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Annual report 2005

2

3

1 4

5

MessAge froM gérArd MestrAllet And JeAn-Pierre HAnsen p. 2

MAnAgeMent Bodies And Auditors p. 4

PAnorAMA electrABel grouP p. 5

Electrabel today p. 6

Electrabel share p. 8

Key consolidated figures p. 9

directors’ rePort p. 11

Main developments p. 12

Financial situation p. 18

corPorAte governAnce p. 31

Introduction p. 32

Board of Directors p. 33

Committees established by the Board of Directors p. 39

College of statutory auditors p. 43

Other information p. 44

consolidAted finAnciAl stAteMents p. 47

Consolidated organisation chart of the Electrabel group p. 48

Consolidated income statement p. 51

Balance sheet p. 52

Equity Rollforward p. 54

Consolidated cash flow statement p. 55

Notes to the consolidated financial statements p. 56

Statutory Auditors’ report p. 154

AnnuAl Accounts electrABel s.A. p. 157

Introduction p. 158

Balance sheet p. 159

Income statement p. 160

Appropriation account p. 160

tABles And glossArY p. 161

Tables p. 162

Glossary p. 167

Sites in Europe p. 169

Information p. 170

Surprising energy

This Annual report shows jugglers, musicians, rope-skippers

and artists that bring energy to life. Their attitudes and

movements express teamwork, cooperation and trust in

the partner. By working together, they each fulfil their own

projects. Just like Electrabel, striving to offer its customers

creative tailor-made solutions.

The playful images come from original models of the fanciful

Italian designer Silvio Pasquarelli. Various materials from the

electricity and natural gas business are transformed creatively

and turned into a surprising and energetic universe.

Colophon

This Annual report was produced by the Electrabel

Secretariat.

Graphic design and production by Labrador, Paris (France).

Photograph: Serge Verheylewegen.

Printing: Antilope, Lier (Belgium).

Responsible editor: Patrick van der Beken Pasteel

Boulevard du Régent 8, 1000 Brussels, Belgium.

Electrabel - Annual report 2005 �

annual REPORT 2005

Electrabel - Annual report 2005�

Message from Gérard Mestrallet and Jean-Pierre Hansen


2005 marks an important new stage in the course that Electrabel has pursued consistently for a number of years: having moved

into the leading group of European energy providers, we are now consolidating this position and are continuing to grow at

a very significant rate. Over the past year, our company has considerably strengthened its position in key markets, whilst also

pursuing stability in its traditional market.

2005 was also marked by SuEZ’s successful takeover bid for the Electrabel shares not already in its possession. This move has

consolidated Electrabel’s role as the Group’s vector of energy development in Europe and bolstered the Group’s position as one

of the continent’s top five utilities.

Good results bode well for the future

looking back, however, the challenge facing Electrabel was considerable. Initially active on the limited Belgian market, our

company was smaller than its French, German and Italian competitors.

nevertheless, we have been able to overcome these natural handicaps thanks to our key assets: our skilled staff, reliable, efficient

and diversified generating facilities, exemplary risk management, a solid financial situation, our position within an international

group and, above all, a business model that enables us to exploit market opportunities for the good of the company and its

customers day after day. Electrabel’s customers continue to enjoy competitive prices despite the general upward trend of energy

product prices.

Our results are in line with the goals we have set ourselves for 2009 and our growth continues to be based on stringent profitability

criteria.

Electrabel’s future is more bound up than ever with the emergence of an efficient European market. While progress has been

made in this area, much remains to be done.

European liberalisation lacks framework

Firstly, there is cause for concern about the way the European market operates,

as it is still based on the coexistence of national markets, or in some countries

even sub-national markets.

until now, Europe has focused primarily on the rate and scope of market

liberalisation. While the united States, 25 years after the initial phases of

liberalisation, has opened up 40 % of its market to competition, Europe will,

by 1 July 2007, have opened up 100 % of its market in the space of a decade.

The next area to focus on is the ‘design’ of the electricity system: we need to

establish and impose clear rules applying to all players everywhere, rather than

thinking, or hoping, that the market will do this of its own accord.



Security of supply under threat

Moreover, the issue of security of Europe’s energy supply is growing increasingly acute. Europe is still vulnerable to interruptions

in the supply of imported fuel.

as far as electricity is concerned, Europe has failed to implement mechanisms that would allow it to maintain vital reserve generation

capacity. This capacity is dwindling, yet the legal and regulatory context remains unfavourable to major long term investments.

Here too, Europe has acted as though it expects the market to set its own rules to counter the risk of undercapacity.

Operators are therefore reigning in their investment programmes, to the extent that there is now already insufficient peak capacity

in France, Germany, Italy, Spain and Belgium.

The continued existence of sub-markets, as mentioned above, encourages the use of local measures to solve this problem -

a far cry from the initial historic idea of a single, integrated, internal market! naturally, this mindset is likely to result in major

discrimination among European operators.

Tackling greenhouse gas emissions

The interaction between market operation and security of supply is already clear. However, there is a third - equally interactive - vertex

to the European energy triangle: efforts to tackle greenhouse gas emissions. The European institutions have taken a rigorous

approach to this policy issue, imposing ambitious reduction targets and setting up an emissions trading system. This market

mechanism is based de facto on a rise in energy prices, in particular to force a reduction in emissions.

Further, the Member States have so much freedom in their choice of permit allocation method that the system is creating new

distortions, both among European operators and between Europe and other parts of the world.

A ‘transversal’ European policy

Smooth market operation, security of supply and environmental protection (in particular, the greenhouse gas reduction mechanism):

these three factors are more than ever interlinked.

This prodigious challenge calls for a special Eu-wide energy policy. Such a policy is now indispensable

Brussels, 3 March 2006

Jean-Pierre Hansen

Chief Executive Officer

Gérard Mestrallet

Chairman

Management Bodies and Auditors

Management Bodies and Auditors – situation on 03.03.2006

Board of Directors

Chairman: Gérard MESTRallET

Vice-Chairman and Chief Executive Officer:

Jean-Pierre HanSEn

Vice-Chairman: Emmanuel van InnIS

Directors:

Patrick BuFFET

Baron CROES

Yves de GaullE

Jean-Pierre DEPaEMElaERE

Pierre DRIOn

Yvan DuPOn

luc HuJOEl

Gérard laMaRCHE

Robert-Olivier lEYSSEnS

Jean-Pierre RuQuOIS

lutgart Van den BERGHE

Baron VanDEPuTTE

Baron van GYSEl de MEISE

Geert VERSnICK

Xavier VOTROn

Company Secretary:

Patrick van der BEKEn PaSTEEl

Honorary members of the Board of Directors:

Honorary Chairman: Baron BODSOn

Honorary Vice-Chairmen: Jacques COPPEnS, Jean DEMEuRE,

Baron andré ROlIn

Honorary Chief Executive Officer: Willy BOSManS

Honorary Directors: Marcel aMORISOn, andré ClauDE,

Edgard DEBEYS, albert de BROuWER,

Jean de GaRCIa de la VEGa, Michel DElTEnRE,

andré GOHMann, Jacques lauREnT, Pierre MaSuRE,

Pierre nIHOul, Etienne SnYERS, Jacques TIMMERMan,

Stanislas ulEnS

Executive Committee

Chairman: Jean-Pierre HanSEn

Members:

Yvan DuPOn

Emmanuel van InnIS

alain JanSSEnS

Jacques lauREnT

Robert-Olivier lEYSSEnS

Walter PEERaER

Xavier VOTROn

Audit Committee

Chairman: Baron CROES

Members:

Gérard laMaRCHE

Jean-Pierre RuQuOIS

Appointments and Remuneration Committee

Chairman: Gérard MESTRallET

Members:

lutgart Van den BERGHE

Baron VanDEPuTTE

College of statutory auditors

Deloitte Company auditors

Representatives:

Josephus VlaMInCKX, Philip MaEYaERT

Company auditors

Ernst & Young Company auditors

Representatives:

Pierre anCIauX, Vincent ETIEnnE

Company auditors



1 Panorama Electrabel group


Core business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p . 7

Key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p . 7


Dividend payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p . 8

Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p . 8


&

&

&

Electrabel today&

Electrabel is a leading European energy company and number

one on the Benelux market. The company pursues sustainable

growth on its key markets, in line with strict profitability criteria.

To cover its customers’ needs more closely, it has built up a

European network of subsidiaries and partnerships with local

operators. The company fully exploits the many synergies

between electricity and natural gas. It has a solid foundation

based on a strong financial structure, high-level expertise,

a clear business model and integrated risk management.

All its strategic options build in the environmental factor.

The company gears each decision and action to its four core

values: customer-orientation, performance, attention to staff

and sense of responsibility. Electrabel is part of SUEZ, an

international industrial and services group that is active in

energy and the environment. SUEZ holds 98.62 % of the

shares in the company, which can therefore fully exploit the

many synergies present in the SUEZ group.


Panorama Electrabel group

Electrabel today1

Sales: 22 325 GWh Generation: 4 711 MW Staff: 810

Sales: 75 230 GWh Generation: 13 165 MW Staff: 11 452

Sales: 2 594 GWh Generation: 376 MW Staff: 20

Sales: 12 027 GWh Generation: 4 818 MW Staff: 319 MW

Sales: 3 GWh Generation: under construction Staff: 51

Sales: 37 GWh Generation: 164 MW


Sales: 8 079 GWh Generation: 1 654 MW Staff:1 415



Strategic markets

Benelux market

Large incumbents’ market

Development market

Home market

Sales of electricity, natural gas and energy products and services

Electrabel provides comprehensive and tailor-made energy

solutions for industrial enterprises. It offers small businesses and

residential customers a quality, locally based offer that meets

all their specific expectations. On top of these basic products, it

provides value-adding services. Sales outside Belgium account

for more than 48 % of total volume. The company is striving

to achieve a volume of sales of 200 TWh by 2009.

Electricity generation

Electrabel is strengthening its local geographical presence

with generating activities in a number of regions of Europe. It

manages diversified generating equipment totalling 29 100 MW.

Electrabel’s main objectives are high-energy efficiency and the

lowest possible impact on the environment. The European

facilities are primarily made up of high-energy-yield gas turbines

(6 900 MW), of extremely reliable nuclear facilities (6 300 MW)

and of renewable energy (4 600 MW). 49.5 % of generation is

CO2-emission free. It is Electrabel’s ambition to reach generating

capacity of 35 000 MW by 2009.

Trading of electricity and natural gas

Electrabel engages in trading activities on all of Europe’s energy

markets, from Scandinavia to Spain and from Benelux to

Poland. Its trading activities play a key role in its European

strategy. Due to its trading activities – fuel purchases, plants

valuation and supply – the company optimises its global energy

position on the different markets.

Management of electricity and natural gas distribution networks

In Belgium, Electrabel is responsible for the technical operation,

maintenance and development of the electricity and natural

gas distribution systems, on behalf of independent system

operators. In the course of 2006 the company will withdraw

from this activity in Flanders and Brussels.

Core business&

SalESElEcTriciTy

Total sales GWh 145 447

Benelux 100 149

Europe outside Benelux 45 298

Number of final customers 5 485 903

Benelux 3 758 922

Europe outside Benelux 1 726 981

NaTural gaS

Total sales GWh 73 337

Number of final customers 2 027 254

cablE TV

Number of final customers 533 722

WaTEr

Number of final customers 6 760

gENEraTioNElEcTriciTy

Net generating capacity MW 29 084

Benelux 18 252


Net generation GWh 130 742

Benelux 89 197


HEaT

Net generation GWh 12 724

Benelux 7 224Europe outside Benelux 5 500

STaffNumber of employees 15 794

Benelux 12 282


ENViroNMENTNet generating capacity CO2-emission free % 40 .1

Benelux 35.9

Europe outside Benelux 47.2

Net generation CO2-emission free % 49 .5

Benelux 47.2

Europe outside Benelux 54.3

fiNaNcE € million

Revenue 12 218EBITDA 2 378Result from operations 1 444


Key figures&


Sales: 8 079 GWh Generation: 1 654 MW Staff:1 415




Electrabel today 1

&

amount of the dividend less withholding tax

€ 12.45 per share.

€ 14.11 per share accompanied by a VVPR coupon strip.

Dividend payments from 16 May 2006 onwards

On presentation of coupon N°17, accompanied, if applicable,

by VVPR coupon strip N°17.

At the counter at the following establishments in Belgium:

Bank Degroof, Dexia Bank België, Fortis Bank, ING België,

KBC Bank, Petercam.

Total number of shares and voting rights on 31 December 2005

54 878 197

SUEZ holds 98.62 % of the share capital of Electrabel. Taking

into account employee-held shares in Electrabel (representing

0.51 % of the share capital), which for legal reasons could not

immediately be tendered into the public combined offer launched

by SUEZ on 9 August 2005, the publicly held portion of Electrabel

share now amounts to 0.87 %, i.e. less than 1 %.

&

&

&

Agenda&

&

Dividend payment&

Electrabel share

03.03.2006: Meeting of the Board of Directors to adopt

the annual accounts 2005, followed by a press

release.

19.04.2006: The Annual report 2005 is available on

www.electrabel.com

11.05.2006: Annual General Meeting and circulation of

the Annual report 2005.

Extraordinary General Meeting.

16.05.2006: Dividend payment for financial year 2005.

01.09.2006: Meeting of the Board of Directors to adopt the

half-year accounts, followed by a press release

and the circulation of an information sheet.

10.05.2007: Annual General Meeting and circulation of the

Annual report 2006.



Electrabel share1

Weekly closing price of the electrabel share on euronext brusselsIn € - Source: Euronext

450

400

350

300

250

200

150

100

50

09796 98 99 00 01 02 03 04 05

Key consolidated figures&



Key consolidated figures 1

operating results€ million

result froM operations€ million

+0.1 %

1 444 1 443

20042005

+24.2 %

1 948

1 569

20042005

reVenue € million

Electricity Benelux

Electricity hors Benelux

Gaz naturel

Service et autres

Électricité Benelux

Électricité hors Benelux

Gaz naturel

Service et autres

Electricity outsideBenelux

Natural gas14.4 %

16.7 %Services and others

21.0 %

47.9 %Electricity

Benelux

49.8 %Electricity

Benelux

15.9 %Electricity outsideBenelux

Natural gas15.7 %

Services and others18.6 %

11 54112 218

20042005

natural gas salesIn TWh

electricity salesIn TWh

20042005

Europe outside Benelux

Benelux

-14.1 %

7385

20042005


Benelux

+4.8 %

145139

Electrabel - Annual report 200510


Key consolidated figures1

net result group’s share€ million

+60.4 %

1 908

1 189

20042005

ebitda€ million

+16.9 %

2 378

2 035

20042005

Electrabel - Annual report 2005 11

2 Directors’ report


Sales increase in 2005 on course with Electrabel’s targeted sales volume of 200 TWh for 2009 p 12

Electrabel finds out what customers want p 13

Stable regulatory framework required in Belgium to allow Electrabel to develop in Europe p 14

Electrabel continues to expand generation in Europe whilst complying with its strict profitability criteria p 15

SUEZ takeover bid – a key economic event of 2005 p 16

Human resources p 17

Research and Development focussed on the liberalised market p 17


Summary of the consolidated income statement p 19

Consolidation scope p 19

Revenue p 20

Operating results p 21

Net financial charges p 22

Share of profit of investments accounted for using the Equity Method p 23

Income taxes p 23

Net consolidated result for the financial period p 23

Consolidated balance sheet – summary p 24

Summary of consolidated cashflow p 26

Summary of annual accounts of Electrabel S A p 27

Appropriation of profits p 27

Auditors’ fees p 28

Main risks and uncertainties p 28

Prospects p 29

&

&


Directors’ report

Main developments2

In 2005, the Electrabel group’s electricity sales (including

wholesale) were 145.4 TWh, up 4.8 % (6.6 TWh) on 2004. Of

this, 68.9 % were realised in the Benelux countries, 17.7 %

in the France-Italy-Iberia region and 13.4 % in the Poland-

Germany-Hungary region. Growth was achieved solely outside

the Benelux, with sales up 17 % (6.5 TWh). Sales to end

customers in Belgium fell by 5.8 %.

The company’s natural gas sales (including wholesale) fell

by 14 % (12 TWh) to 73.3 TWh, due primarily to an 11.7 %

(7.8 TWh) drop in sales to end customers in Belgium as a

result of strong competition on the liberalised market and

milder weather conditions.

The increase in sales in 2005 is on course with Electrabel’s

goal of increasing annual volume to 200 TWh by 2009. To

meet this objective, the company needs to achieve an annual

growth rate of 6 %. As is already the case in 2005, growth will

primarily be achieved outside the company’s domestic market.

In the Benelux countries, the company’s primary goal is to

maintain market share. Increases in sales that are significantly

greater than growth in consumption are therefore required

in the France-Italy-Iberia region.

Accessibility to the market for all non-household customers

in all EU Member States since 1 July 2004 allowed Electrabel

to continue to develop a new customer base in 2005.

Consequently, the company recorded significant increases

on the markets in France (up 4.1 TWh or 51.6 %) and Italy

(up 3.3 TWh or 32 %). Electrabel will take advantage of all

potential opportunities in Germany and Eastern Europe.

Electrabel wants to see electricity truly circulate freely in Europe

and actively supports all moves in this direction. By improving

its liquidity, Electrabel is taking practical steps to help develop

an integrated market in north-western Europe, covering the

Benelux countries, France and Germany, an area where price

convergence is already evident.

Main developments&

Sales increase in 2005 on course with Electrabel’s targeted sales volume of 200 TWh for 2009

&

2.1 %Germany

1.5 %Italy

96.4 %Benelux 73 TWh

ElEctricity salEs by country in 2005Wholesale included

natural gas salEs by country in 2005Wholesale included

145 TWh

68.9 %Benelux

13.4 %Germany,Poland,Hungary

17.7 %France,

Italy,Iberian

Peninsula

Iberian peninsula: 0.04 TWh

45 TWh

30.2 %Italy

26.6 %France

17.1 %Germany 17.8 %

Poland

8.3 %Hungary


Directors’ report

Main developments 2

Electrabel finds out what customers want&

Electrabel’s business model allows it to offer competitive

prices accompanied by high-quality supply and basic

services. Moreover, Electrabel has positioned itself to do

more than simply supply energy to customers - Electrabel

listens to its customers and develops services that meet their

expectations.

Increases in energy prices in 2005 created a specific demand for

solutions to control costs and consumption among industrial

customers and companies. This confirmed Electrabel’s

strategy of providing consultancy and other services. The

company continued to develop energy audit services and

rational use of energy services. In a bid to respond to customers’

requirements, Electrabel also made adjustments to customised

pricing schemes linked to various indexes. Finally, Electrabel

is one of the companies able to provide customers located in

several countries with a multinational offering.

For mass customers, campaigns run in Belgium during 2005

helped to reduce losses in market share sustained at the

start of total liberalisation in Flanders. Electrabel retained its

general position of associating energy supply with additional

services that provide comfort and peace of mind. In 2005,

this approach was developed in a variety of ways through

different combinations of contracts that grouped together

types of energy, products and services. This range of offers

was the first of its kind on the market. The company will

continue to segment customers more precisely in order to

develop even more suitable packages.

Electrabel is actively preparing for liberalisation of remaining

regulated customers in Wallonia, Brussels and Italy (Rome

region), scheduled for 2007. The company’s strategy also

involves developing its retail customer base in other countries

and paying close attention to opportunities in the Netherlands,

Germany, France and elsewhere. Electrabel intends to adhere

to its strict profitability criteria whilst pursuing this strategy.

40

60

80

120

100

140

160

180

Maximum neighbouring countries

Average neighbouring countries

Minimum neighbouring countries

Electrabel (Flanders) = 100

20 000 kWh/year(2 500 off-peak;

12 500 excl. night)

13 000 kWh/year(9 500 off-peak)



3 500 kWh/year1 200 kWh/year

ElEctricity pricEs for housEhold customErs in bElgium (in flandErs) comparEd with nEighbouring countriEs (gErmany, francE, thE nEthErlands, unitEd kingdom) - situation on 01.01.2006Source: Bureau van Dijk


Directors’ report

Main developments2

Stable regulatory framework required in Belgium to allow Electrabel to develop in Europe

&

Electrabel currently represents about 75 % of all generating

capacity in Belgium, 45 % in the Benelux countries and 8 %

in north-western Europe (Benelux, France and Germany). The

last virtual power plant (VPP) auctions - in which Electrabel had

been involved in accordance with the competition authority

- were held in Belgium in 2005. This market is now one of

the most open markets in Europe. Alongside Electrabel, 17

other suppliers are active with a combined share of 30 %.

Finally, the prices Electrabel charges household customers in

Belgium are average for prices in neighbouring countries or

better depending on the category.

A framework agreement was signed between the government

and Electrabel / SUEZ in the autumn. It contains general

measures that now need to be applied in a practical manner.

The following three measures affect Electrabel directly:

generation sites that are not currently in use have been put up

for sale to allow other operators to invest in new generation

facilities having a capacity of at least 1 500 MW;

•

when the Belgian electricity exchange (Belpex) is coupled

with its French and Dutch counterparts (scheduled to

happen during the second half of 2006), Electrabel will be

able to provide Belpex with a capacity of up to 500 MW

if necessary;

Electrabel’s involvement in network activities will change

further. It is ready to reduce its financial share in Elia, the

electricity transmission system operator, to under 25 %.

Electrabel is ready to open negotiations in order to reduce

its share in distribution activities after 2007.

Negotiations were also opened with public partners to examine

distribution activities for electricity and natural gas. These

discussions resulted in extensive reorganisation. In the long

term in Flanders and Brussels, Electrabel will no longer be

involved in the operational management of the systems. The

capital of single operators, one in Flanders and one in Brussels,

will be held by intermunicipal distribution system operators.

The company will continue to respect its commitments in

Wallonia in line with the public partners’ wishes.

•

•

43 %

Municipalities

57 %

Electrabel

8 Distributionsystem operators

8 Distributionsystem operators

ENV

Indexis GeDIS Netmanagement

SITUATION WITH THREE OPERATORS SITUATION WITH SINGLE OPERATOR

70 %

Single operator: Eandis

30 %

Municipalities Electrabel

rEorganisation of thE distribution nEtwork activity - flandErs


Directors’ report

Main developments 2

Electrabel continues to expand generation in Europe whilst complying with its strict profitability criteria

&

Electrabel has a two-pronged objective as regards generation.

Firstly, to reach a level of 35 000 MW by 2009, representing

an average annual growth of 4 % of installed capacity; and,

by the same date, to increase the proportion of renewable

energy to 18 % of its capacity in Europe, equalling 6 300 MW

of installed capacity. With this objective in mind, several specific

projects were finalised in 2005: work commenced on the

construction of new power stations, construction continued

on the south-European markets, where capacity is inadequate,

industrial partnerships, modernisation of existing equipment

and investments in renewable energy projects.

In Belgium, the Zandvliet Power CCGT plant (395 MW)

entered service in August 2005 to provide BASF with steam

and electricity. Electrabel was selected by steel producer Arcelor

to construct a 350 MW station: starting in 2011, it will convert

blast-furnace gases into electricity at the Sidmar site in Ghent.

The company confirms its commitment to invest in generation

facilities in conjunction with its industrial customers.

Significant investment was made in existing stations in a bid

to boost capacity, productivity and performance. Investments

in Ruien will bring three coal-fired units into line with new

environmental standards that will tighten up from 1 January

2008. The decision was taken to convert one coal-fired unit

in Amercoeur (130 MW) to a 420 MW CCGT. Work will

commence in 2006.

Electrabel enhanced its renewable energy capacity in Belgium.

In Awirs, a coal-fired unit was converted to run on biomass

and can generate 80 MW. Four wind turbines, each generating

2 MW, entered service in Lanaken in 2005. In Büllingen,

construction of six wind turbines (12 MW) will start in 2006

and additional investment is planned for wind power facilities

due to generate approximately 30 MW.

Significant investment in nuclear will be made in 2006 to

upgrade the cooling tower in unit 3 at the Tihange station. The

decision was also taken to replace the steam generators at Doel

1. These investments mean that these stations can continue

to operate safely for at least as long as the period remaining

before their scheduled closure (imposed by legislation).

37.2 %Europe outside Benelux

Luxembourg1.3 %

16.2 %The Netherlands

45.3 %Belgium

29.1 GW

10.8 GW

1.5 %Portugal

2.7 %Germany

15.5 %Hungary

15.3 %Poland

Italy20.5 %

44.5 %France

gEnErating capacity by countryNet

Objective 2009 = 35 GW

10.8

18.3

10.1

18.1


Benelux

20042005

+3.2 %

29.128.2

gEnErating capacityGW


Directors’ report

Main developments2

On 9 August 2005, the SUEZ Board of Directors announced

its intention to make a combined public offer for all remaining

Electrabel shares that the Group did not already own (49.9 %).

This offer was, without a doubt, one of the major economic

events in 2005, given not only the size of the operation and the

role Electrabel plays in Belgium’s economic and financial sphere

but also in view of the strategic issues linked to energy supply

and Electrabel’s mission as a public utility within the framework

of electricity and natural gas distribution activities.

An offer was made to Electrabel shareholders to exchange

one Electrabel share (with coupons n°17 and above) for

€ 323.56 (1) and four SUEZ shares, each with a face value of

€ 2 effective from 1 January 2005. The part of the offer paid

in shares will give Electrabel shareholders the opportunity

to profit from SUEZ’s promising development prospects and

demonstrates SUEZ’s desire to increase the proportion of

Belgian shareholders.

Investments were made in the Harculo station (350 MW)

and the Gelderland coal-fired station (602 MW) in the

Netherlands to extend their lifecycle until 2012 and 2017

respectively. Similar works will be continued in 2006 and

2007 at the Bergum units, which will thus remain longer in

operation. In 2007, a similar operation will be carried out at

the Eems power station. Studies are currently underway with

a view to building two CCGT units capable of generating

400 MW in Flevoland and a coal-fired plant (with biomass)

in Rotterdam (750 MW).

In France, the operation of 19 run-of-river power stations

(2 937 MW) by Compagnie Nationale du Rhône (CNR) and

49 peak hydraulic stations by Société Hydroélectrique du Midi

(SHEM) is managed from a central point in Lyon. Electrabel

manages operation of these two companies after having taken

a 40 % – due to increase to 80 % – share in SHEM at the

start of the year. Approximately 60 MW of wind power is due

to come online in 2006.

Electrabel, working in close collaboration with SUEZ, has ex-

pressed an interest in the French third generation EPR nuclear

power plant project. Electrabel France and Gaz de France

agreed to coordinate their activity in the Fos-sur-Mer area to

build two combined-cycle gas turbines that will each generate

around 420 MW.

A new 385 MW CCGT unit entered service in Voghera

(Lombardy), Italy, in May 2005. Construction commenced

on two units with the same capacity in Tuscany and Piedmont.

Tirreno Power’s conventional facilities are gradually being

upgraded. Repowering of the 1 135 MW Torrevaldaliga unit

was completed in 2005. Work continues on the conversions

of the Vado Ligure (765 MW) and Napoli Levante (375 MW)

units.

On the Iberian Peninsula, the Castelnou 760 MW CCGT unit

in Spain is scheduled to enter service in spring 2006. Work on

the Morata 1 200 MW CCGT unit near Madrid could begin

in early 2006. In November, Electrabel acquired operating

facilities in Portugal consisting of 40 wind turbines (80 MW),

developed in partnership with the manufacturer Gamesa.

A new natural gas turbine was installed in the Römerbrücke

station in Germany, boosting its capacity by 41 MW.

Investments in natural gas and coal-fired units are currently

being considered.

Reserve capacity for electricity generation in Europe as a whole

is dwindling and concerns about security of supply in the

future are justified. In several countries directly concerned,

prices are not high enough to guarantee the depreciation of

new power plants. Of course, electricity prices on the markets

increased in 2005 but this was the result of passing on oil and

natural gas prices and due to the impact of the introduction

of European trading in emission rights for greenhouse gases.

Moreover, the uncertainties that remain over the regulatory

framework and environmental legislation are not encouraging

investment in new generation facilities.

SUEZ takeover bid – a key economic event of 2005&

(1)Price adjusted in relation to the initial offer of € 322 and four shares to take into account the increase in SUEZ’s share capital.


Directors’ report

Main developments 2

On a more general note, this operation prefigures the creation

of a large unified and integrated Franco-Belgian group that

will become a European leader in the energy and environment

sectors. The merger is a clear step in the Group’s development,

which will allow it to take full advantage of opportunities

on Europe’s liberalised energy market. On 24 August 2005,

Electrabel’s Board of Directors concluded that SUEZ’s offer

was fair and would not harm shareholders’, creditors’ or

employees’ interests. Closed on 10 November before being

legally reopened until 6 December, the offer turned out to be

a huge success. At the end of the operation, SUEZ increased

its share in Electrabel to 98.62 %. On 15 November 2005,

SUEZ’s shareholding was incorporated into BEL20 to replace

Electrabel.

Human resources&

In a bid to improve human resources available to allow the

company to grow and to improve its profitability, Electrabel

endeavours to help its employees grow and develop. The

current age pyramid for the company indicates that replacing

staff will be a key priority over the next 10 years. Electrabel is

preparing for this transformation by seeking out skills both

internally and externally.

In 2005, the company recruited more than 1 200 new

employees in comparison with just over 900 in 2004. A high

degree of mobility within the company is also evident. This

is supported by succession plans and other mechanisms that

allow older employees to transfer their skills and expertise.

Current European expansion also involves strengthening teams.

The company now employs more than 4 300 people full-time

outside Belgium.

Measures taken in 2005 to reorganise the distribution of

electricity and natural gas are having a significant impact on

Electrabel’s human resources. A total of 3 300 employees

will be transferred to new operators created in Flanders and

Brussels. As part of the process of implementing all provisions

concerning changes to distribution activities, Electrabel has

taken measures to ensure that the employees concerned are

transferred to positions of the same status.

4 342

11 452

20042005

4 091

11 187

+3.4 %

15 79415 278

Europeoutside Belgium

Belgium

staff numbErs In full time equivalents - in active service

Real severity rateFrequency rate

0.4

0.5

010 520 150.0

0.1

0.2

0.3

25

96 97

98

99

00

01

0203

04

05

95

accidEnts at work

Electrabel continues to improve its technical skills, the availability

of generation facilities, their profitability and environmental

performance. This technological focus has a direct impact on

competitiveness. The company is also expanding the range of

services available to customers. In 2005, increases in energy

prices led to considerable interest in services linked to the

rational use of energy.

Research and Development focussed on the liberalised market&


Directors’ report2 Financial situation

Basis on which the accounts are prepared

Financial situation

The consolidated financial statements published by the Group are prepared in accordance with IFRS (International Financial Reporting Standards), as adopted by the European Union The options chosen in the context of the first-time adoption of these standards together with the resulting accounting methods and the measurement and presentation adjustments are disclosed in the notes to the accounts, which detail the transition to this system from 1 January 2004 onwards The financial statements approved on 31 December 2005 have been prepared in accordance with these accounting and measurement criteria The 2004 financial statements were restated in line with the same criteria

&

In accordance with the options made available to first-time

adopters, the Group decided to bring forward to the 2005

financial year, without restating the comparative information,

the first-time application of standards IAS 32 and 39 on the

recognition, measurement, disclosure and presentation of

financial instruments. With regard to the balance sheet for

the period ending on 31 December 2004, the adoption of these

standards in the balance sheet for the period starting on 1 January

2005 resulted in an increase of € 66 million in consolidated

equity (€ 68 million Group share). This point is covered in a

special explanatory note in the 2005 financial statements.

The Group decided on 31 December 2005 – effective

retroactively from 1 January 2004 – to adopt IFRIC 4 on the

accounting treatment for arrangements containing provisions

which may be considered similar to a lease (Determining

whether an arrangement contains a lease). The effects

of adopting these rules, which resulted in an increase of

€ 20 million in consolidated equity as of 31 December 2004, are

also disclosed in a note to the 2005 financial statements.

Finally, in addition to the effects of the retroactive application

of these standards, several amendments were made to

the format of the balance sheet for the period ending on

31 December 2004 as previously published to make it easier

to read. These changes pertain mainly to the classification

of current assets and liabilities and to the presentation

of investments available-for-sale.

As of 1 January 2005, the Electrabel group has been subject

to the greenhouse gas emission allowance trading scheme in

force in the European Union. The accounting treatment applied

by the Group involves registering the cost of purchasing the

quotas as intangible assets which they have either purchased

or received free of charge (in the latter case the purchase cost

is zero). A liability is recognised to recognise commitments to

return quotas depending on CO2 emissions, insofar as, for a

given financial year, the number of quotas required exceeds

the total number of quotas received or purchased.


Directors’ report 2Financial situation

Summary of the consolidated income statement&

€ million unless otherwise stated 31.12.2005 31.12.2004 Variation in %

Revenue 12 218 11 541 +5 9

Result from operations 1 444 1 443 +0 1

Operating results (1) 1 948 1 569 +24 2

Net financial charges -121 -177 -31.6

Result from operating activities after deduction of net financial charges 1 827 1 392 +31 3

Share of profit of investments accounted for using the Equity Method 475 259 +83.3

Pre-tax result 2 302 1 651 +39 4

Income taxes -219 -347 -36.9

Profit of the period (2) 2 083 1 304 +59 7

Group share in the profit of the period 1 908 1 189 +60 4

Number of shares issued at the end of the financial period 54 878 197 54 878 197

Weighted average number of shares 54 878 197 54 851 709

Basic and diluted earnings per share – in € 34 77 21 68

(1) Includes current operating results and the result of sales of assets, depreciation of assets, net restructuring costs and the change in fair value of financial instruments linked to transactions in purchasing and selling energy.(2) Since operations were discontinued in either 2005 or 2004, the result for the period is the result from continuing operations.

Consolidation scope&

The Group acquired a 40 % stake in SHEM (Société

Hydroélectrique du Midi) in January 2005. The provisions

of the purchase contract, which stipulate, in particular, the

automatic acquisition of an additional 40 % within a maximum

period of a little over two years, resulted in this company

being fully consolidated via recognition of a liability and limit

the minority interest in the result to 20 %. On 1 April 2005,

the Group also purchased a 50 % stake in AlpEnergie Italia

which it did not yet own. This company, previously accounted

for using the Equity Method, has been fully consolidated

since that date.

In addition, 57.14 % of the shares in Elia System Operator

owned by Electrabel (or 36.6 % of outstanding securities)

were floated on the stock market during the first half of the

year. As a result, the Group’s stake in the company after this

operation amounted to 27.6 %.

Excluding the gain of € 626 million generated at that time (see

notes on results below), the reduction of that shareholding

was reflected in a decrease by € 11 million in the Group share

of the net result from associated companies accounted for

using the Equity Method and in the receipt of € 395 million

(€ 352 million after Electrabel applied for an additional

€ 43 million in shares in Elia System Operator).



Income from ordinary activities totals € 12 218 million in 2005, up 5.9 % on 2004. Based on the location of supply points (*),

contributions to revenue can be broken down as follows:

In € million 31.12.2005 31.12.2004 Variation in %

Benelux 9 386 9 388 -

Electricity sales 5 854 5 751 +1.8

Natural gas sales 1 665 1 681 -0.9

Miscellaneous goods and services 1 867 1 956 -4.6

Europe, outside Benelux 2 832 2 153 +31 5

Electricity sales 2 559 1 832 +39.7

Natural gas sales 99 136 -27.1

Miscellaneous goods and services 174 185 -6.2

ToTal 12 218 11 541 +5.9

(*) Distribution of sales based on the location of generation assets is given below in the result from operating activities.

Revenue&

The increase in revenue of € 677 million can be broken down

even further as follows:

scope-related effects: up € 137 million, generated mainly

by the purchase of the entire company AlpEnergie Italia

(up € 109 million);

exchange-rate effects: up € 38 million;

rise in natural gas price passed on to end customers: up

€ 277 million;

organic growth: up € 225 million (up 1.9 %);

Revenue from electricity sales experienced a gross increase of

€ 830 million (up 10.9 %) and organic growth of € 657 million,

or up 8.6 %. The volumes of electricity sold accounted for

145.4 TWh, an increase of 6.6 TWh compared with 2004:

in the Benelux countries, where sales totalled 100.1 TWh,

revenue increased by € 103 million. In fact, the increase in

supply on the wholesale market (up € 276 million) and to

direct customers in the Netherlands (up € 79 million) more

than compensated for the drop in sales in Belgium (down

€ 253 million, or 5.5 %);

on the Belgian market where sales accounted for 65.4 TWh,

the partial liberalisation effected in July 2004 in Brussels and

Wallonia, coupled with heightened competition in Flanders,

resulted in a drop of 5.8 % in the volumes sold to end

customers. The impact of this drop was offset in part by

price rises following the change in the price of fuel;

•

•

•

•

•

•

outside the Benelux countries, sales increased by € 727 million

(39.7 %), with an increase of 17 % in volumes sold

(45.3 TWh). Organic growth in turnover in Germany, France

and Italy accounted for over € 536 million of this change,

which was a result of market breakthroughs, commissioning

of generation facilities and the increase in market prices.

