parent Company by mutual
offsetting, net – 2,833 2,833
Cash generated from operating activities 50,318 855 51,173
Interest paid (1,980) 1,980 –
Interest received 2 (2) –
Cash generated from operating activities 45,265 2,833 48,098
Received borrowings from the Parent Company, net 16,270 (2,833) 13,437
Net cash flows used in financing activities 9,418 (2,833) 6,585
Cash and cash equivalents at the end of reporting year 1,500 – 1,500
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.
Adoption of new and/or changed IFRS and International Financial Reporting Interpretations Committee (IFRIC)
interpretations
a) Standards issued and which became effective, relevant for the Company's operations
The Company has applied IFRS 15 Revenue from contracts with customers with initial application date as of
1 January 2017 and has chosen a modified retrospective application with cumulative effect.
 IFRS 9: Financial Instruments
The standard is effective for annual periods beginning on or after 1 January 2018.
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial
Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three
aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge
accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. Except for hedge accounting,
retrospective application is required but providing comparative information is not compulsory. For hedge accounting,
the requirements are generally applied prospectively, with some limited exceptions.
a) Classification and measurement
From a classification and measurement perspective, the new standard requires all financial assets, except equity
instruments and derivatives, to be assessed based on a combination of the entity’s business model for managing the
assets and the instruments’ contractual cash flow characteristics. The IAS 39 measurement categories have been
replaced by fair value through profit or loss (FVPL), fair value through other comprehensive income (FVOCI) and
amortised cost. IFRS 9 also allow entities to continue to irrevocably designate instruments that qualify for amortised
cost or fair value through OCI instruments as FVPL, if doing so eliminates or significantly reduces a measurement or

recognition inconsistency. Equity instruments that are not held for trading may be irrevocably designated as FVOCI,
with no subsequent reclassification of gains or losses to the income statement. The accounting for financial liabilities is
largely the same as the requirements of IAS 39.
b) Impairment
IFRS 9 fundamentally change the credit loss recognition methodology. The standard replaces IAS 39’s incurred loss
approach with a forward-looking expected credit loss (ECL) approach. IFRS 9 requires the Company to record expected
credit losses on all of its trade receivables and other receivables and cash and its equivalents, either on a 12-month or
lifetime basis. The Company has applied two expected credit loss models: counterparty model and portfolio model.
Counterparty model is used on individual contract basis for trade receivables and other receivables, cash and cash
equivalents and trade receivables with large customers. The expected credit losses according to this model are based
on assessment of the individual counterparty's risk of default (basically two receivables – Latvenergo AS and
Augstsprieguma tīkls AS) based on Moody's annual corporate default and recovery rates for the relevant industry of
business partner. Portfolio model is used for small trade receivables and business customers. For trade receivables
grouped by portfolio model the Company applies the simplified approach and record lifetime expected losses on
receivables based on historical analysis of credit losses taking into account also expected future development. The
Company uses provision matrix based on historical observed default rates, adjusted for forward-looking estimates.
IFRS 9 impairment requirements are applied retrospectively, with transition impact recognised in retained earnings (see
Note 4 b).
The Company has applied IFRS 9 Financial Instruments for the first time in the 2018 financial statements with initial
application date as of 1 January 2018 and has chosen a modified retrospective application of IFRS 9.
Adoption of new standard is disclosed in Note 2.14.
b) Standards issued and not yet effective, but are relevant for the Company's operations and not early adopted
by the Company
 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 recognise most leases on their financial
statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is
substantially unchanged. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control
the use of an identified asset for a certain period of time in exchange for consideration.
The Company will adopt IFRS 16 for the financial year beginning as of 1 January 2019. The Company has assessed
that the impact of adoption of this Standard will be material on the Company’s financial statements, and consider that
as the lessee the Company will have to recognise right-of-use assets in their financial statements. Upon implementation
of IFRS 16, among other considerations, the Company will make an assessment on the identified right-of-use assets,
non–cancellable lease terms (including the extension and termination options) and lease payments (including fixed and
variable payments, termination option penalties etc.).