Revenue from natural gas sales dropped by € 53 million in

2005 (down 2.9 %). The volumes of natural gas sold totalled

73.3 TWh (70.7 TWh of this in the Benelux countries), or

12.0 TWh less than in 2004. Disregarding the effect of passing

the price of imported natural gas onto the price paid by end

customers in Belgium, revenue recorded a organic reduction

of € 330 million, or down 15.8 %.

This change is due primarily to the reduction in the volumes

sold to end customers within the framework of the gradual

liberalisation of the Belgian market, generally milder weather

conditions than in 2004 and a reduction of € 148 million

in income from wholesale activities and from hedging

positions.

Other components in revenue include services for energy

transmission and distribution system operators in Belgium,

which were down overall by € 49 million.

•



Operating results&

The operating results totalled € 1 948 million, an increase of € 379 million compared with 2004. This total can be broken down

and compared as follows:

In € million

From Benelux countries

From Europe excluding Benelux Total

31.12.2005

Income from ordinary activities 9 741 2 477 12 218

Supply, services and goods purchased for resale -5 739 -1 818 -7 557

Payroll -1 257 -97 -1 354

Depreciation and provisions -280 -157 -437

Other charges and operating income -1 199 -227 -1 426

Result from operations 1 266 178 1 444

Change in the fair value of financial instruments linked to purchase and sale of energy -146

Depreciation of assets -79

Net costs of restructuring 13

Result from disposal of assets 716

operating results 1 948

31.12.2004

Income from ordinary activities 9 704 1 837 11 541

Supply, services and goods purchased for resale -5 689 -1 383 -7 072

Payroll -1 468 -78 -1 546

Depreciation and provisions -138 -110 -248

Other charges and operating income -1 078 -154 -1 232

Result from operations 1 331 112 1 443

Depreciation of assets 12

Net cost of restructuring -11

Result on disposal of assets 125

operating results 1 569

Result from operations in the Benelux countries dropped by

€ 65 million. It should be noted that in 2004 this result included

major non-recurring components, the balance of which was

largely positive, including:

a downward review of the provision for management of

irradiated fuels from nuclear power stations;

recognition of the amounts to be recovered from distribution

system operators for additional pension and similar charges;

significant write-downs on trade debtors following the

supply of energy to progressively liberalised segments of

the Belgian market.

•

•

•

Not including the non-recurring components, result from

operations increased by over € 136 million, or up 12.9 %.

This positive trend is due mainly to our growing margins,

resulting in higher electricity prices on markets and an increase

in the result from trading activities. The effects on margins of

the increase in the cost of fossil fuels – which largely explains

the upward trend in electricity prices – were, in actual fact,

tempered by the fact that 46 % of the electricity generated

by the Group in the Benelux countries came from a nuclear

source (45 % in 2004).



Moreover, to take account of the latest technological and

economic trends, the Board of Directors decided on a standard

extension of the depreciation period for combined cycle gas

turbine plants (CCGT) from 20 to 25 years. This change resulted

in a reduction of € 14 million in the amounts recognised for

depreciation.

Result from operations generated outside the Benelux countries

increased by € 66 million (up 58.6 %). Excluding the effects of the

change in consolidation scope (such changes being due, for the

most part, to the fact that SHEM is now one of the consolidated

companies) and after eliminating non-recurring components,

the increase was still € 45 million (53 %). The increase is due

primarily to the commissioning of the Torrevaldaliga facility in Italy

(in partnership with Acea and Energia Italiana) and the rise in

electricity prices on the markets.

In addition to result from operations, the operating results

for financial year 2005 was significantly impacted by the

following:

the change in the fair value of financial instruments, which

are linked to contracts for the sale and purchase of energy

and which cannot be considered as either volumetric hedging

instruments or cash flow hedging instruments, resulted in

•

a charge of € 146 million. This negative trend throughout

2005 is due essentially to the increase in market prices for

electricity, natural gas and CO2 emissions allowances during

the period. It should be noted that there was no such result

in 2004 since the Group decided only to apply the accounting

standard requiring these entries from 1 January 2005;

a significant proportion (57.14 %) of shares in Elia System

Operator held by the Group were the subject of an initial

public offering on the Brussels stock exchange. This move,

together with an increase in the capital of Elia System

Operator, € 43 million of which was subscribed by Electrabel,

resulted in a net receipt of over € 352 million. This, in turn,

generated a consolidated gain of € 626 million taking into

account the revaluation of the transmission system noted

in the 2002 financial statements and included in the result

in proportion to the shares sold by the Group;

the sale by Electrabel of its interests in Telenet and of a

proportion of its shareholding in Union Fenosa also generated

a gain of € 85 million.

It should be noted that the operating results recognised as at

31 December 2004 included a gain of € 120 million realised

on the sale of virtually all the Group’s shares in Total.

•

•

Net financial charges&

The net financial charges changed as follows compared to 2004:

In € million 31.12.2005 31.12.2004 Variation

Interest on loans and other financial debts -139 -155 +16

Cashflow income 126 114 +12

Cost of net financial position -13 -41 +28

Unwinding of long-term provisions -251 -257 +6

Dividends received from non-consolidated companies 18 84 -66

Other income and financial charges 125 37 +88

ToTal -121 -177 +56



The cost of net financial debts dropped by € 28 million,

the growth in the Group’s cash in hand being generally higher

than that of its financial debts. The average cost of financial debt

and average return on cashflow also dropped slightly in 2005

compared with 2004, though the former remained significantly

higher than the latter, excluding taxation effects.

The unwinding of long-term provisions pertained primarily

to pension and similar obligations, the decommissioning of

power stations and the processing of nuclear fuels.

It should be noted that in 2004, the dividends from non-

consolidated companies included a non-recurring dividend

of € 71 million from the company NEA, the former owner

of the electricity supergrid in the Netherlands. This dividend

had been offset by an equivalent allocation to provisions for

stranded costs posted under ‘Other financial charges’.

Share of profit of investments accounted for using the Equity Method&

The share in the post-tax result of associated companies

accounted for using the Equity Method increased by

€ 216 million compared with 2004. The increase focussed

mainly on holdings in regional system operators (mixed

intermunicipal companies) in Belgium in respect of which

the result for 2005 includes € 52 million profit realised on the

shareholding in Telenet, while the result in 2004 was driven

downwards by the recognition of supplementary pension and

similar charges to be repaid to Electrabel and by an upwardly

revised Group share in said charges following the restructuring

of the sector in the context of market liberalisation.

Outside Benelux countries, the net contribution from

Compagnie Nationale du Rhône (France) totalled € 29 million,

an increase of € 6 million compared with 2004.

Income taxes&

The tax burden for the financial year fell by € 128 million

compared with the previous year. This change reflects the

change in the tax base, which dropped by € 352 million

compared with 2004, despite the increase by € 379 million

in the operating results. The latter actually comprised

significant non-taxable income, including gains on the sale

of shareholdings, which increased from € 125 million in 2004

to € 716 million in 2005.

In relation to the taxable result, the average tax rate for the

Group’s consolidated results totalled 32.8 % – a very slight

reduction compared with 2004.

Net consolidated result for the financial period&

The net result for the financial period totalled € 2 083 million,

or € 779 million more than in 2004. The derecognition of a

provision for the processing of nuclear fuels recognised in 2004

and the new charge in respect of the marking to market of

certain positions relating to the purchase and sale of energy

resulting from the application of IAS 32/39 as from 2005, as

well as the results generated on the sale of stakes (Elia System

Operator, Telenet and Union Fenosa in 2005, Total in 2004)

largely explain this trend.

The share of the net result attributable to holders of equity in

the parent company was € 1 908 million (up € 719 million)

and that attributable to minority interests € 175 million (up

€ 60 million).



Consolidated balance sheet – summary&


Non-current assets 14 577 13 038 +1 539

Fixed assets 6 786 6 464 +322

Goodwill 1 600 1 310 +290

Holdings 2 321 2 424 -103

Loans and receivables recognised at amortised cost 1 703 1 592 +111

Other non-current assets 2 167 1 248 +919

Current assets 14 805 9 102 +5 703

Trade and other receivables 2 255 2 573 -318

Cash and cash equivalents 7 379 4 711 +2 668

Other current assets 5 171 1 818 +3 353

ToTal assETs 29 382 22 140 +7 242

Equity 9 173 7 950 +1 223

Capital, reserves and retained earnings 7 639 6 433 +1 206

Minority interests 1 534 1 517 +17

Non-current liabilities 11 469 8 907 +2 562

Provisions 6 589 6 331 +258

Financial liabilities 2 649 1 446 +1 203

Other non-current liabilities 2 231 1 130 +1 101

Current liabilities 8 740 5 283 +3 457

Financial liabilities 1 253 1 286 -33

Trade and other payables 1 989 2 202 -213

Provisions and other current liabilities 5 498 1 795 +3 703

ToTal EquITy aND lIaBIlITIEs 29 382 22 140 +7 242

NB: The balance sheet is shown before appropriation of the profit.

The first-time application of IAS 32 and 39 as of 1 January 2005

resulted in measuring the fair value of the Group’s positions

arising from contracts considered as financial instruments.

Since no compensation can be applied between open

asset and liability positions, there is a substantial increase

in ‘other non-current assets’ (up € 1 007 million) and ‘other

current assets’ (up € 3 403 million), and ‘other non-current

liabilities’ (up € 1 059 million) and ‘other current liabilities’

(up € 3 441 million).

The application of these standards also resulted in the transfer

of the entire gain from the revaluation of the transmission

system recognised in 2002 and not yet transferred into the

result, i.e. € 488 million. Said gain was deducted from the

value of Elia accounted for using the Equity Method.

The finalisation in 2005 of rebalancing agreements between

the Group and its municipal partners in respect of activities

pertaining to management of the distribution systems and

to marketing energy to liberalised customers in Flanders has

resulted in recognition of additional goodwill of € 179 million,

which is offset by an equivalent liability. This liability will be

derecognised when Electrabel sells its shares in intermunicipal

companies to municipalities in 2006 to reduce to 30 % its

stake in the Flemish system operators.

The increase in non-current assets is also due to the permanent

inclusion of the assets of SHEM, which has been consolidated

since January 2005 but was previously incorporated into the

Group’s non-current by virtue of the contractual provisions

linking it to Electrabel and in application of the accounting

principles adopted in late 2005 (see Statutory base under

which accounts are prepared – IFRIC 4).



The Group’s cash flow increased by € 2 668 million in 2005, while during the same period, its overall debt increased by only

€ 1 170 million. The Group’s overall financial situation was therefore largely positive as at 31 December 2005 as illustrated

by the table below:


Cash and cash equivalents 7 379 4 711 +2 668

Financial liabilities -3 902 -2 732 -1 170

non-current -2 649 -1 446 -1 203

current -1 253 -1 286 +33

NET FINaNcIal PosITIoN 3 477 1 979 +1 498

The Group’s cashflow is managed centrally by Electrabel Finance and Treasury Management, a Luxembourg branch

of Electrabel S.A.

Consolidated equity changed as follows over the past year:

In € million

capital and share premiums

Reserves and

retained earnings

Translation differences

Recognition direct

to equity

Equity (Group share)

Minority interest

Total equity

EquITy as aT 31 DEcEMBER 2004 3 000 3 388 45 - 6 433 1 517 7 950First-time adoption of IAS 32/39 as at

1 January 2005 - -16 22 62 68 -2 66

EquITy as aT

1 JaNuaRy 2005 3 000 3 372 67 62 6 501 1 515 8 016Results recognised directly in equity - - - 81 81 - 81

Net result for the financial period - 1 908 - - 1 908 175 2 083

Translation differences - - 19 - 19 -2 17

Changes in scope - -6 - - -6 10 4

Increase in capital - - - - - 49 49

Dividends - -867 - - -867 -213 -1 080

Other changes - 3 - - 3 - 3

EquITy as aT 31 DEcEMBER 2005 3 000 4 410 86 143 7 639 1 534 9 173

Provisions (current and non-current) increased overall by

€ 185 million. Provisions for decommissioning of nuclear

power stations and for processing of irradiated fuels increased

by € 273 million while provisions for pensions and similar

obligations and for restructuring dropped by € 50 million and

€ 45 million respectively.



In € million 31.12.2005

Gross margin for auto-financing before result of financing activities and taxes +2 238

Income taxes paid -240

Change in working capital +466

cashflow from operating activities +2 464

Investments -1 310

Divestments +912

Amounts receivable on holdings +383

Interest and dividends received on non-current financial assets +146

cashflow from investment activities +131

Dividends paid -1 080

Movements in financial liabilities +1 110

Financial interest paid and received -30

Changes in share capital +49

cashflow from financial activities +49

Effect of foreign exchange rate changes and miscellaneous +24

change in cash and cash equivalents +2 668

Summary of consolidated cashflow&

operating activities

The gross cashflow corresponds to the result before tax and

before net financial charges (€ 2 423 million), after eliminating

the result on sales of assets, write-downs and provisions and

other non-cash elements.

The positive change in the working capital requirement is

due primarily to non-recurring elements pertaining to foreign

VAT and taxes, recognition of commitments in terms of CO2

emissions and temporary lags in the billing cycle for the use

of systems by system operators.

Investment

Investment in 2005 included € 956 million for property, plant

and equipment & intangible assets the majority of which

pertained to construction of the Castelnou power station in

Spain, internal production of green certificates, smoke filtering

equipment at the Ruien power station, repowering of Tirreno

Power’s units and other project development in Italy.

Net investment mainly comprises the acquisitions of SHEM

and Fafe (Portugal), subscription to the capital increase

in Elia System Operator and purchases of additional shares

in Acea.

Divestments refer primarily to holdings in Elia System Operator,

Union Fenosa and Telenet.

Financing

The dividends paid include dividends paid by Electrabel S.A.

in 2005 and dividends paid out to minority interest in the

Group’s subsidiaries during the same year. The change in

financial liabilities here does not take into account the effects

of scope and translation effects. The change in capital pertains

solely to the share of minority interests in certain subsidiaries,

with the capital of the parent company Electrabel remaining

unchanged in 2005.



Summary of annual accounts of Electrabel S A &

It should be noted that the accounts for the parent company Electrabel S.A. were prepared in accordance with Belgian accounting law which, at times, differs substantially from the IFRS, specifically with respect to recognition, in the income statement and the balance sheet, of the fair value of financial instruments (see in this connection notes on the transition to the IFRS and the implementation of IAS 32-39).


INcoME sTaTEMENT

Revenue 8 644 8 616 +0.3 %

Operating result 784 728 +7.7 %

Financial result 626 443 +41.3 %

Extraordinary result 164 -73 -

Pre-tax result 1 574 1 098 +43.3 %

Income taxes -156 -142 +10.3 %

Result for the financial year 1 418 956 +48.3 %

Change in untaxed reserves (1) 622 5 -

Profit for the financial period available for appropriation 2 040 961 -

BalaNcE shEET (after appropriation)

Fixed assets 10 922 11 752 -830

Current assets 8 675 7 123 +1 552

Total assets 19 597 18 875 +722

Equity 7 177 6 673 +504

Provisions and deferred taxes 566 615 -49

Debts 11 854 11 587 +267

Total liabilities 19 597 18 875 +722

(1) The transfer for financial year 2005 followed the sale of a substantial proportion of Electrabel’s holding in Elia System Operator when the latter was floated on the stock market.

Appropriation of profits&

A proposal will be made to the general meeting of shareholders

to appropriate the profit for the financial year, or € 2 040 million

as follows:

In € million

Appropriation to available reserves 1 100

Dividends to shareholders 911

Directors’ share of profits 3

Profit to be brought forward 26

2 040

If this proposal is accepted, it will enable payment of the

following unit dividends:

In € 31.12.2005 31.12.2004Variation

in % Gross dividend for the financial year 16.60 15.76 5.33

Net dividend for the financial year 12.45 11.82 5.33

Net dividend with VVPR strip 14.11 13.40 5.33



Auditors’ fees totalled € 1 385 000 for checking and certifying

Electrabel S.A.’s company and consolidated accounts.

In addition, a further € 839 000 will be paid for the statutory

audit of the accounts of subsidiaries owned and co-owned

by the Group as well as € 1 214 000 for various forms of

assistance and consultancy work.

Auditors’ fees&

Main risks and uncertainties&

The main risks to which the Group is exposed are operational

(hedging delivery commitments or energy offtake), commercial

(market energy prices and credit risks), financial (interest and

exchange rate risks) and regulatory (tariff, taxes and special

taxes, environmental regulations and so forth).

To hedge these risks, the Group has set up specialised systems

and teams to assess exposure on a continuous basis and from

a centralised point. These systems and teams also implement

policies and instruments to hedge or limit risks that have been

approved by General Management.

Against this backdrop, the Group uses financial instruments

to cover the risk of fluctuating interest rates, exchange rates

and energy prices. These instruments are used to cover assets,

liabilities and cash flow. Firm or optional derivatives are used

to manage exposure to changes in market prices. Financing

in currencies other than the euro partially cover investments

in the same currencies. Other hedging instruments (such as

interest rate swaps) are used to reduce the Group’s exposure to

rate risks and optimise the structure of its debts (fixed/variable

rate). Exposure to credit risks is, where appropriate, limited

by obtaining letters of credit and guarantees. Credit limits

are set according to the rating of trading counterparties and

netting agreements.

However, despite the policies and instruments implemented,

the Group is primarily exposed to risks related to unscheduled

unavailability of generating equipment and disruptions to

fuel supply and natural gas in particular (few or no stocks).

However, quality management and employee expertise have

ensured that these risks have, until now, been kept at an

acceptable level.

With regard to financial statements, the Group is constantly

required to estimate turnover for customers who have their

meters read during the financial year, or customers supplied

with low-voltage electricity or low-pressure natural gas. This

situation is not new by any means, but liberalisation of the

energy market has made it more difficult to establish sales

on networks now used by multiple operators. Consequently,

the Group has become reliant on volumes of energy in transit

on the networks being allocated by the operators of these

networks themselves.

Since these final allocations are sometimes only established

several months later, there is a greater margin of uncertainty

than in the past. However, the Group has developed measuring

and modelling tools that can subsequently verify that the risk of

errors in estimations for quantities sold and the corresponding

turnover is limited.



Prospects&

In 2006, Electrabel will reduce its involvement in system

operation activities in Belgium. It will also continue to develop

its position outside its traditional Belgian market in order

to achieve its objectives in terms of installed capacity, sales

volumes and profitability by 2009.

Consequently, this year the Group will be required to transfer

a significant proportion of its holdings in intermunicipal

distribution system operators in Flanders. This will be done

in accordance with the agreements in principle concluded with

public partners since the process to open the electricity and

natural gas markets began. The agreements were confirmed

and clarified in 2005. Beforehand, Electrabel will have to

transfer its construction, operation and maintenance activities

on the electricity and natural gas distribution systems to the

intermunicipal companies in Flanders. These activities will be

merged with offtake and management activities currently

undertaken by GeDIS and Indexis in order to create the single

operator Eandis.

Similar restructuring will also be required when the Group

transfers a significant proportion of its share in Sibelga,

the system operator in Brussels.

Operational and financial synergies will also be created

gradually during 2006 to further integrate Electrabel and its

subsidiaries into the SUEZ group.

Brussels, 3 March 2006

The Board of Directors


3 Corporate governance

Introduction p. 32

1. Board of Directors p. 33

1.1 Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 33

1.2 Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 33

1.3 Decision-making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 36

1.4 Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 36

1.5 Frequency of meetings and attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 37

1.6 Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 37

2. Committees established by the Board of Directors p. 39

2.1 Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 39

2.2 Audit Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 40

2.3 Appointments and Remuneration Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 41

2.4 Special Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 41

2.5 General Management Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 42

3. College of statutory auditors p. 43

4. Other information p. 44

4.1 Appropriations policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 44

4.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 44

4.3 Relations with the controlling shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 44

4.4 Internal audit and risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 45

4.5 Ethical rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 45

4.6 Provisions of the Belgian Corporate Governance Code from which Electrabel made exception in 2005 . . . . . . . p. 46

&

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&


Corporate governance

Introduction3

Introduction

This chapter, which forms an integral part of the 2005 Annual

report, is devoted to ‘Corporate governance’.

For the benefit of Electrabel shareholders and all other

interested parties it explains the rules under which the company

functions according to the principles of corporate governance,

defined as ‘the system by which companies are managed

and controlled.’

Although the precepts of corporate governance do not by

themselves constitute necessary and sufficient conditions for

the success of company, the lack of a good organisational

structure is obviously liable to cause a loss of confidence on

the part of shareholders and other players in the economy.

The Banking and Finance Commission, the Federation of

Belgian Enterprises and the Brussels Stock Exchange drew

up their recommendations on the subject in 1998.

Six years later, the Banking, Finance and Insurance Commission,

Euronext Brussels and the Federation of Belgian Enterprises

set up a Committee tasked with drawing up a uniform code

of corporate governance for listed Belgian companies. On

9 December 2004 this Belgian Committee for corporate

governance (known as the ‘Lippens Committee’) published

the ‘Belgian corporate governance Code.’ In this Code,

which came into force on 1 January 2005, the principles of

transparency, integrity and responsibility play a central role.

Note however that the Committee promotes an alternative

approach, ‘comply or explain’.

On 19 December 2005 the Board of Directors approved the

corporate governance Charter based on a draft drawn up

by three Directors, namely Lutgart VAN den BERGHE, Baron

VANDEPUTTE and Jean-Pierre HANSEN. This Charter, which

may be consulted in its entirety on the company’s website

www.electrabel.com, will come into force in stages during

2006.

As has already been announced, Electrabel will comply with the

provisions of the ‘Lippens’ Code during this financial year.

Since 1998 Electrabel has taken it upon itself to report

annually on the main aspects of its corporate governance.

As recommended by the Lippens Code, this chapter focuses

on the practice of corporate governance in financial year

2005, and explains deviations from the Code.

&&


Corporate governance 3Board of Directors

1. Board of Directors

1.1 Mission&

The Board of Directors’ primary aim is to ensure the long-term

success of the company while at the same time respecting the

interests of all third-party stakeholders who are essential to

attaining that objective, i.e. the shareholders, the personnel,

the customers, the suppliers and other creditors, and in addition

to ensure compliance with the public service obligations that

the company assumes.

The Board of Directors, in pursuing that objective, identifies

the strategic challenges and risks confronting the company;

defines the values of the company, its strategy, the level of

risk that it can accept and its key policies; and monitors the

progress of the company’s business.

1.2 Membership&

Under the terms of the Articles of Association, the Board

of Directors is made up of at least five members who are

appointed by the General Meeting for a six-year period of

office and who may be dismissed by it at any time.

During the financial year under review, the number of Directors

was increased from 17 to 18. Their detailed CVs can be found

on the company’s website.

The executive Directors retire on the day of the General Meeting

following the date on which they reach the age of 65, while

non-executive Directors retire on the day of the General Meeting

following the date on which they reach the age of 70.

However, the Board of Directors acting on the proposal of

the Appointments and Remuneration Committee can make

exceptions to the age limit. Such an exception was made for

Baron CROES in 2003, independent Director and Chairman of

the Audit Committee, justified by the significant contribution

that his special expertise and skills have made to the work

of the Audit Committee, which he has chaired ever since it

was set up in 2003.

Willy BOSMANS placed his directorship at the disposal of

the General Meeting on 1 January 2005. The directorship of

Jacques LAURENT, who has reached the age limit, expired at

the end of the General Meeting in 2005. Yves de GAULLE and

Robert-Olivier LEYSSENS were appointed as Director by the

General Meeting of 12 May 2005. The General Meeting also

appointed Willy BOSMANS as honorary managing Director

and Jacques LAURENT as honorary Director.

Further, four Directors were recognised by the General Meeting

as independent Directors in the sense of article 524 of the

Companies Act. The independent Directors are required to

submit an opinion to the Board of Directors prior to certain

decisions or operations, in particular those concerning associated

companies, except subsidiaries and excepting also normal

operations carried out at arm’s length and representing less than

one percent of the net consolidated assets. These four Directors,

together with Jean-Pierre RUQUOIS, are all independent in the

sense of the corporate governance Code.

&


Corporate governance3 Board of Directors

The following Directors held office during financial year 2005:

Name (nationality)

Date of birth

First appointed

Expiry date of directorship, and offices held within Electrabel

Qualifications held, and main activities outside Electrabel

Gérard MESTRALLET (F)

1949 2003 2009

Director representing the controlling shareholder

Chairman of the Board

Graduate in aircraft engineering, graduate of École Polytechnique, Institut des Études Politiques and École Nationale d’Administration

Chief Executive Officer of SUEZ, Chairman of SUEZ-TRACTEBEL, SUEZ Energy Services and SUEZ Environnement, Vice-Chairman of Agbar and Hisusa (Spain), Director of Crédit Agricole, Saint-Gobain (France) and Pargesa Holding (Suisse), Member of the Supervisory Board of Axa (France)

Jean-Pierre HANSEN (B)

1948 1992 2010

Director representing the management

Managing Director (Chief Executive Officer) and Vice-Chairman of the Board

Chairman of the Executive Committee and Appointments and Remuneration Committee (4)

Graduate in electrical engineering, graduate in economic science, doctor in engineering

SUEZ Senior Executive Vice-President in charge of Operations, and Vice-Chairman of the Executive Committee, responsible for SUEZ Energy Europe, Chief Executive Officer of SUEZ-TRACTEBEL, Chairman of Fluxys and Fabricom, Director of SUEZ Energy Services, SUEZ Environnement, Distrigas, Agbar (Spain), Acea (Italy) and Arcelor (Luxembourg), Vice-President of the Federation of Enterprises in Belgium, Guest professor of UCL and École Polytechnique

Emmanuel van INNIS (B)

1947 1992 2006


Vice-Chairman of the Board

Member of the Executive Committee and Appointments and Remuneration Committee (4)

Doctor of Law

Deputy General Manager in charge of Human Resources for the SUEZ group, and member of the Executive Committee. Vice-Chairman of Fabricom. Director of SUEZ-TRACTEBEL, SUEZ Energy Services, Distrigas, Cosutrel, SN Airholding and the Federation of Enterprises in Belgium

Patrick BUFFET (F)

1953 2004 2010


Engineer at the Corps des Mines

SUEZ Executive Vice-President in charge of Strategy and Development. Director of SUEZ-TRACTEBEL, SUEZ Energy Services and Fluxys

Baron CROES (B)

1934 1997 2009

Independent Director

Chairman of the Audit Committee

Graduate in mathematics and actuarial science

Vice-Chairman of Immobel, Director of Tessenderlo-Chemie and Forelux

Jean-PierreDEPAEMELAERE (B)

1944 1992 2008


Graduate in electro-mechanical engineering

Director of Distrigas, Fluxys and Real Software

Pierre DRION (B)

1942 2001 2009

Director

Member of the Appointments and Remuneration Committee (4)

Graduate in engineering and in commercial and financial science

Managing Director of the Petercam group, Director of Axa Belgium, Chairman of Spadel, Vice-Chairman of the Belgian Bankers and Stockbroking Firms Association

Yvan DUPON (B)

1943 2001 2006


Member of the Executive Committee

Graduate in commercial and financial science

Director of Distrigas

Yves de GAULLE (F)

1951 12.05.2005 2011


Graduate in economic science, graduate of Institut des Études Politiques and alumnus of École Nationale d’Administration

General Secretary and member of the Executive Committee of SUEZ, Director of SUEZ-TRACTEBEL and Cosutrel



Name (nationality)

Date of birth

First appointed

Expiry date of directorship, and offices held within Electrabel

Qualifications held, and main activities outside Electrabel

Luc HUJOEL (1) (B)

1951 1997 2009

Director representing the municipalities

MSc in economic science

Chairman of the College of Experts of Intermixt. General Manager of Sibelga. General Advisor to Interfin, Consultant to Sibelgas. General Manager of IBE-IBG

Gérard LAMARCHE (B)

1961 2004 2010


Member of the Audit Committee

Graduate in economic science

SUEZ Senior Executive Vice-President in charge of Finance, Chairman of Cosutrel. Director of SUEZ-TRACTEBEL, SUEZ Energy Services, SUEZ Environment and Distrigas

Jacques LAURENT (B)

1934 1993 12.05.2005


Member of the Audit Committee (until 12.05.2005) and of the Executive Committee

Graduate in electro-mechanical engineering

Chairman of the Board of Directors of Eurodif and Trasys, Director of Fluxys and Belgonucleaire

Robert-Olivier LEYSSENS (B)

1958 12.05.2005 2011



Graduate in business studies, Master of Business Administration

Group Senior Vice-President Finance and Tax of SUEZ, Director of Cosutrel and Immobel

Jean-Pierre RUQUOIS (2) (B)

1944 2001 2007

Director

Member of the Audit Committee

Graduate in business studies and in commercial and financial science, Master of Business Administration

Advisor to the Sofina management

Lutgart VAN den BERGHE (B)

1951 2003 2009


Doctor in Economic Science

Extraordinary professor at the University of Ghent and Vlerick Leuven Gent Management School. Managing Director of the Belgian Governance Institute. Director of Belgacom. Member of the Board of Commissioners of CSM, SHV and Solvay (NL)

Baron VANDEPUTTE (B)

1946 2004 2010


Doctor of Law, graduate in notariat, economics and philosophy. Master of Science (Economics)

General advisor to the Federation of Belgian Industry. Director of EHSAL

Baron van GYSEL de MEISE (B)

1939 1990 2009


Managing Director of Hotel Plaza (Brussels)

Geert VERSNICK (3) (B)

1956 2003 2009

Director representing the municipalities

Doctor of Law

Member of the Chamber of Representatives.City of Ghent Alderman for Public Works

Xavier VOTRON (B)

1952 2001 2007

Director representing the management


Electrabel General Manager Generation, Distribution and IT

Graduate in electrical engineering, graduate in nuclear science

Chairman of Laborelec, TWINerg and Zandvliet Power. Director of Distrigas

(1) Luc HUJOEL represented Intermixt as Director of Electrabel from May 1997 to May 1998.(2) Jean-Pierre RUQUOIS represented Sofina as Director of Electrabel from January 1992 to May 2001.(3) Geert VERSNICK represented Finiwo as Director of Electrabel from May 1998 to November 2000.(4) Since 3 March 2006 the Appointments and Remuneration Committee is made up of: Gérard Mestrallet, Chairman, Lutgart Van den Berghe and Baron Vandeputte, members.



In accordance with article 17 of the Articles of Association, the

Board of Directors is empowered to perform all actions required

by or conducive to the fulfilment of the company objectives,

except those powers reserved to the General Meeting of

Shareholders by law or the Articles of Association.

Apart from its normal duties of oversight, the Board of Directors

approved the half-yearly and annual accounts, approved the

budgets for 2005 and made the preparations for the 2005

General Meeting. At every Board meeting the Chief Executive

Officer reports on the financial and cash-flow situation, sales

and operating activities, if necessary calling on the assistance

of an operational or administrative manager.

Other important subjects discussed or dealt with in 2005

were as follows:

development of the European markets, and Electrabel’s

strategy for growth in these markets;

unbundling of the distribution market, and setting up of a

single operator in Flanders and Brussels;

corporate governance;

•

•

•

the SUEZ combined swap and purchase offer for Electrabel

shares, and in particular the formal opinion which the Board

of Directors was required to issue on this subject;

in connection with this offer, obtaining concrete guarantees

that the company would remain rooted in Belgium;

in connection with the ‘Pax Electrica’, the undertakings given

to the Belgian federal government for measures to improve

the functioning of the electricity and gas markets;

examination of the IPO’s of Elia and Telenet;

monitoring the tangible and intangible investments;

the transition to IFRS for the consolidated accounts;

a bond issue.

The Board of Directors also discussed the reports presented

by its sub-Committees, and on several occasions updated

various delegated powers and missions.

•

•

•

•

•

•

•

1.3 Decision-making&

1.4 Activities&

Meetings of the Board of Directors are chaired by the Chairman,

or if he is unable to attend by a Vice-Chairman.

A quorum of one half of the members (present or represented)

is required for the Board of Directors to deliberate validly

and take decisions. Each Director may not represent more

than two others.

Decisions are taken by a majority vote of members present

or represented. In case of a tie the Chairman’s vote is

preponderant. In practice, however, practically all decisions

are taken by consensus.

Apart from these provisions of the Articles of Association, there

are no rules for decision-making by the Board of Directors.



The Board of Directors met on eight occasions during the past year. In addition, decisions were taken on two occasions by unanimous

agreement in writing, instead of by meeting in person, in accordance with article 16 of the Articles.

The overall attendance rate at Board of Directors meetings

during the past year was 93 %.

The individual rates of attendance by Directors at physical

meetings of the Board of Directors were as follows:

Gérard MESTRALLET, Jean-Pierre HANSEN, Patrick BUFFET,

Jean-Pierre DEPAEMELAERE, Pierre DRION, Yvan DUPON,

Luc HUJOEL, Jean-Pierre RUQUOIS, Xavier VOTRON,

Baron CROES, Lutgart VAN den BERGHE, Jacques LAURENT

•

(Director until 12 May 2005), Yves de GAULLE and Robert-

Olivier LEYSSENS (Directors appointed on 12 May 2005,

and thus called to attend six meetings) attended all the

meetings to which they were called:

Emmanuel van INNIS, Gérard LAMARCHE and Baron

VANDEPUTTE attended seven Board of Directors meetings;

Geert VERSNICK attended six meetings of the Board of

Directors, while Baron van GYSEL de MEISE attended three.

Five Board of Directors meetings are planned for 2006.

•

•

1.6 Remuneration&

The general principles for remuneration are laid down in the

corporate governance Charter.

In accordance with article 32 of the Articles of Association a

maximum of 1 % of the profit available for appropriation is

placed at the disposal of the Board of Directors, which may

divide this among its members, according to internal rules

drawn up by the Board of Directors. As the previous years,

the Board of Directors voluntarily limited the share of profits

for the Board of Directors and the Executive Committee in

2005 to a total amount of € 2 549 190.

The honorary Directors do not receive any remuneration.

The remunerations paid to Directors whose terms of

office began during the course of the year are calculated

proportionately.

The remuneration for each member of the Board of Directors for

financial year 2005 amounted to € 31 473, with the Chairman

receiving a double share. Thus, a total of € 586 604.98 was

divided among the Directors.

In accordance with article 15 of the Articles of Association,

the Board of Directors may award additional remuneration

– charged to general expenses – for Directors who perform

certain services for the company. Such remuneration, in the

form of an attendance token, is awarded to members of the

sub-Committees of the Board of Directors. The attendance

token for members of these Committees remains unchanged at

€ 2 500 per meeting (with the Chairman receiving a 1.5 share),

amounting to a total of € 137 500 in 2005.

The total amount of gross remunerations paid to Directors for

carrying out their tasks as members of the Board of Directors

and of its sub-Committees in 2005 comes to € 724 104.98.

The individual remunerations were as follows:

1.5 Frequency of meetings and attendance&



DirectorEmolument

as Director (in €)

Attendance tokens for sub-Committee

members (in €)Total(in €)

Gérard MESTRALLET 62 946.00 - 62 946.00

Jean-Pierre HANSEN 31 473.00 13 750.00 45 223.00

Emmanuel van INNIS 31 473.00 6 250.00 37 723.00

Patrick BUFFET 31 473.00 - 31 473.00

Baron CROES 31 473.00 37 500.00 68 973.00

Jean-Pierre DEPAEMELAERE (1) 31 473.00 - 31 473.00

Pierre DRION 31 473.00 5 000.00 36 473.00

Yvan DUPON(1) 31 473.00 - 31 473.00

Yves de GAULLE (2) 20 090.98 - 20 090.98

Luc HUJOEL 31 473.00 - 31 473.00

Gérard LAMARCHE 31 473.00 7 500.00 38 973.00

Jacques LAURENT (3) 11 382.02 10 000.00 21 382.02

Robert-Olivier LEYSSENS (1) (2) 20 090.98 - 20 090.98

Jean-Pierre RUQUOIS 31 473.00 27 500.00 58 973.00

Lutgart VAN den BERGHE 31 473.00 15 000.00 46 473.00

Baron VANDEPUTTE 31 473.00 15 000.00 46 473.00

Baron van GYSEL de MEISE 31 473.00 - 31 473.00

Geert VERSNICK 31 473.00 - 31 473.00

Xavier VOTRON (1) 31 473.00 - 31 473.00

TOTAL 586 604.98 137 500.00 724 104.98

(1) These amounts have been passed back. (2) Director since 12 May 2005. (3) Director until 12 May 2005.

Directors do not receive any variable remuneration linked to

the results or any other performance criteria, neither do they

receive any benefits in kind, share options, loans or advances,

nor do they have any entitlement to a supplementary (non-

statutory) pension scheme.

The remaining balance of the Directors’ share of profits,

amounting to € 1 962 585.02 (€ 2 549 190 - 586 604.98)

is divided as follows among the Directors, members of the

Executive Committee:

Director and member of the Executive Committee (2)Director’s share of

profits (in €)

Jean-Pierre HANSEN, Chairman of the Executive Committee 654 195.02

Emmanuel Van INNIS 327 097.50

Yvan DUPON(1) 327 097.50

Jacques LAURENT 118 292.80

Robert-Olivier LEYSSENS(1) 208 804.70

Xavier VOTRON(1) 327 097.50

TOTAL 1 962 585.02

(1) These amounts have been passed back.(2) The members of the Executive Committee, who also include non-directors, also share a remuneration of € 1 765 886.20 charged to general expenses; certain members pass this remuneration back.

Each year the Appointments and Remuneration Committee

reviews the policy on the Chief Executive Officer’s remuneration,

and submits its recommendations to the Board of Directors.

These recommendations are based on a survey of the market

situation for comparable companies. The Chief Executive

Officer’s remuneration in 2005 amounted to € 1 160 000

(made up of a basic remuneration of € 580 000 and a bonus

of € 580 000); the remuneration as Director and Chairman

of the Executive Committee is included in this amount. He

also benefits from the special rates for gas and electricity in

Belgium, together with medical insurance.

&


Corporate governance 3Committees established by the Board of Directors

2. Committees established by the Board of Directors

The Board of Directors has set up three permanent

Committees:

Executive Committee;

Audit Committee;

Appointments and Remuneration Committee.

During the course of financial year 2005 special, temporary

Committees were set up to assist the Board of Directors in

carrying out its duties.

•

•

•

These Committees do not have any decision-making powers;

their rules of procedure are taken from the corporate

governance Charter.

Operational management of the company is entrusted to:

the Chief Executive Officer, Jean-Pierre HANSEN, assisted by

the General Management Committee.

Members of these Committees are appointed by the Board

of Directors.

2.1 Executive Committee&

a. Mission

The Executive Committee prepares the decisions submitted for

the approval of the Board of Directors. In particular it ensures

correct reporting to the Board of Directors. It also acts as a

forum for exchanging ideas on Electrabel’s activities.

At each meeting of the Executive Committee the Chief Executive

Officer reports on the day-to-day management activities.

b. Membership

The Executive Committee is made up of eight members:

Jean-Pierre HANSEN, Vice-Chairman and Chief Executive

Officer, who chairs the Executive Committee;

Emmanuel van INNIS, Vice-Chairman;

Yvan DUPON, Director;

Alain JANSSENS, a senior manager of the SUEZ group and

Chief Executive Officer of Distrigas;

Jacques LAURENT, honorary Director;

Robert-Olivier LEYSSENS, SUEZ Group Senior Vice-President

for Finance and Tax;

Walter PEERAER, General Manager Strategy, Communications,

Administration;

Xavier VOTRON, General Manager Generation, Distribution, IT.

•

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•

•

•

•

•

c. Frequency of meetings and attendance

The Executive Committee met seven times in 2005.

The overall attendance rate at meetings during the past year

was 91 %.

The individual attendance rates at meetings of the Executive

Committee in 2005 were as follows:

Jean-Pierre HANSEN, Emmanuel van INNIS and Alain

JANSSENS attended all meetings of the Executive

Committee.

Yvan DUPON, Jacques LAURENT, Robert-Olivier LEYSSENS,

Walter PEERAER and Xavier VOTRON attended six

meetings.

Nine meetings of the Executive Committee are planned for

2006.

d. Prospect

During the course of financial year 2006 the present Executive

Committee will be replaced by the Strategy Committee, which

will take over the tasks of the former.

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&


Corporate governance3 Committees established by the Board of Directors

2.2 Audit Committee&

a. Mission

The Audit Committee assists the Board of Directors with

financial information, internal control and risk management,

internal audits and external audits. The Audit Committee

reports regularly on its activities to the Board of Directors.

b. Membership

The membership is as follows:

Baron CROES, Chairman;

Gérard LAMARCHE (since 12 May 2005);

Jacques LAURENT (until 12 May 2005);

Jean-Pierre RUQUOIS.

c. Activities

The main extraordinary items dealt with during the past year

were as follows:

information security;

pulling out of distribution activities;

transition to IFRS accounting standards for the consolidated

accounts of the Electrabel group;

the financial information in the prospectus for the SUEZ

combined share swap and purchase offer, the Internal audit

activity reports, and the action plan for the 2005 Internal

audit;

examination of the ‘management letter’;

authorisation of requests for additional missions made by

the auditors;

•

•

•

•

•

•

•

•

•

•

the amount of emoluments paid to the College of

Auditors;

the CODIS (control and disclosure) programme for internal

control.

Several meetings were attended by the auditors, who on

each occasion were able to give their opinion and/or present

a report on the matters under consideration. The internal

audit Director at his request and without prior justification

assists at the meetings of the Committee.

d. Frequency of meetings and attendance

The Audit Committee met eight times in 2005, with one

meeting before each meeting of the Board of Directors for

the purpose of publishing the periodic results (annual and

half-yearly).

The overall attendance rate at meetings of the Audit Committee

during the past year was 97 %.

The individual attendance rates at meetings in 2005 were

as follows:

Jean-Pierre RUQUOIS and Jacques LAURENT (the latter being

a member of the Audit Committee until 12 May 2005)

attended all the meetings to which they were called.

Baron CROES and Gérard LAMARCHE (the latter being

a member of the Audit Committee since 12 May 2005)

were both absent from one of the meetings to which they

were called.

Four meetings of the Audit Committee are planned for

2006.

•

•

•

•


Corporate governance 3Committees established by the Board of Directors

2.3 Appointments and Remuneration Committee&

a. Mission

The task of the Committee is to assist the Board of Directors in all

areas relating to the appointment and remuneration of the Directors

and the members of the General Management Committee.

b. Membership

During 2005, the membership of the Committee was as

follows:

Jean-Pierre HANSEN, Chairman;

Pierre DRION;

Emmanuel van INNIS.

c. Activities

The work of the Committee in 2005 focused on appointments

to the Board of Directors and Executive Committee, and the

•

•

•

Directors’ share of profits and remunerations of the Board of

Directors, Executive Committee and CEO. The Committee also

dealt with the new distribution of responsibilities within the

General Management Committee, along with the changes in

organisation and functioning that this entailed.

d. Frequency of meetings and attendance

The Appointments and Remuneration Committee met twice

in 2005.

The attendance rate by members of the Committee was

100 %. The remuneration of the CEO was set in that person’s

absence.

Two meetings of the Committee are planned for 2006.

2.4 Special Committees&

In 2005, two special, temporary Committees were set up to

do preparatory work for the Board of Directors.

A group of Directors made up of Lutgart VAN den BERGHE,

Baron VANDEPUTTE and Jean-Pierre HANSEN was tasked with

examining the measures necessary to bring the functioning

of Electrabel into line with the new recommendations for

corporate governance.

This Committee helped to draw up the Electrabel corporate

governance Charter, which was presented to the Board of

Directors on 19 December 2005, thus completing the work

within the required time.

Another special Committee drew up the Board of Directors’

recommendation on the SUEZ combined swap/purchase offer

for all the Electrabel shares not held by SUEZ or its subsidiaries.

This recommendation was adopted by the Board of Directors

unanimously, minus one abstention.

This Committee was made up of four Directors:

Baron CROES, Chairman;

Lutgart VAN den BERGHE;

Baron VANDEPUTTE;

Jean-Pierre RUQUOIS.

•

•

•

•


Corporate governance3 Committees established by the Board of Directors

2.5 General Management Committee&

a. Mission

The executive management of the company is entrusted

to the Chief Executive Officer (CEO), Jean-Pierre HANSEN.

The CEO is assisted by the General Management Committee,

whose members are responsible for the various areas of

operational and administrative management under the direct

authority of the CEO.

It is a forum for discussing the company’s important operational

management issues in order to guide the CEO in his decisions,

and it is where the various managements are coordinated.

b. Membership

The CEO and members of the General Management Committee

are appointed by the Board of Directors, on the advice of the

Appointments and Remuneration Committee.

The membership is as follows:

Jean-Pierre HANSEN, Chief Executive Officer, who acts as

Chairman;

Alfred BECQUAERT, General Manager Human Resources;

Eric BOSMAN, General Manager Trading and Portfolio

Management;

Sophie DUTORDOIR, General Manager Marketing & Sales;

Alfred HOFMAN, General Manager North-East Europe;

Jacques HUGÉ, General Manager South Europe;

Philippe LERMUSIEAU, General Manager France-Switzerland;

Walter PEERAER, General Manager Strategy, Communications,

Administration;

•

•

•

•

•

•

•

•

Nicolas TISSOT, Chief Financial Officer (1);

Xavier VOTRON, General Manager Generation,

Distribution, IT (2).

The secretariat of the General Management Committee

is provided by Kevin WELCH.

c. Frequency of meetings

The General Management Committee normally meets once

per week, except during August.

d. Activities

The General Management Committee concentrated on

operational and organisational supervision of the company.

More specific matters such as among others the setting up of

a single operator in Flanders, drawing up the medium-term

strategy plan and overseeing the implementation of the CODIS

programmes were also dealt with by the General Management

Committee in 2005.

e. Remuneration

The total remuneration (basic wage plus annual incentives)

paid to the nine members of the General Management

Committee (excluding the CEO) in 2005 amounted to

€ 3 898 574, made up of € 2 267 089 for the fixed part and

€ 1 631 485 for the variable part.

•

•

&

(1) Robert-Olivier LEYSSENS was replaced by Nicolas TISSOT on 15 May 2005.(2) As from April 2006 Xavier VOTRON will take on other responsibilities in the Group.


Corporate governance 3The College of statutory auditors

3. College of statutory auditors

a. Membership

The audit firm of Klynveld Peat Marwick Goerdeler resigned

after the accounts for financial year 2004 were closed. It was

replaced by Ernst and Young. Since then the Electrabel Board

of Auditors is made up as follows:

Deloitte Company auditorsRepresented by:

Josephus VLAMINCKX and Philip MAEYAERT,

Company auditors;

Ernst & Young Company auditorsRepresented by:

Pierre ANCIAUX and Vincent ETIENNE,

Company auditors.

b. Period of office

The General Meeting of 2005 also decided to appoint Deloitte

Company auditors for a new period of three years, in order

to make the periods of office of the auditors coincide. As a

result, the periods of office of both auditors will expire at the

end of the 2008 General Meeting.

c. Activities

In addition to carrying out their statutory task of auditing the

accounts, the external auditors were actively involved in the

work of the Audit Committee (see above). They also carried

out the necessary checks of the internal audit process, leading

to a letter of recommendation or ‘management letter’.

d. Remuneration

The remuneration of the Board of Auditors was set by the

General Meeting of 12 May 2005 at € 1 385 000 per year.

The special amounts granted to the auditors for additional

services are specified in the 2005 Directors’ report.

&


Corporate governance3 Other information

4. Other information

4.1 Appropriations policy&

The company’s policy is to maintain a regular growth in

dividend. Electrabel’s dividend policy is closely linked to the

company’s operational performance, which has enabled it to

maintain a regular rise in the dividend over the past years.

This policy is regularly reassessed in the light of changes in the

company’s risk profile, the increasing volatility of its results,

its development projects and the financial structure of the

SUEZ group.

4.2 Subsidiaries&

Electrabel is developing as a European enterprise, with

subsidiaries in various countries. It is represented on the Boards

of Directors or other governing bodies of these subsidiaries

by Directors or members of management, who in turn report

to the governing bodies of Electrabel.

4.3 Relations with the controlling shareholder&

Since December 2003, SUEZ S.A. holds more than 50 % of

the shares in Electrabel S.A. directly or indirectly, giving it legal

control as defined by the Companies Act over Electrabel S.A.

and the latter’s Group.

The Board of Directors ensures that SUEZ makes judicious use

of this decisive influence over the appointment of the majority

of Directors and the orientation of Electrabel’s management,

while safeguarding the rights and interests of the minority

shareholders and the interests of Electrabel as a company.

It does this by:

assessing the pros and cons of all relations between the

parent company and its subsidiary, which have to be balanced

in the medium and long term;

submitting, as a listed company, the intra-Group decisions

and operations that meet the application criteria of

article 524 of the Companies Act, for consideration by

a Committee made up of three independent Directors,

in accordance with article 524.

SUEZ currently holds 98.62 % of Electrabel shares directly

or indirectly.

•

•

&


Corporate governance 3Other information

4.4 Internal audit and risk management&

The Internal audit department carries out an independent

assessment of the internal control systems implemented by

management in various areas. This assessment is carried out

according to a standardised control model, which involves

measuring the efficiency of the operational processes and

checking the accuracy of the reporting and the integrity of the

information systems. Checks are carried out in areas that carry

the greatest risk for the company. The department reports to

the Chief Executive Officer and to the Audit Committee.

In order to bring it more into line with the international context

in which Electrabel operates, the Internal audit department

was reorganised in 2005. This involved increasing its staff and

setting up local Internal audit branches in the main countries

where Electrabel operates.

In addition to the ongoing audit tasks in various areas (shared

service centres, delegation of powers, trading, environment,

security, management of large projects etc.), the Internal audit

department took part in the work of assessing the internal

control measures required by the Sarbanes-Oxley Act, to which

the controlling shareholder is subject.

4.5 Ethical rules&

The Board of Directors and the General Management

Committee adhere to the Group’s rules of ethical conduct,

in particular as regards confidentiality and not exploiting

insider information. In accordance with directive 2003/6/EC,

the corporate governance Charter lays down very precise

rules for transactions involving the company’s shares and

other financial instruments carried out by Directors and other

designated persons.

With the adoption of the Charter, the company for want of

its own policy in the matter has applied the relevant legal

provisions.

Electrabel’s Code of Ethical Conduct, still in force at present,

is due to be replaced in 2006 by the new SUEZ Ethical Charter

‘Our values, our ethics’ which applies to the SUEZ group as

a whole.

The work of revising the SUEZ Ethical Charter and the

document entitled ‘Rules for the management and organisation

of companies’ began in late 2004 and continued throughout

2005; ethical experts with special knowledge of our industry

participated from the very beginning in the work of the steering

Committee headed by the SUEZ Director of Ethics, so as to

permit smooth application when the time comes.

The members of the Board of Directors did not encounter any

conflicts of interest in 2005 that would have triggered the

legal procedures laid down by the Companies Act.

However, on a very few occasions one or other of the members

preferred not to take part in a discussion and to abstain

from voting, for ethical reasons. For example, this was the

case for:

Pierre DRION, when independent financial advisers were

being appointed to draw up a fairness opinion on the SUEZ

share swap/purchase offer;

Geert VERSNICK, when decisions were being taken on

reorganisation of distribution activities in Flanders (reducing

Electrabel’s stake in the intermunicipal distribution network

operators, and setting up of a single operator).

•

•


Corporate governance3 Other information

Electrabel’s corporate governance Charter was approved at the

end of 2005, while the Belgian corporate governance Code

came into force on 1 January 2005. In the intervening period

the following points of non-conformity were noted:

periods of office: the Directors elected at the 2005 General

Meeting were appointed for a period of six years: henceforth

the period is limited to four years for all new appointments

or renewals;

membership of the Appointments and Remuneration

Committee: the Chief Executive Officer’s presence on this

Committee is contrary to the requirements of the Code, since

the Committee combines both functions (appointments and

remuneration). Moreover, this Committee was not made

up of independent Directors.

Since the preamble to the Charter states that it is to be

implemented in stages, this permits the Board of Directors

to review the membership of the A&R Committee and consider

the necessary amendments to the Articles of Association in

the run-up to the General Meeting scheduled for 11 May

2006:

efforts have already been made to clarify the missions and

rules of procedure of the Committees, as defined in the

Charter;

at its meeting on 3 March 2006 the Board of Directors

decided to bring the composition of the Appointments and

Remuneration Committee into conformity. The Committee

is now made up of Gérard MESTRALLET, Lutgart VAN den

BERGHE and Baron VANDEPUTTE. The CEO no longer is a

member of this Committee;

•

•

•

•

the Board of Directors also decided that at the extraordinary

General Meeting to be held after the General Meeting on

11 May 2006, the Articles of Association will have to be

amended to bring them into line with the rules of corporate

governance (as regards the periods of Directors’ terms of

office, new names for the Committees, and powers). The

other proposals made at the Board of Directors meeting of

3 March 2006 for amendments to the Articles are mainly

inspired by the latest developments in the relevant legislation

(concerning non-physical share certificates and register of

shareholders in electronic form). These proposals will be

published on the company’s internet site, accompanied by

all relevant information, as soon as possible and at the latest

15 days before the General Meeting on 11 May;

the Board of Directors also decided to redraft the rules

governing delegation of powers and offices;

finally, with the assistance of the internal departments the

Audit Committee will examine the various confidential

mechanisms by which members of personnel can raise

concerns about possible irregularities. The Audit Committee

will also draw up and implement a formal authorisation

policy for the external audit services.

•

•

•

4.6 Provisions of the Belgian corporate governance Code from which Electrabel made exception in 2005

&


4 Consolidated financial statements



Balance sheet p. 52

Assets p 52

Equity and liabilities p 53




Summary p 56


&

&

&

&

&

&

&


Consolidated financial statements44

* With subsidiaries, see page 150.** Electrabel Italia owns a share of 4.9 % in Acea (December 2005) – not consolidated.

Electrabel

Electrabel Customer Solutions

Electrabel Netten Vlaanderen

Laborelec

Synatom

Zandvliet Power

Group Elia

Electrabel Green Projects Flanders

Cosutrel division E

Teveo

26 Intermunicipal companies

Electrabel Green Projects FlandersWHH (67.1)

Electrabel Invest Luxembourg

Twinerg17.5

17.5

Arbed

Cegedel

99.9

Cosutrel division ASUEZ-TRACTEBEL

Telfin

44.3

2.6

RWE 50.0

30.0

2.5

39.5

GeFin32.9

Lusenerg57.5

100

25.0

0.2

100

0.1

100

100

18.2

100

100

10.0

32.5

100

50.3

100

100

100

24.5

Hidrobages

Generg SGPS (42.5)

Electrabel Polska

Dunamenti Eromu (74.8)

Casmo Power Spain

Electrabel Nederland Coöperatieve

Electrabel Nederland Holding

Electrabel Nederland

Spark Energy (100)

Electrabel International Holdings

Castelnou Energía (100)

Electrabel España

Electrabel Polaniec*

MVMOther

Electrabel Hungary

81.8

100

99.9

95.8

67.1

100

100

100

100

99.9

53.1

50.0

27.5

100

Electrabel NederlandBeheermaatschappij

100Morata Energía

100Electrabel Nederland Sales

100

49.9

44.0

Caisse des Dépôts et Consignations

Energieversorgung Gera

51.0

100

49.9

Electrabel France

Compagnie Nationaledu Rhône

Caisse des Dépôtset ConsignationsOther

Énergie du Rhône (69.5)

Electrabel Deutschland

Kraftwerke Gera

51.0 Energie SaarLorLux

80.0

100

49.9

5.0

49.0

SNCF

Stadtwerke Saarbrücken

SHEM19.6

50.1

29.4

20.7

50.1

5.0

49.0 Stadtwerke Saarbrücken

Stadtwerke Gera

Stadtwerke Gera

SHEM

50.1

29.4

20.7

50.1

ASM Voghera

Electrabel France

Acea**

Acea**

Energia Italiana

40.6

15.8

100

99.5

70.0

100

50.0

AlpEnergie Italia

ElectrabelAcea

50.0Umbria Energy (20.3)

100AceaElectrabel Toller (70.3)

Roselectra (69.9)

Electrabel Italia

Voghera Energia (56.2)

Electrabel Italia Sim (100)

AceaElectrabel Elettricità (40.6)

AceaElectrabel Produzione (70.3)

AceaElectrabel Trading (50.0)

70.0

80.0

50.0

Tirreno Power (35.0)

AceaElectrabel

Telfin

30.0

20.0

59.4

30.0

50.0

0.5

84.2

50.0

100

Solvay

Rosignano Energia99.5

0.5

Stock Exchange

Publi-T

SPE

Staff

N-Allo99.9

100Electrabel EuropeanPortfolio Management

100Electrabel Nederland Services

100Parque Eólico Terras Altas de Fafe

CN’Air (49.9)

60.0

N-Allo

LDEF (Lyonnaise des Eaux France)

N-Allo France (65.0) 5.0

35.0

Brucall (75.0)75.0

SRIB25.0

0.5

65.0

GeFin2.9

Intermunicipal companies Wallonia1.3

Other0.4

Belgium The Netherlands

Poland

Hungary

Portugal

Spain

Grand-Duchy of Luxembourg

France

Germany

Italy

Sales

Generation

Trading

Networks

Services and other

Holding/Finance

ActivitiesFull consolidation

Proportional consolidation

Equity Method

Methods of consolidation1

Xxx

Participation (in %)

2Xxx (3)

4 Xxx

1 Direct share

2 Indirect share

3 End share

4 Share of third parties

Consolidated organisation chart of the Electrabel group situation on 31 12 2005

&

Organisation chart


Consolidated financial statements 44

* With subsidiaries, see page 150.** Electrabel Italia owns a share of 4.9 % in Acea (December 2005) – not consolidated.

Electrabel

Electrabel Customer Solutions

Electrabel Netten Vlaanderen

Laborelec

Synatom

Zandvliet Power

Group Elia

Electrabel Green Projects Flanders

Cosutrel division E

Teveo

26 Intermunicipal companies

Electrabel Green Projects FlandersWHH (67.1)

Electrabel Invest Luxembourg

Twinerg17.5

17.5

Arbed

Cegedel

99.9

Cosutrel division ASUEZ-TRACTEBEL

Telfin

44.3

2.6

RWE 50.0

30.0

2.5

39.5

GeFin32.9

Lusenerg57.5

100

25.0

0.2

100

0.1

100

100

18.2

100

100

10.0

32.5

100

50.3

100

100

100

24.5

Hidrobages

Generg SGPS (42.5)

Electrabel Polska

Dunamenti Eromu (74.8)

Casmo Power Spain

Electrabel Nederland Coöperatieve

Electrabel Nederland Holding

Electrabel Nederland

Spark Energy (100)

Electrabel International Holdings

Castelnou Energía (100)

Electrabel España

Electrabel Polaniec*

MVMOther

Electrabel Hungary

81.8

100

99.9

95.8

67.1

100

100

100

100

99.9

53.1

50.0

27.5

100

Electrabel NederlandBeheermaatschappij

100Morata Energía

100Electrabel Nederland Sales

100

49.9

44.0

Caisse des Dépôts et Consignations

Energieversorgung Gera

51.0

100

49.9

Electrabel France

Compagnie Nationaledu Rhône

Caisse des Dépôtset ConsignationsOther

Énergie du Rhône (69.5)

Electrabel Deutschland

Kraftwerke Gera

51.0 Energie SaarLorLux

80.0

100

49.9

5.0

49.0

SNCF

Stadtwerke Saarbrücken

SHEM19.6

50.1

29.4

20.7

50.1

5.0

49.0 Stadtwerke Saarbrücken

Stadtwerke Gera

Stadtwerke Gera

SHEM

50.1

29.4

20.7

50.1

ASM Voghera

Electrabel France

Acea**

Acea**

Energia Italiana

40.6

15.8

100

99.5

70.0

100

50.0

AlpEnergie Italia

ElectrabelAcea

50.0Umbria Energy (20.3)

100AceaElectrabel Toller (70.3)

Roselectra (69.9)

Electrabel Italia

Voghera Energia (56.2)

Electrabel Italia Sim (100)

AceaElectrabel Elettricità (40.6)

AceaElectrabel Produzione (70.3)

AceaElectrabel Trading (50.0)

70.0

80.0

50.0

Tirreno Power (35.0)

AceaElectrabel

Telfin

30.0

20.0

59.4

30.0

50.0

0.5

84.2

50.0

100

Solvay

Rosignano Energia99.5

0.5

Stock Exchange

Publi-T

SPE

Staff

N-Allo99.9

100Electrabel EuropeanPortfolio Management

100Electrabel Nederland Services

100Parque Eólico Terras Altas de Fafe

CN’Air (49.9)

60.0

N-Allo

LDEF (Lyonnaise des Eaux France)

N-Allo France (65.0) 5.0

35.0

Brucall (75.0)75.0

SRIB25.0

0.5

65.0

GeFin2.9

Intermunicipal companies Wallonia1.3

Other0.4

Belgium The Netherlands

Poland

Hungary

Portugal

Spain

Grand-Duchy of Luxembourg

France

Germany

Italy

Sales

Generation

Trading

Networks

Services and other

Holding/Finance

ActivitiesFull consolidation

Proportional consolidation

Equity Method

Methods of consolidation1

Xxx

Participation (in %)

2Xxx (3)

4 Xxx

1 Direct share

2 Indirect share

3 End share

4 Share of third parties

Consolidated organisation chart of the Electrabel group situation on 31 12 2005

Organisation chart



&


Consolidated financial statements 44

Consolidated income statement

In € million Notes 31.12.2005

31.12.2004excludingIAS 32-39

Revenue 5 12 218 11 541

Other operating income 6 467 478

Raw material and consumables used 7 -7 557 -7 072

Employee benefits expense 8 -1 354 -1 546

Depreciation and provisions 9 -437 -248

Other operating costs 10 -1 893 -1 710

RESult fRom opERAtIoNS 1 444 1 443

Change in fair value of instruments on commodities 11 -146 -

Impairment 12 -79 12

Restructurings 13 13 -11

Disposal of assets 14 716 125

opERAtINg RESultS 1 948 1 569

fINANCIAl RESult 15 -121 -177

Share of profit of investments accounted for using the Equity Method 16 475 259

RESult BEfoRE tAx 2 302 1 651

Income taxes 17 -219 -347

NEt totAl RESult 2 083 1 304

Attributable to minority interests 175 115

Attributable to the Group 1 908 1 189

Basic and diluted earnings per share (in €) 18 34.77 21.68

&

Income statement


Consolidated financial statements44 Balance sheet

Balance sheet


31.12.2004 excluding IAS 32-39

NoN-CuRRENt ASSEtS

Property, plant and equipment 19 5 953 5 645

Intangible assets 20 833 819

Goodwill 21 1 600 1 310

Investments accounted for using the Equity Method 22 2 056 2 141

Loans and receivable at amortised cost 23 1 703 1 592

Available-for-sale investments 24 265 283

Derivatives 25 1 007 -

Deferred tax assets 17 130 153

Other non-current assets 29 1 030 1 095

total non-current assets 14 577 13 038

CuRRENt ASSEtS

Inventories 26 563 512

Trade receivables and related accounts 27 2 255 2 573

Loans and receivable at amortised cost 23 77 235

Available-for-sale investments 24 106 5


Cash and cash equivalents 28 7 379 4 711

Other current assets 29 1 022 1 066

total current assets 14 805 9 102

totAl ASSEtS 29 382 22 140

&

Assets&


Consolidated financial statements 44Balance sheet

Equity and liabilities&


31.12.2004 excluding IAS 32-39

EquIty 30

Share capital 2 073 2 073

Reserves and retained earnings 5 566 4 360

Minority interests 1 534 1 517

total equity 9 173 7 950

NoN-CuRRENt lIABIlItIES

Provisions 31 6 589 6 331

Financial liabilities 32 2 649 1 446


Other financial liabilities 34 543 421

Deferred tax liabilities 17 395 178

Other non-current liabilities 35 234 531

total non-current liabilities 11 469 8 907

CuRRENt lIABIlItIES

Provisions 31 313 386

Financial liabilities 32 1 253 1 286


Trade payables and related items 1 989 2 202

Current tax payables 35 78 120

Other financial liabilities 34 184 281

Other current liabilities 35 1 482 1 008

total current liabilities 8 740 5 283

totAl EquIty ANd lIABIlItIES 29 382 22 140


Consolidated financial statements4 Equity Rollforward4

Equity Rollforward&

In € million

Share Capital

Share premium

Consolida-ted reserve

Reserves related

to hedging instruments

Reserves related

to available for sale

investmentsTranslation

reserve

Equity attributa-

ble to the

GroupMinority interest

Total equity

EquIty BAlANCE At 1 JANuARy 2004 2 066 905 3 020 - - -2 5 989 1 856 7 845

Exchange differences on translation of foreign operations - - - - - 47 47 7 54

Gains and losses directly recognised to equity - - - - - 47 47 7 54

Profit for the period - - 1 189 - - - 1 189 115 1 304

Total recognised income and expense for the period - - 1 189 - - 47 1 236 122 1 358Changes in scope of consolidation - - - - - - - -29 -29

Issue of share capital 7 22 - - - - 29 -301 -272

Dividends - - -821 - - - -821 -131 -952

EquIty BAlANCE At 31 dECEmBER 2004 2 073 927 3 388 - - 45 6 433 1 517 7 950First-time adoption of IAS 32-39 on 1 january 2005 - - -16 2 60 22 68 -2 66

EquIty BAlANCE At1 JANuARy 2005 2 073 927 3 372 2 60 67 6 501 1 515 8 016

Exchange differences on translation of foreign operations - - - - - 19 19 -2 17Change in fair value of hedging instruments - - - 37 - - 37 - 37Available-for-sale investments - - - - 44 - 44 - 44

Gains and losses directly recognised to equity - 37 44 19 100 -2 98

Profit for the period - - 1 908 - - - 1 908 175 2 083

Total recognised income and expense for the period - - 1 908 37 44 19 2 008 173 2 181Changes in scope of consolidation - - -6 - - - -6 10 4

Costs related to share options directly recognised in equity 3 - - - 3 - 3

Issue of share capital - - - - - - - 49 49

Dividends - - -867 - - - -867 -213 -1 080

EquIty BAlANCE At 31 dECEmBER 2005 2 073 927 4 410 39 104 86 7 639 1 534 9 173

&


Consolidated financial statements 4Cash Flow Statement 4

Consolidated cash flow statement&

In € million 31.12.2005 31.12.2004

Cash and cash equivalents opening balance 4 711 5 008

Cash and cash equivalents closing balance 7 379 4 711

ChANgE IN CASh ANd CASh EquIvAlENtS 2 668 -297

Net total profit 2 083 1 304

Share of the profit of investments accounted for using the Equity Method -475 -259

Dividends received from investments accounted for using the Equity Method 473 445

Depreciation and provisions 490 116

Net gain (loss) from the disposal of assets -822 -158

Fair value of commodity financial instruments 146 -

Other non-cash elements 3 -

Financial result (1) 121 177

Income taxes (2) 219 347

gross margin for auto financing before result of financing activities and taxes 2 238 1 972

Income taxes paid (2) -240 -252

Movement in working capital 466 -160

Cash flows from operating activities 2 464 1 560

Acquisition of property, plant and equipment and intangible assets (including capitalised borrowing costs) -956 -526

Acquisition of entities (after deducting cash acquired) -311 -151

Acquisition of available-for-sale investments -43 -

Disposal of property, plant and equipment and intangible assets 263 133

Disposal of entities (after deduction of transferred cash) 468 742

Disposal of available-for-sale investments 181 -

Changes in receivables related to investments and restricted ‘cash’ 383 295

Interests and dividends received in relation to non-current financial assets (1) 146 191

Cash flows from investing activities 131 684

Dividends paid -1 080 -953

Changes in financial debts 1 110 -1 251

Financial interests paid (1) -155 -151

Interest received on cash and cash equivalents (1) 125 110

Change in share capital of subsidiaries 49 -272

Cash flows from financing activities 49 -2 517

Effects of exchange rate and miscellaneous 24 -24

totAl ChANgE 2 668 -297

(1) See reconciliation in note 39.1(2) See reconciliation in note 39.2



Notes to the consolidated financial statements&

Note 1: Summary of accounting policies p 57

Note 2: Impact of the transition to IFRS p 66

Note 3: Major operations p 90

Note 4: Segment information p 93

Note 5: Revenue p 96

Note 6: Other operating income p 97

Note 7: Raw materials and consumables used p 97

Note 8: Employee benefits expense p 97

Note 9: Provisions, depreciation and amortisation p 98

Note 10: Other operating expenses p 99

Note 11: Change in fair value of commodity financial instruments p 99

Note 12: Impairment p 99

Note 13: Restructurings p 100

Note 14: Disposal of assets p 100

Note 15: Financial result p 100

Note 16: Share in the net result of investments accounted for using the Equity Method p 101

Note 17: Income taxes p 102

Note 18: Earnings per share p 104

Note 19: Property, plant and equipment p 105

Note 20: Intangible assets p 108

Note 21: Goodwill p 109

Note 22: Investments accounted for using the Equity Method and interests in joint ventures p 111

Note 23: Loans and receivables at amortised cost p 113

Note 24: Available-for-sale investments p 114

Note 25: Derivative financial instruments (including commodity derivatives) – assets / liabilities p 114

Note 26: Inventories p 115

Note 27: Trade receivables and related accounts p 115

Note 28: Cash and cash equivalents p 116

Note 29: Other assets p 116

Note 30: Equity p 117

Note 31: Provisions p 119

Note 32: Financial Liabilities p 124

Note 33: Derivatives and exposure to market risks p 126

Note 34: Other financial liabilities p 135

Note 35: Other liabilities and tax liabilities p 136

Note 36: Business combinations p 137

Note 37: Finance leases (Lessor) p 138

Note 38: Operating leases p 139

Note 39: Cash flows p 139

Note 40: Share based payments and employee share issues p 140

Note 41: Transactions with related parties p 143

Note 42: Potential assets and liabilities, other risks and uncertainties p 146

Note 43: Other off-balance commitments and rights p 149

Note 44: Events after the balance sheet date p 150

Note 45: List of major consolidated entities p 150

Note 46: Average number of personnel p 153

Summary&

Notes to the consolidated financial statements


Consolidated financial statements 4Notes to the consolidated financial statements 4

Statement of compliance and basis of preparation

In accordance with the European regulation of 19th July 2002

concerning the international financial reporting standards, the

consolidated financial statements of the accounting period that

ends on 31 December 2005 are prepared in accordance with

International Financial Reporting Standards (IFRS) as adopted

by the European Union on the 31st of December. They are

comprised of IFRS, International Accounting Standards (IAS)

and interpretations originated by the International Financial

Reporting Interpretations Committee (IFRIC) or the former

Standing Interpretations Committee (SIC).

In accordance with IFRS 1 – First-time adoption of International

Financial Reporting Standards, the financial statements include

specific information on the adoption of IFRS. This information

is presented in note 2 ‘Impact of the transition to IFRS’.

Electrabel has decided to adopt IFRIC 4 – Determining

whether an arrangement contains a lease as from the

1st of January 2004. The application of this interpretation is

mandatory as from 1st of January 2006, but early adoption

is encouraged.

The Group has also decided to apply IAS 32 – Financial

Instruments: disclosure and presentation and IAS 39 –

Financial Instruments: Recognition and measurement from

1 January 2005. In accordance with the exemption provided in

IFRS 1 the comparative information on 31st of December 2004

does not comply with these two standards.

The accounting period ends on the 31st of December, the

figures in the consolidated financial statements are presented

in millions of euros (unless specified otherwise) before dividend

of the period.

Expenses are classified in the income statement based on the

nature of the expense.

IfRS and IfRIC that are not yet applicable

The Group has not applied the following standards and

interpretations, which were published by the IASB but for

which the application was not mandatory for the preparation

of the financial statements on 31st of December 2005.

IFRS 6 – Exploration for and evaluation of mineral resources.

The activities of the Group fall outside the scope of this

standard.

IFRS 7 – Financial instruments: Disclosures and revision of IAS 1

– Presentation of Financial Statements; Capital disclosures.

These new guidelines require the publication of additional

information. The Group has not yet decided when (in 2006

or in 2007) it will apply these new dispositions.

The entity was established on the 8th of August 1905 for an unlimited period, it is operating under the name Electrabel since the 10th of July 1990 The registred office is at Boulevard du Régent 8, 1000 Brussels Electrabel S A is a limited company that has to follow the Companies Code Electrabel is subordinate to the legislation and regulation applicable in Belgium to limited companies, as well as to its Articles of Association On the 3rd of March 2006, the Board of Directors has authorised consolidated financial statements of Electrabel S A and its subsidiaries (hereafter Group or Electrabel) as at 31st of December 2005 for publication

Note 1:

Summary of accounting policies


Consolidated financial statements4 Notes to the consolidated financial statements4

The amendment of IAS 19 – Employee Benefits: actuarial gains

and losses, multi-employer plans and disclosures is applicable

for periods beginning on or after 1 January 2006. The Group

has not yet decided if it will abandon the ‘corridor method’

and recognise all actuarial gains and losses directly in equity.

The other amendments will be applied in 2006. The Group

did yet not measure the impact of the modifications related

to multi-employer plans.

The revision of IAS 39 – Financial instruments: Recognition and

measurement – Fair value option, is applicable on accounting

periods beginning on or after 1 January 2006. The Group did

not yet decide whether it will use this fair value option.

IFRIC 5 – Rights to interests arising from decommissioning,

restoration and environmental rehabilitation funds, IFRIC 6

– Liabilities arising from participating in a specific market

– Waste electrical and electronic equipments, IFRIC 7 – Applying

the restatement approach under IAS 29 – Financial reporting

in hyperinflationary economics and IFRIC 8 – Scope of IFRS 2

are applicable in 2006. The Group does not expect an impact

of these interpretations since they are not applicable to its

transactions.