The statement of profit or loss will also be affected because the total expense is typically higher in the earlier years of
a lease and lower in later years. Additionally, operating expense will be replaced with interest expenses and
depreciation, so key metrics like EBITDA (earnings before interest, income tax, depreciation and amortisation, and
impairment of intangible assets and property, plant and equipment) will change. Operating cash flows will be higher as
cash payments for the principal portion of the lease liability are classified within financing activities. Only the part of the
payments that reflects interest can continue to be presented as operating cash flows.
The Company will apply simplified approach and will not restate any comparative information and cumulative effect of
applying the standard will be recognised as an adjustment to the opening balance of retained earnings at the date of
initial application. Right-of-use assets will be measured at the amount of the lease liability on adoption.
The Company will use an optional exemption for short-term and low-value leases.
Based on assessment for the remaining lease commitments, the Company expects to recognise right-of-use assets
and lease liabilities approximately in the amount of EUR 23,050 thousand on 1 January 2019.
The Company expects that other operating expenses will decrease by EUR 3,115 thousand, depreciation will increase
by EUR 2,930 thousand and finance costs will increase by approximately EUR 307 thousand for 2019 as a result of
adopting IFRS 16.
The Company as lessor does not expect significant effect on the financial statements, however, some additional
disclosures will be required from 2019.
c) Separate improvements to IFRSs
 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.

The impact 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 been assessed.
The impact of all other standards or amendments (IFRIC 23, Uncertainty over Income Tax Treatments, Prepayment
Features with Negative Compensation - Amendments to IFRS 9, Long-term Interests in Associates and Joint Ventures
– Amendments to IAS 28, Plan Amendment, Curtailment or Settlement – Amendments to IAS 19, Definition of a
business – Amendments to IFRS 3, Definition of materiality – Amendments to IAS 1 and IAS 8, IFRS 17, Insurance
Contracts, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to
IFRS 10 and IAS 28) on the financial position or performance of the Company has not been assessed.
2.2. Going concern
As of 31 December 2018 the Company’s current liabilities exceeded current assets by EUR 31,007 thousand
(31/12/2017: EUR 3,929 thousand).
The Management of the Company foresees that in 2019 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 and the Management of the Company is confident that related parties
will agree on deferring the maturity dates of liabilities settlements or the Parent Company will provide additional
financing to avoid insolvency of the Company.
On 5 March 2019 the Company has received support letter from the Parent Company. The letter verifies that annual
report for the year 2018 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 2018 annual report.
The management of the Company assess that going concern principle is applicable for preparation of these financial
statements.
2.3. 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
non–current financial investment to be measured at fair value through comprehensive income (FVOCI) as an equity
instrument.
After initial measurement, non–current financial investments are subsequently measured at fair value with unrealised
gains or losses recognised in other comprehensive income until the investment is derecognised. If a non–current
financial investment 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.
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. This investment has no quoted prices
in an active market.
At the moment the Company does not have investment in associates.
2.4. 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.

2.5. Non–financial assets and liabilities
2.5.1. 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.
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).
2.5.2. 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, 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 25 – 50
Transmission system electrical lines and electrical equipment:
– electricity transmission lines 20 – 50
– electrical equipment of transformer substations 12 – 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.
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.
2.5.3. 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 assets (property, plant and equipment) are revalued regularly but not less frequently
than every five years:
– electricity transmission lines,
– electrical equipment of transformer substations.
Increase in the carrying amount arising on revaluation net of deferred tax is credited to the ‘Statement of
Comprehensive Income’ as “Property, plant and equipment revaluation reserve” in the equity. Decreases that offset

previous increases of the same asset are charged in ‘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, invested in share capital, used for indemnity, reinvested in other
reserves, or used for other purposes.
2.5.4. Impairment of non–financial 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
pre-tax cash flows are discounted to their present value using a pre–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 ‘Statement of 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 ‘Comprehensive income’.
2.5.5. 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. Operating lease agreement can’t be classified as finance lease as it 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 or
revaluated amounts less depreciation and accumulated impairment loss, if any. 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).
2.5.6. 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.
2.5.7. Pensions and post–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 plan 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 conditions meet 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 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.
2.5.8. 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.