Judgment and use of estimates

The preparation of financial statements requires the use of

estimations and assumptions to determine the value of assets

and liabilities, the measurement of positive of negative aléas

at the balance sheet date, as well as the revenue and costs

of the accounting period.

Due to the uncertainties that are inherent to each measurement

process, the Group reviews its assumptions based on

information that is updated regularly. It is possible that actual

outcome of future operations differs from these estimates.

The significant estimates made by the Group for the

establishment of the financial statements are mainly related

to the estimation of the recoverable amount of property, plant

and equipment as well as intangible assets, the measurement

of provisions, especially the provision for the treatment of

back-end of the nuclear fuel cycle, the dismantling provisions

for installations, the provisions for claims as well as the pensions

and similar obligations, financial instruments and revenue

that is realised but not yet measured.

Realisable value of property, plant and equipment and

intangible assets

Assumptions and estimations are made to determine the

recoverable amount of goodwill, property, plant and equipment

and intangible assets. These assumptions and estimations

relate mainly to market perspectives, obsolescence and market

prices necessary to estimate future cash flows. All changes to

these assumptions could have a significant influence on the

estimated recoverable amount and could lead to a modification

of the impairment losses to be recognised.

Estimation of provisions

The parameters that have a significant influence on the amount

of the provisions, and more specifically, but not limited to, the

provisions linked with nuclear power plants, are next to the

estimated cost, the timing of the cash flows and the discount

rate. These parameters are determined based on the most

appropriate available information and estimations.

The company is not aware of elements that indicate that the

parameters used are not appropriate and there is no known

evolution that would impact the amount of the provisions

significantly.

pension obligations

The measurement of the pension obligations is based on

actuarial assumptions. The Group believes that the assumptions

for these calculations are appropriate and justified. However,

any change in certain of these assumptions could lead to a

significant impact on the measurement of the obligations.

financial instruments

To measure the fair value of financial instruments that are not

listed on an active market, the Group uses a certain number

of assumptions. Changes in these assumptions could have

an impact on the measurement of the fair value.



Revenue

Revenue with clients for which the energy consumption during

the accounting period is measured by means of meters, i.e.

clients of low voltage (electricity) or low pressure (gas), has

to be estimated at the balance sheet date. The liberalisation

of the Belgian energy market has made the calculation of

revenue more complex, since the grid is now used by multiple

operators. The Group has become dependent on the allocation

of transferred energy volumes by the grid operators. Final

allocations are in some cases only communicated after several

months, which introduces a certain amount of uncertainty

in the amount of the revenue realised during the accounting

period. However, the Group has developed measurement

techniques and models that enable it to conclude a posteriori

that the risk of errors in the estimation of the volumes sold

and the relating revenue is limited and can be considered

not significant.

other estimates and judgments

Apart from the use of estimates, the Group had to use

judgment to determine the appropriate accounting method

for certain activities and transactions if the applicable IFRS

where not explicit on the matter. For example, this was

the case for the classification of service contracts (IFRIC 4

– Determining whether an arrangement contains a lease) and

for the determination of ‘normal business considerations’ in

the context of IAS 39 for the gas and energy contracts.

Classification current/non-current

In accordance with IAS 1, the Group presents current and

non-current assets and liabilities separately on its balance

sheet. For the main activities of the Group the criteria that

was used was the expectation that the asset will be realised

or the liability settled within twelve months after the balance

sheet date.

first-time adoption of IfRS

As a first-time adopter of IFRS in 2005, the opening IFRS

balance sheet has been prepared as of 1 January 2004

(i.e. date of transition to IFRS). In accordance with IFRS 1

– First-time Adoption of IFRS, Electrabel has elected to use

the following exemptions for the preparation of its first IFRS

financial statements:

business combinations that occurred before the date

of transition to IFRS are not retrospectively restated in

accordance with IFRS 3 – Business Combinations;

•

unrecognised actuarial gains and losses are recognised at the

date of transition to IFRS. The ‘corridor’ approach defined

under IAS 19 – Employee Benefits is used for actuarial gains

and losses which arise after the date of transition to IFRS;

cumulative translation differences that existed at the date

of transition to IFRS are deemed to be zero;

comparative information of 2004 does not comply

with IAS 39 – Financial Instruments: Recognition and

Measurement and IAS 32 – Financial Instruments: Disclosure

and Presentation. For comparative purposes only, Belgian

GAAP is applied to financial instruments in the scope of

IAS 32 and IAS 39;

IFRS 2 – Share-based Payment is only applied to equity

instruments that were granted after 7 November 2002 and

had not vested as of 1 January 2005.

Consolidation principles

Consolidated financial statements include subsidiaries which

are fully consolidated, interests in jointly controlled entities

using proportionate consolidation, and investments accounted

for using the Equity Method.

Consolidated financial statements are prepared using uniform

accounting policies for similar transactions.

Subsidiaries

In accordance with IAS 27 – Consolidated and Separate Financial

Statements, subsidiaries are entities that are controlled, directly

or indirectly, by Electrabel. Control is considered the power

to govern the financial and operating policies of an entity so

as to obtain benefits from its activities. It is presumed to exist

when Electrabel owns more than 50 % of the voting power,

unless such ownership does not constitute control.

Consolidated financial statements are prepared using uniform

accounting policies for similar transactions.

Jointly controlled entities

In accordance with IAS 31 – Interests in Joint Ventures, entities

over which Electrabel contractually agrees to share control with

other ventures are jointly controlled entities. Such agreement

ensures that strategic financial and operating decisions require

the unanimous consent of all the ventures.

Proportionate consolidation of jointly controlled entities starts

when joint control is established until the date it ceases.

•

•

•

•



Associates

In accordance with IAS 28 – Investments in Associates,

associates are entities over which Electrabel has a significant

influence by participating in the financial and operating

policy decisions of the investee without controlling or jointly

controlling those entities.

Associates are accounted for using the Equity Method until

the date Electrabel ceases to have significant influence.

foreign operation

According to IAS 21 – The Effects of Changes in Foreign

Exchange Rates, the financial statements of subsidiaries, joint

ventures and associates whose functional currency is not the

euro are translated based on the following principles:

assets and liabilities are translated at the closing rate;

income and expenses are translated at the weighted average

exchange rate for the period;

all resulting exchange differences are recognised as a

separate component of equity.

Business combinations and goodwill

When the Group acquires an entity or business, the identifiable

assets, liabilities and contingent liabilities of the acquiree are

recognised at their fair value. The difference between the cost

of the acquisition and Electrabel’s interest in the net fair value

of assets, liabilities and contingent liabilities is recognised as

goodwill, which is subject to an impairment test performed

at least annually in accordance with IAS 36 – Impairment

of Assets.

If Electrabel’s interest in the net fair value of the identifiable

assets, liabilities and contingent liabilities exceeds the cost of

the business combination, this excess (frequently referred to

as negative goodwill or badwill) is immediately recognised

in the profit or loss statement, after a reassessment of the

fair values.

No revaluation is recognised on the identifiable assets and

liabilities, when additional shares are acquired of a subsidiary

that is already fully consolidated. The goodwill relating to this

transaction corresponds to the difference between the cost

of the acquisition and the fair value of the additional interest

acquired in the net assets of the entity.

•

•

•

Intangible assets

An intangible asset is recognised if it is probable that future

economic benefits that are attributable to the asset will flow

to Electrabel and if its cost can be measured reliably. After

initial recognition, all intangible assets are measured at cost

less accumulated amortisation and impairment losses.

Intangible assets with a finite useful life are amortised over

their useful lives using the straight-line method. Capitalized

software costs are amortised over three to five years.

Intangible assets with an indefinite useful life are not amortised

but tested for impairment on an annual basis in accordance

with IAS 36 – Impairment of Assets.

The useful life and amortisation method of intangible assets

are reviewed at minimum each financial year-end.

Intangible assets also include capacity rights on power plants

which are treated consistently with accounting policies

applicable to property, plant and equipment.

property, plant and equipment

Property, plant and equipment is recognised if it is probable

that future economic benefits that are attributable to the

asset will flow to the Group and if its cost can be measured

reliably. After initial recognition, all items of property, plant

and equipment are measured at cost less any accumulated

depreciation and any impairment losses.

The cost of power plants includes borrowing costs to the

extent that the construction or acquisition period of the plant

exceeds twelve months. Capitalization of such borrowing

costs starts when the expenditures are incurred and ceases

at the commissioning date of the plant. Capitalization of

borrowing costs is suspended during periods in which active

development is interrupted.

The cost of power plants includes the estimated costs of

dismantling and removing the asset and restoring the

site, to the extent that this liability is also recognised as a

provision under IAS 37 – Provisions, Contingent Liabilities

and Contingent Assets. According to IFRIC 1 – Changes in

Existing Decommissioning Restoration and Similar Liabilities,

variations in the dismantling provision resulting from changes

in the discount rate or changes in the estimated timing or

amount of the obligation, are recognised against the carrying

amount of the related asset.



Government grants related to property, plant and equipment

as well as contributions by third parties for the financing of

such item are deducted from the cost of the asset.

The depreciable amount of each part of property, plant and

equipment with a cost that is significant in relation to the total

cost of the asset is depreciated separately over its useful life

on a straight-line basis. When a significant part is replaced at

the end of its useful life, the cost of the new part is recognised

as an asset (‘component approach’). Such approach is also

applied to the cost of major inspections of power plants

which is depreciated separately over the period until the next

major inspection.

Depreciation starts when an asset is available for use.

Power plants are considered available for use beginning

on the commissioning date. Estimated useful lives of the

major components of property, plant and equipment are as

follows:

Buildings 20 to 33 years

Nuclear facilities for the production of electricity 40 years

Conventional facilities for the production of electricity

20 to 30 years

Civil engineering on hydraulic structures et pumping

50 to 65 years

Electricity and gas distribution networks 25 to 50 years

Cogeneration and energy recovery installations

10 to 25 years

Equipment, simulators and furniture 10 years

Vehicles, hardware 5 years

The residual value, useful life and depreciation method of

property, plant and equipment are reviewed at minimum

each financial year-end.

Assets held under a finance lease

Property, plant and equipment also includes leased property,

plant and equipment for which substantially all the risks and

rewards have been transferred to Electrabel. In this context

the Group applies IFRIC 4 – Determining whether a contract

contains a lease. This interpretation provides guidance for

determining whether arrangements that do not take the legal

form of a lease should be accounted for in accordance with

IAS 17 – Leases.

Assets held under a finance lease are initially recognised at

the lower of the fair value of the leased asset or the present

value of minimum lease payments. Subsequently, such assets

are measured consistently with owned property, plant and

equipment, except that the useful life is limited by the lease

term if the transfer of ownership at the end of the lease term

is not reasonably certain.

Impairment of assets

Goodwill, intangible assets with an indefinite useful life and

intangible assets that are not yet available for use, are all

tested for impairment annually. Fixed assets are tested for

impairment only when there is an indication that their carrying

amount will not be recoverable through use or sale. If the

carrying amount of an asset exceeds its recoverable amount

(being the higher of its fair value less costs to sell and its value

in use), the excess is recognised as an impairment loss in the

income statement.

If it is not possible to estimate the recoverable amount of an

individual asset, the impairment test is performed at the level

of the cash-generating unit to which the asset belongs.

Goodwill is allocated to the cash-generating units or groups

of cash-generating units that are expected to benefit from the

synergies of the combination and that represent the lowest

level within the entity at which it is monitored for internal

management purposes.

Impairment losses are subsequently reversed in the income

statement if the recoverable amount of an asset (or of the

cash-generating unit) exceeds its carrying amount, except for

impairment losses on goodwill which are never reversed.

Inventories

Inventories are measured at the lower of cost or net realisable

value.

The cost of inventories comprises all costs of purchases and

other costs incurred in bringing the inventories to their present

location and condition. The cost of inventories is assigned by

using the weighted average cost formula.

loans and receivables

Loans and receivables are initially recognised at fair value, which

generally corresponds with the nominal value plus transaction

costs that are directly attributable to the acquisition.



After initial recognition, loans and receivables are measured

at amortised cost using the effective interest method. An

impairment loss is recognised in the income statement if the

recoverable amount of a loan or receivable is lower than its

carrying amount.

Available-for-sale financial assets

Available-for-sale financial assets are initially recognised at fair

value, which generally corresponds to the acquisition price

plus transaction costs.

After initial recognition, available-for-sale financial assets are

measured at fair value each reporting period end.

The fair values of financial instruments that are quoted in

an active market are based on the market price at balance

sheet date.

If the market for a financial instrument is not active, the fair

value is established by using a valuation technique based on

market inputs on recent similar transactions, the current fair

value of other similar instruments, a discounted cash flow

analysis or option pricing models.

Available-for-sale financial assets that do not have a quoted

market price in an active market and whose fair value cannot

be reliably measured are measured at cost.

Gains or losses arising from changes in the fair value of

available-for-sale financial assets are directly recognised as

a separate component of equity unless the decline in fair

value below its historical costs evidences a significant and

permanent decline in fair value. In that case the impairment

loss is recognised in the income statement.

trade receivables and related accounts

At initial recognition, trade receivables are recognised at fair

value which generally corresponds with the nominal value. An

impairment loss is recognised based on the risk of uncollectible

amounts.

Cash and cash equivalents

Cash and cash equivalents are cash on hand and short-term

highly liquid investments that are readily convertible to known

amounts of cash and which are subject to an insignificant risk of

changes in value as stated in IAS 7 – Cash flow statements.

Bank overdrafts are not included in cash and cash equivalent

but classified as current financial liabilities.

pensions and similar obligations

In accordance with the laws and customs of the countries

in which it operates, Electrabel has a range of obligations

to fulfil with regard to pensions, early retirement schemes,

welfare plans and other long-term employee benefits. These

obligations are accounted for in accordance with IAS 19

– Employee Benefits.

post employment benefits

Electrabel has a defined benefit or a defined contribution

pension plan for most of its employees. Some entities also

provide other post-retirement benefits such as the coverage

of medical costs.

The present value of the defined benefit obligations and the

related current service costs are calculated in accordance with

the Projected Unit Credit Method as described in IAS 19. These

calculations are based on actuarial assumptions relating to

mortality, rates of employee turnover, and future salary levels

which reflect the economic conditions in each country or entity.

Discount rates are determined by reference to the market

yields at the balance sheet date on high quality corporate

bonds. Actuarial gains and losses exceeding 10 % of the

greater of the present value of the defined benefit obligations

or the fair value of plan assets are recognised in the income

statement over the employees’ average remaining working

lives. Past service costs are expensed on a straight-line basis

over the average period until the benefits become vested.

The amount recognised in the income statement consists

of current service costs, interest costs, expected return on

plan assets, actuarial gains and losses and past service costs

during the period.

Costs of defined contribution plans are expensed as

contributions are due.

other long-term employee benefits

Other long-term employee benefits are treated in accordance

with the same accounting method as post-employment

benefits, except that actuarial gains and losses and past service

costs are recognised immediately in the income statement.



provisions

In accordance with IAS 37 – Provisions, contingent liabilities

and contingent assets, a provision is recognised when

Electrabel has a present obligation (legal or constructive) for

which it is probable the settlement will require an outflow

of resources embodying economic benefits and a reliable

estimate can be made of the amount of the obligation. The

amount recognised as a provision shall be the best estimate

of the expenditure required to settle the present obligation

at the balance sheet date.

The Group recognises provisions for the dismantling of its

nuclear power plants. The best estimate of the provision

corresponds to the present value of the future decommissioning

costs which are measured by reference to studies conducted

by independent experts. The unwinding of the provision due

to the passage of time is recognised as a finance cost.

The measurement of provisions for the legal or constructive

obligation to dismantle the conventional power plants and to

restore the sites is based on the most appropriate technical

and budgetary estimates.

Provisions are recognised for storage, removal and treatment

of back-end of the nuclear fuel cycle.

Restructuring provisions are recognised in accordance with

IAS 37 if the two following conditions are met:

the decision to restructure is based on a detailed formal

plan identifying at least: the business and the employees

concerned, the expected expenditures and the expected

date of implementation;

there is a valid expectation that the plan will be carried out

to those affected by it by the balance sheet date.

Provisions that are expected to be settled in the entity’s normal

operating cycle as well as the portion of other provisions due

to be settled within twelve months after the balance sheet

date are classified as current liabilities. The other provisions

are classified as non-current liabilities.

Emission rights and green certificates

Allowances, whether issued by government or purchased for

operational purposes / needs, are recognised as intangible

assets and measured at cost. If the emission rights are granted

for free by government, the asset is recorded at zero cost.

A liability is recognised for the obligation to deliver allowances

equal to emissions that have been made. The measurement

•

•

of this liability is based on the cost of the owned allowances

and on the current market price for allowances still to be

purchased. If the amount of allowances held by the entity

exceeds the allowances required, a gain is only recognised in

the income statement when a sale is realized.

Green certificates are also recognised as intangible assets at

their cost if acquired or at market price together with a gain in

cases where Electrabel received the certificates due to energy

production starting from renewable energies. A liability is

recognised for the estimated amount of green certificates that

has to be delivered. This liability is measured by the weighted

average cost for acquired certificates, whether internally

generated or acquired from external parties and the market

price for certificates that the Group does not have.

financial liabilities

Borrowings and other interest-bearing financial liabilities are

measured at amortised cost using the effective interest rate

method.

At initial recognition, any of the fees, points paid or received,

transaction costs, and premiums or discounts are deducted

from the nominal value of the related borrowings or financial

liabilities. The premiums and transaction costs are included

in the calculation of the effective interest rate and amortised

over the expected life of the instrument.

Financial liabilities resulting from a finance lease are recognised,

along with the related leased assets, at an amount equal to

the fair value of the leased property or, if lower, the present

value of the minimum lease payments. The minimum lease

payments are apportioned between the finance charge and

the reduction of the outstanding liability. The finance charge

is allocated to each period during the lease term so as to

produce a constant periodic rate of interest on the remaining

balance of the liability.

The other financial liabilities include in particular puts on

minorities of the Group.

Income taxes

Income taxes include current and deferred taxes.

In accordance with IAS 12 – Income Taxes, deferred taxes are

calculated for all temporary differences between the carrying

amounts of assets and liabilities in the consolidated balance

sheet and their tax base.



Temporary differences between the tax base of goodwill and

the carrying amount resulting from an impairment that is not

deductible for tax purposes, do not give rise to a deferred

tax liability. The entity does not recognise deferred taxes on

temporary differences that arise from the initial recognition

of an asset or liability in a transaction that is not a business

combination and that affects neither accounting profit nor

taxable profit on that date. Deferred tax assets are recognised

only when it is probable that taxable profits will be available in

the future against which the deductible temporary difference

or the tax loss to be carried forward can be utilized.

A deferred tax liability is recognised for all taxable temporary

differences associated with investments in subsidiaries,

branches and associates, and interests in joint ventures,

except to the extent that the Group is able to control the

timing of the reversal of the temporary difference and it is

probable that the temporary difference will not reverse in

the foreseeable future.

Deferred taxes are determined based on the tax situation

of each entity or, if applicable, on the consolidated result

of groups of entities that are consolidated for tax purposes.

These amounts are offset in the balance sheet if they relate

to income taxes levied by the same taxation authority.

Deferred taxes are reviewed at each balance sheet date to

assess changes in tax legislation and the probability that

sufficient taxable profit will be available to allow deferred

taxes to be utilised.

Deferred tax assets and liabilities are not discounted and are

classified as non current in the balance sheet. Interim period

income tax expense (current and deferred) is accrued using

the estimated tax rate applicable to the fiscal entities applied

to the pre-tax income of the interim period.

derivatives and hedge accounting

definition and scope of derivatives

Derivatives are financial instruments or other contracts within

the scope of IAS 39 – Financial Instruments: Recognition and

Measurement, with a value that changes in response to a change

in one or more observable parameters, that requires no significant

initial net investment and that is settled at a future date.

Derivatives include swaps, options, futures, commitments to

buy or sell listed and non-listed shares in the future, as well as

certain firm commitments or options to buy or sell non-financial

assets leading to delivery of the underlying asset.

Derivatives may be used either for trading purposes or to

hedge an exposure to interest rate, foreign exchange or power

and fuel price risks.

All derivatives are initially and subsequently measured at fair

value at each balance sheet date. A change in fair value

of a derivative is recognised in the income statement if the

instrument is classified as held for trading. If the derivative is

used for hedging purposes, the accounting treatment, either

in profit or loss or directly in equity, changes in the fair value

are recognised in accordance with the hedge accounting

principles.

Energy-contracts and commodities

Contracts to buy or sell non-financial items that can be net

settled are outside the scope of IAS 39 if they are entered into

for ‘group purposes’, i.e. the contracts were part of normal

business considerations.

The Group systematically analyses contracts to sell or buy

electricity and gas, to determine whether the contracts are

agreed within the « normal » business considerations and

should be excluded from the scope of IAS 39. The prime

purpose of this review is to demonstrate that the contract was

agreed and continues to be held, for the purpose of receipt

or delivery of the underlying, respecting volumes that are in

accordance with the Groups sale or usage requirements, and

within a reasonable timeframe in the context of its exploitation

activities. Next to that the analysis will indicate that:

the Group has no practice of settling similar contracts net.

More specific the Group believes that it has no practice

of net settlement for future purchase or sale agreements

with delivery of the underlying and with the sole purpose

to balance the energy volumes of the Group.

the contract is not agreed in the context of financial

arbitrage.

the contracts are not similar to the sale of options. In the

context of the sale of electricity where the counter-party has

a choice on the volume sold, the Group makes a difference

between sales contracts that are similar to the sale of capacity

– which are considered to be part of the normal activities of

the Group- and sales contracts which are similar to the sale

of financial options, which are treated as derivatives.

Only contracts that meet all the conditions mentioned above

are excluded of the scope of IAS 39. This analysis results in

the constitution of specific documentation.

•

•

•



Embedded derivatives

An embedded derivative is a component of a hybrid (combined)

instrument that also includes a non-derivative host contract,

with the effect that some of the cash flows of the combined

instrument vary in a way similar to a stand-alone derivative.

Contracts to buy or sell commodities that are entered into for

normal business purposes can include embedded derivatives,

for example price indexation or options relating to volume

or end dates.

If the economic characteristics and risks of the embedded

derivative are not closely related to the economic characteristics

and risks of the host contract, the embedded derivative is

classified as a derivative held for trading in accordance with

IAS 39. The instrument is recognised at fair value and the

changes in fair value are recognised in the income statement if a

reliable measurement can be made of the embedded derivative.

If the entity is unable to make a reliable determination of the

fair value of an embedded derivative, the combined instrument

is classified as a financial asset or a financial liability held for

trading in accordance with IAS 39. The instrument is recognised

at fair vale in the balance sheet with changes in fair value

recognised in the income statement.

Written options

Written options on the sale or purchase of commodities that

can be net settled are classified as derivatives held for trading

in accordance with IAS 39. These options are recognised at

fair value and the changes in fair value are recognised in the

income statement.

Classification in profit or loss

When a derivative does not (longer) meet the conditions to

qualify as a hedging instrument, the changes in fair value

are recognised in profit and loss of the period, as a specific

line-item in operating result if the derivative relates to a non-

financial asset and in financial result if the derivative relates

to a currency, interest of share.

hedge accounting

In order to manage the impact of financial risks, Electrabel uses

derivative financial instruments as hedging instruments.

A derivative instrument is accounted for as a hedge when,

in line with the Group’s risk management policies and in

accordance with IAS 39, it alters the risk profile of an underlying

exposure and

the hedging relationship is documented at its inception;

the hedging is highly effective in achieving its objective;

the effectiveness can be reliably measured.

There are three types of hedging relationships: fair value

hedges, cash flow hedges and hedges of net investments

in foreign operations.

fair value hedges

A derivative is classified as a fair value hedge when it hedges

the exposure to changes in the fair value of a recognised

asset or liability or an unrecognised firm commitment. Any

gain or loss arising from changes in the fair value of the

hedging instrument is recognised immediately in the income

statement. Any gain or loss on the hedged item attributable

to the hedged risk adjusts the carrying amount of the hedged

item and is recognised in the income statement.

Cash flow hedges

A derivative is classified as a cash flow hedge when it hedges

the exposure to variability in cash flows that is attributable to

a particular risk associated with a recognised asset, liability or

a highly probable forecast transaction. The effective portion

of the gain or loss on the hedging instrument is recognised in

equity while any ineffectiveness is recognised in the income

statement. Hedge accounting is discontinued when the

hedging instrument expires or is sold, terminated or exercised,

or no longer qualifies for hedge accounting. Any cumulative

gain or loss on the hedging instrument remaining in equity

and is transferred to profit and loss when the highly probable

forecast transaction affects income statement. If the transaction

is no longer expected to occur, the cumulative gain or loss

recognised in equity is recognised in income statement.

Net investment hedges

Hedges of net investments in foreign operations are accounted

for similarly to cash flow hedges. Any gain or loss on the

effective portion of the hedge is recognised in equity whereas

any gain or loss on the ineffective portion of the hedge is

recognised in income statement. Gains or losses accumulated

in equity are included in the income statement upon the

disposal of the foreign operation.

•

•

•



transactions in foreign currency

Foreign currency transactions are recognised at the date of

transaction exchange rate. Unrealised and realised exchange

gains and losses are recognised in the income statement.

Rights to subscribe to capital increases and options to purchase shares

Employee benefits that are paid in shares are recognised as

cost in accordance with IFRS 2 – Share-based payments.

Share options are measured at the grant date using a binomial

model. This model takes into account the characteristics of

the plan (exercise price, exercise period), market assumptions

at grant date (risk-free interest rate, share price, volatility;

expected dividends) and assumptions about the expected

behaviour of the participants. The employee cost related to the

share options is recognised over the vesting period together

with a direct recognition in equity.

Revenue

Revenue arises mainly from the sale of electricity and gas,

including, if applicable, the related transport and distribution

duties and different services such as maintenance of the

electricity and gas distribution network or the sale of steam.

Energy that is delivered to clients for which the consumption

is measured annually via meters, for which there was no

reading of the meters at balance sheet date, is estimated

based on historical data, consumption statistics as well as

estimated sales prices.

For some forward energy sales contracts, the Group has

stipulated a fixed fee that is independent of the delivered

volumes which change over the contract period. In accordance

with IAS 18 – Revenue, revenue arising from these contracts

is recognised straight-line over the contract period since the

fair value of the services does not substantially change over

the periods.

The energy trading activities for the purpose of the Group

and for clients are presented net in revenue. In accordance

with IAS 18 – Revenue and IAS 1 Presentation of financial

statements, the gains and losses from these operational trading

activities are presented netto in revenue, if the sales contracts

can be compensated by similar purchases or if the sale is part

of an exchange strategy. Otherwise the gains and losses of

trading activities are presented gross in revenue and in raw

material and consumables purchased.

The purpose of these operational trading activities is to

optimize the production plants as well as the portfolio of

purchase contracts of fuel and the energy sales contracts.

Events after the balance sheet date

Until they are authorized for issue by the Board of Directors,

the financial statements are adjusted to reflect events that

provide evidence of conditions that existed at the balance

sheet date.

Material events which are indicative of conditions that arose

after the balance sheet date are disclosed in the financial

statements, if they are significant.

Note 2:

Impact of the transition to IfRS

table of contents

2.1 Reconciliation with financial statements prepared in accordance with Belgian gAAp – financial year 2004

2.1.1 Background

2.1.2 Executive summaryt

2.1.3 presentation of the IfRS options selected by

the group

2.1.4 IfRS measurement adjustments

2.1.5 IfRS presentation adjustments

Consolidated balance sheet and income

statement

Explanatory notes – Assets

Explanatory notes – Equity

Explanatory notes – Liabilities

Explanatory notes – Income statement

•

•

•

•

•



2.2 first- time adoption of IAS 32-39 – 1 January 2005

2.2.1 Context

2.2.2 Scope of IAS 32 – IAS 39

2.2.3 Summary of the restatements by nature

2.3 Additional restatements and reclassifications since the publication of the note published in 2005- ‘transition to IfRS – financial year 2004’

2.1 Reconciliation with financial statements prepared in accordance with Belgian gAAp – financial year 2004

2.1.1 Background

In accordance with the European Regulation 1606/2002 of

19 July 2002 on the application of International Accounting

Standards, the consolidated financial statements of the Group

Electrabel for the year ended 31 December 2005 have been

prepared in accordance with IFRS (International Financial

Reporting Standards) as adopted by the European Union at

that date.

This first complete set of IFRS financial statements will include

2004 comparative information. As a result, an opening IFRS

balance sheet has been prepared on 1 January 2004, date

on which, in accordance with IFRS 1 – First-time Adoption of

International Financial Reporting Standards, the adjustments

related to the transition to IFRS are recognised directly in

equity.

The purpose of this document is to present the impact of the

adoption of IFRS on the financial position and the financial

performance of the Group, both in terms of measurement

and presentation.

After a brief explanation of the IFRS options adopted by the

Group, a numerically quantified explanation of the differences

between Belgian GAAP and IFRS which have an impact on

the equity of Electrabel as at 1 January 2004 is presented.

This reconciliation is made both for the net profit and equity

as at 31 December 2004. In order to demonstrate the impact

on presentation, the opening and closing balance sheets for

financial year 2004, together with the income statement

and comparatives between Belgian GAAP and IFRS are then

presented and discussed.

Electrabel has decided to present, as from 2005, a first transition

document called ‘Transition to IFRS Financial Year 2004’.

This document included numerically quantified information

on the impact of the adoption of IFRS in 2004. This document

followed the CBFA recommendation in its circular FMI 2004-01

dated 8 March 2004.

The differences between the transition note published in 2005

and the current note are mainly the result of the early adoption

and the resulting retrospective application on 1 January 2004

of IFRIC 4 – Determining whether an arrangement contains

a lease, decided by the Group at the end of 2005. The other

amendments are the result of reclassifications between items

of similar nature.

2.1.2 Executive summary

The application of IFRS on the financial position as at 1 January

2004 resulted in a decrease of the consolidated equity

attributable to the Group before dividends of € 11 million.

The main impacts on the reported equity are the result of

the adoption of the international standards related to the

accounting treatment of property, plant and equipment

and intangible assets, as well as from the recognition and

measurement criteria applicable to provisions.

The scope of consolidation is identical, cash flows are obviously

unchanged and there was no effect on dividend distribution

capacity.

Net profit attributable to the Group, determined in accordance

with IFRS as at 31 December 2004 increased by € 244 million

compared to Belgian GAAP. Except for the effect of non-recurring

items due to the change in the treatment of dismantling

provisions under Belgian GAAP, the net profit is relatively

comparable under both sets of accounting principles.

Indeed, the increase in depreciation expenses related to

property, plant and equipment and intangible assets, which

are higher under IFRS as a result of higher depreciable values

than under Belgian GAAP, is to a great extent offset by the

fact that goodwill is no longer amortised.

As at 31 December 2004, the consolidated equity attributable

to the Group, amounts to € 6 433 million under IFRS compared

to € 6 147 million in the financial statements prepared under

Belgian GAAP, before remuneration of shareholders, being

an increase of € 286 million.



The quantified information related to both the opening

balance sheet as at 1 January 2004 and the accounts as

at 31 December 2004 do not include the impact of IFRS

on financial instruments. The Group has elected to use the

exemption provided by IFRS 1 to postpone the application

of these standards until 1 January 2005, without restating

the comparative information.-

2.1.3 presentation of the IfRS options selected by the group

options on first-time adoption

As a first-time adopter in 2005, Electrabel has prepared its

opening IFRS balance sheet at 1 January 2004 (date of transition

to IFRS) in accordance with IFRS 1 – First-time Adoption of

International Financial Reporting Standards. Electrabel has

elected to use the following exemptions provided by IFRS 1

for the implementation of IFRS at the date of transition.

Business combinations

Business combinations that occurred before the date of

transition to IFRS have not been restated retrospectively in

accordance with IFRS 3 – Business Combinations. Assets

acquired and liabilities incurred have thus been maintained,

at the date of acquisition, at the value determined under

Belgian GAAP.

Pension and similar obligations: unrecognised actuarial

gains and losses

Provisions for pension and similar obligations have been

adjusted to take into account the actuarial gains and losses that

were not recognised in the financial statements prepared under

Belgian GAAP as at 31 December 2003. This adjustment has

been recognised directly in equity as at 1 January 2004.

However and as indicated below, the corridor approach as

defined in IAS 19 – Employee Benefits is used for actuarial

gains and losses arising after the date of transition to IFRS.

Translation differences

The amount of cumulative translation differences included in

consolidated equity at the date of transition to IFRS is deemed

to be zero. This restatement has no effect on equity as it

represents a transfer from ‘cumulative translation differences’

to ‘retained earnings’.

•

•

•

Financial Instruments

IAS 39 – Financial Instruments: Recognition and Measurement

and IAS 32 – Financial Instruments: Disclosure and Presentation

have not been applied to the 2004 comparative information.

The first application of these standards has been postponed to

1 January 2005. Financial instruments included in the scope

of IAS 32 and IAS 39 are thus measured and presented in

accordance with Belgian GAAP for the comparative period.

The restatements related to the first time application of IAS 32

and IAS 39 on 1 January 2005 is presented in the second part

of this document.

Share-based Payment

The Group applies the transitional provisions of IFRS 2 – Share-

based Payment. As a consequence, this standard is only applied

to grants of equity instruments that occurred after 7 November

2002 and that are not vested as of 1 January 2005. Such

instruments have no impact on equity.

Dismantling assets

The amount relating to dismantling of assets has been

calculated based on estimates made at the date of transition

to IFRS.

All issues that are not included in the exemptions and specific

provisions disclosed above, have been treated in accordance

with the general provisions of IFRS. In particular, the Group

has elected not to make use of possibility of substituting

the fair value as deemed cost for certain categories of property,

plant and equipment at the date of transition to IFRS.

optional accounting policies for recognition and

presentation

In a limited number of circumstances, IFRS permits alternative

accounting treatments or alternative presentation possibilities.

The options selected by the Group in these situations are

presented below.

Capitalisation of borrowing costs

The Group has decided to adopt the alternative treatment

in IAS 23 – Borrowing Costs. This treatment consists of

capitalising the borrowing costs that are directly attributable

to the acquisition, construction or production of a qualifying

asset as part of the cost of that asset during the period of

construction.

•

•

•

•



Measurement of intangible assets and property, plant

and equipment

The Group has chosen the cost model for the measurement

of intangible assets and property, plant and equipment. The

alternative treatment of IAS 16 – Property, Plant and Equipment

and IAS 38 – Intangible Assets, whereby assets of one or more

categories are carried at a revalued amount through regular

revaluations, has not been retained.

Right to use an asset

At the end of 2005 the Group has decided to apply the

requirements of IFRIC 4 – Determining whether an arrangement

contains a lease retrospectively as of 1 January 2004. This

interpretation treats the identification and the financial

reporting of service contracts, and contracts of sale or purchase

of energy that do not take the legal form of a lease but convey

to the clients or suppliers a right to use an asset or a group of

assets in return for a payment or series or payments. If these

contracts contain a lease they should be classified either as

finance or operating leases.

Pensions and similar obligations – the corridor

approach

The corridor approach is applied to actuarial gains and losses

arising after the date of transition to IFRS. Such gains and

losses are the result of changes in actuarial assumptions on

retirement and similar commitments. Accordingly, all gains and

losses exceeding 10 % of the greater of the present value of

the defined benefit obligation and the fair value of any plan

assets are recognised over the expected average remaining

working life of the employees participating in the plan.

However, as mentioned previously, cumulative unrecognised

actuarial gains and losses at 1 January 2004 have been included

in the provision for pension and similar obligations against

equity at the date of transition.

Consolidation of joint ventures

The Group has elected to recognise its interests in jointly

controlled entities using the proportionate consolidation

method. This method, proposed by IAS 31 – Interests in Joint

Ventures is the same as the method used for the financial

statements under Belgian GAAP.

•

•

•

•

Government Grants

In accordance with the option offered by IAS 20 – Accounting

for government grants and disclosure of government assistance,

grants related to assets are presented as a deduction of the

cost of the asset to which they relate.

Presentation of the income statement

The Group has decided to maintain the presentation of

expenses based on the nature of the expenses in the income

statement.

2.1.4 IfRS measurement adjustments

In accordance with IFRS 1 – First-time adoption of International

Financial Reporting Standards, the financial statements at

closing date 2003 have been restated to prepare the opening

IFRS balance sheet as at 1 January 2004. As required by IFRS 1,

all adjustments related to the adoption of the new accounting

principles have been recognised in equity at 1 January 2004,

date of the opening IFRS balance sheet.

Equity including minority interests, as at 1 January 2004,

increases from € 7 025 million (Group share of € 5 179

million and minority interests of € 1 846 million) in accordance

with Belgian GAAP to € 7 845 million under IFRS (Group

share of € 5 989 million and minority interests of € 1 856

million), being an increase of € 820 million (Group share

of € 810 million and minority interests of € 10 million).

This increase in equity is analysed in the table below and

the main adjustments are explained in the explanatory notes.

This table also provides a detail of the impact of the IFRS

adjustments on the net profit and equity as at 31 December 2004.