2.5.9. Grants
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 grant is not recognised until there is reasonable assurance that the
Company 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.
2.6. Financial assets and liabilities
2.6.1. Financial instruments – initial recognition, subsequent measurement and de–recognition
a) Accounting policies applied from 1 January 2018
I) Classification
From 1 January 2018, the Company classifies its financial assets and liabilities under IFRS 9 in the following
measurement categories:
• those to be measured subsequently at fair value (through other comprehensive income), and
• those to be measured at amortised cost.
The classification depends on the Company’s business model for managing the financial assets and liabilities and the
contractual terms of the cash flows.
For investments in equity instruments that are not held for trading, this will depend on whether the Company has made
an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other
comprehensive income (FVOCI).
The Company reclassifies debt investments when and only when its business model for managing those assets
changes.
II) Initial recognition and measurement
All financial instruments are initially measured at fair value plus, in the case of a financial assets or financial liabilities
not at fair value through profit or loss, transaction costs. Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention in the market place (regular way trades) are
recognised on the trade date, i.e., the date when the Company commits to purchase or sell the asset.

III) Subsequent measurement
Debt instruments
Subsequent measurement of debt instruments depends on the Company's business model for managing the asset and
the cash flow characteristics of the asset. There is one measurement category into which the Company classifies its
debt instruments:
 Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent
solely payments of principal and interest are measured at amortised cost. Any gain or loss arising on de-
recognition is recognised directly in profit or loss. Impairment losses are presented as separate line item in
the statement of profit or loss;
Equity instruments
The Company subsequently measure all equity investments at fair value. Where the Company's management has
elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of
fair value gains and losses to profit or loss following the de-recognition of the investment.
Financial Liabilities
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL
if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities
at FVTPL are measured at fair value and net gains or losses, including any interest expense, are recognised in profit
or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method.
Interest expense is recognised in profit or loss.
IV) 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.
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Company also derecognises a financial liability when its terms are modified and the cash flows of the modified
liability are substantially different, in which case a new financial liability based on the modified terms is recognised at
fair value. On de-recognition of a financial liability, the difference between the carrying amount extinguished and the
consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
V) Impairment
From 1 January 2018, the Company assesses on a forward-looking basis the expected credit losses associated with
their debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has
been a significant increase in credit risk.
The Company have applied two expected credit loss models: counterparty model and portfolio model. Counterparty
model is used on individual contract basis, cash and cash equivalents and trade receivables with large customers. The
expected credit losses according to this model are based on assessment of the individual counterparty's risk of default
based on Moody's 12-months corporate default and recovery rates for relevant industry's entities. The circumstances
indicating a significant increase in credit risk is significant increase in Moody's default and debt recovery rates (by 1
percentage point) or debtor's inability to meet payment terms (overdue 30 days or more, insolvency or bankruptcy, or
initiated similar legal proceedings and other indications on inability to pay). For all other trade receivables is used
portfolio model. For trade receivables grouped by portfolio model the Company applies the simplified approach and
record lifetime expected losses on receivables based on historical analysis of credit losses taking into account also
expected increase of credit risk in near future. The Company uses provision matrix based on historical observed default
rates, adjusted for forward-looking estimates.
b) Accounting policies applied until 31 December 2017
I) Classification
Financial assets within the scope of IAS 39 were classified as non–current financial investments, other non–current
receivables, trade and other current receivables, trade payables and other liabilities and borrowings. The classification
of financial assets and liabilities is determined by the Company at initial recognition.
II) Initial recognition and measurement
All financial assets were 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 included trade receivables.
All financial liabilities were 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 borrowings.

III) 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 were classified as held for trading
if they were acquired for the purpose of selling or repurchasing in the near term. Derivatives were also categorised as
held for trading unless they were designated as hedges. Assets in this category were classified as current assets if
expected to be settled within 12 months; otherwise, they were classified as non–current. Financial assets at fair value
through profit or loss were carried in the statement of financial position at fair value with net changes in fair value
presented as costs (negative net changes in fair value) or income (positive net changes in fair value) in the Statement
of Profit or Loss. Financial assets designated upon initial recognition at fair value through profit or loss were designated
at their initial recognition date and only if the criteria under IAS 39 were satisfied. The Company has not designated
any financial assets at fair value through profit or loss.
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.
Receivables
Receivables were non–derivative financial assets with fixed or determinable payments that were not quoted in an active
market. After initial measurement, such financial assets were subsequently measured at amortised cost, less
impairment. The losses arising from impairment were recognised in the Statement of Profit or Loss as 'Other operating
expenses'.
Borrowings
Borrowings were recognised initially at fair value. After initial recognition, interest bearing borrowings were
subsequently measured at amortised cost using the EIR method. Gains and losses were recognised in profit or loss
when the liabilities were 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 were an integral part of the EIR.
The EIR amortisation is included as finance costs in the Statement of Profit or Loss, except for the capitalised part.
Borrowings were 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 were recognised initially at fair value and subsequently measured at amortised cost.
IV) 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.
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 were 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 Statement of Profit or Loss.
2.6.2. Trade and other receivables
Receivables from contracts with customers are recognised initially when they originated. Receivables without a
significant financing component are initially measured at the transaction price. On initial recognition receivables from
contracts with customers are measured at amortised cost if they meet both of the following conditions:
• they are held within a business model whose objective is to hold assets to collect contractual cash flows;
• their contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest
on the principal amount outstanding.
All individually significant receivables are individually assessed for impairment. Those found not to be impaired are then
collectively assessed for any impairment that has been incurred but not yet individually identified. Receivables that are
not individually significant are collectively assessed for impairment using the portfolio model. Collective assessment is
carried out by grouping together receivables with similar risk characteristics and the days past due. The Company have
applied two expected credit loss models: portfolio model and counterparty model.
The expected loss rates are based on the payment profiles of sales over a period of 2 years before 1 January 2018
and the corresponding historical credit losses experienced within this period. The Company apply the IFRS 9 simplified

approach to measuring expected credit losses of these receivables which uses a lifetime expected loss allowance (see
Note 4 b).
For individually significant receivables and receivables with insignificant exposure of credit risk the counterparty model
is used based on individual contract basis for non–current receivables and trade receivables with large customers. The
expected credit losses according to this model are based on assessment of the individual counterparty's risk of default
based on Moody's 12-months corporate default and recovery rates for the relevant industry's entity. Loss allowance for
these receivables equals to 12 month expected credit losses.
2.6.3. 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.
2.7. 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.
2.8. Income tax
Corporate income tax includes current and deferred taxes.
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. 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 recognised 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.
In 2018 deferred tax assets and liabilities are not recognised 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 recognised before the year 2017, in 2017 were reversed through the current statement of profit or loss
or other comprehensive income (depending on whether the original entry was recorded in the statement of profit or
loss or other comprehensive income) 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).
2.9. 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.
2.10. Revenue recognition
Lease of transmission system assets (IAS 17)
Revenues from lease of transmission system assets are recognised on the basis of lease payment amount which are
calculated for transmission system operator accordingly to determined fee per lease agreement and recognised on a
straight–line basis over term of the lease. Concluded agreements on the lease of transmission system assets meet IAS
17 'Leases' criteria that is used for revenue recognition from lease (Note 5).
Connection fees (IAS 17)
Revenue from connection fees are within the scope of IAS 17. Connection fees are received as upfront payments from
lessee under operating lease agreement. Upfront payments are recognised as deferred income (Note 21).

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 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 Company’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 Company may offer the customer a price concession.
The 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);
 the Company’s performance does not create an asset with an alternative use 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:
 the Company has a present right to receive payment;
 customer has legal title;
 the 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.
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 usually received within one month.
2.11. Related parties
All shares of the Company belong to Latvenergo AS which is the Company's 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 the parent Company, other
Latvenergo Group Companies, members of the 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 22).
2.12. Share capital
The Company’s share capital consists of ordinary shares. All shares have been fully paid.

2.13. Events after the reporting period
Events after the reporting period that provide significant 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 (Note 24).