The adjustments are presented before deferred taxes. The

total impact of deferred taxation is disclosed separately.

•

•



property, plant and equipment – Start of depreciation at

the date the asset is available for use

In accordance with IAS 16 – Property, Plant and Equipment,

depreciation of an asset starts when it is available for use.

Until the year 2000 the Group depreciated its assets under

construction in its Belgian GAAP reporting.

The required adjustment due to the retrospective application

of IAS 16 results in a positive impact of € 449 million on equity

as at 1 January 2004.

property, plant and equipment – Capitalisation of

borrowing costs

As indicated previously, the Group elected to capitalise

borrowing costs incurred during the period of construction

of a qualifying asset as part of the cost of that asset. The

application of this accounting policy to all qualifying assets

generates an increase in the carrying amount of these assets

with an amount of € 69 million as at 1 January 2004.

property, plant and equipment – Component approach

In accordance with the component approach required by IFRS,

each part of an item of property, plant and equipment with a

cost that is significant in relation to the total cost of the item

is depreciated separately to the extent that the useful life of

the component differs from the useful life of the principal

asset to which it relates.

In accordance with this principle, the Group identified and

recognised a separate component in the initial costs of the

asset for ‘major repairs and maintenance’ being the periodic

maintenance plan. This component is depreciated over its

useful life, corresponding to the period until the next periodic

inspection. When incurred, the expenses related to major

repairs and maintenance operations are capitalised and

depreciated over the period until the next periodic inspection.

In the context of the accounting treatment described above,

it should be noted, as explained below that it is not permitted

under IFRS to recognise provisions for ‘major repairs and

maintenance’.

In € million 01.01.2004 2004 Result other 31.12.2004

EquIty IN ACCoRdANCE WIth BElgIAN gAAp 5 179 945 -842 5 282mINoRIty INtEREStS IN ACCoRdANCE WIth BElgIAN gAAp 1 846 114 -453 1 507

Property, plant and equipment 640 -56 -2 582

Intangible assets 392 -29 - 363

Goodwill -11 54 6 49

Investments accounted for using the Equity Method -765 -3 28 -740

Right to use asset 22 6 - 28

Provisions -32 352 17 337

Other assets and liabilities -81 -11 3 -89

Deferred taxes -166 -68 - -234

Dividends 821 - 44 865

EquIty IN ACCoRdANCE WIth IfRS 7 845 1 304 -1 199 7 950

Attributable to equity holders of the parent 5 989 1 189 -745 6 433

Attributable to minority interests 1 856 115 -454 1 517

Explanatory notes



Start of depreciation from the date available for use 449 -23 - 426

Capitalisation of borrowing costs 69 -10 - 59

Component approach 32 -17 -2 13

Dismantling assets 94 -6 - 88

Other -4 - - -4

totAl 640 -56 -2 582



The use of the component approach resulted in an increase

in the carrying amount of property, plant and equipment of

€ 32 million as at 1 January 2004.

property, plant and equipment – dismantling assets

In accordance with IAS 16 – Property, Plant and Equipment, at

initial recognition, the cost of an item of property, plant and

equipment comprises the cost of dismantling and removing

the item and restoring the site on which it is located to

the extent that the Group has a present, legal or constructive,

obligation to dismantle the asset or restore the site.

A provision is recognised in relation to the dismantling asset

(see below).

In accordance with IFRS 1 (see the discussion of options for

first-time adoption in part 2.1.3 above), the Group has decided

to use estimates at the date of transition to determine the

amount of the dismantling assets, amounting to € 94 million.

The dismantling assets have the same estimated remaining

useful lives as the assets to which they relate.

property, plant and equipment – other

The other restatements related to property plant and equipment

reduced the carrying amount by € 4 million.

All the adjustments related to property, plant and equipment,

and in particular the restatement related to the start of

depreciation, result in an increase of the depreciation expense

when compared with Belgian GAAP, due to the increase of

the depreciable amount.

On an annual basis, this impact is however limited, considering

that the average residual useful life of these assets is relatively

long. Compared with Belgian GAAP, these restatements

decrease the profit of the period by € 56 million.

Intangible assets

In accordance with IFRS, intangible assets comprise the capacity

rights on power plants. These rights are subject to similar IFRS

adjustments as discussed for property, plant and equipment. The

adjustments resulted in an increase of equity by € 385 million

as at 1 January 2004, mainly due to the restatement for the

start of depreciation (€ 203 million), capitalisation of borrowing

costs (€ 146 million) and recognition of dismantling assets

(€ 41 million). Other elements that meet the definition of an

intangible asset under IAS 38 – Intangible assets are recognised

as an asset to the extent that it is probable that the expected

future economic benefits that are attributable to the asset

will flow to the entity. The retrospective application of this

principle leads to a net increase of € 7 million in intangible

assets in the opening balance sheet. This amount essentially

relates to development costs for software and renewable

energy certificates (so called ‘green certificates’).

When compared to the information presented in accordance

with Belgian GAAP, these adjustments result in a decrease of

the 2004 profit for an amount of € 29 million, mainly due

to the increased depreciation expenses and the recognition

of the value of the ‘green certificates’ in the 2004 financial

statements under Belgian GAAP. This positive impact on the

income statement under Belgian GAAP does not apply to the

financial statements under IFRS, since the ‘green certificates’

were already recognised in the opening IFRS balance sheet.

goodwill

In the Belgian GAAP financial statements, the Group recognised

goodwill in Euro. However, in accordance with IAS 21 – The

Effects of Changes in Foreign Exchange Rates, goodwill is from

now on expressed in the functional currency of the acquired

entity. The retrospective application of this restatement had

an impact of € -11 million on equity as at 1 January 2004.

In accordance with IFRS 3 – Business Combinations, goodwill

is no longer amortised but is tested annually for impairment.

An amount of € 54 million corresponding to the amortisation

expense of the goodwill of subsidiaries under Belgian GAAP

has therefore been adjusted against net profit of financial

year 2004.

Investments accounted for using the Equity method

The cost method selected by the Group for the measurement

of property, plant and equipment and intangible assets,

also applies to the financial statements used as the basis

for applying the Equity Method to investments in affiliates.

As a result, the assets of these entities mainly ESO/Elia and

the mixed intermunicipal distribution companies, are included

in the IFRS balance sheet at their historical acquisition cost

on the date that they were recognised by the Group, reduced

by accumulated depreciation. The resulting adjustment

to opening equity under IFRS of € -755 million has no impact

on the income statement.

The other adjustments of the value of the investments in

affiliates are similar to those applied to the Group and have

a negative impact of € 10 million on equity as at 1 January

2004.



provisions – pensions and similar obligations

The application of IAS 19 – Employee Benefits had an impact

of € -48 million on equity at the date of transition, for two

main reasons. First, the net accumulated actuarial gains and

losses as at 1 January 2004, which were not recognised in

the Belgian financial statements, have been recognised (see

the discussion of the options for first-time adoption of IFRS

in part 2.1.3. above). Secondly, additional provisions covering

the constructive obligation for the participation in the early

retirement expenses have been recognised in order to take into

account these benefits granted at the end of the employment

period.

provisions – dismantling

The Group recognizes provisions for the legal or constructive

obligations to dismantle power plants and to restore the sites.

Previously, such provisions were recognised progressively over

the useful life of the related assets. Under IFRS, the obligations

correspond to the present value of future dismantling costs.

The difference between the two methods resulted in a decrease

in equity of € 407 million as at 1 January 2004.

Under Belgian GAAP, the major part of this difference, being

€ 386 million, was recognised as an extraordinary expense in

the financial year 2004. The Follow-up Committee, set up in

accordance with the Law of 11 April 2003, has approved the

proposal to review the accounting policy related to dismantling

provisions for nuclear power plants. Since this method is in

accordance with IAS 37 – Provisions, Contingent Liabilities

and Contingent Assets, the amount of these provisions is

the same under both financial reporting standards as at

31 December 2004.

As explained above, dismantling assets are recognised in the

IFRS balance sheet under property, plant and equipment (power

plants owned) and intangible assets (capacity rights).

provisions – major repairs and maintenance

Provisions for major repairs and maintenance which are

recognised to account for periodical maintenance expenses

in accordance with Belgian GAAP are not allowed under IFRS.

As a result, these provisions were reversed in the opening IFRS

balance sheet for an amount of € 378 million.

As previously explained, under IFRS, this type of expense is

treated as a ‘major repairs’ component of property, plant

and equipment.

provisions – other

The Group reviewed all its existing provisions in accordance

with IAS 37 – Provisions, Contingent Liabilities and Contingent

Assets. This analysis resulted in a reversal of provisions

recognised under Belgian GAAP for € 45 million at the date

of transition to IFRS.

provisions


Pensions and similar obligations -48 -8 - -56

Dismantling -407 393 15 1

Major repairs and maintenance 378 -26 4 356

Other 45 -7 -2 36

totAl -32 352 17 337

Right to use asset

The analysis performed in relation to the application of

IFRIC 4 – Determining whether an arrangement contains a

lease resulted in transfer of certain items of property, plant

and equipment to financial assets. These reclassifications

relate to sales contracts that do not take the legal form of

a lease, but convey an exclusive right to use a production

asset to the buyer of energy, such that these contracts should

be treated as finance leases and recognised in accordance

with the related accounting principles. Property, plant and

equipment that was reclassified in this context amounts to

€ 73 million, while the related financial asset that represents

the financing by the Group, if it is considered to be the lessor

in a finance lease-arrangement with its clients, amounts to

€ 95 million. The net positive impact of these two elements

on the equity as at 1 January 2004 is € 22 million (€ 28 million

on 31 December 2004).



other assets and other liabilities

The adjustments of other assets and other liabilities mainly

relate to the review of the recognition criteria for grants

relating to operations. Under Belgian GAAP, such income is

recognised on a contractual basis, according to the scheduled

payment terms. In accordance with IAS 20 – Accounting for

Government Grants and Disclosure of Government Assistance,

these grants related to income are recognised as income in

the reporting period in which the expenses they are intended

to compensate are occurred. As a consequence, part of these

grants was deferred resulting in the recognition of a liability

for an amount of € 135 million, while the amount still to be

received was recognised as a receivable for an amount of

€ 52 million. The net impact of these two elements on equity

as at 1 January 2004 amounts thus to € -83 million.

deferred taxes

In accordance with IAS 12 – Income Taxes, deferred taxes

are recognised for all temporary differences between the

carrying amount of an asset or liability in the balance sheet

and its tax base.

The deferred tax effect on the various adjustments explained

above resulted in a decrease of the deferred tax assets by

€ 152 million and in the recognition of a deferred tax liability

of € 14 million. The net impact on equity amounts thus to

€ -166 million.

dividends

In accordance with IFRS, and in particular with IAS 10 – Events

after the Balance Sheet Date, dividends are recognised only

when they are approved by the Shareholders’ Meeting,

as opposed to Belgian GAAP, which requires the recognition

of dividends as a liability at the balance sheet date.

As a result, the adoption of IFRS results in the reincorporation

in equity of the amount intended for distribution of

€ 821 million as at 1 January 2004 and € 865 million as at

31 December 2004.

2.1.5 IfRS presentation adjustments

Apart from the impact of the changes in accounting policy on

equity and on net profit described above, the transition to IFRS

also results in presentation differences in the balance sheet and

the income statement. In order to understand these differences,

an opening and closing balance sheet for 2004 financial year

as well as a comparative income statement between Belgian

GAAP and IFRS are presented hereafter. The most significant

items are commented in the following pages.

Items presented in the balance sheet and the income

statement were chosen so as to simplify the comparison

between the two accounting systems.



Consolidated balance sheet as at 1 January 2004 – € million

Assets

Belgian gAAp IfRS

fIxEd ASSEtS 12 289 13 713 NoN-CuRRENt ASSEtSTangible assets 4 666 5 593 Property, plant and equipment

Formation expenses and intangible assets 90 809 Intangible assets

Goodwill 1 474 1 350 Goodwill

Financial assets

Enterprises accounted for using the Equity Method – Participating interests 3 736 2 486

Investments accounted for using the Equity Method

Enterprises accounted for using the Equity Method – Amounts receivable 1 132 241 Available-for-sale investments

Other enterprises - Participating interests, holdings and shares 246 3 001 Borrowings and liabilities at amortised cost

43 Other non-current assets

Other enterprises – Amounts receivable 945 190 Deferred tax assets

CuRRENt ASSEtS 10 951 9 391 CuRRENt ASSEtS

Amounts receivable after more than one year 471

Stocks and contracts in progress 576 495 Inventories

Amounts receivable within one year 3 047 2 341 Trade receivables and related items

111 Loans and receivables at amortised cost

388 Available-for-sale investments

Short- term Investments 5 219 5 008 Cash and cash equivalents

Cash at bank and in hand 177

Deferred charges and accrued income 1 461 1 048 Other current assets

totAl ASSEtS 23 240 23 104 totAl ASSEtS

Equity and liabilities

Belgian gAAp IfRS

CApItAl ANd mINoRIty INtEREStS 7 025 7 845 EquIty

Equity attributable to equity holders of the parent 5 179 2 066 Share capital

(of which share capital 2 066) 3 923 Reserves and retained earnings

Minority interest 1 846 1 856 Minority interest

pRovISIoNS, dEfERREd tAxES ANd futuRE tAxAtIoN 5 579 8 786 NoN-CuRRENt lIABIlItIES

Provisions – Other risks and charges 4 112 4 317 Provisions

Provisions – Major repairs and maintenance 384

Provisions - Pensions and similar obligations 1 021 2 186 Pensions and similar liabilities

Deferred taxes and future taxation 62 94 Deferred tax liabilities

CREdItoRS 10 636

Amounts payable after one year 1 206 1 295 Financial liabilities

Other liabilities payable after one year 87 894 Other non-current liabilities

6 473 CuRRENt lIABIlItIES

434 Provisions

Financial debt payable after one year 2 767 2 701 Financial liabilities

Trade debts 2 156 2 160 Trade payables and related items

Advances received on contracts in progress 1 316

Taxes 163 166 Current tax payable

Remuneration and social security costs 177

Other liabilities 1 082 1 012 Other current liabilities

Accrued charges and deferred income 1 682

totAl lIABIlItIES 23 240 23 104 totAl EquIty ANd lIABIlItIES



Consolidated balance sheet as at 31 december 2004 – € million

Assets

Belgian gAAp IfRS

fIxEd ASSEtS 12 119 13 038 NoN-CuRRENt ASSEtS

Tangible assets 4 767 5 645 Property, plant and equipment

Formation expenses and intangible assets 136 819 Intangible assets

Goodwill 1 383 1 310 Goodwill

Financial assets

Enterprises accounted for using the Equity Method – Participating interests 3 362 2 141

Investments accounted for using the Equity Method

Enterprises accounted for using the Equity Method – Amounts receivable 1 672 283 Available-for-sale investments

Other enterprises – Participating interests, holdings and shares 269 1 592 Loans and receivables at amortised cost

1 095 Other non-current assets

Other enterprises – Amounts receivable 530 153 Deferred tax assets

CuRRENt ASSEtS 10 376 9 102 CuRRENt ASSEtS

Amounts receivable after more than one year 386

Stocks and contracts in progress 548 512 Inventories

Amounts receivable within one year 3 234 2 573 Trade receivables and related items

235 Loans and receivables at amortised cost

5 Available-for-sale investments

Short-term investments 4 484 4 711 Cash and cash equivalents

Cash at bank and in hand 231

Deferred charges and accrued income 1 493 1 066 Other current assets

totAl ASSEtS 22 495 22 140 totAl ASSEtS

Equity and liabilities

Belgian gAAp IfRS

CApItAl ANd mINoRIty INtEREStS 6 789 7 950 EquIty

Equity attributable to equity holders of the parent 5 282 2 073 Share capital

(of which share capital 2 073) 4 360 Reserves and retained earnings

Minority interest 1 507 1 517 Minority interest

pRovISIoN, dEfERREd tAxES ANd futuRE tAxAtIoN 5 951 8 907 NoN-CuRRENt lIABIlItIES

Provisions – Other risks and charges 4 616 4 468 Provisions

Provisions – Major repairs and maintenance 360

Provisions - Pensions and similar obligations 868 1 863 Pensions and similar liabilities

Deferred taxes and future taxation 107 178 Deferred tax liabilities

CREdItoRS 9 755

Amounts payable after one year 1 446 1 446 Financial liabilities

Other liabilities payable after one year 101 952 Other non-current liabilities

5 283 CuRRENt lIABIlItIES

386 Provisions

Financial debt payable after one year 1 277 1 286 Financial liabilities

Trade debts 2 197 2 202 Trade payables and related items

Advances received on contracts in progress 1 304

Taxes 130 120 Current tax payable

Remuneration and social security costs 203

Other liabilities 1 447 1 289 Other current liabilities

Accrued charges and deferred income 1 650

totAl lIABIlItIES 22 495 22 140 totAl EquIty ANd lIABIlItIES



Income statement for the period 2004 – € million

Belgian gAAp IfRSTurnover 12 458 12 019 Operating revenue

Supplies and goods -7 547 -7 072 Supplies and goods

Services and other goods, payroll, other operating charges (1) -3 277 -3 256

Employee benefits and other operating expenses

Depreciation, amounts written off and provisions (2) -720 -248 Depreciation, amortisation and provisions

1 443 Result of operations

12 Result of impairment testing

-11 Restructurings

125 Disposal of assets

operating profit 914 1 569 operating result

Financial income 686 -41 Finance costs

Financial charges -265 -136 Other financial expenses and income

profit on ordinary activities before income taxes of the consolidated enterprises 421 -177 financial result

Share in the result of the enterprises accounted for using the Equity Method 108 259

Share of profit of investments accounted for using the Equity Method

Extraordinary income 743

Extraordinary charges -664

Share in the extraordinary result of enterprises accounted for using the Equity Method -157

profit before income taxes 1 365 1 651 profit before tax

Income taxes -306 -347 Income tax expense

Consolidated profit 1 059 1 304 profit for the period

Share of minority interests in the result 114 115 Attributable to minority interest

Share of the Group in the result 945 1 189 Attributable to equity holders of the parent

To ease the comparison with the IFRS presentation, the following captions have been gathered:

(1) Services and other goods -1 704

Remuneration, social security costs and pensions -1 395

Other operating charges -178

-3 277

(2) Depreciation and amounts written off -434

Amounts of write down of stocks, receivables… -87

Provisions for liabilities and charges -199

-720



Explanatory notes – Assets


measurement adjustments (for reference)

In € million 01.01.2004 31.12.2004

640 582

presentation adjustments

The capacity rights, which are included in property, plant and

equipment in the financial statements prepared under Belgian

GAAP for an amount of € 335 million as at 1 January 2004

(€ 325 million as at 31 December 2004), meet the definition

of an intangible asset in accordance with IAS 38 – Intangible

assets. As a result, these rights are classified as intangible

assets under IFRS (see below).

The analysis performed in relation to the application of IFRIC 4

– Determining whether an arrangement contains a lease

resulted in transfer of certain items of property, plant and

equipment to financial assets. Property, plant and equipment

that were reclassified in this context amounts to € 73 million

on the 1st of January 2004 (€ 62 million on 31 December

2004).

In the context of the same analysis, the Group has

recognised intangible assets for an amount of € 702 million

in relation to a contract for the purchase of energy from

Société Hydroélectrique du Midi (SHEM). This contract

conveys a right to use the production asset of SHEM for

the benefit of Electrabel. In relation to this asset, a other

non-current liability of € 421 million and a other current

liability of € 281 million were recognised (see below).

These reclassifications had no impact on equity. This entity

is part of the scope of consolidation as of January 2005.

Intangible assets


In € million 01.01.2004 31.12.2004

392 363


Under IFRS, intangible assets include the capacity rights related

to power plants. In the Belgian GAAP financial statements,

these rights are included in tangible assets for € 335 million

as at 1 January 2004 (€ 325 million as at 31 December 2004)

(see above) and in receivables for € 25 million as at 1 January

2004 (€ 19 million as at 31 December 2004) (see below).

Under IFRS, third party contributions related to the acquisition

or construction of property, plant and equipment or intangible

assets are deducted from the assets to which they relate

(€ 35 million as at 1 January 2004 and € 34 million as at

31 December 2004). In the Belgian GAAP financial statements,

such contributions are recognised in deferred income (see

below).

goodwill


In € million 01.01.2004 31.12.2004

-11 49


Under IFRS, goodwill on investments accounted for using the

Equity Method is included in the value of the investment (see

below) for an amount of € 114 million as at 1 January 2004

and € 120 million as at 31 December 2004.





In € million 01.01.2004 31.12.2004

-765 -740


In the financial statements prepared in accordance with

Belgian GAAP, the revaluation of the transmission network

(€ 1 089 million), due to the restructuring and refinancing

of these activities, is included in deferred income (see

below). Under IFRS, this amount is deducted from the value

of the investment accounted for using the Equity Method

for € 601 million and from non-current receivables for

€ 488 million (see below).

However, unlike Belgian GAAP, goodwill on associates

is presented as part of the investment in associates for

€ 114 million as at 1 January 2004 and € 120 million as at

31 December 2004 (see above).

Available-for-sale investments

This item is similar, without major difference to the Belgian

caption named ‘Participating interests, holdings and shares’

in other enterprises.

loans, receivables and other non-current assets


Receivables from investments accounted for using the Equity

Method and from other enterprises, respectively € 1 132 million

and € 945 million as at 1 January 2004 (€ 1 672 million and

€ 530 million as at 31 December 2004), are included under

IFRS in non-current or current receivables (i.e. € 289 million

reclassified as current as at 31 December 2004; see below)

depending on their maturity. In the IFRS opening and closing

balance sheets, these amounts are decreased by € 488 million,

being a part of the revaluation of the transmission network

due to the restructuring and refinancing of these activities.

In addition, non-current receivables are increased by Electrabel’s

right to claim the reimbursement of the expenses related

to pension and similar benefits for the Belgian distribution

personnel, amounting to € 1 230 million as at 1 January 2004

and € 1 059 million as at 31 December 2004 (see below).

Part of this right is included in current receivables (see below).

Under Belgian GAAP, this right is offset against the related

provision.

However, note that part of non-current receivables classified as

current assets according to Belgian GAAP, i.e. € 149 million as

at 1 January 2004 and € 76 million as at 31 December 2004,

is included in non-current receivables under IFRS.

The financial liabilities that are recognised because the Group

is considered to be a lessor in a lease-arrangement with its

clients in accordance with IFRIC 4, amounts to € 95 million as

at 1 January 2004 (€ 90 million as at 31 December 2004).

Other presentation differences are minor and mainly relate to

capacity rights of power plants transferred to intangible assets

under IFRS and to prepayments and deferred income.

deferred tax assets


In € million 01.01.2004 31.12.2004

-166 -234

The above mentioned adjustment relates to a decrease of

deferred tax assets for an amount of € 152 million as at

1 January 2004 (€ 173 million as at 31 December 2004)

and to an increase of deferred tax liabilities for an amount

of € 14 million as at 1 January 2004 (€ 61 million as at

31 December 2004).


In the financial statements published under Belgian GAAP,

deferred taxes are included in current assets under ‘Amounts

receivable after more than one year’ for an amount of

€ 322 million as at 1 January 2004 (€ 310 million as at

31 December 2004).

Inventories


The difference between inventory and related accounts in

accordance with Belgian GAAP and inventory and related

accounts in accordance with IFRS is explained by the

reclassification of elements for which the risks are not assumed

by Electrabel, to trade receivables.



Current loans and receivables


The amounts recognised under this heading in the IFRS

financial statements should be compared to ‘Amounts

receivable within one year’ in the Belgian GAAP accounts.

The decrease of € 595 million as at 1 January 2004

(€ -426 million as at 31 December 2004) is mainly explained

by the impact of the following elements: the reclassification

from non-trade receivables to other current assets for an

amount of € 938 million (see below), the reclassification

of elements included in inventory for € 81 million (see above),

the recognition of a government grant receivable for an

amount of € 52 million (see above) and the reclassification

of interests earned but not due, included in accrued income

under Belgian GAAP for € 31 million. As at 31 December

2004, these elements respectively amount to € 954 million,

€ 36 million, € 17 million and € 21 million.

In addition, receivables of € 166 million on affiliates are reported

as current receivables as at 1 January 2004 (€ 444 million as at

31 December 2004) because they are expected to be refunded

in the short term (see above).

Available-for-sale investments - cash and cash equivalents


The shares of the Group in Total as at 1st of January 2004

are classified in accordance with IFRS, as an available-for

sale investment (€ 388 million). This share was almost totally

disposed of during 2004, and was in the past classified as

short-term investment. With the exception of this transaction,

and taken into account that there is no change in scope of

consolidation, the heading ‘Cash and cash equivalents’ in IFRS

corresponds to the sum of short-term investments and cash

at bank and in hand in accordance with Belgian GAAP.

other current assets


This heading consists primary of non-trade receivables for an

amount of € 938 million as at 1 January 2004 and € 954 million

as at 31 December 2004, (see above). Except for this element,

this heading corresponds with the heading ‘deferred charges and

accrued income’ decreased by € 1 293 million on 1 January 2004

(€ 1 331 million as at 31 December 2004) related to the

value of energy delivered but not yet invoiced to customers

whose consumption is measured once a year (see below).

Under IFRS, this amount is offset against the advance payments

made by the customers to pay for this consumption. Under

Belgian GAAP, these advance payments are recognised as a

liability. The other elements explaining the difference relate

to reclassification to current receivables and non-current

receivables (see above).

Explanatory notes – Equity

Capital and reserves – group share

The share of the Group in all the adjustments resulting from

the change of GAAP is recognised in reserves, which increases

by € 810 million as at 1 January 2004 and by € 1 151 million

as at 31 December 2004. These adjustments are explained in

part 2.1.4 ‘IFRS measurement adjustments’. It is convenient

to remind that, in accordance with IFRS, dividends are only

recognised after approval by the Shareholders’ Meeting.

As a result, the adoption of IFRS results in the reincorporation

in equity of the amount intended for distribution of

€ 821 million as at 1 January 2004 and € 865 million as

at 31 December 2004.

minority interests

Under IFRS, minority interests are part of equity. Minority

interests increase by € 10 million as at 1 January 2004 and

31 December 2004, as a result of the adjustments arising

from the adoption of IFRS.

Explanatory notes - liabilities

provisions


In € million 01.01.2004 31.12.2004

16 (*) 393 (*)

(*) Excluding pensions and similar benefits.


IFRS requires a distinction between non-current provisions

(more than one year) and current provisions (within one year).

This results in a transfer to current provisions for an amount

of € 158 million as at 1 January 2004 and for an amount of

€ 114 million as at 31 December 2004.



pensions and similar benefits


In € million 01.01.2004 31.12.2004

-48 -56


The application of the requirements of IAS 19 – Employee

Benefits with respect to the presentation of ‘plan assets and

liabilities’ resulted in a change in presentation of certain

pension and similar obligations in the balance sheet.

In the Belgian GAAP balance sheet, pension obligations

related to the distribution personnel are presented net of

the Electrabel’s right to receive the reimbursement of these

expenses from the intermunicipal distribution companies to

which all employee benefits related to the distribution activity

are invoiced. In the IFRS balance sheet, the total pension

obligation incurred by Electrabel is presented as a liability, and

a receivable of the same amount is recognised as an asset

on the balance sheet. These elements amount to € 1 396

million and € 1 214 million respectively at the opening and

the closing balance sheet date.

These presentation adjustments have no effect on equity as at

1 January 2004. Neither do they have an effect on the future

profit or loss since reimbursement rights are, in this respect,

treated as plan assets.

In addition, assets held by pension funds and insurance

companies are, according to IAS 19, deducted from the

pension obligations and recognised as a liability. A similar

treatment was already applied in the financial statements

prepared under Belgian GAAP.

Under IFRS, the current portion (within one year) of the

provision for pensions and similar benefits is included in current

liabilities for an amount of € 276 million as at 1 January 2004

and € 272 million as at 31 December 2004.

deferred tax liabilities


In € million 01.01.2004 31.12.2004

-166 -234

The above mentioned adjustment relates to a decrease of

deferred tax assets for an amount of € 152 million as at


and to an increase of deferred tax liabilities for an amount

of € 14 million as at 1 January 2004 (€ 61 million as at

31 December 2004).


Presentation adjustments on deferred tax liabilities are not

significant.

Non-current financial liabilities


Under IFRS, non-current financial liabilities include credit

facilities which are contractually renewable at the sole

discretion of the Group for € 89 million as at 1 January 2004

(see below). As at 31 December 2004, a similar treatment is

applied in the financial statements under Belgian GAAP.

other non-current liabilities


In € million 01.01.2004 31.12.2004

-81 -89

This adjustment mainly relates to the review of the recognition

criteria related to grants relating to operations. The adjustment

leads to the recognition of a liability of € 135 million as at


and of a receivable of € 52 million as at 1 January 2004

(€ 17 million as at 31 December 2004). The net impact of

these two elements on equity amounts to € -83 million as

at 1 January 2004.


In addition to the other amounts payable after more than

one year in the Belgian GAAP reporting, this heading includes

various elements of accruals and deferred income for a total

amount of € 250 million as at 1 January 2004 and € 207 million



as at 31 December 2004 (see below), as well as an amount

of € 99 million reported under the other amounts payable

within one year in the Belgian GAAP financial statements

issued on 31 December 2004 (see below).

In the context of the early adoption of IFRIC 4 – Determining

whether an arrangement contains a lease, a liability on fixed

assets was recognised for an amount of € 702 million, of which

€ 421 million was classified as other non-current liabilities, and

the remaining balance was classified as other current liabilities.

These liabilities result from the early adoption of IFRIC 4, which

required the Group to recognise in the consolidated balance

sheet, the production assets of SHEM. This element has no

impact on equity.

Current financial liabilities


Current financial liabilities are similar to financial debts payable

within one year, increased by interest due but not yet paid,

included in accruals under Belgian GAAP for € 23 million as

at 1 January 2004 and € 19 million as at 31 December 2004

(see below) and decreased by credit facilities renewable at the

sole discretion of the Group, i.e. € 89 million as at 1 January

2004 (see above).

trade liabilities and related items


The amount included under IFRS in this caption needs to be

compared with the following captions under Belgian GAAP:

trade payables, advances received on contracts in progress, and

taxes. The main adjustment relates to the presentation on a

net basis of delivered energy and advances received, resulting

in a decrease of advances received on contracts in progress by

€ 1 314 million as at 1 January 2004 and by € 1 299 million

as at 31 December 2004 (see above). In addition, an amount

of € 99 million has been reclassified to other non-current

liabilities in the IFRS financial statements as at 31 December

2004 (see above).

The remaining balance of presentation adjustments mainly

relates to reclassifications to other current liabilities (see

below).

other current liabilities


In € million 01.01.2004 31.12.2004

821 865


This caption should be compared with the following captions

under Belgian GAAP: payroll and social security, other amount

payable, accruals, and deferred income, decreased by € 1 089

million being the revaluation of the transmission network due

to the restructuring and refinancing of these activities, which

is deducted from the investment under the Equity Method for

€ 601 million (see above) and from non-current receivables

for € 488 million (see above).

In addition, note the following presentation adjustments:

various reclassifications to other non-current liabilities for

€ 250 million (see above), reclassification of interests due but

not yet paid to current financial liabilities for € 23 million

(see above) and presentation of third party contributions

received for the acquisition or construction of property, plant

and equipment or intangible assets by deducting it from the

assets to which it relates for € 35 million. As at 31 December

2004, these elements respectively amount to € 207 million,

€ 19 million and € 34 million.

In the context of the early adoption of IFRIC 4, a liability on

assets was recognised for an amount of € 702 million, of

which € 281 million was classified as other current liabilities

(the remaining balance was classified as other non-current

liabilities, see above).

The remaining balance of presentation adjustments mainly

relates to reclassifications of amounts reported as other

amounts payable under Belgian GAAP (see above).

Explanatory notes – Income statement

The consolidated profit for financial year 2004 is € 1 304

million (Group share € 1 189 million and minority interests

€ 115 million) under IFRS compared to € 1 059 million (Group

share € 945 million and minority interests € 114 million) in the

Belgian GAAP financial statements. The positive difference

of € 245 million is due to the recognition and measurement

differences of assets and liabilities described above.



As a reminder, the reconciliation presented in part 2.1.4 of this

document also explains the IFRS adjustments on the profit for

the period based on the balance sheet items giving raise to the

differences. The most significant adjustments are summarised

in the following paragraphs and presented based on the type

of gain or loss that they affect.

In addition, the income statement prepared under IFRS is

different from the Belgian GAAP income statement as a result

of presentation adjustments, the most significant are also

described below.

Revenue and other operating income

measurement adjustments

Revenue and other operating income under IFRS decreases

compared with operating income reported under Belgian

GAAP by an amount of € 29 million. The major part of this

difference is due to the review of the recognition period of

income from grants related to operations (see above).


Under IFRS, revenue and other operating income decline in

relation to operating income reported under Belgian GAAP,

mainly as a result of the application of IAS 18 – Revenue

which leads to the offset, for an amount of € 574 million,

of some energy sales transactions with the related purchases

(trading activities).

This decrease of revenue and other operating income is partially

compensated by the recognition under IFRS of items presented

as exceptional income under Belgian GAAP for an amount

of € 207 million.

Supplies and goods, employee benefits and other operating costs


The most significant difference between the two sets of GAAP

relates to the capitalisation of ‘major repairs and maintenance’

expenditure under IFRS for an amount of € 45 million.


The main adjustment compared with Belgian GAAP is due

to the offsetting of trading activities described above for an

amount of € 574 million. Other presentation differences mainly

relate to items considered as having an exceptional nature

for Belgian GAAP purposes.

depreciation, amortisation and provisions


The depreciation / amortisation expense recognised under

IFRS in 2004 on property, plant and equipment and intangible

assets increases by € 113 million compared to the equivalent

expense recognised under Belgian GAAP. In addition to the

application of the component approach, this increase is due

to a higher depreciable amount, mainly as a consequence

of the restatement linked to the review of the start of the

depreciation period.

Conversely, goodwill is not longer amortised, thus generating a

positive effect of € 60 million corresponding to the amortisation

expense recognised on goodwill under Belgian GAAP for

entities under control or investments accounted for using the

Equity Method. The impairment tests performed on goodwill

in accordance with IAS 36 – Impairment of Assets indicate

that no impairment loss should be recognised as at 1 January

2004 and 31 December 2004.

The net amounts of provisions recognised under Belgian

GAAP that are not allowed under IFRS generate revenues

of € 37 million, the amount mainly relates to provisions for

major repairs and maintenance.


Provision expenses are significantly lower under IFRS because

expenses relating to the annual interest expense on discounted

long term provisions (dismantling, site restoration and

downstream activities) are presented as finance costs under

IAS 37 – Provisions, Contingent Liabilities and Contingent

Assets, whereas such expenses are presented in the operating

result under Belgian GAAP for an amount of € 210 million

(see below).

Similarly and according to IAS 19 – Employee Benefits, interest

expenses on pensions and similar benefits, as well as finance

income in relation to the expected return on plan assets,

are presented as financial result. Under Belgian GAAP, these

items are included in the provision caption for an amount of

€ 46 million (see below).

The other differences mainly relate to amounts presented as

exceptional items under Belgian GAAP.



gain or loss on disposals of assets


This caption mainly represents the gain or loss on the disposal

of investments recognised as exceptional gain or loss in the

Belgian GAAP financial statements.

financial result


The finance costs, as presented under IFRS, include interest

charges relating to current and non-current financial liabilities,

decreased by interest income generated by cash and cash

equivalents.

The significant decrease of the net financial result by an amount

of € 598 million is due to items unrelated to indebtedness.

The change is the consequence of two elements. On the

one hand, the share of the operating result of intermunicipal

companies (€ 340 million) is presented as financial income

in the Belgian GAAP reporting, whereas it is included in the

share of profit of associates under IFRS (see below).

On the other hand, expenses relating to the annual interest

expense on discounted long term provisions (pensions and

similar benefits, dismantling, site restoration and downstream

activities) are reclassified as finance costs under IFRS for an

amount of € 256 million (see above).

Share of profit of associates


The impact of measurement adjustments on the share of

profit of associates is marginal.


Under IFRS, the share of profit of associates is presented as a

separate line on the face of the income statement, whereas

this item is split into various income statement captions for

Belgian GAAP purposes: financial income for the share of

result of intermunicipal companies (€ 340 million; see above),

pre-tax profit for the share of pre-tax operating result from

Equity Method companies other than intermunicipal companies

(€ 108 million), exceptional result (€ -157 million) and taxes

(€ -31 million).

Income taxes


According to IAS 12 – Income Taxes, income taxes include the

effects of changes in deferred taxes arising from temporary

differences between the carrying amount of assets and liabilities

recognised under IFRS and their tax basis. The consistent review

of these differences has generated a deferred tax expense

of € 68 million.


The presentation adjustments, i.e. a decrease in the income

taxes expense of € 31 million, mainly relate to the share of

income taxes of companies accounted for using the Equity

Method (see above).