2.14. Changes in accounting policies
The Company has applied IFRS 9 Financial instruments for the first time in the 2018 financial statements with initial
application date: 1 January 2018. IFRS 9 was adopted without restating comparative information and without the
reclassifications. The adjustments in the amount of EUR 25 thousand as the impact of the IFRS 9 adoption arising from
new impairment requirements based on the expected credit loss model was recognised in the opening balance of
retained earnings in the Statement of Financial Position on 1 January 2018. Reclassification of financial instruments
had no impact on their respective measurement basis and recognition in the Financial Statements.
All relevant figures in the financial statements for the year ended 31 December 2018 have been presented in
accordance with IFRS 9.
The following tables show the adjustments recognised for each individual line item. Line items that were not affected
by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from
the numbers provided:
EUR’000
Statement of Financial Position
(extract)
Measurement category
Original (IAS 39) New (IFRS 9) 31/12/2017
Effect on
IFRS 9
adoption
01/01/2018
ASSETS
Non‒current assets
Non‒current financial investments
Available for
sale FVOCI 1 – 1
Other non‒current receivables
Loans and
receivables Amortised cost 2,941 – 2,941
Total non‒current assets 454,720 – 454,720
Current assets
Trade receivables and other
receivables
Loans and
receivables Amortised cost 6,511 (6) 6,505
Other current receivables
Loans and
receivables Amortised cost 12,749 (19) 12,730
Cash and cash equivalents
Loans and
receivables Amortised cost 1,500 – 1,500
Total current assets 20,892 (25) 20,867
TOTAL ASSETS 475,612 (25) 475,587
EQUITY AND LIABILITIES
Equity
Retained earnings 54,638 (25) 54,613
Total equity 269,801 (25) 269,776
LIABILITIES
Non‒current liabilities
Borrowings Amortised cost Amortised cost 85,394 ‒ 85,394
Total non‒current liabilities 180,990 ‒ 180,990
Current liabilities
Borrowings Amortised cost Amortised cost 10,130 ‒ 10,130
Trade and other payables Amortised cost Amortised cost 10,843 ‒ 10,843
Total current liabilities 24,821 ‒ 24,821
TOTAL EQUITY AND LIABILITIES 475,612 (25) 475,587
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment
loss was immaterial.
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 and interest rate risk), credit risk and liquidity 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.
The Company's financial assets and financial liabilities that are exposed to financial risks disclosed in the table below
by measurement categories;
EUR'000
a) Market risk
I) Foreign currencies exchange risk
Latvenergo Group’s Financial Risk Management Policy foresees management of the foreign currencies exchange risk.
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 2018 the Company had no 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 2018
the Company had no capital expenditure project which expected transactions would create significant currency risk.
II) Cash flow and interest rate risk
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 2018, 83% of the total Company’s borrowings (31/12/2017: 82%) (Note 17 c) are with fixed interest
rate and average fixed rate duration is 6.76 years (2017: 6.46 years).
The Company analyses its interest rate risk exposure on a regular 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.
Over the next 12 months, if interest rates on euro denominated borrowings at floating base interest rates will be 50 basis
points higher compared to interest rates as of 31 December 2018 assuming that all other variables held constant, the
Company’s profit for the year would have been EUR 58.0 thousand lower (over the next 12 months after 31 December
2017: EUR 72.2 thousand lower).
The Company’s borrowings with floating rates do not impose fair value interest rate risk.
Notes
Non–current financial
investments at fair value
through other
comprehensive income
Financial assets at
amortised cost
Financial assets as of 31 December 2018
Non–current financial investments 12 1 ‒
Other non–current receivables 13 b ‒ 30,577
Trade receivables and other receivables 13 a ‒ 8,240
Cash and cash equivalents 14 ‒ 300
1 39,117
Financial assets as of 31 December 2017
Non–current financial investments 12 1 ‒
Other non–current receivables 13 b ‒ 2,941
Trade receivables and other receivables 13 a ‒ 6,511
Other current receivables 13 b ‒ 12,749
Cash and cash equivalents 14 ‒ 1,500
1 23,701
Notes
Financial liabilities at
amortised cost
Financial liabilities as of 31 December 2018
Borrowings 17 179,770
Trade and other payables 19 6,274
186,044
Financial liabilities as of 31 December 2017
Borrowings 17 95,524
Trade and other payables 19 10,813
106,337

III) Price risk in the regulated market environment
The Company's operation is subject to the regulated market environment of transmission system services, because the
Company leases its assets to the transmission system operator (Augstsprieguma tīkls AS). The Public utilities
commission (PUC), pursuant to the Law on the Electricity Market of the Republic of Latvia, monitors the contractual
relationship between the transmission system operator and the owner of the power system that are established in
respect to the fulfilment of the duties specified in the Law. Following the approved methodology, if the transmission
system operator uses leased assets for the provision of the transmission system services, the return on capital included
in the rent calculations is determined by the owner of the power system applying the rate of return on capital approved
by the PUC. Therefore, the price of the services provided by the Company is largely fixed an is not subject to market
price volatility that would impose material price risk.
b) Credit risk
The 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 31/12/2018 31/12/2017
Other non–current receivables 13 b 30,577 2,941
Trade receivables and other receivables 13 a 8,240 6,511
Other current receivables 13 b ‒ 12,749
Cash and cash equivalents 14 300 1,500
39,117 23,701
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.
In the prior year, the impairment of trade receivables and other receivables was assessed based on the incurred loss
model under IAS 39 (Note 2.6.2. and 4. b). Under IFRS 9 the Company measures the probability of default upon initial
recognition of a receivable and at each balance sheet date consider whether there has been a significant increase of
credit risk since the initial recognition.
Expected credit risk 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 300 thousand (31 December
2017: EUR 1,500 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.
c) Liquidity risk
Latvenergo AS Treasury monitors the liquidity situation of the Company to ensure that subsidiary has sufficient financial
resources and is able to carry its operations and settle its obligations.
Latvijas Elektriskie tīkli AS is the member of both Group Accounts in SEB Banka AS and Swedbank AS, which were
concluded to efficiently and unitedly manage financial resources of Latvenergo Group.
The Company’s liquidity risk is managed through Group Accounts, Latvenergo Group mutually concluded agreement
‘On provision of mutual financial resources’ and long term financing agreements; therefore sufficient amount of cash
and cash equivalents, the availability of long and short term is provided to meet commitments according to the
Company’s strategic plans as well as to compensate the fluctuations in the cash flows due to occurrence of variety of
financial risks.

The Company’s management is monitoring rolling forecasts of the Company’s liquidity reserve, which comprises cash
and cash equivalents (Note 14).
The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the settlement
terms. The amounts disclosed in the table are the contractual undiscounted cash flows. Contractual undiscounted cash
flows originated by the borrowings are calculated taking into account the actual interest rates at the end of the reporting
period.
Liquidity analysis (contractual undiscounted cash flows): EUR’000
Less than 1
year
From
1 to 2 years
From
3 to 5 years
Over
5 years
TOTAL
As of 31 December 2018
Borrowings from the Parent Company 29,589 26,269 75,520 61,214 192,592
Current financial liabilities (Note 19)* 6,274 ‒ ‒ ‒ 6,274
35,863 26,269 75,520 61,214 198,866
As of 31 December 2017
Borrowings from the Parent Company 10,165 9,749 46,030 35,880 101,824
Current financial liabilities (Note 19)* 10,813 ‒ ‒ ‒ 10,813
20,978 9,749 46,030 35,880 112,637
* excluding advances received, tax related liabilities and other current non–financial liabilities
3.2. Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern
as well as to ensure necessary financing for investment program.
In order to maintain or adjust the capital structure, the Company may evaluate the amount and timing of raising new
debt due to investment programs or initiate new investments in the share capital by shareholder. Also asset revaluation
directly influences the capital structure.
The capital ratio figures were as follows: EUR’000
31/12/2018 31/12/2017
Total equity 232,759 269,801
Total assets 551,193 475,612
Capital Ratio 42 % 57 %
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are regularly evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. The Company makes
estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal
the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year are discussed below:
a) Estimates concerning property, plant and equipment
I) Useful lives of property, plant and equipment
The Company makes estimates concerning the expected useful lives and residual values of property, plant and
equipment. These are reviewed at the end of each reporting period and are based on the past experience as well as
industry practice. Previous experience has shown that the actual useful lives have sometimes been longer than the
estimates. Estimating of useful lives assessed as impracticable therefore sensitivity analysis of the depreciation rate
changes effect in future periods is not disclosed.