Exceptional gain/(loss)


In Belgian GAAP reporting, an exceptional expense of

€ 386 million is recognised in 2004 as a consequence of the

change of accounting policy related to dismantling provisions

for nuclear power plants (see above). Considering that this

revised policy in Belgian GAAP was in line with IAS 37

– Provisions, Contingent Liabilities and Contingent Assets in

financial year 2004 by means of recognition of an exceptional

expense, this expense has no equivalent in the IFRS income

statement as it appears in the opening IFRS balance sheet as

at 1 January 2004.


According to IAS 1 – Presentation of Financial Statements,

the separate presentation of income and expenses that

are considered to be exceptional in nature is not allowed.

Therefore, income and expenses reported as exceptional under

Belgian GAAP are reclassified based on their nature under

IFRS, i.e. as operating or financial income and expenses as

commented above in this document.



2.2 first application of IAS 32-39 – 1 January 2005

2.2.1 Context

The quantified information presented in the aforementioned

document does not yet incorporate the IFRS guidance for

financial instruments, IAS 32 – Financial Instruments:

Disclosure and Presentation and IAS 39 – Financial Instruments:

Recognition and Measurement. The Group has elected to use

the exemption offered by IFRS 1 – First-time adoption of IFRS

to apply these standards as from 1 January 2005, without

restating the comparative information.

The impact of the first-time application of IAS 32 and IAS 39

is recognised in the opening equity of the Group at 1 January

2005.

The purpose of the information presented in this document

is to explain the impact of the first-time adoption of the

standards relating to financial instruments, on the Group’s

equity as at 1 January 2005 by means of a review of the

relevant figures and comments on the differences between

the Belgian accounting principles (‘Belgian GAAP’) and

International Financial Reporting Standards.

2.2.2 Scope of IAS 32-39

IAS 32 contains the requirements for the presentation of

financial instruments and particularly their classification as

financial assets, financial liabilities and equity instruments.

This standard also provides disclosure requirements in respect

of these instruments.

IAS 39 contains the principles for recognition and measurement

of financial assets, financial liabilities and certain contracts to

buy or sell non-financial items.

The scope of IAS 39 is broad and first-time application of

this standard has led to restatements that essentially have an

impact on the treatment of non-consolidated investments,

derivative instruments contracted within the context of the

net indebtedness management and the working capital

requirements of the Group, but also on certain energy and

commodity contracts.

2.2.3 Summary of restatements by nature

The first-time application of IAS 32 and IAS 39 on 1 January

2005 increases the equity of the Group by € 66 million (Group

share € 68 million). Accordingly, the equity of the Group under

IFRS amounts to € 8 016 million on 1 January 2005 to be

compared with € 7 950 million on 31 December 2004.

The following table provides a breakdown of the € 66 million

impact according to the nature of the restatements:

In € million

translation difference

Recognised directly

in equityRetained earnings

Equity (group share)

minority interest

total equity

Securities and other available for sale investments - 60 4 64 - 64

Derivative instruments (commodity contracts excluded) 22 -29 -28 -35 -2 -37

Commodity contracts - 31 8 39 - 39

totAl 22 62 -16 68 -2 66



Explanatory notes

Securities and other available-for-sale-investment

The impact of the first-time application of IAS 39 to securities and other available-for-sale investments on the Group’s equity on

1 January 2005 is as follows:

In € million

Impact before deferred taxes deferred taxes

Net impact after deferred taxes

Fair value of securities and other available-for-sale investments 60 - 60

Direct recognition in Equity 60 - 60

Reversal of impairment loss on securities and other investments available-for-sale 5 -1 4

Recognition in retained earnings 5 -1 4

ImpACt oN EquIty 65 -1 64

Electrabel holds, either directly or through related companies

or affiliates, investments and equity instruments in non-

consolidated companies. These securities are designated as

‘available-for-sale financial assets’, which, in accordance with

IAS 39, are measured at fair value. Changes in the fair value

of these assets are recognised directly in a separate item of

equity until disposal of the instrument.

The restatement consisted of the revaluation of available-for-

sale financial assets, and of the recognition of the difference

between their market value and their net book value in the

financial statements recognised under Belgian GAAP. As, under

Belgian GAAP, these assets are carried at the lower of historical

book value and realisable value in the balance sheet, this

restatement results in a positive impact on equity.

Fair value is determined on the basis of the stock-market price

for securities held by the Group that are listed on an active

market. Major securities that were restated are Acea, Scottish

Power, Union Fenosa and Cegedel, which, together, resulted in

a positive adjustment of € 45 million as at 1 January 2005.

derivative instruments (excluding commodity contracts)

The adoption of IAS 39 principles to derivative instruments (excluding commodity contracts) has impacted Group equity as per

1 January 2005 as follows:

In € million


Impact net of deferred taxes

Interest rate hedges -23 12 -11

Net investment hedges on foreign activities -25 8 -17

Other hedges -5 2 -3

Recognised directly in equity -53 22 -31

Recognised in translation differences 22 - 22

Forward exchange contracts -47 16 -31

Other derivative instruments 3 - 3

Recognised in retained earnings -44 16 -28

ImpACt oN EquIty -75 38 -37



IAS 39 applies to all cash and net indebtedness management

activities such that loans, borrowings and derivative instruments

linked thereto are within the scope of the standard.

Loans and borrowings are recognised and measured at

amortised cost using the effective interest method. The

objective of this method is to produce a constant rate of

interest over the term of the financing. Implementation of

the amortised cost has not led to restatements of the Group’s

financial statements in the context of the first time application

of IAS 39.

IFRSs require derivative instruments to be recognised in

the balance sheet at fair value. In accordance with the risk

management policy, particularly with respect to exchange rates

and interest rate fluctuations likely to have an impact on profits,

cash flows and net investments in foreign operations, the

Group entered into contracts that qualify as derivative financial

instruments. Under IFRS these instruments are measured at

fair value in the balance sheet.

IAS 39 requires changes in the fair value of derivative

instruments to be recognised in the income statement.

However, changes in the value of derivative instruments held

for the purpose of hedging future cash flows are recognised in

a separate component of equity. These changes are recognised

in profit and loss at the moment the hedged transactions affect

profit and loss. As a consequence, the volatility of the results

due to the changes in fair value of these instruments is limited,

provided that the hedge is effective, formally documented as

such and remains effective.

Interest rate hedging instruments mainly consist of interest rate

swaps (IRS), by means of which the Group fixes the interest

expense on borrowings entered into at floating rates.

The exchange rate hedging instruments with respect to foreign

operations (‘hedges of a net investment’) are intended to hedge

the exchange rate risk linked to the translation into Euro of

the net assets of the subsidiaries operating in Hungary (HUF)

and Poland (PLN). This type of hedge is achieved by means

of borrowings contracted in foreign currencies.

The Group entered into forward exchange rate contracts as

part of the overall management of commodity contracts,

mainly in USD. Since macro hedging transactions for foreign

currency risks are not permitted for the purposes of hedge

accounting under IFRS, the fair value of these exchange rate

positions has been recognised in retained earnings as at

1 January 2005.

Under Belgian GAAP, the financial instruments referred to

above were not carried at fair value in the balance sheet. They

were recognised in profit or loss at the moment the hedged

transaction was settled.



Energy and commodity contracts

As a result of the application of IAS 39 to commodity contracts, the equity of the Group on 1 January 2005 has been impacted

as follows:

In € million


Impact net of deferred taxes

Fair value of hedging instruments of

highly probable forecast cash flows 47 -16 31

Recognised directly in equity 47 -16 31

Fair value of contracts not fulfilling the criteria of own use 36 -13 23

Fair value of embedded derivatives -18 2 -16

Fair value of written options 1 - 1

Recognised in retained earnings 19 -11 8

ImpACt oN EquIty 66 -27 39

IAS 39 requires commodity contracts that do not meet the

‘own use’ criteria to be treated as derivative instruments and

recognised in the balance sheet at their fair value.

In order to meet the ‘own use’ criteria, the Group has to

demonstrate that the commodity contract was entered into, and

continues to be held, for the purpose of the entity’s expected

usage requirements, that this contract is not exchangeable

with other commodity contracts or other financial instruments,

and that physical delivery of the underlying commodity in the

contract will ultimately take place.

Although most of the commodity contracts entered into by

the Group meet these criteria, some of them do not, either

because they were not entered into with the ultimate goal

of a physical delivery or because these contracts are part of

the transactions carried out within the context of the policy

of economic optimisation or arbitrage (trading activities), or

because the contracts are, in substance and in accordance with

IFRSs, economic sales of options (‘Virtual Power Plants’).

Furthermore, certain commodity contracts entered into by

the Group do meet the ‘own use’ criteria but nonetheless

require to be recognised in the balance sheet partly, if not

completely, at fair value because they contain embedded

derivatives that, on the date the commodities contract was

entered into, presented economic characteristics and risks

that were not clearly and closely related to the economic

characteristics and risks of the host contract containing the

embedded derivative.

Changes in the fair value of derivative instruments are

recognised in profit or loss. However, changes in the value

of derivative instruments related to the hedging of future

cash flows linked to a highly probable forecast transaction are

recognised as a separate component of equity. These changes

in fair value are transferred to profit or loss only when the

hedged transactions have an impact on the income statement.

The volatility in the profit and loss as a result of the change in

fair value is thereby limited provided the hedge is effective,

formally documented as such and remains effective.

The fair value of commodity contracts is determined by

calculating the discounted value of the difference between

the contract prices and the corresponding forward price curve.

Forward price curves used in determining the fair value of

commodity contracts are the public quoted prices on active

markets or, if unavailable, based from other external sources

such as broker quotations. When fair value of non-quoted

instruments is determined by using appropriate valuation

models, these latter are significantly supported by market

data such as prices of underlying commodities.

Belgian GAAP does not allow the recognition of commodity

contracts at fair value, for the full amount or partially, except

for particular situations arising from the application of the

prudence principle.



2.3 Additional restatements and reclassifications since the publication of the note published in 2005 –‘transition to IfRS – financial year 2004’

As discussed above, the Group has published a first note on the transition to IFRS in 2005 titled ‘Transition to IFRS – Financial year

2004’. To comply with the evolution of IFRS in 2005, certain restatements and reclassifications between balance sheet elements

had to be implemented. The changes are detailed below:

Consolidated balance sheet at 1 January 2004

AssetsIn € million

IfRS 01.01.2004 (published)

Restatements Reclassifications

IfRS 01.01.2004 (revised)

NoN-CuRRENt ASSEtS 12 970 743 13 713

Property, plant and equipment 4 964 629 5 593 (1)

Intangible assets 809 - 809

Goodwill 1 350 - 1 350

Investments accounted for using the Equity Method 2 486 - 2 486

Available-for-sale investments 241 - 241

Loans and receivables at amortised cost 2 949 52 3 001 (1) (3)

Other non-current assets - 43 43 (3)

Deferred tax assets 171 19 190 (1)

CuRRENt ASSEtS 9 391 - 9 391

Inventory 495 - 495

Trade receivables and related accounts 3 405 -1 064 2 341 (4)

Loans and receivables at amortised cost - 111 111 (4)

Available-for-sale investments - 388 388 (2)

Cash and cash equivalents 5 396 -388 5 008 (2)

Other current assets 95 953 1 048 (4)

totAl ASSEtS 22 361 743 23 104

Equity and liabilitiesIn € million




EquIty 7 830 15 7 845

Capital 2 066 - 2 066

Reserves and retained earnings 3 908 15 3 923 (1)

Minority interest 1 856 - 1 856

NoN-CuRRENt lIABIlItIES 8 339 447 8 786

Provisions 4 317 - 4 317

Pensions and similar obligations 2 186 - 2 186

Deferred tax liabilities 68 26 94 (1)

Financial liabilities 1 295 - 1 295

Other non-current liabilities 473 421 894 (1)

CuRRENt lIABIlItIES 6 192 281 6 473

Provisions 434 - 434


Trade payables and related accounts 2 773 -613 2 160 (5)

Tax liabilities - 166 166

Other current liabilities 284 728 1 012 (1) (5)

totAl EquIty ANd lIABIlItIES 22 361 743 23 104



Consolidated balance sheet at 31 december 2004

AssetsIn € million




NoN-CuRRENt ASSEtS 12 291 747 13 038

Property, plant and equipment 5 005 640 5 645 (1)


Goodwill 1 310 - 1 310

Investments accounted for using the Equity Method 2 141 - 2 141

Available-for-sale investments 283 - 283

Loans and receivables at amortised cost 2 596 -1 004 1 592 (1) (3)

Other non-current assets - 1 095 1 095 (3)

Deferred tax assets 137 16 153 (1)

CuRRENt ASSEtS 9 102 - 9 102

Inventories 512 - 512

Trade receivables and related accounts 3 766 -1 193 2 573 (4)

Loans and receivables at amortised cost - 235 235 (4)

Available-for-sale investments - 5 5 (2)

Cash and cash equivalents 4 716 -5 4 711 (2)

Other current assets 108 958 1 066 (4)

totAl ASSEtS 21 393 747 22 140

Equity and liabilitiesIn € million




EquIty 7 930 20 7 950

Capital 2 073 - 2 073

Reserves and retained earnings 4 340 20 4 360 (1)

Minority interest 1 517 - 1 517

NoN-CuRRENt lIABIlItIES 8 461 446 8 907

Provisions 4 468 - 4 468

Pensions and similar obligations 1 863 - 1 863

Deferred tax liabilities 153 25 178 (1)


Other non-current liabilities 531 421 952 (1)

CuRRENt lIABIlItIES 5 002 281 5 283

Provisions 386 - 386


Trade payables and related accounts 3 037 -835 2 202 (5)

Tax liabilities - 120 120 (5)

Other current liabilities 293 996 1 289 (1) (5)

totAl EquIty ANd lIABIlItIES 21 393 747 22 140



(1) Recognition of the impact of the early adoption of IFRIC 4:

a. Contracts where Electrabel is the lessor

recognition of financial liabilities for an amount of

€ 95 million on the 1st of January 2004 (€ 91 million

on 31st of December 2004) and deferred tax liabilities

for € 26 million on the 1st of January 2004 (€ 25 million

on 31st of December 2004);

derecognition of the net book value of the related assets

for an amount of € 73 million on the 1st of January 2004 and

€ 62 million on 31st of December 2004 as well as the

recognition of deferred tax assets for € 19 million on the

1st of January 2004 (€ 16 million on 31st of December 2004).

The net increase of equity due to these two elements on

equity on the 1st of January 2004 is equal to € 15 million

(€ 20 million on 31st of December 2004).

b. Contracts where Electrabel is the lessee

In the context of the same review related to application of

IFRIC 4, the Group has recognised an amount of € 702 million

as property plant and equipment due to an energy purchase

contract that it agreed with the Société Hydroélectrique du

Midi (SHEM). The contract transfers the exclusive right of

use of the production assets of SHEM to Electrabel. At the

same time Electrabel has recognised a liability of € 421 million

as other non-current liabilities and a liability of € 281 million

as other current liabilities. There is no impact on equity.

SHEM is fully consolidated since January 2005.

•

•

(2) Reclassification on the 1st of January of the amount of

€ 388 million (€ 5 million at 31 December 2004) relating

to the shares of Total from short-term cash investments

to available-for-sale investments.

(3) Reclassification on the 1st of January 2004 of loans and

receivables measured at amortised cost for an amount of

€ 43 million (€ 1 095 million at 31 December 2004) to other

non-current assets.

(4) Reclassification on the 1st of January 2004 of € 1 064 million

(€ 1 193 million on 31st of December 2004) of trade

receivables and related accounts to on the one hand loans

and receivables measured at amortised cost for an amount

of € 111 million (€ 235 million on 31st of December 2004)

and on the other hand other current assets for an amount

of € 953 million (€ 958 million on 31st of December 2004).

The last reclassification relates mainly to receivables that

does not bear interest.

(5) Reclassification on the 1st of January 2004 of € 613 million

(€ 835 million on 31st of December 2004) of trade payables

and related amounts to, on the one hand, tax liabilities

for an amount of € 166 million (120 million on 31st of

December 2004) and on, the other hand, other current

liabilities for an amount of € 477 million (715 million on

31st of December 2004) relating to salaries and social

security as well as other liabilities.

Note 3:

major operations

Company regroupings carried out during the financial year

The Group acquired an interest of 40.0 % in SHEM (Société

Hydroélectrique du Midi) in January 2005.

Under the terms of a partnership agreement signed on

21 October 2002 between Electrabel and SNCF, the latter

held a put option on 80.0 % of the shares in SHEM. SNCF

exercised this option on 20 January 2005, with 40.0 % being

transferred immediately to Electrabel and a second portion

of 40.0 % due to be transferred within a maximum period

of just over two years.

Under the terms of the purchase contract, Electrabel took

control of SHEM as of the acquisition of the first 40.0 %.

The latter company is fully consolidated for 80.0 % in the

Electrabel accounts as of 20 January 2005, with the minority

interests’ share being limited to 20.0 %.



Electrabel has also granted a put option to the minority

shareholders for the remaining shares held by them, amounting

to 19.6 % of the share capital.

The price set for this acquisition is based on a valuation of

€ 843 million for all the shares. This investment led to a net

disbursement of € 309 million for financial year 2005.

The main consolidated aggregates affected by the acquisition

of SHEM and its entry into the consolidation scope are as

follows:

new goodwill of € 230 million recognised on 31 December

2005;

increase of € 183 million in the non-current assets;

increase of € 23 million in sales;

increase of € 23 million in the current operating result.

Despite the relative size of SHEM, the impact on the

comparability of the Group’s financial statements with respect

to 2004 is anticipatively limited in terms of non-current assets,

due to the decision by the Group to apply retrospectively

IFRIC 4 – Determining whether an agreement contains a lease

as of 1 January 2004.

The reason for this was that in 2002, prior to acquiring the

interest in SHEM, Electrabel had agreed with SNCF to market the

SHEM generating capacity. This agreement met the definition

of ‘right of use’ in the sense of IFRIC 4, and it also met the

accounting criteria for a lease under the terms of IAS 17 – Leases.

Accordingly, the comparative consolidated accounts for 2004

already included fixed assets of € 702 million in the form of

the SHEM shares, initially balanced by a leasing debt.

Also under the terms of the agreement, in its turnover,

Electrabel already included a significant part of the sales of

the output from the SHEM generating facilities.

•

•

•

•

disposals

Under the terms of an undertaking made in connection

with the appointment of Elia System Operator (ESO) as the

grid operator by the Belgian Federal Council of Ministers in

September 2002, the historical shareholders in Elia (Electrabel

and SPE) floated 40 % of the shares in this entity on the

Brussels stock exchange.

In this operation, a large proportion (57.14 %) of the shares in

Elia System Operator held by Electrabel (amounting to 36.60 %

of the free float) was offered for sale on the stock exchange

during the first half of 2005. After this flotation, the Group’s

stake in Elia System Operator is still consolidated by the Equity

Method but has been reduced to 27.45 % as at 31 December

2005, compared with 64.05 % on 31 December 2004.

This operation yielded a consolidated capital gain of

€ 626 million. The disposal also reduced the Group’s share

in the net result of Elia System Operator as at 31 December

2005 by an amount of € 11 million.

In terms of cash flow, the flotation of a large part of the

stake in Elia System Operator resulted in a cash inflow of

€ 395 million. Taking into account the new share issue by

Elia to which Electrabel subscribed for € 43 million, the net

cash inflow amounts to just over € 352 million.

Restructuring of the distribution sector in Belgium

On 19 December 2005, the Electrabel Board of Directors

approved agreements under which the companies Electrabel

Netten Vlaanderen (network operation), GeDIS (strategic

decisions, rational use of energy, and public service obligations)

and Indexis (Flemish platform for collection, processing and

transmission of metering data) will merge in 2006 to form a

‘single operator’, for the electricity and natural gas distribution

networks in Flanders. The new company, named ‘Eandis’

will be a fully-owned subsidiary of the mixed intermunicipal

distribution network operators, and will bring together all the

personnel of the merged companies plus some employees

from Electrabel headquarters.



This restructuring will be reflected in the accounts for financial

year 2006. While the impact on the net result will not be

significant overall, certain items in the Group’s balance sheet

and income statement will show a decrease following the

deconsolidation of Electrabel Netten Vlaanderen.

The share capital of Electrabel Netten Vlaanderen amounted

to € 42 million on 31 December 2005. This company’s

contribution to the consolidated balance sheet of the Group

is summarised as follows:

In € million

Total assets, 768 made up as follows:

Amounts receivable: 146

Cash: 4

Other assets (mainly repayments due on pension commitments): 611

Other: 7

Total debts and provisions, 726 made up as follows:

Provision for pensions and similar obligations: 603

Operating debts: 120

Other: 3

Income statement:

Turnover: 787

Operating result: 33

Net result: 19

At the same time, the Board of Directors approved the signature

of agreements setting the financial conditions for implementing

the framework agreement made in 2001 between Electrabel

on the one hand and the public shareholders in the Flemish

mixed intermunicipal companies on the other. This specified

that Electrabel’s share in these companies was to be reduced

to 30 %, and that they were to appoint Electrabel Customer

Solutions as the default supplier when the energy market

was deregulated (subject to the approval of the market

authorities).

In accordance with these agreements, Electrabel will reduce its

stake in the Flemish intermunicipal companies to the required

30 % in September 2006. The agreements further specify

that this operation, to be accompanied by a reduction in the

capital of the intermunicipal companies, will be carried out on

the basis of the RAB (‘Regulated Asset Base,’ i.e. the market

value of the regulated assets) of the networks.

Apart from goodwill of € 179 million for the energy marketing

activities directed at deregulated customers in Flanders, which

was posted to the accounts during the course of the financial

year, these operations will not be reflected in the accounts

until 2006.

Operations of a similar nature will be carried out in Brussels

and Wallonia when the electricity and gas markets in these

regions are fully deregulated.



The geographical segments in which the Group operates are

the primary reporting segment format. Taking into account

the development strategy of Electrabel and the differences

in the economic and regulatory contexts of the markets in

which the Group operates, the geographical factor is dominant

for the Group’s risks and returns. This situation, which is

also reflected in the internal organisational structure of the

Group, justifies the use of geographical segments, based

on the geographical location of the assets, as the primary

segment reporting format.

The geographical segments are determined so as to reflect as

accurately as possible the Group’s exposition to different levels

of risks and returns. On this basis, the following segments

have been retained: the Benelux countries, representing the

company’s historical market, and Europe outside Benelux,

which is a market for economical expansion for Electrabel.

Business segments constitute the secondary segment reporting

format. They are broken down into electricity (production and

sales), gas (sales), services (mainly related to services rendered

to the distribution system operators) and other.

Segment information is prepared in accordance with the

accounting policies of the consolidated Group, as described in

Note 1‘ Summary of accounting policies’ to the financial

statements. Segment information is determined before

eliminations and inter-segment consolidation entries.

Inter-segment transactions are realised at market prices.

Segment assets include intangible assets, property, plant

and equipment, goodwill, inventory, commodity financial

instruments, as well as trade receivables and related

accounts.

Unallocated assets include financial assets (cash, derivatives,

loans, investments…) and deferred taxes.

Segment liabilities include provisions, commodity financial

instruments, as well as trade payable and related accounts.

Unallocated liabilities include financial liabilities and tax

liabilities.

Secondary segment assets do not include commodity financial

instruments since their allocation to business segments is not

relevant. Due to the integrated management strategy for

assets, gas contracts and production units, the ultimate use

of these instruments cannot be determined in advance, but

will depend on the price of electricity and the price of fuel.

Capital expenditure relate to intangible assets, property, plant

and equipment, as well as goodwill.

The allocation of sales to the geographical location of the

suppliers is presented in note 4 ‘Revenue’.

Note 4:

Segment information



Segment information at 31 december 2005

In € million Benelux

Europe excluding

BeneluxCentral

service costs Eliminations Consolidated

INComE StAtEmENt

External sales 9 741 2 477 - - 12 218

Inter-segment sales 383 116 - -499 -

Total revenue 10 124 2 593 - -499 12 218

Results from operations(1) 1 313 252 -121 - 1 444Changes in fair value of financial instruments on commodities -150 4 - - -146

Impairment -37 -42 - - -79

Restructuring 13 - - - 13

Segment result 1 139 214 -121 - 1 232

Disposal of assets - - - - 716

Operating results - - - - 1 948

Financial result - - - - -121Share of profit of investments accounted for using the Equity Method 446 29 - - 475

Net result before taxes 2 302

Income taxes -219

total net result 2 083

(1) of which:

Depreciation and amortisation -312 -145Other non cash movements (provisions and impairment) 32 -12


Europe excluding

Benelux unallocated Eliminations Consolidated

BAlANCE ShEEt

Segment assets 13 623 4 167 - -124 17 666

Investments accounted for using the Equity Method 1 475 581 - - 2 056

Unallocated assets - - 9 660 - 9 660

total assets 29 382

Segment liabilities 14 447 784 - -124 15 107

Unallocated liabilities - - 14 275 - 14 275

total liabilities 29 382

CApItAl ExpENdItuRE

Capital expenditure 677 728 - - 1 405

SECoNdARy SEgmENt INfoRmAtIoN

Business segments Electricity gas Services other Consolidated

External sales 8 648 1 764 1 759 47 12 218

Segment assets 11 184 420 1 290 362 13 256

Capital expenditure 1 264 63 13 65 1 405



Segment information at 31 december 2004


Europe excluding

BeneluxCentral

service costs Eliminations Consolidated

INComE StAtEmENt

External sales 9 704 1 837 - - 11 541

Inter-segment sales 239 44 - -283 -

Total revenue 9 943 1 881 - -283 11 541

Results from operations(1) 1 440 112 -109 - 1 443

Impairment 12 - - - 12

Restructuring -10 -1 - - -11

Segment result 1 442 111 -109 - 1 444

Disposal of assets - - - - 125

Operating results - - - - 1 569

Financial result - - - - -177Share of profit of investments accounted for using the Equity Method 234 25 - - 259

Net result before taxes 1 651

Income taxes -347

total net result 1 304

(1) of which:

Depreciation and amortisation -381 -103Other non cash movements (provisions and impairment) 243 -7


Europe excluding

Benelux unallocated Eliminations Consolidated

BAlANCE ShEEt

Segment assets 10 036 3 169 - -185 13 020

Investments accounted for using the Equity Method 1 620 521 - - 2 141

Unallocated assets - - 6 979 - 6 979

total assets 22 140

Segment liabilities 9 871 772 - -185 10 458

Unallocated liabilities - - 11 682 - 11 682

total liabilities 22 140

CApItAl ExpENdItuRE

Capital expenditure 340 199 - - 539

SECoNdARy SEgmENt INfoRmAtIoN

Business segments Electricity gas Services other Consolidated

External sales 7 779 1 817 1 925 20 11 541

Segment assets 10 144 419 2 109 348 13 020

Capital expenditure 459 - 31 49 539



Note 5:

Revenue

The allocation of revenue to geographical locations of the energy suppliers is presented as follows :

In € million 31.12.2005 31.12.2004

BENElux

Sales

Electricity (1) 5 978 5 858

Gas 1 665 1 681

Other 46 20

Rendering of services (2) 1 697 1 829

9 386 9 388

EuRopE ExCludINg BENElux

Sales

Electricity (1) 2 670 1 921

Gas 99 136

Other 1 -

Rendering of services 62 96

2 832 2 153

totAl 12 218 11 541

(1) Sales of electricity also include related sales of steam and heat. In 2005 and 2004, these amounts were € 124 million and

€ 107 million, respectively, for the Benelux and € 110 million and € 89 million, respectively, for the other European countries.

(2) This component mainly reflects fees invoiced for the rendering of services to the Belgian distribution system operators.



Note 6:

other operating income

In € million 31.12.2005 31.12.2004

Green certificates received (1) 118 66

Income from the disposal of CO2 emission rights and green certificates 106 33

Other income from current operations (2) 243 379

totAl 467 478

(1) This element includes the value of the green certificates earned by the production of electricity by means of renewable

energy.

(2) Other income comprises reimbursements by insurance companies as well as rental income and other miscellaneous income.

In 2004, Electrabel charged the non-recurring premium paid to the pension fund to the intermunicipal companies. The related

income was included in other operating income.

Note 7:

Raw materials and consumables used

In € million 31.12.2005 31.12.2004

Use of fuel for the production of electricity and heat -2 301 -1 721

Electricity purchased -2 078 -2 026

Gas purchased for resale -1 172 -1 090

Other purchases -337 -292

Transport costs for gas and electricity -1 669 -1 943

totAl -7 557 -7 072

Note 8:

Employee benefit expense

In € million 31.12.2005 31.12.2004

Wages -1 005 -1 174

Social security costs -346 -372

Share-based payments (stock options) -3 -

totAl -1 354 -1 546

In addition to wages and related social security charges, this

item includes the payments made to the pension fund as

well as annuities.

In 2004, employee benefit expenses included a non-recurring

payment to the pension fund of € 154 million. This contribution

was totally offset by the change in the provision for pensions

and similar obligations.

Without taking into account the personnel of entities accounted

for using the Equity Method, the change in the Groups

personnel, expressed in full-time equivalents, is as follows:



31.12.2005 31.12.2004

BENElux

Subsidiaries 13 512 13 989

Joint-ventures (*) - -

EuRopE ExCludINg BENElux

Subsidiaries 2 362 2 152

Joint-ventures (*) 437 444

totAl 16 311 16 585

(*) Presented based on the percentage of ownership.

The decrease in personnel in the Benelux mainly results from the restructuring plan implemented at Electrabel S.A., while the

increase in the rest of Europe is due to the inclusion of SHEM in the scope of consolidation in 2005.

Note 9:

provisions, depreciation and amortisation

In € million 31.12.2005 31.12.2004

dEpRECIAtIoN ANd AmoRtISAtIoN

Amortisation -49 -49

Depreciation (1) -408 -435

-457 -484

WRItE-doWNS of INvENtoRIES ANd RECEIvABlES (2) 21 -88

pRovISIoNS

Pensions and similar obligations (3) 78 195

Treatment of the back-end of the nuclear fuel cycle (4) -68 73

Dismantling and treatment of power sites 3 -11

Other provisions (5) -14 67

-1 324

totAl -437 -248

(1) The decrease in depreciation of the period particularly relates to the extension of the depreciation period of the combined

cycle gas turbines from 20 to 25 years.

(2) In 2004, important write-downs on receivables were recognised to cover the credit risk related to the supply of energy to

the progressively liberalised market segments in Belgium.

(3) In 2004, the relative change in provisions for pensions and similar obligations is impacted by the use of this provision

in relation to a non-recurring premium of € 154 million that was paid. Details about pensions and similar obligations are

presented in note 31.

(4) In 2004, a provision of € 152 million was reversed due to the implementation of the new policy adopted with retroactive

effect as from 1 January 2004 for the recognition of provisions for the treatment of the back-end of the nuclear fuel cycle,

approved by the Supervisory Committee set up under the law of 11 April 2003.

(5) The provision recognised in the purchase accounting of Electrabel Nederland to cover the stranded costs, which would

potentially be incurred by the Group, was partially reversed in 2004 (€ 40 million).



Note 10:

other operating expenses

This element mainly includes expenses from services rendered

and work performed by third parties for an amount of

€ 1 413 million (€ 1 424 million in 2004) as well as real

estate taxes related to the ownership, management of

power plants and distribution networks for € 208 million

(€ 195 million in 2004). Emission right expenses amount

to € 124 million at 31 December 2005. These costs did not

exist in 2004.

Note 11:

Change in fair value of commodity financial instruments

Financial instruments related to commodities represent a net

expense of € 146 million in the income statement of the

Group, explained by the changes in fair value of financial

instruments that are in the scope of IAS 39 – Financial

Instruments – Recognition and Measurement.

The net expense for the period is the result of the following

elements:

the Group offers prime-time production capacity to the

market by selling options by auction (‘Virtual Power Plant’).

Due to the significant increase in electricity prices since the last

public sale, these options have a negative fair value for the

Group representing an expense of € 44 million in 2005;

the Group uses hedging techniques for the optimisation

of gross margin. Although these hedging instruments are

used for business considerations, they are in the scope

•

•

of IAS 39 – Financial instruments – Recognition and

Measurement. The Group’s strategies comprise (re)sales

and (re)purchases transactions of energy spreads (i.e. the

difference between the electricity price and the cost of

fuel, gas or coal), swaps between gas and coal as well

as forward sales and purchases of gas and electricity.

Given the increased price trends in the market, the evolution

of the fair value of these positions reflects an opportunity

cost rather than an economic loss and resulted in a net

expense for the period of € 131 million;

the favourable evolution of the fair value of the currency

hedges (mainly in USD) obtained by the Group for certain

commodity transactions had a positive impact of € 29 million

on the Group result.

•

The Group recognised impairment losses of € 79 million

during the period.

The changing local regulatory environment forced the Group to

reconsider the value in use of the Italian cash generating unit

(CGU), representing all Italian operations, except for Rosignano.

This resulted in an impairment loss of € 23 million on goodwill

and € 17 million on the”fonds de commerce” recognised at

the acquisition of the electricity commercialisation entities.

In addition, a change in the measurement of the reimbursement

rights for pension expenses from the affiliated Belgian

intermunicipal companies was necessary awaiting the final

arrangement expected in the short term. This resulted in an

impairment of these rights for an amount of € 25 million.

The remaining part of the € 79 million impairment loss

is mainly explained by physical damage of power plants

(€ 12 million).

In 2004, impairment losses on financial assets were reversed for

an amount of € 12 million, which has been recognised in income.

Note 12:

Impairment



Note 13:

Restructurings

Restructuring plans were implemented during previous periods

in Belgium, Netherlands and Italy. Taking into account the

provisions recognised in previous periods and the ongoing

implementation of these plans, the restructuring costs of 2005

show a net change of € -13 million. This amount represents

the difference between, on the one hand, the costs incurred

and the additional provisions recognised in the period, and,

on the other hand, the amounts used and unused that were

derecognised during the period. The net reversal mainly relates

to the “Transform 2003” restructuring plan implemented

at Electrabel S.A., for which the reallocation of personnel

was more important than foreseen.

Note 14:

disposal of assets

An important part (57.14 %) of the Elia shares held by the

Group was subject to an initial public offering on the Brussels

stock exchange. This transaction resulted in a consolidated

gain of € 626 million, taking into account the revaluation of

the transmission network in 2002 that was transferred to the

income statement in proportion to the successive sales of the

Elia shares by Electrabel. This transaction is further detailed

in Note 3 “Major Transactions”.

The Group sold half of its investment in Union Fenosa for

a total amount of € 90 million, which the Group realised

a gain of € 37 million on.

In the context of the initial public offering of Telenet, Electrabel

sold its interest in this entity, resulting in a cash inflow

of € 85 million and represented a gain of € 47 million for

the Group.

The result on the disposal of assets in 2004 mainly relates

to the gain on the sale of approximately all Total shares held

by the Group (€ 120 million).

Note 15:

financial result

In € million 31.12.2005 31.12.2004

Cost of the net financial position -13 -41

Other financial expenses -297 -366

Other financial income 189 230

fINANCIAl RESult -121 -177

15.1 Cost of net financial position

In € million 31.12.2005 31.12.2004

Interest expense on loans and financial liabilities -144 -150

Financial income on cash and cash equivalents 126 114

Other income and expenses related to net financial position 5 -5

totAl -13 -41



15.2 other financial expenses

In € million 31.12.2005 31.12.2004Unwinding of the long term provisions (1) -251 -257

Interest expense on current liabilities -6 -9

Exchange losses -5 -

Other financial expenses (2) -35 -100

totAl -297 -366

(1) The unwinding of the provisions relates to:In € million 31.12.2005 31.12.2004

Pensions and similar obligations -38 -49

Treatment of the back-end of the nuclear fuel cycle -132 -122

Dismantling of the nuclear power plants -74 -71

Dismantling of conventional power plants and miscellaneous -7 -15

totAl -251 -257

(2) In 2005, other financial expenses mainly include the changes in the fair value (€ -22 million) of hedging instrument on the

remaining shares held in Union Fenosa. This item should be taken together with the positive change of the underlying position

included in “Other financial income” for an equal amount.

In 2004, a provision for ‘stranded costs’of € 71 million was included in this element, in order to offset a non recurring dividend

from the Dutch company NEA, as explained below.

15.3 other financial income

In € million 31.12.2005 31.12.2004

Income from available-for-sale investments (1) 18 84

Interest income on current assets 8 11

Interest income on loans and receivables at amortised cost (2) 86 79

Other financial income (3) 77 56

totAl 189 230

(1) In 2004, dividends from non-consolidated companies included a non-recurring dividend of € 71 million paid by NEA,

an entity that owns the main power grid in The Netherlands. This dividend was offset by the recognition of a provision for

stranded costs, included in “Other financial expenses”.

(2) This element mainly relates to interests on loans and receivables granted to other SUEZ group companies.

(3) Other financial income mainly includes interest on floating notes, as well as changes in the fair value of the Union Fenosa shares.

Note 16:

Share in net result of investments accounted for using the Equity method

The evolution of the share in net result of investments

accounted for using the Equity Method relates to increased

result of mixed intermunicipal companies. In 2004, their results

were unfavourably influenced by important non recurring

expenses (such as reimbursement of pension expenses to

Electrabel and increased participation of the Group in these

expenses as a result of restructuring of these activities following

liberalisation of the market).