II) Recoverable amount of property, plant and equipment
The Company performs impairment tests for items of property, plant and equipment when the events and circumstances
indicate a potential impairment. According to these tests assets are written down to their recoverable amounts, if
necessary. When carrying out impairment tests, management uses various estimates for the cash flows arising from
the lease of transmission system assets. The estimates are based on Latvian regulatory authority (Public Utilities
Commission) stated methodology. There are no impairment charges recognised during the current reporting year.
III) Revaluation
Revaluation of the Company’s property, plant and equipment (transmission system assets) is performed by
independent, external and certified valuers by applying the depreciated replacement cost model. Valuation has been
performed according to standards on property valuation, based on current use of property, plant and equipment that is
estimated as the most effective and best use of these assets. As a result of valuation, depreciated replacement cost
was determined for each asset. Depreciated replacement cost is difference between the cost of replacement or renewal

of similar asset at the time of revaluation and the accumulated loss of an asset's value that encompasses physical
deterioration, functional (technological) obsolescence and economic (external) obsolescence.
The Company's property, plant and equipment was revalued in 2016. The revaluation was performed by an external
valuer valuating the replacement or renewing costs for each item of property, plant and equipment considering actual
costs of construction or purchase of analogue or similar property, plant and equipment shortly before the revaluation
as based on the Company's accounting. For property, plant and equipment invested as a property investment in the
Company's share capital in 2011 external valuer at the moment of the revaluation evaluated how have changed the
components of the replacement or renewal costs of the same property, plant and equipment items since they were
invested in the Company's share capital, adjusting the values of individual sub-categories of property, plant and
equipment with changes of material costs and indexing the wage component on the basis of publicly available national
statistics on wage increases over the relevant period. Estimated replacement or renewal value for each item of property,
plant and equipment was reduced by its functional and physical depreciation as assessed by external valuer.
b) Impairment of financial assets
Until 31 December 2017 the estimated collectability of accounts receivable was assessed under IAS 39 on the basis of
receivables from contracts with customers aging analysis according to estimates defined by the Company’s
management based on the incurred loss model. Historical loss experience was adjusted on the basis of current
observable data to reflect the effects of current conditions that did not affect the period on which the historical loss
experience was based and to remove the effects of conditions in the historical period that did not exist currently.
Since 1 January 2018 the Company has five types of financial assets that are subject to the expected credit loss model:
• other non–current receivables,
• trade receivables and other receivables,
• other current receivables,
• cash and cash equivalents.
The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The
Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based
on the Company's historical analysis, existing market conditions as well as forward looking estimates at the end of each
reporting period.
The Company applies two expected credit loss models: portfolio model and counterparty model.
Using the portfolio model the Company applies the IFRS 9 simplified approach to measuring expected credit losses
which uses a lifetime expected loss allowance for trade receivables of basic business activities. To measure expected
credit losses and to use different default rates these receivables have been grouped based on shared credit risk
characteristics and the days past due. The Company therefore has concluded that the expected loss rates for these
receivables are a reasonable approximation of the credit risk exposure. The expected loss rates are based on the
payment profiles of sales over a period of 2 years before 31 December 2018 and 1 January 2018 respectively and the
corresponding historical credit losses experienced within this period. There are no adjustments made to the historical
loss rates that would reflect current and forward-looking information on macroeconomic factors affecting the ability of
the customers to settle the receivables as, considering current macroeconomic environment in Latvia, the Company's
management has assumed that macroeconomic factors in Latvia, such as GDP or the unemployment rates have
insignificant impact on debtors' solvency.
Counterparty model is used on individual contract basis for other non–current receivables, individual trade receivables
with large customers and related parties and cash and cash equivalents. The expected credit losses according to this
model are based on assessment of the individual counterparty's or counterparty's industry risk of default and recovery
rate assigned by Moody's credit rating agency for 12 months expected losses.
c) Recognition of connection service fees
Connection fees are recognised as income over the estimated customer relationship period, which is 20 years. The
estimated customer relationship period is based on the Company’s management estimate.
Income from connection and other service fees is deferred as an ongoing service is identified as part of the agreement
with customers. Operating lease agreement term is 5 years, the period over which revenue from connection fees is
recognised is 20 years, as it is reasonably certain that assets, whose costs are partly reimbursed by connection fees
will be leased for a longer period that defined original lease term. Based on the Company’s management estimate the
customer relationship period of 20 years is defined because it is estimated that after this period power output at each
specific connection location would have to be changed due to technological reasons.
d) Recognition and revaluation of provisions
The Company had set up provisions for post–employment benefits. The amount and timing of the settlement of these
obligations is uncertain. A number of assumptions and estimates have been used to determine the present value of
provisions, including the amount of future expenditure, inflation rates, and the timing of settlement of the expenditure.
The actual expenditure may also differ from the provisions recognised as a result of possible changes in legislative
norms. For revaluation of provisions for post–employment obligations probabilities of retirement in different employees’
aging groups as well as variable demographic factors and financial factors (including expected remuneration increase
and determined changes in benefit amounts) have been estimated. The probabilities and other factors are determined
on the basis of previous experience. All related information disclosed in Note 20.

e) Lease classification
The Company has entered into the lease agreement with licenced transmission system operator for the lease of
transmission system network infrastructure and land, buildings and facilities related to this infrastructure till the end
of 2019. At the end of lease agreement the parties may review terms of the agreement. If the parties do not agree on
a new lease agreement, the existing agreement is prolonged for further 5 years subject to transmission system
operator having a vald licence for electricity transmission. Based on an evaluation of the terms of the agreement,
such as rights of the ownership is not transferred as determined by Energy Law of the Republic of Latvia, the lessor
retains all the significant risks and rewards of ownership of these assets, the Company accounts this agreement as
operating lease. In making the judgement on lease classification the management assessed the criteria included in
IAS 17 'Leases' and considered the following circumstances:
 The lease does not transfer ownership of the assets at the end of the lease term,
 The lessee has no option to purchase the assets at a price sufficiently lower than the fair value,
 The Company is entitled to lease payments ensuring the rate of return on assets approved by Public Utilities
Commission (PUC) and bears risks and rewards related to ownership and the changes in the fair value of the
leased assets,
 The lease agreement could be prolonged up to 2025, until when transmission system operator has valid licence
for electricity transmission. The lease term does not cover the major part of the economic life of leased assets,
 The lease payments are determined by methodology for transmission system services approved by PUC,
considering the rate of return on assets approved by PUC and the lease payments during the predictable lease
term do not amount to substantially all of the estimated fair value of the leased assets,
 The assets can only be operated by a lessee holding the licence for electricity transmission. In accordance with
the effective legislation, the Company cannot obtain the licence itself. Thus, after 2025 when the current licence
for electricity transmission issued to transmission system operator expires, the Company will have to lease the
transmission system assets to a company having the licence for electricity transmission. Analysing the current
valid lease agreement and considering that PUC determines the rate of return on assets used for the calculation
of lease payments and it is reset on a regular basis, the lease payments beyond 2025 will be on market terms.
Thus, these periods need not to be taken into account when assessing the substance of the current lease
agreement.
5. REVENUE
EUR’000
2018 2017
Lease of transmission system assets (Note 11 d) and related
maintenance services IAS 17 39,264 44,556
Connection service fees (Note 21) IAS 17 2,930 2,400
42,194 46,956
Revenue from contracts with customers at a point in time:
Construction services IFRS 15 1,094 1,979
TOTAL revenue 43,288 48,935
Sales market for the services provided and goods sold is the territory of Latvia.
6. OTHER INCOME
EUR'000
2018 2017
Income from financing from EU funds (Note 21) 1,811 1,124
Income from sale of property, plant and equipment 217 24
Income from sale of current assets 77 –
Income from compensations and insurance claims, other income 114 9
TOTAL other income 2,219 1,157

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