The 2005 result of the intermunicipal companies includes

a gain of € 52 million on sale of the interest in Telenet.

The contribution of different companies is further detailed

in Note 22 “Investments accounted for using the Equity

Method”.



Note 17:

Income taxes

17.1 Analysis of income tax expense

Income tax expense recognised in the income statement amounts to € 219 million (€ 347 million in 2004).

In 2005, the Group’s income tax expense particularly includes current tax income relating to prior periods for an amount of

€ 8 million and deferred tax income for an amount of € 20 million.

The table below presents a reconciliation between theoretical income tax expense of the Group and the income tax expense

effectively recognised in the income statement:

In € million 31.12.2005 31.12.2004

Net result 2 083 1 304

Minus:

Share in net result of investments accounted for using the Equity Method -475 -259

Income tax 219 347

totAl 1 827 1 392

Income tax rate in Belgium 33.99 % 33.99 %

Theoretical income tax expense -621 -473

Impact of:

Permanent differences -23 -35

Elements taxed at a lower or zero tax rate:

Untaxed gains on disposals (1) 243 42

Income already tax 13 13

Difference due to subsidiaries’ tax notes and to special tax regimes 156 111

Other 13 -5

Income tax expense recognised in the income statement -219 -347

Effective tax rate 11 99 % 24 93 %

(1) The effective tax rate for 2005 is significantly influenced by gains realised on disposal of investments and by initial public

offering of Elia System Operator. These gains are not taxable under the Belgian tax regime.

17.2 taxes recognised directly in equity

Deferred taxes recognised directly in equity relate to changes in fair value of financial instruments that are also recognised directly

in equity and amount to € -20 million at 31 December 2005. This amount is analysed in the table below:

In € million 01.01.2005 variation 31.12.2005

Available-for-sale financial assets - -3 -3

Derivatives (except energy contracts and commodity contracts) 22 -5 17

Cash flow hedges of energy contracts and commodity contracts -16 -18 -34

totAl 6 -26 -20



17.3 deferred tax assets and liabilities

The table below provides an analysis of net deferred tax position recognised in the balance sheet, before offsetting deferred tax

assets and liabilities per fiscal entity:

In € million 31.12.2004

Impact of first-time

adoption of IAS 32/39 01.01.2005

2005 Result Equity

other impact and changes in

the scope of consolidation 31.12.2005

dEfERREd tAx ASSEtS

Tax losses carried forward - - - 19 - - 19

Pension obligations 288 - 288 -7 - - 281

Provisions not deductible for tax purposes 22 - 22 2 - - 24

Deductible amounts for capital expenditures 49 - 49 -13 - - 36

Fair value of financial instruments (IAS 32-39) - 27 27 45 - - 72

Other (taxed reserves, difference between fiscal and accounting depreciation / amortisation…) 180 - 180 2 - - 182

totAl 539 27 566 48 - - 614

dEfERREd tAx lIABIlItIESMeasurement differences related to non-current assets -23 - -23 6 - -244 -261

Differences between carrying amount and tax base of non-current assets (including depreciation as the asset is used for industrial purposes) -283 - -283 1 - - -282

Fair value of financial instruments (IAS 32-39) - -17 -17 -4 -26 - -47

Capitalisation of borrowing costs -72 - -72 3 - - -69

Other (provisions for major overhaul, dismantling assets…) -186 - -186 -34 - - -220

totAl -564 -17 -581 -28 -26 -244 -878

NEt dEfERREd tAxES -25 10 -15 20 -26 -244 -265

The impact of the transition to IFRS on net deferred tax position is further detailed in note 2 “Impact of the transition to IFRS”.

The net deferred tax position of 2005 is influenced by including SHEM in the Group’s scope of consolidation. Deferred tax

liabilities for an amount of € 243 million were recognised in context of allocation of cost of this entity. The deferred tax liability

is mainly due to recognition of assets acquired at their fair value.

The variation in deferred taxes recognised in the consolidated balance sheet, after offsetting deferred tax assets and liabilities

per fiscal entity, is explained as follows :

In € million Assets liabilities Net position

At 31 december 2004 153 -178 -25

Recognised in the income statement 48 -28 20

Other 27 -287 -260

Impact of net presentation per fiscal entity -98 98 -

At 31 december 2005 130 -395 -265



At 31 December 2005, unused tax losses, unused tax

credits and other deductible temporary differences were

not recognised in the balance sheet because the recognition

criteria for a deferred tax asset were not met. It amounts

to € 253 million. This amount includes certain deferred tax

assets (approximately € 150 million) related to operations

in The Netherlands, which were not recognised because

of the Group’s dispute with the tax authorities (for more

information we refer to Note 42“Contingent assets and

contingent liabilities”).

Earnings per share are calculated by dividing profit or loss

attributable to the Group by weighted average number of

ordinary shares outstanding during the period.

Since the Group did not issue any instruments resulting in a

decrease of the earnings per share during the last two periods,

the net result in the numerator equals the consolidated result

(Group share).

In 2004, the weighting of the denominator was influenced

by capital increase subscribed by members of personnel of

Electrabel and fully paid during the first quarter of 2004.

31.12.2005 31.12.2004

NumERAtoR (in € million)

Net result (Group share) 1 908 1 189

dENomINAtoR

Number of shares outstanding at the end of the period 54 878 197 54 878 197

Weighted average number of shares outstanding during the period 54 878 197 54 851 709

NEt BASIC ANd dIlutEd EARNINg (gRoup ShARE) pER ShARE (in €) 34.77 21.68

Note 18:

Earnings per share



Note 19:


19.1 Evolution of carrying amounts

In € million land Buildings

technical plant

and machinery

furniture, vehicles

and equipments

dismantling costs

included in the cost of

property, plant and

equipment

Assets held

under finance

lease

Assets under

construction other

total property, plant and

equipment

CoSt

At 1 January 2004 383 485 14 727 97 317 727 444 596 17 776

Additions 2 2 106 2 1 - 2 405 2 518

Disposals - 3 - 18 - 254 - 67 - - 1 - 7 - 2 - 352

Translation differences - 13 72 1 5 - 1 40 132

Changes in scope of consolidation - -50 -193 - - - 9 - -234

Other - 4 98 - - - -102 - -

At 31 december 2004 382 436 14 556 33 323 724 750 636 17 840

Additions - 4 146 5 4 - 608 7 774

Disposals -1 -5 -103 -3 - - 12 -1 -101

Translation differences - 1 7 - 1 - - 23 32

Changes in scope of consolidation - - 904 - - -702 -81 10 131

Other -12 67 338 15 -97 8 -585 - -266

At 31 december 2005 369 503 15 848 50 231 30 704 675 18 410

ACCumulAtEd dEpRECIAtIoN ANd ImpAIRmENt

At 1 January 2004 -12 -422 -11 051 -58 -175 -4 - -461 -12 183Depreciation charge for the year - -28 -380 -15 -7 -4 - -1 -435

Disposals - 3 176 51 - 1 - 2 233

Translation differences - -6 - 39 -1 -5 - - -25 -76

Changes in scope of consolidation - 25 227 - - - - - 252

Other - - 15 - - - - -1 14

At 31 december 2004 -12 -428 -11 052 -23 -187 -7 - -486 -12 195Depreciation charge for the year - -20 -372 -4 -6 -1 - -5 -408

Impairment loss - - -13 - - - -1 - -14

Disposals - 7 33 4 - - - - 44

Translation differences - -1 -3 - -1 - - -16 -21

Changes in scope of consolidation - - -3 - - - - - -3

Other 11 -41 154 -11 57 -8 - -22 140

At 31 december 2005 -1 -483 -11 256 -34 -137 -16 -1 -529 -12 457

NEt CARRyINg AmouNt

At 31 december 2004 370 8 3 504 10 136 717 750 150 5 645

At 31 december 2005 368 20 4 592 16 94 14 703 146 5 953



19.2 Analysis of property, plant and equipment held under finance lease

Property, plant and equipment held under finance lease can be detailed as follows:

In € million land Buildings

technical plant and

machinery

furniture, vehicles and equipments other

total property, plant and

equipment held under

finance lease

CoSt

At 31 December 2004 - 10 714 - - 724

At 31 December 2005 - 11 19 - - 30


At 31 December 2004 - -2 -5 - - -7

At 31 December 2005 - -3 -13 - - -16

NEt CARRyINg AmouNt

At 31 December 2004 - 8 709 - - 717

At 31 December 2005 - 8 6 - - 14

The Board of Directors decided in 2005 to extend the

depreciation period of the combined cycle gas turbines

from 20 to 25 years, resulting in a decrease of € 14 million

in depreciation charge for the year.

During the period, € 15 million interest expenses have been

included in cost of property, plant and equipment, compared

to € 5 million in 2004.

The interest rate used to determine the amount of borrowing

costs eligible for capitalisation was 3.6 % in 2005.

Insurance companies reimbursed € 13 million for physical

damage of property, plant and equipment. This amount was

recognised in the income statement in 2005.

In accordance with IFRIC 4 – Determining whether an

arrangement contains a lease, Electrabel group has classified

the energy purchase contract with Société Hydroélectrique

du Midi (SHEM) as property, plant and equipment held under

finance lease. This contract conveys Electrabel the right to

exclusive use of the production assets of SHEM. This entity

was consolidated as of January 2005.



19.3 Contractual commitments for acquisition of property, plant and equipment

In the normal core business, the Electrabel group entities

enter into firm purchase commitments (under which the third

parties commit to the delivery) for the acquisition of technical

plant and machinery. These commitments mainly relate to

construction of electricity production units and acquisition

of technical equipment.

At 31 December 2005, timing of these commitments is as

follows:

In € million 31.12.2005

Maturity date

2006 714

2007 116

2008 14

2009 1

After 2009 224

totAl 1 070

At 31 December 2004, these commitments amounted to

€ 1 354 million.

19.4 Assets pledged as collateral

The Group has pledged property, plant and equipment for

an amount of € 263 million (€144 million in 2004), mainly

to secure funding of construction projects in Italy.

The assets pledged as collateral at 31 December 2005 are

detailed below:

In € million 31.12.2005

Maturity date

2006 14

2007 11

2008 14

2009 14

2010 8

After 2010 202

totAl 263

19.5 other commitments

The main other commitments are long term maintenance

agreements and contracts with subcontractors amounting

to € 410 million.



Note 20:

Intangible assets

20.1 Evolution of carrying amounts

In € million

fonds de commerce (1) Software

Co2 Emission Rights (2)

power output

Rights (3) other (4) total

CoSt

At 1 January 2004 45 105 - 1 163 1 1 314

Internal development costs - 12 - - 60 72

Additions - 6 - - 4 10

Disposals - - - - -4 -4

Translation differences - - - - - -

Changes in scope of consolidation - - - - - -

Other - -24 - - 3 -2

At 31 december 2004 45 99 - 1 163 64 1 371

Internal development costs - - - - 118 118

Additions - 11 17 - 40 68

Disposals - -1 -2 - -165 -168


Changes in scope of consolidation - 1 - - 6 7

Other - 10 - - 33 43

At 31 december 2005 45 120 15 1 163 96 1 439


At 1 January 2004 -3 -47 -454 -1 -505

Depreciation charge for the year -3 -18 - -27 -1 -49

Impairment loss - - - - - -

Disposals - - - - - -


Changes in scope of consolidation - - - - - -

Other 2 - - - - 2

At 31 december 2004 -4 -65 - -481 -2 -552

Depreciation charge for the year -4 -18 - -26 -1 -49

Impairment loss -17 - - - - -17

Disposals - - - - - -


Changes in scope of consolidation - -1 - - - -1

Other - 13 - - - 13

At 31 december 2005 -25 -71 - -507 -3 -606

NEt CARRyINg AmouNt

At 31 december 2004 41 34 - 682 62 819

At 31 december 2005 20 49 15 656 93 833

(1) This item relates to the ‘fonds de commerce’ of AceaElectrabel Elettricità, amortised over 18 years.(2) Greenhouse gas emission rights (CO2) purchased (at acquisition cost) and granted for free by the public authorities (zero acquisition cost).(3) This item contains rights on power output (“capacity rights”) of nuclear production units in France for a net carrying amount of € 641 million at 31 December 2005 with a useful life expiring in 2036. Electrabel contributed to capital expenditure of these nuclear production units built by EDF in France. EDF retains the legal ownership and right to manage these units, while Electrabel has a right of supervision and is represented on the Liaison Board (Comité de Liaison). To a lower extent, Electrabel also hold capacity rights in conventional power plants in Germany with a net carrying amount of € 15 million at 31st of December 2005.(4) This element mainly contains € 81 million of “green certificates”, which are certificates representing certified renewable energy. These certificates are granted to Electrabel group in exchange for its production of renewable energy meeting the grant conditions.



20.2 Information on research and development

Total research costs of € 21 million in 2005 and € 24 million

in 2004 have been recognised as incurred in the respective

periods.

The Group did not capitalise any development costs.

20.3 other disclosures

The Group has no intangible assets with indefinite useful lives.

All intangible assets, except green certificates and emission

rights, are amortised.

The impairment loss of the period amounts to € 17 million

and is further detailed in Note 12 ‘Depreciation of assets’.

Note 21:

goodwill

21.1 Reconciliation of carrying amount

In € million

A - gRoSS AmouNt

At 1 January 2004 1 350

Additions 12

Translation differences 10

Other -58

At 31 december 2004 1 314

Additions 449

Review of goodwill -141

Translation differences -1

Other 5


B - ImpAIRmENt

At 01 January 2004 -2

Translation differences -4

Other 2

At 31 december 2004 -4

Impairment loss -23


At 31 december 2005 -26

C - NEt CARRyINg AmouNt





21.2 Net carrying amount of goodwill

In € million 31.12.2005 31.12.2004

Benelux 1 178 1 140

The Netherlands 890 1 026

Other 288 114


totAl 1 600 1 310

The increase of goodwill during 2005 is mainly explained by the

acquisition of SHEM (€ 230 million), which was consolidated

for the first time during the accounting period. This acquisition

is further detailed in Note 3 “Major transactions” as well as

the recognition of goodwill for an amount of € 179 million

related to sales activities of energy in the liberalised market

in the Flemish region.

The decrease of goodwill in The Netherlands is justified by

the finalisation of the acquisition conditions of Electrabel

Nederland.

Apart from SHEM discussed above, the segment “Europe

outside Benelux” includes principally activities developed

together with Acea in Italy for a net amount of € 106 million

at 31st of December 2005 as well as the goodwill on Rosignano

for € 46 million.

The remaining balance of this account at 31st of December 2005

includes also € 18 million related to Parque Eólico Terras Altas

de Fafe, a company established under Portuguese law, which

operates in development of wind farms. The final goodwill

allocation to assets and liabilities of the acquired company will be

recognised at 31st of December 2006, in accordance with IFRS.

For purposes of impairment testing, goodwill was allocated

at the cash generating units (CGU).

the Netherlands

The recoverable amount of the cash generating units regrouping

the operations in The Netherlands were determined by value

in use estimations. These estimations use cash flow projections

based on the most recent financial budgets/forecasts approved

by management covering a period of four years and a discount

rate of 7.2 %. Cash flow projections beyond the four years

period are estimated by extrapolating projections and include

a termination value.

Key assumptions include values of long term electricity and fuel

prices. The amounts used reflect the best estimates of future

prices. The gas and coal consumption have been estimated

taking into account the foreseeable evolution of generating

equipment. The risk-free rate and market risk premium reflect

external sources of information available.

The company believes that, based on events that are currently

reasonably predictable, any change to the key assumptions used

in the value in use calculations of the Dutch operations will not

result in a carrying amount exceeding the recoverable amount.

other

The recoverable amounts of the other cash generating units

were determined by value in use estimations. These estimations

use cash flow projections based on financial budgets/forecasts

approved by management covering a period of four years,

on extrapolations after that period and include an estimated

termination value.

Key assumptions include values of long term electricity

and fuel prices as well as a risk-free rate and market risk

premium, reflecting external sources of information available.

The discount rates used are between 6.5 % and 8.5 %.

The recoverable amount of the cash generating unit regrouping

the Italian operations (except for Rosignano) was tested by

means of an estimation of its value in use at 31 December

2005. This resulted in an impairment loss of € 23 million

recognised on goodwill, included in the segment “Europe

outside Benelux” and representing the amount by which

the carrying amount exceeds the recoverable amount. This

impairment loss is also explained in Note 12 “Impairment

of assets”.



Note 22:

Investments accounted for using the Equity method and interests in joint ventures

22.1 Investments accounted for using the Equity method

22.1.1 Contribution of investments accounted for using the Equity method

In € million

Net Book value of investment accounted

for using the Equity method

part in net result of investment accounted

for using the Equity method

31.12.2005 31.12.2004 31.12.2005 31.12.2004

Belgian intermunicipal companies 1 602 1 466 407 154

Elia Group -127 52 38 39

Gera Group G.m.b.H. 40 42 - 2

Compagnie Nationale du Rhône (CNR) 519 459 29 23

CN’Air 2 - - -

Energie du Rhone S.A.S. 4 3 1 -

Belgelec Finance S.A. - 102 - 41

AlpEnergie Italia S.p.A. - 1 - -

Generg S.G.P.S. 16 16 - -

totAl 2 056 2 141 475 259

22.1.2 fair value of listed investments accounted for using the Equity method

The market value of the interest of the Group in Elia System Operator, listed since June 2005, amounts to € 412 million as at

31st of December 2005.

22.1.3 principal financial information on investments accounted for using the Equity method

In € million

Interest % at year-End

total Assets

total liabilities Equity Revenue Net result

31 december 2005

Belgian intermunicipal companies (1) 12 194 4 798 7 396 3 361 871

Elia Group (2) 27.45 % 3 853 2 572 1 281 694 75

Compagnie Nationale du Rhône 49.98 % 3 295 2 363 932 642 85

31 december 2004

Belgian intermunicipal companies (1) 12 213 4 736 7 477 3 689 551

Group Elia (2) 64.05 % 3 790 2 728 1 062 687 60

Compagnie Nationale du Rhône 49.95 % 3 202 2 334 868 602 78

(1) Although Electrabel holds more than 50 % of the share capital of certain mixed intermunicipal entities, it does not have legal

or statutory control. Therefore these interests are accounted for using the Equity Method.

The complete list of investments and detention percentage is given in Note 45 ‘List of important consolidated entities’.

The aggregated information given above includes also revaluations of assets before elimination in the measurement in accordance

with the Equity Method as stated in the accounting policies of Electrabel.

The financial statements of the intermunicipal entities still had to be formally approved by the Boards of Directors at the date

of the financial statements of the Group.

(2) For the same reasons, the Elia Group was also accounted for using the Equity Method although Electrabel holds more than

50 % of the share capital in 2004.



22.2 Interests in joint ventures

The table below gives an overview of the Group’s main joint ventures as well as their impact on the consolidated financial

statements:

In € million

31.12.2005 31.12.2004Acea

Electrabeltirreno power

Zandvliet power

Acea Electrabel

tirreno power

Zandvliet power

Current assets 234 136 3 288 96 1

Non-current assets 560 462 103 549 420 85

Current liabilities 346 163 86 494 119 69

Non-current liabilities 167 303 - 53 281 -

Revenue 551 231 - 490 118 -

Result from operations 3 35 5 19 42 -

Operating result -37 34 5 18 41 -

Financial result -3 -12 -1 - -9 -

Net result -41 16 3 13 19 -

The Group granted guarantees amounting to € 52 million for financing facilities of joint ventures in which the Group holds

an interest.

Note 45: “List of interests in significant joint ventures” provides a list of interests in joint ventures, including name, country

of incorporation and ownership interest.



Note 23:

loans and receivables at amortised cost

In € million 31.12.2005 31.12.2004

Receivables related to investments and loans (1) 1 693 1 731

Other receivables at amortised cost (2) 87 96

totAl 1 780 1 827

in Non-current assets 1 703 1 592

in Current assets 77 235

(1) Receivables related to investments and loans:

At 31 December 2005, this element mainly includes a receivable from Elia for an amount of € 808 million (€ 636 million at

31 December 2004 after deduction of the revaluation of transmission network for € 488 million; in 2005 this revaluation

amount was reclassified as a deduction of the Equity Method value of Elia in accordance with IAS 32-39), receivables from

the SUEZ group for an amount of € 401 million (€ 480 million at 31 December 2004); and prepayments granted to the

intermunicipal distribution entities for € 336 million (€ 520 million at 31 December 2004).

The timing of these receivables is as follows:

In € million 2006 2007 2008 2009 2010After 2010 total

Acquired interests

Amount included

in the balance

sheetReceivables related to investments and loans 50 372 76 373 26 773 1 670 23 1 693

Receivables related to investments and loans are denominated in the following currencies:

In € million 31.12.2005

Euro 1 628

Dollar 42

totAl 1 670

Acquired interests 23

Amount included in the balance sheet 1 693

These loans and receivables have the following interest rate characteristics:

In € million 31.12.2005

Variable 1 516

Fixed interest rate 154

totAl 1 670

Interests acquired 23

Carrying amount 1 693

The Group believes that there is no significant difference between the fair value of the loans and receivables at amortised cost

and their carrying amount.

(2) Other receivables at amortised cost:

This element mainly concerns finance lease receivables for an amount of € 85 million in 2005 (€ 90 million in 2004).

The timing of these receivables is detailed in Note 37 ‘Finance lease agreements’



Note 24:

Available-for-sale investments

In € million 31.12.2005 31.12.2004

lIStEd SECuRItIES

Union Fenosa(1) 95 105

Acea SpA 90 30

Cegedel 43 27

Scottish Power 41 18

Total 11 5

NoN lIStEd SECuRItIES

Indaver 30 31

Electrabel Seanergy 19 20

Eurodif 17 17

Nobema - 6

Leini in Piemonte - 7

Other 25 22

totAl AvAIlABlE-foR-SAlE INvEStmENtS 371 288

in non-current assets 265 283

in current assets 106 5

(1) This investment is subject to a fair value hedge untill 31 January 2006.

The changes are analysed as follows:

In € million

At 31 december 2004 288

Impact of the first-time adoption of IAS 32-39 51

At 1 January 2005 339

Additions 45

Disposals at acquisition cost, net of impairment -65

Changes in the fair value recognised in equity 44

Changes in the scope of consolidation, exchange differences and other 8

At 31 december 2005 371

Note 25:

derivative financial instruments (including commodity derivatives) – assets / liabilities

25.1 derivatives (including commodity derivatives) – Assets

This element consists of the following derivatives:

In € million 31.12.2005

Derivatives related to liabilities 7

Commodity derivatives 4 398

Other financial instruments 5

totAl 4 410

in non-current assets 1 007

in current assets 3 403



25.2 derivatives (including commodity derivatives) – liabilities

This element consists of the following derivatives:

In € million 31.12.2005

Derivatives related to debt 58

Commodity derivatives 4 420

Other financial instruments 22

totAl 4 500

in non-current liabilities 1 059

in current liabilities 3 441

The presentation of these elements in 2005 is explained by

the first-time adoption of IAS 32 – Financial Instruments:

Disclosure and Presentation and IAS 39 – Financial Instruments:

Recognition and Measurement as of 1 January 2005.

In accordance with these standards, a derivative is recognised in

the balance sheet at fair value as an asset in case of a positive

fair value and as a liability in case of a negative fair value.

Derivatives with the same counterparty and with compensating

risk profiles at maturity date, are not offset.

Commodity instruments (derivatives and contracts that qualify

as financial instruments), as well as derivatives related to debt

and other financial instruments are used in context of the

Group’s risk management policy, analysed in Note 33 “Financial

instruments and exposure to market risks”.

Note 26:

Inventories

The different types of inventories are detailed below:

In € million 31.12.2005 31.12.2004

Inventory of fissile material (including assembly costs) 300 290

Inventory of fossile fuels (coal, oil) 195 170

Spare parts and materials 68 52

totAl 563 512

Note 27:

trade receivables and related accounts

In € million 31.12.2005 31.12.2004grossvalue

Write-down

Netvalue

grossvalue

Write-down

Netvalue

Trade receivables and related accounts 2 349 -94 2 255 2 693 -120 2 573

In 2004, write-downs on receivables were recognised to cover the credit risk related to the supply of energy to progressively

liberalised market segments in Belgium.



Note 28:

Cash and cash equivalents

In € million 31.12.2005 31.12.2004

Commercial paper and mutual funds 2 468 1 358

Term deposits at financial institutions 4 090 1 982

Current accounts with associated companies 686 1 140

Cash on hand and demand deposits 135 231

totAl 7 379 4 711

Cash and cash equivalents comprise cash on hand and demand

deposits as well as short-term, highly liquid investments that

are readily convertible to known amounts of cash and which

are subject to an insignificant risk of changes in value.

Note 29:

other assets

In € million

31.12.2005 31.12.2004Non-

current Current totalNon-

currentCurrent portion total

Rights to reimbursement (1) 1 009 239 1 248 1 059 155 1 214

Taxes - 205 205 - 372 372

Other receivable 4 421 425 3 428 431

Prepaid charges and deferred income 17 157 174 33 111 144

totAl 1 030 1 022 2 052 1 095 1 066 2 161

(1) These amounts represent rights to reimbursement for pension obligations related to employees of the intermunicipal distribution entities.

Electrabel’s commitments towards these employees are included in the balance sheet under provisions for pensions and similar commitments.

The current portion also includes € 57 million employer’s premiums to the pension funds of the employees of the intermunicipal

distribution entities, that were paid in previous years but have not yet been charged to these entities yet.



declared participations

types of voting right

(1)

Number of voting rights

declared %

SUEZ S.A., rue de la Ville l’Evêque 16 s 24 930 536 45.43 %

75008 Paris

SUEZ-TRACTEBEL, Place du Trône 1 s 26 095 788 47.55 %

1000 Brussels

Genfina, Place du Trône 1 s 1 059 751 1.93 %

1000 Brussels

Axima Services, Boulevard du Roi Albert II, 30 s 190 150 0.35 %

1190 Brussels

Axima Contracting, rue du Monténégro 138-144 s 55 200 0.10 %

1190 Brussels

Fabricom GTI S.A., rue Gatti de Gamond 254 s 53 376 0.10 %

1180 Brussels

TEM S.A., rue de Fierlant 110 s 11 550 0.02 %

1190 Brussels

Fabricom GTI Infra Sud, chaussée de Tubize 489 s 11 160 0.02 %

1420 Braine-l’Alleud

Indata, Avenue Wansart 20 s 4 000 0.01 %

1180 Brussels

Nobema, Place du Trône 1 s 474 0.00 %

1000 Brussels

Laborelec, Rue de Rhode 125 s 18 0.00 %

1630 Linkebeek

SUEZ group 52 412 003 95 51 %

Shares contributed by the intermunicipal companies which decided to use the possibility to contribute their shares to the mixed takeover bid (take over bid and exchange offer) launched by SUEZ on all shares of Electrabel not yet owned by SUEZ, conditional to the cancellation of this contribution by the supervising authorities of the intermunicipal companies. s 909 771 1.66 %

SUEZ group and intermunicipal companies 53 321 774 97 16 %

(1) s: shares

Note 30:

Equity

30.1 Share capital

Composition

The share capital amounts to € 2 072 721 779.04 at the

31st of December 2005 and 2004. It consists of 54 878 197

shares without nominal value, fully paid, of which 54 402 343

registered shares and 475 854 bearer shares. The unsubscribed

authorised capital amounts to € 243 163 683.73.

Ordinary shares are entitled to dividend payments and one

voting right per share at the company’s shareholders meetings.

These shares are not associated with any preferences or

restrictions.

Shareholder profile

In accordance with the Law of 2 March 1989, a shareholders

agreement was committed at 15 November 2005 in the

name of and for the account of SUEZ-TRACTEBEL S.A. and its

parent company SUEZ S.A., as well as their Group companies.

The participants are listed below:



It is important to specify that the mixed public offering of

SUEZ, initiated on 9 August 2005, was not closed at the date

of this shareholder agreement. At the outcome of this offering

on 6 December 2005, SUEZ group held 54 122 494 shares

representing 98.62 % of the capital of Electrabel S.A.

30.2 Information on the consolidated reserves

The consolidated reserves include the legal reserve of

Electrabel SA for an amount of € 479 million. Since this

reserve significantly exceeds the minimum legal and statutory

requirements set at 10 % of the share capital, no additions

are made. This reserve is only available for distribution in

case of liquidation.

30.4 dividends

The Board will propose the following appropriation of the profit available for distribution at the Shareholders Meeting that

approves the financial statements of the year ended 31 December 2005:

In € million totAl

Changes in the fair value of hedging instruments 37

Hedges of energy and commodity contracts 55

Interest rate hedges -16

Hedge of a net investment in a foreign operation -2

Available-for-sale financial assets 44


totAl 100

In € million

Profit available for distribution: 2 176

- Profit for the year: 2 040

- Retained earnings: 136

Dividend proposed (gross dividend per share € 16.60) (1): 911

Reserves: 1 100

Directors remuneration (2): 3

REtAINEd EARNINgS 162

(1) Net € 12.45.(2) € 2 549 thousand.

30.3 Changes in equity

The changes in equity between 31 December 2004 and

31 December 2005 are presented in note “Consolidated

statement of changes in equity”.

The changes in fair value of hedging instruments recognised

directly in equity in 2005 are detailed as follows, according

to their nature:



Note 31:

provisions

In € million 31.12.2005 31.12.2004

Pensions and similar obligations 2 085 2 135

Other provisions 4 817 4 582

totAl 6 902 6 717

Non-current 6 589 6 331

Current 313 386

31.1 pensions and similar obligations

pensions

Under a collective agreement of 2 May 1952, part of

the employees of the main Group entities benefits from

supplementary retirement pensions. For a full service life,

these employees receive a pension equal to 75 % of the final

year’s earnings, taking into account the legal dispositions

in the matter (defined benefit plans). These supplementary

payments are partly payable to the widow or widower and

may be supplemented by orphan’s benefits where relevant.

Supplementary survivor’s benefits are paid to rightful claimants

in the event of death in service.

In accordance with dispositions to the collective agreement

described above, these benefits have the following three

characteristics:

the entitlement to a supplementary pension vests only at

legal retirement age;

these benefits are recognised as operating costs in the same

way as wages and salaries;

the entitlement is linked to the evolution of the company’s

activities.

The same benefits were granted to employees that are hired

since 1 January 1993 and to the whole management staff. For

this category the benefit takes the form of a statutory funded

pension scheme financed through employer and employees

contributions. Employees in service prior to 1 January 1993

were allowed to participate in the new scheme. Since 1997

more than 90 % of these employees decided to benefit from

this retirement plan. The contributions are paid respectively

•

•

•

to the non-profit organizations Elgabel ASBL and Pensiobel

ASBL, which act as pension funds for the Electricity and Gas

industries. A group insurance plan was introduced to provide

the same benefits for management staff.

The pension costs of defined contribution plans are recognised

in the income statement at the moment the contributions are

paid. This scheme is mainly applicable to staff of the main

Group companies, hired since 1 May 1999 for management

staff and since 1 January 2002 for employees. The contributions

are paid to the non-profit organisations Powerbel ASBL and

Enerbel ASBL. For the contributions that were paid after

the 1st of January 2004, the Belgian legislation requires a

minimum return of 3.25 % on the employer contributions and

a minimum return of 3.75 % on the employee contributions.

In case of a deficit, the employer has to make additional

payments. If the actual return proves to be significantly higher

than the minimum return, no provision is recognised.

The pension liabilities also include contractual of constructive

obligations of the Group for early retirement.

Outside Belgium there are also defined contribution plans

dependent on local practices. In principle, the contributions

are based on salary levels and seniority.

other commitments

In certain countries, Group entities also provide other post-

employment benefits such as reimbursement of medical care

costs, discounts on electricity and gas prices as well as jubilee

benefits.



Actuarial assumptions

The following actuarial assumptions where used for calculation of provisions for pensions and similar obligations:

31.12.2005 31.12.2004

Discount rate 3.80 % 4.70 %

Expected return on plan assets 4.60 % 5.40 %

Expected future salary increases (excluding inflation) Based on salary policy of the entity

Inflation level 1.90 % 1.90 %

Expected future increases in the cost of medical services (including inflation) 2.90 % 2.50 %

Expected future increases in the hospitalisation premiums (including inflation) 2.90 % 1.00 %

Expected increase in the benefits related to reduced tarifs (including inflation) 0.25 % 0.25 %

Commitments of the group

The commitments of the Electrabel group relating to pensions and similar benefits are as follows:

31.12.2005 31.12.2004

In € million pensionsSimilar

obligations pensionsSimilar

obligations

Past service costs (fully or partly funded plans) -3 114 - -2 969 -

Past service costs (non-funded plans) - -671 - -566

Fair value of the plan assets 1 379 15 1 303 16

Unrecognised actuarial gains and losses 171 136 54 28

Unrecognised past service costs - - - -

Limitation of the assets - - - -

totAl oBlIgAtIoN -1 564 -520 -1 612 -522

Total liabilities -1 565 -520 -1 613 -522

Total assets 1 - 1 -

The pension obligation of Electrabel relating to the employees

of the distribution activities in Belgium is included in the pension

obligation that is detailed above. The reimbursement right

related to these pensions and similar commitments is recognised

as current receivables (€ 182 million in 2005 and € 155 million

in 2004) or non-current receivables (€ 1 009 million in 2005

and € 1 059 million in 2004) assets.



During 2005, the change of the net obligation can be analysed as follows:


obligations total

ChANgE IN pRESENt vAluE of thE dEfINEd BENEfIt oBlIgAtIoN

Service cost at opening -2 969 -566 -3 535

Current service cost -65 -16 -81

Interest cost -134 -27 -161

Contributions -7 - -7

Change in consolidation scope -6 -4 -10

Curtailments and settlements -1 18 17

Amortisation of past service costs - - -

Actuarial gains and losses -174 -109 -283

Benefits paid 279 42 321

Other -37 -9 -46

Service cost at closing -3 114 -671 -3 785

ChANgE IN fAIR vAluE of plAN ASSEtS ANd REImBuRSEmENt RIghtS RECogNISEd AS ASSEt

Fair value at opening 1 303 16 1 319

Expected return on plan assets and on reimbursement rights 70 1 71

Benefits paid -279 -42 -321

Contributions 213 40 253

Actuarial gains and losses 57 -1 56

Other 15 1 16

Fair value at closing 1 379 15 1 394

Reconciliation of the provision at 31 december 2004 with that at 31 december 2005


obligations total

Provision for pensions and similar obligations at 31 December 2004 -1 612 -523 -2 135

Change in consolidation scope -6 -4 -10

Total cost -147 -36 -183

Benefits paid 206 40 246

Other -5 2 -3

AmouNt RECogNISEd At 31St of dECEmBER 2005 -1 564 -521 -2 085

Analysis of the pension cost and other similar benefits during 2005


obligations total

Current service cost -65 -16 -81

Interest cost -134 -27 -161

Expected return on plan assets 70 1 71

Amortisation of actuarial gains and losses - -11 -11

Curtailments and settlements -1 29 28

Other -17 -12 -29

totAl CoSt -147 -36 -183

The net cost of the reimbursement right amounts to € 62 million, of which € 24 million are recognised as personnel cost and

€ 38 million are recognised as interest cost.



31.2 other provisions

In € million 31.12.2004 Additions utilisationdereco-gnition unwinding other 31.12.2005

Dismantling of nuclear production sites 1 495 - - - 74 - 1 569Treatment of the back-end of the nuclear fuel cycle 2 676 104 -30 -7 132 - 2 875Subtotal relating to nuclear power plants 4 171 104 -30 -7 206 - 4 444

Dismantling and restoration of conventional production sites 206 3 -6 -1 5 5 212

Restructurings 100 6 -33 -21 3 - 55

Other 105 27 -10 -3 - -13 106

totAl 4 582 140 -79 -32 214 -8 4 817

obligations relating to dismantling of nuclear power

plants:

Electrabel has dismantling obligations for its nuclear power

plants and for the treatment of the back-end of the nuclear

fuel cycle.

legal framework

The law of the 11th of April 2003 states that Synatom is

responsible for management and dismantling provisions of the

nuclear power plants. This law also organises the establishment

of a Supervisory Committee that is responsible for commenting

on the accounting methods for dismantling provisions, the

revision of the maximum percentage of resources of Synatom

that can be borrowed to nuclear operators, the nature of assets

in which Synatom is allowed to invest, as well as the supervision

of constitution and management of the provisions.

During its meeting on 25th of January 2005, the Supervisory

Committee has approved the methodology that is retrospectively

applied as of 1st of January 2004.

provisions for dismantling of nuclear power plants

The provisions for dismantling of nuclear power plants are

measured as follows:

the gross amount is determined based on estimated cost

per nuclear power plant, based on a study of external

experts;

an inflation rate of 2 % is applied until the end of dismantling

to determine the future value of the obligation;

•

•

a discount rate of 5 % (including 2 % for inflation) is

utilised to determine net present value of the obligation

(NPV). The nominal discount rate of 5 %, approved by the

Supervisory Committee at the beginning of 2005, is based

on an analysis of the evolution and the average long term

reference rate (rate of linear 30 years Belgian bonds (OLO),

benchmark rate in € for 30 years and 30 years interbank

swap rate). The variation during 2005 of the reference

rate is not important nor lasting enough to consider that

the best estimate of the provision takes it into account,

respecting also the other uncertainties;

the start of dismantling activities is expected within 5 to

8 years after closing power plant, taking into account

a 40 years useful life of the power plants;

cash outflows will occur during approximately 7 years after

the start of dismantling activities;

the present value of the obligation at the moment that

the power plant is taken into operation is recognised as a

provision and as an asset for the same amount. The asset is

depreciated over 40 years starting from the date it is taken

into industrial use;

the provision is increased yearly with an interest charge.

The amount of interest charge is equal to the balance of

the provision at the end of the previous year multiplied by

the discount rate.

The Group also recognises a provision for dismantling of the

nuclear power plants for which the Group has capacity rights.

The amount is based on the relative part of the Group in the

expected dismantling costs. The measurement and discounting

of this provision is similar to the measurement and discounting

of provisions for the Belgian power plants.

•

•

•

•

•



provisions for the treatment of the back-end of the

nuclear fuel cycle

The main characteristics of the provision for the treatment of

the back-end of the nuclear fuel cycle are the following:

the scenario that was used for measurement of the provision

is that of deferred treatment. This means that products that

result from the treatment of nuclear waste will be stored

in a deep geological layer;

cash outflows will continue until 2044. At this moment the

waste and the provision required to cover the temporary

storage costs and evacuation will be transferred to ONDRAF.

Based on the retained scenario all waste will be buried by

2080;

the financial hypotheses that are used are similar to those

used for dismantling of power plants (discount rate of 5 %,

including 2 % for inflation);

the calculation of additions to the provisions is based on

average unit cost for the number of volumes used until

end of the exploitation period of the power plants and an

interest charge on the balance of the provision at the end

of the preceding year multiplied by the discount rate.

Since the beginning of 1997, future costs for treatment and

evacuation of radioactive waste on the sites of Doel and

Tihange are included in yearly contributions to the ONDRAF.

A provision of about € 20 million still remains in the financial

statements of Electrabel, and is related to waste that dates

from before 1997. This provision is used based on the invoices

received from ONDRAF.

dismantling and restoration of conventional production

sites

At the end of their useful life, certain conventional production

sites also have to be dismantled. This obligation can be the

result of environmental regulations in different countries,

contracts or constructive obligations of the Group.

•

•

•

•

The dismantling provision corresponds to the present value

of future dismantling costs. The discount rate is calculated on

the basis of the long term risk free interest rate which is 5 %

for power plants that are located in the Euro-zone (including

2 % for inflation).

In addition to the constructive obligations for dismantling,

these provisions also relate to restorations of the site if the

Group is legally required to do so.

Restructuring

The restructuring provisions correspond to present value of

the best estimate of restructuring costs of Group, and mainly

relate to activities in Belgium, The Netherlands and Italy.

other provisions

The other provisions include an amount of € 63 million for an

onerous long term energy purchase contract, acquired during

the purchase of Electrabel Nederland (ex-EPON). At the time

of this acquisition, the Group has recognised a provision for

“stranded costs” that were made before the liberalisation of

the energy market. The recuperation of these costs is now

impossible or very difficult due to liberalisation. The provision

is recognised in the income statement over the remaining

contract period.

In the normal core business for the Group, its implication in

a certain number of claims and arbitrages with third parties

has occured. Provisions are recognised for these claims and

arbitrages if the Group has a legal or constructive obligation

towards third parties, that could lead to probable outflow

of resources at the balance sheet date and that can be reliably

estimated.

A proper provision was recognised as of 31st of December

2005 for the principal claims and risks of the Group taking

into account the principles described above and based on

the actual state of the files in process.



Note 32:

financial liabilities

32.1 Net financial position

In € million

31.12.2005 31.12.2004Non

current Current totalNon

current Current total

Outstanding balance of financial liabilities 2 649 1 232 3 881 1 446 1 267 2 713

Interest not due - 16 16 - 19 19

Impact of measurement at fair value (1) - 5 5 - - -

financial liabilities 2 649 1 253 3 902 1 446 1 286 2 732

Derivatives on the liability side (2) 58 - 58 - - -

financial liabilities including derivatives 2 707 1 253 3 960 1 446 1 286 2 732

Cash and cash equivalents - -7 379 -7 379 - -4 711 -4 711

Derivatives on the asset side (2) -2 -5 -7 - - -

Cash and cash equivalents including derivatives -2 -7 384 -7 386 - -4 711 -4 711

NEt fINANCIAl poSItIoN 2 705 -6 131 -3 426 1 446 -3 425 -1 979

(1) This element corresponds to revaluation of part of the liability that is hedged for changes in fair value.

(2) Fair value of financial instruments that are allocated economically to liabilities, whether or not they qualify for hedge

accounting.

The excess of cash and cash equivalents is transferred to Electrabel Finance & Treasury Management (EFTM), which is in Luxembourg

and responsible for treasury management. This branch transfers funds to entities of the Group that are in need of cash.

The purpose of the investment of remaining balance is maximum liquidity and minimum risk of high quality counterparties which

are selected on their credit rating.

32.2 debt ratio

In € million 31.12.2005 31.12.2004

Net financial position -3 426 -1 979

Equity 9 173 7 950

dEBt RAtIo -37.3 % -24.9 %

32.3 outstanding balance of financial liabilities by nature

In € million 31.12.2005 31.12.2004

Obligations 26 26

Treasury funds 945 671

Credit facilities draw down 1 423 365

Finance lease liabilities 34 38

Other liabilities with banks 1 300 1 270

Other debts 95 87

Bank overdraft and cash accounts 58 256

outStANdINg BAlANCE of fINANCIAl lIABIlItIES 3 881 2 713

The most important part of external financing is concentrated at the level of Electrabel S.A. However the Group is obliged

to finance projects through operational entities and is limited by financial ratios.



32.4 outstanding balance of financial liabilities by interest rate

The 31st of December 2005, outstanding balance of financial liabilities by interest rate can be presented as follows:

In € million

Including financial instruments on rates

Excluding financial instruments on rates

Variable rate 2 755 3 192

Maximum 4.73 % 4.73 %

Minimum 2.09 % 2.09 %

WEIghtEd AvERAgE 2.67 % 2.66 %

Fixed interest rate 1 126 689

Maximum 8.56 % 8.82 %

Minimum 2.46 % 3.10 %

WEIghtEd AvERAgE 5.43 % 5.90 %

32.5 Net financial position, excluding derivatives and interest not due, by expiry date

At 31 december 2005In € million total 2006 2007 2008 2009 2010

more than 5 years

Obligations 26 - - - 26 - -

Treasury funds 945 945 - - - - -

Credit facilities draw down 1 423 70 25 - - 95 1 233

Finance lease liabilities 34 1 3 3 3 3 21

Other liabilities with banks 1 300 150 543 47 44 255 261

Other debts 95 8 2 1 79 1 4

total non-current liabilities 3 823 1 174 573 51 152 354 1 519

Bank overdraft and cash accounts 58 58 - - - - -

outstanding balance of financial liabilities 3 881 1 232 573 51 152 354 1 519

Cash and cash equivalents -7 379 -7 379 - - - - -

NEt fINANCIAl poSItIoN ExCludINg dERIvAtIvES ANd INtERESt Not duE -3 498 -6 147 573 51 152 354 1 519

At 31 december 2004In € million total 2005 2006 2007 2008 2009

more than 5 years

outstanding balance financial liabilities 2 713 1 267 111 720 41 144 430

Cash and cash equivalents -4 711 -4 711 - - - - -

NEt fINANCIAl poSItIoN ExCludINg dERIvAtIvES ANd INtEREStS Not duE -1 998 -3 444 111 720 41 144 430



32.6 financial position by currency

outstanding balance financial liabilities including currency financial instrumentsIn € million 31.12.2005 % 31.12.2004 %

Euro 3 787 98 % 2 610 96 %

Zloty 94 2 % 103 4 %

totAl 3 881 100 % 2 713 100 %

Net financial position including currency financial instruments

In € million 31.12.2005 % 31.12.2004 %

Euro -3 510 98.0 % -2 069 99.6 %

Dollar -68 1.9 % - -

Zloty 83 - 80 -

Florint -3 0.1 % -9 0.4 %

totAl -3 498 100 % -1 998 100 %

The Group has only one derivative - a CIRS (Cross Currency Interest Rate Swap) HUF/EUR – that changes the nature of the financial

position in HUF. The underlying value is € 12 million at the 31st of December 2005.

purpose of the use of derivatives

The Group mainly uses derivatives for management of its

exposure to interest rate risk, currency risk, commodity price

risk and price risk of certain listed shares. Except for instruments

used in commodity trading activities, these instruments qualify

as hedges of assets, liabilities or cash flows in most cases.

33.1 Currency risk and interest rate risk

Currency risk

Due to the presence in Hungary and Poland, the Group is

exposed to currency risk. Currency risk is defined as the risk

that the evolution of currency rates EUR/HUF and EUR/PLN

will have a negative impact on the translation of the net

investment in these foreign operations to Euro. The currency

risk is hedged by loans in HUF and in PLN.

Interest rate risk

More than 75 % of the gross debt of the Group has a variable

interest rate. The interest rate risk is managed on the one hand

by a negative balance of net debt and on the other hand by

short-term investment of cash and cash equivalents.

The gross debt with a fixed interest rate relates mainly to the

financing of projects for which the banks require hedging of

the interest rate risk.

The Group mainly uses interest rate swaps to hedge its interest

rate risk.

32.7 Commitments linked with financing

In € million 31.12.2005maximum

one year

more than one and less than 5 years

more than 5 years 31.12.2004

Credit facilities given but not used 13 11 2 7

Personal guarantees for financial liabilities 350 26 136 188 244

totAl of CommItmENtS gIvEN 363 37 136 190 251

Other financial guarantees received 47 8 14 25 109

Finance commitments received 832 37 677 118 679

totAl of CommItmENtS RECEIvEd 879 45 691 143 788

Note 33:

derivatives and exposure to market risks



Notional amounts and market value

The interest rate hedging instruments are detailed in the following table:

In € million

Average

rate

Notional amount per contract per maturity date31 december 2005 market

value2006 2007 2008 2009 2010 2011 > 6 years totalInterest rate swap - Fixed Payable

EUR 4.90 % 11 263 26 25 50 15 114 504 -23

Interest rate swap - Fixed receivable

EUR 8.70 % - - - 25 - - - 25 5

Caps - Buyer

EUR 10.20 % 4 4 4 2 - - - 14 -

CIRS - Debtor

HUF 7.10 % - 12 - - - - - 12 -

Forward contrats Forward - Buyer 254 194 61 2 - - - 511 10

USD 198 157 58 2 - - - 414 9

GBP 47 37 3 - - - - 87 2

PLN 9 1 - - - - - 10 -

Forward contrats - Seller 241 69 4 - - - - 314 -3

USD 45 15 - - - - - 60 -2

GBP 196 54 4 - - - - 254 -2

totAl 510 543 94 54 50 15 114 1 380 -11

Notional amounts are equal to the nominal value of the

hedged items. Amounts in foreign currency are translated

to Euro using closing rates. The market value of currency

and interest instruments is measured by present value of cash

flows differences.

Fair value and cash flow hedges of interest and currency instruments are detailed as follows:

In € million

Interest instruments as of 31st of december 2005

Nominal fair value

Cash flow hedges 454 -22

Fair Value hedges 25 5

Instruments that do not qualify for hedge accounting 64 -1

totAl 543 -18

In € million

Currency instruments as of 31st of december 2005 (*)

Nominal (**) fair value

Cash flow hedge 132 -3

Instruments that do not qualify for hedge accounting 53 10

totAl 185 7

(*) For the reconciliation of these figures with amounts in the balance sheet, it should be mentioned that the hedges of net investments in Polish and Hungarian operations are not presented in this table.

(**) Buy = + Sell = -



Cash flow risk related to interest instruments is mainly

hedged by variable interest rate debt. The hedges of currency

instruments relate to future operating cash flows in foreign

currency.

The purpose of fair value hedges related to interest instrument

is to make fixed interest rates variable.

The instruments that do not qualify for hedge accounting are

instruments that, due to their nature, can not be accounted

for using hedge accounting in accordance with IFRS.

These financial instruments are agreed with international high

quality banks. The counterparties of the Group are diversified

and selected on their credit ratings and on experience of

the Group.

33.2 derivatives related to equity instruments with a quoted market price

On the 31st of December 2005, the hedge of the exposure to

changes in the fair value of the shares in Union Fenosa was

documented in accordance with IAS 32 et IAS 39.

33.3 derivatives related to equity instruments without quoted market price

The Group has commitments to sell or buy equity instruments

that have no quoted market price. These commitments meet

the definition of a financial instrument in accordance with

IAS 32 and IAS 39.

The main commitments as of 31st of December 2005, are

described below.

options and commitments related to the shares of the CNR

(Compagnie Nationale du Rhône)

Electrabel has an option to buy 22.22 % of the capital of

the CNR from a third party. At the same time this third party

has a symmetric put option to sell this share to Electrabel.

Both the put and the call options can only be exercised if the

French “Murcef” law is approved, and if Electrabel has more

than 50 % of the capital of the CNR. The non-discounted

purchase commitment amounts to € 306 million.

In accordance with the guidance in IAS 32 – Financial

instruments – Disclosure and presentation and IAS 39

– Financial instruments – Recognition and measurement,

these options were not recognised in the consolidated balance

sheet on 1st January 2005 and as of 31st December 2005,

because the volatility of the reasonable estimates of the fair

values is significant and because it is not possible to assess on

a reasonable basis the probabilities of the different estimates.

The volatility is mainly related to uncertainty about the approval

of the ‘Murcef’ law.

Commitment to sell part of the group interests in the

mixed intermunicipal entities

In accordance with the legal and regulatory requirements

that on the one hand organise the progressive deregulation

of the energy market which in the past was restricted to

the intermunicipal entities and on the other hand limit the

investment of Electrabel in these intermunicipal entities to

less than 50 % ownership, the Group has agreements with

the municipal partners since 2002. The purpose of these

agreements is to maintain, as much as possible and taking

into account the new situation created by the institutional

environment, the financial and operational equilibrium that

existed before the deregulation of the market.

Electrabel has agreed to diminish its investment under the

limits determined on a regional basis. The terms and timing

of the transfer of the shares are specific for each region.

These transactions will take place at fair value of the assets

concerned, since the purpose of the agreements is to

compensate equitably all parties in accordance with the

gains or losses it makes in the new situation as compared

with the past situation. Since the purpose of this provision

is to respect the economic equilibrium that existed in the past,

the commitments did not have to be measured.

Next to that, the Walloon and Flemish municipal entities hold

indirectly through financial intermunicipal entities a share

of 40 % in the results of the commercialisation activities of

Electrabel Customer Solutions. Electrabel Customer Solutions

is a subsidiary that is responsible for the alimentation of the

clients concerned. The share of the municipalities in Electrabel

Customer Solutions is only 5 %, but these entities hold an

additional right on the result and net assets. This right is

formalised in a share purchase option (call) with an exercise

price based on the net accounting value of Electrabel Customer

Solutions.



33.4 Commodity price risk

33.4.1 hedging activities

Normal business activities expose the Group to variability of

the price of commodities, in particular on gas, electricity,

petroleum products and coal markets.

The increasing liquidity of these markets in 2005 has made

it possible for the Group to participate in cash flow hedges

by means of derivatives present on organised markets or by

means of private arrangements, either by firm commitments

or options, by net settlement or by delivery of the underlying

asset. The Group’s purpose is to hedge its exposure to negative

evolutions of the market price which may in particular affect

future transactions that are highly probable such as supply

costs and revenue related to sales contracts.

The Group has no derivatives to hedge changes in the fair values

of commodity contracts as of 31st of December 2005.

Notional amounts and expiration dates

The financial instruments held to hedge the exposure to

changes in prices of commodities are presented below for

their notional amount on the 31st of December 2005, in

MMBTU, Millions of British Thermal Units, the usual unit to

translate energy contracts:

Commodity derivatives

Notional amounts (net) in millions of mmBtu

2006 2007 2008 total

Natural Gas and electricity 10 10 - 20

Forwards/futures 10 10 - 20

Fuel, gas oil, heating oil and coal 48 30 26 103

Swaps 48 30 26 103

totAl 58 40 26 123

fair value and expiration dates

The fair value as of 31st of December 2005 on the financial

instruments (without adjustment of € -4 million due to credit

risk and liquidity risk) held to hedge the exposure to the

variability in commodity prices is detailed in the table below

by their expiration dates:


fair value in € million

2006 2007 2008 total

Natural gas and electricity 47 49 - 96

Forwards/futures 47 49 - 96

Fuel, gas oil, heating oil and coal 6 1 1 8

Swaps 6 1 1 8

totAl 53 50 1 104



Changes in fair value

The changes in fair value that were recognised in 2005 directly in equity or in the income statement can be presented as

follows:

In € million

Commodity financial instrumentsgains and losses directly recognised

in equity in 2005 – effective part of the hedge

gains and losses reclassified from equity to income

statement in 2005

Natural gas and electricity 75 -23

Forwards/futures 75 -23

Fuel, gas oil, heating oil and coal -19 -4

Swaps -19 -4

totAl 56 -27

In accordance with IAS 39, the accumulated amounts presented

in equity in relation to cash flow hedges are transferred to

the income statement when the hedged item impacts profit

or loss.

33.4.2 trading activities

The Group has spot and future contracts for natural gas,

electricity and different petroleum product on organised

markets and in private arrangements. The Group offers price

risk management to their clients. Different instruments are

used in these transactions: forwards with delivery of an energy

commodity, swaps that include payments to (or from) other

parties based on the difference between a fixed and a variable

price which is an index of commodities, options and other

contractual agreements. The Group uses commodity derivatives

to optimise its sales price; these instruments are also used for

taking position for its own purposes.

In accordance with internal procedures in this matter, the

risk control department is independent from the trading

department which actively initiates and manages positions.

The risk control department measures on a daily basis the fair

values and exposure to liquidity and market risk. Information

that could affect the credit rating of counterparties regarding

trading activities is collected and evaluated daily and credit limits

are systematically reviewed based on available information

on counterparties.

Notional amounts and expiration dates

The notional amounts of financial instruments related to

trading activities, as well as their expiration dates are presented

below. The volumes are expressed in MMBTU, the usual unit

for the conversion of energy contracts:




Notional amounts (net)in millions of mmBtu on the 31st of december 2005

2006 2007 2008 2009 2010 > 5 years total

Natural gas 121 82 70 - - - 273

Swaps -1 - - - - - -1

Options 132 92 69 - - - 292

Forwards/futures -10 -9 1 - - - -18

Electricity 22 14 3 - - 1 40

Swaps 12 6 - - - 1 19

Options 23 1 1 - - - 26

Forwards/futures -13 7 2 - - - -4

Fuel, gas oil, heating oil and coal 3 -4 14 - - - 13

Swaps 3 -4 14 - - - 13

Petroleum 4 - - - - - 4

Swaps 1 - - - - - 1

Options 3 - - - - - 3

totAl 150 92 87 - - 1 330

The notional amounts reflect open transactions. The notional

amounts do not represent amounts that are exchanged in

parties holding the instruments, and therefore are not an exact

measure of the exposure of the Group to market and liquidity

risk. The expiration dates and the related notional amounts

presented above do not give an indication of expected future

cash flows since the price risk management policy of the Group

may require adjustments to compensate market positions at

any given period.

fair value

The fair values of the commodity trading instruments (without

adjustment of – € 22 million to take into account credit and

liquidity risk) are as follows as of 31st of December 2005 and

as of 1st of January 2005:

In € million

fair value31 december 2005

fair value1 January 2005

Natural gas -66 -4

Electricity 112 24

Fuel, gas oil, heating oil and coal 36 -5

Petroleum -7 1

Environnement (CO2 certificates) 22 0

Impact of currency rates -2 -2

totAl 95 14

The fair values are not representative of the expected future

cash flow since the underlying positions can change due to

price changes and/or new transactions.

The next table gives the fair values of financial instruments

held by the Group as of 31st of December 2005 for energy

trading activities, broken down by measurement method and

expiration date.



In € million

measurement method for the fair values

fair value of the contracts on the 31st of december 2005

2006 2007 2008 2009 2010> 5

years total fair value

Quoted price on an active market(*) 83 30 - - -1 2 114

Price based on other external sources(*) -10 -21 3 - - - -28

Price based on models and other measurement methods(*) 20 -2 -7 -1 -1 - 9

totAl 93 7 -4 -2 -2 2 95

(*) See also 33.4.5 Measurement methods for the fair value of commodity derivatives.

Changes in fair value

31 december 2005

Commodity derivativesChange in fair value

in € million

Opening balance 14

Settled or terminated contracts -33

Initial fair value of new contracts and evolution of market prices 111

Changes in fair value attributable to changes in measurement method 3

totAl 95

market risk

‘value at risk’

In accordance with the internal procedures, market risk is

managed by the risk control department which is independent

of the trading department that actively initiates and manages

positions. The trading activities expose the Group to market

risk resulting from negative evolutions of the commodity and

electricity prices. This risk is evaluated, measured and managed

daily by means of calculation of ‘value at risk (VAR)’ and

other market risk benchmarks. The measurement of market

risk by means of the ‘value at risk’ gives a general risk unit

over all markets and products. The methodologies used

In € million

31 december 2005

Average 2005 (1)

Average 2004 (1)

maximum 2005 (2)

minimum 2005 (2)

Value at risk 3.84 2.47 2.22 7.37 1.13

(1) Daily average of VAR.(2) Maximum and minimum observed in 2005.

33.4.3 other commodity derivatives

The Group has contracts for the delivery of non-financial

items that meet the definition of a derivative in IAS 39. These

contracts are within the scope of this standard because

agreements were not entered into and continued to be held

for the purpose of delivery in accordance with the entity’s

expected purchase, sale or usage requirements and because the

contracts could not be documented as hedging instruments.

Therefore these contracts are recognised at fair value. Changes

in fair value are recognised in the income statement.

Most of these contracts were concluded for the general

management of market risk or to benefit from market price

differences to optimise the margin. Other examples include

sales contracts that meet the definition of an option in IAS 39

for risk management require key hypotheses, in particular

the determination of a confidence interval and a detention

horizon.

The table below gives the ‘value at risk’ for trading activities

calculated by the Group. The “value at risk” is the maximum

loss on the asset portfolio taking into account detention

horizon and confidence interval. It does not give an indication

of the expected results. The Group uses a detention horizon

of one day and a confidence interval of 95%.



and contracts for which the Group chooses for a net settlement

in most cases.

The Group also signed purchase and sales contracts for the

purpose of delivery of goods that are documented by the

Group as within the context of the normal business

considerations, but that have dispositions so that they meet

the definition of an embedded derivative in IAS 39. For certain

contracts, the embedded derivative was separated from

the host contract, with changes in fair value recognised in

the income statement. Embedded derivatives are separated

from the host contract if the contract price is linked to an

index or to a price of a commodity that is different from

the commodity that will be delivered or if there are early

termination provisions in the contract.

Notional amounts and expiry dates

The notional amounts and expiry dates of the instruments

are presented below (volumes are expressed in MMBTU,

the usual unit for the conversion of energy contracts):

Commodity instruments

Notional amounts (net)in millions of mmBtu on the 31st of december 2005

2006 2007 2008 total

Arbitrage and optimisation 144 27 14 185

Other derivatives -6 -2 - -8

Embedded derivatives 2 - 2 4

totAl 140 25 16 181

fair value and expiry dates

The fair values of the derivatives presented by expiry date as of 31st of December 2005 is presented as follows:

Commodity derivatives (options, swaps and forwards)

fair value in € million on the 31st of december 2005

2006 2007 2008 totalEconomic hedges that do not qualify for hedge accounting (arbitrage and optimisation included) -126 -28 -1 -155

Other derivatives -33 -9 -1 -43

Embedded derivatives -1 -1 -1 -3

totAl -160 -38 -3 -201

The fair values are not representative of the expected future

cash flows since the underlying positions can change due to

price changes and/or new transactions.

33.4.4 Risk of the counterparty

The counterparties of the Group in commodity transactions

are described above as diversified and selected based on credit

ratings and on the experience of the Group.

The credit limits are based on the ratings of the counterparties.

The risk of the counterparty is, if necessary, limited by letters

of credit, guaranties or netting agreements.

The Groups takes the impact of credit risk into consideration

in its fair value measurement of financial instruments.

The credit risk corresponds to the loss of the Group in case

of failure of counterparty to meet contractual obligations.

The Group has developed credit procedures and a policy of



risk management to minimise it (assessment of the financial

situation of counterparties including financial ratings, request

of collaterals and securities, use of standard contracts that

authorise compensation of positive and negative exposures

with the same counterparty).

As of 31st of December 2005, 93.8 % of the risk exposure

is related to ‘Investment grade’ counterparties:

In € million Investment grade(*) total

Counterparties 842 897

(*) Counterparties with a minimum credit rating of BBB of Standard & Poor’s, Baa3 of Moody’s, or an equivalent rating of Dun & Bradstreet. The‘Investment Grade’ also takes into account public credit ratings and the presence of pledged assets, letters of credit and guaranties by parents.

33.4.5 measurement methods for the fair value of commodity derivatives

The best indication of fair value is the price that is agreed by

independent parties that operate at market conditions. At

agreement date, the fair value generally equals transaction

price. After initial recognition measurement of the agreement

shall be based on observable market information that gives an

indication of all changes in fair value (even very small ones) of

the contract. The fair value of a forward is equal to present

value of the difference between the contract unit price and

the forward unit price multiplied with agreed volumes. As a

result, the Group uses the following sources for measurement

of the fair values of its commodity derivatives:

(a) Quoted prices on an organised market:

The prices are available at each end of the day. The measurement

of the value is based on the “Black & Scholes” model. Published

market prices are considered to be equivalent to the results

of the Black & Scholes model, if the use of this model can

be considered to be the market practice:

(b) Prices based on other external sources.

For agreements of contracts that are not traded on an

organised market, the Group uses firstly quotations of brokers.

The prices reflect economic conditions and existing regulation

on these markets and are subject to short term modifications

reflecting the evolution of the market conditions. Transaction

prices of recent similar transactions, agreed by the Group,

are also used for measurement.

(c) Models and other measurement methods:

The Group estimates fair value of instruments that are less

standardised, based on models and other measurement

techniques that reflect the most relevant available information.

The techniques used include option measurement, statistical

analysis and simulation, as well as concepts of present values

that take into account estimations of risk and timing of

cash flows, as well as specific contractual dispositions. Key

hypotheses include commodity prices, for which the estimation

is based on available information, the risk free discount rate,

factors that determine volatility of the underlying positions,

estimated correlation between commodity prices and energy

price, contractual volumes, liquidity of the market on which

contract is negotiated and the risk premium that market actors

take into account when determining fair value.

33.4.6 Commitments linked with commodities

In the context of normal business considerations, certain

operating entities of the Group have agreed to medium and

long term ‘take-or-pay’ contracts. Due to these agreements

entities have firm commitments to buy or sell fixed amounts of

gas, electricity, steam or related services. These commitments

are within the scope of IAS 39. The Group also committed to

buy or sell future services in relation with long term contracts.

The main commitments related to the agreements of Electrabel

are presented below. The contracts are measured at spot price

or at the contract rate if this price is not determined solely

by market conditions and, taking into account the maturity,

are discounted at a rate that is equal to the rate of high

quality bonds.



In € million 31.12.2005less than one

year

more than one and less than

five yearsmore than five

years

Firm commitments to buy commodities and nuclear fuel 4 102 2 231 1 321 550

Firm commitments to sell gas, electricity and petrol 14 425 7 778 4 969 1 678

Note 34:

other financial liabilities

In € million 31.12.2005 31.12.2004

Non-current liabilities related to the acquisition of financial investments 543 421

totAl 543 421

In € million 31.12.2005 31.12.2004

Current liabilities related to the acquisition of financial investments 184 281

totAl 184 281

The other financial liabilities on the 31st of December 2004

relate to the energy purchase agreement with Société

Hydroélectrique du Midi (SHEM) that falls within the scope

of IFRIC 4 – Determining whether an arrangement contains

a lease. This agreement was accounted for by recognition

of an asset in the financial statements of the Group, together

with a liability of € 421 million as other non-current liabilities

and a liability of € 281 million in other current liabilities.

SHEM is fully consolidated as of January 2005. On the

31st of December 2005, the other non-current financial

liabilities contain a liability of € 498 million with the Société

Nationale des Chemins de Fer Français (SNCF) that results

from the automatic additional transfer of 40 % of the shares

within a maximum period of just over two years starting from

20 January 2005, as well as the commitment of Electrabel

to buy the remaining shares held by SNCF (“put” granted to

minorities) representing 19.60 % of total capital.

The other non-current financial liabilities also include an

additional conditional amount of € 44 million that has to

be paid for the acquisition of the shares of the Compagnie

Nationale du Rhône (CNR), in accordance with stipulations

in the purchase agreement.

The other financial liabilities almost totally relate to additional

goodwill that was recognised due to agreements between the

Group and its municipal partners with as the main purpose

re-balancing of the sale of energy in the deregulated market

in Flanders. This liability will be settled in September 2006,

when Electrabel transfers part of its share in the intermunicipal

companies in Flanders.



Note 35:

other liabilities and tax liabilities

35.1 other liabilities

In € million

31.12.2005 31.12.2004Non-

current Current totalNon-

current Current total

Social debt - 160 160 - 203 203

VAT liability - 26 26 - 7 7

CO2 emission rights: certificates to deliver - 124 124 - - -

Other liabilities (1) 45 717 762 200 507 707

Deferred income and accrued expenses (2) 189 455 644 331 291 622

totAl 234 1 482 1 716 531 1 008 1 539

(1) The other liabilities in 2005, relate mainly to current liabilities with mixed intermunicipal companies as well as margin calls

related to trading activities and the management of the portfolio.

(2) Deferred income relates to government grants for an amount of € 118 million on the 31st of December 2005. € 108 million

is classified as non-current and € 10 million as current. This income will systematically be recognised in profit or loss until 2017.

35.2 tax liabilities

The tax liability of € 78 million (€ 120 million at 31st of December 2004) is related to the income taxes still payable to tax

authorities.



Note 36:

Business combinations

Acquisition of ShEm

The Group has acquired from SNCF 80.0 % of the capital of SHEM on the 20th of January 2005 for € 674 million. This transaction

was accounted for using the Purchase Method.

The acquired net assets in this transaction as well as the resulting goodwill are detailed as follows:

In € million

Separate financial statements

Allocation of the fair value fair value


Acquisition difference 2 -2 -

Property, plant and equipment 187 641 828

Cash and cash equivalents 28 - 28

Other assets 15 - 15

Provisions -73 63 -10

Deferred tax liabilities - -243 -243

Other liabilities -9 -4 -13

Net assets (1) 156 455 611

Acquired share in net assets = (1) * 80 % (2) 489

Goodwill (3) 185

Total acquisition = (2) + (3) 674

Of which cash outflow 337

Of which liabilities 337

Impact on cash and cash equivalents -309

Of which cash outflow -337

Of which acquired cash and cash equivalents 28

Electrabel also committed to buy the remaining shares of

SHEM that are held by SNCF (‘put’ granted to minorities) which

represent 19.6 % of the capital of SHEM. This commitment

is recognised as a liability of €165 million together with an

imputation on the minorities of SHEM in the opening balance

sheet. The remaining balance is classified as goodwill.

In € million

Written put option on minorities 165Of which recognised as minorities in opening balance sheet 120

Of which additional goodwill (4) 45

totAl goodWIll RElAtEd to ShEm = (3) + (4) 230



The goodwill on the acquisition of SHEM represents mainly an

increase in profitability that is expected from the integration

of the activities of this entity in the operational portfolio

of Electrabel. The management of this portfolio should be

optimised by synergies of the business combination.

The consolidation of SHEM in the financial statements of the

Group resulted in an increase of sales of € 23 million and an

increase of operational result of € 23 million.

Without minimizing the importance of SHEM, the total

accounting impact is limited because of the commercialisation

contract related to the SHEM production which was agreed

to between Electrabel and SNCF in 2002, i.e. before the

acquisition of the capital of SHEM. Due to this agreement,

Electrabel already included a significant part of the sales related

to the production of SHEM in its revenue.

other acquisitions

The other business combinations which took place during the

accounting period are not significant and relate primarily to

Alpenergie Italia (increase of the share of the Group from 50 %

to 100 %) and Parque Eólico Terros Altas de Fafe (acquisition of

100 % of the shares). The impact on the financial statements

is not material.

The next table gives the reconciliation between non-discounted and discounted value of the minimum lease payments:

In € million 31.12.2005 31.12.2004

Non-discounted minimum lease payments 110 120

Unguaranteed residual value that will return to the lessor 6 6

Gross investment in the lease 116 126

Unguaranteed finance income of the lessor (finance result of the discounting) 31 36

Net investment in the lease 85 90

of which discounted minimum lease payments 82 87

of which discounted unguaranteed residual value 3 3

The future minimum finance lease payments expected to be received is analysed as follows:

In € million 31.12.2005 31.12.2004

Not later than one year 10 10

Later than one year and not later than five years 36 36

Later than five years 39 44

totAl futuRE mINImum lEASE pAymENtS (1) 85 90

(1) Amounts disclosed in ‘Loans and receivables at amortised cost’ (see note 23).

Note 37:

finance leases (lessor)

The principal finance leases of the Electrabel group are

agreements that are in the scope of IFRIC 4 – Determining

whether an arrangement contains a lease.

This interpretation addresses the determination and accounting

treatment of service contracts and purchase or sales contracts

of energy that do not take the legal form of a lease but convey

the right to use an asset or a group of asset in return for a

payment or series of payments.

The accounting changes of the Group in this matter relate

to cogeneration plants that are situated on production sites

that belong to partner entities.



Note 38:

operating leases

38.1 Information on operating leases where the Electrabel group acts as lessee

Most operating leases where the Electrabel group is the lessee concern leases of furniture, cars and computers.

The future minimum lease payments under non-cancellable operating leases is analysed as follows:

In € million 31.12.2005 31.12.2004


Later than one year and not later than five years 71 55

Later than five years 2 -

totAl futuRE mINImum lEASE pAymENtS 113 118

38.2 Information on operating leases where the Electrabel group acts as lessor

The future minimum lease payments expected to be received under non-cancellable operating leases is analysed as follows:

In € million 31.12.2005 31.12.2004


Later than one year and not later than five years - 40

Later than five years - -

totAl futuRE mINImum lEASE pAymENtS 40 80

Lease payments were recognised as income for an amount

of € 39 million during the accounting period (€ 37 million in

the year ended 31 December 2004).

The lease agreement relates to the sale of the energy production

generated by the Polish entities. The contract terminates in

2006.

Note 39:

Cash flows

39.1 Reconciliation with the finance result in the consolidated income statement

In € million 31.12.2005 31.12.2004

Finance result in income statement -121 -177

Non-cash elements:

Changes in amortised cost evaluations (effective interest rate method) -12 -

Changes in exchange rate changes and changes in fair values -2 1

Time effect on discounted long term provisions 251 257

Other - 69

Amount in consolidated cash flow statement (*) 116 150

(*) The amounts can be detailed as follows:

Interest and dividends on financial fixed assets Financial interest paid Received interest on cash and cash equivalents

146 191

-155 -151

125 110

totAl 116 150



39.2 Reconciliation with the tax expense included in the consolidated income statement

In € million 31.12.2005 31.12.2004

Income tax included in consolidated income statement -219 -347

Non-cash elements

Provisions for taxes -1 -

Deferred taxes -20 95

Amount in consolidated cash flow statement -240 -252

40.1 Stock options

In line with the SUEZ policy of giving managers and senior

executives a stake in the future development of the company,

certain executives in the Electrabel group have been able to

participate in the SUEZ stock option plan.

40.1.1 Stock option policy

The SUEZ annual stock option plan aims to closely involve

executive and senior management, as well as managers

showing high potential, in the future development of the

company, and in creating shareholder value.

The award of stock purchase or subscription options is also

a mean of fostering loyalty, taking into account contribution

to strategic policies as well as adhesion to Group values.

Conditions for the award of options and the list of beneficiaries

are set by the Board of Directors of SUEZ in accordance with

authorisations granted at General Meetings of Shareholders.

In 2005, stock options were awarded based on the request

of executive management to maintain a growing base of

beneficiaries, so as to preserve the coherence of SUEZ’s policy

in this area. The decision initially taken in 2000 not to apply

a discount when determining the option price was again

applied in 2005.

The Board of Directors decided in 2005 to reduce the number

of options allowed and to replace them partially by a free

allocation of SUEZ shares. A certain number of people not

included in the stock options plan were also included in this

allocation.

Furthermore, the Board of Directors has decided that the

exercising of part of the options awarded will be subject to

certain conditions, provided for in the conditional system for

senior management executives and in the enhanced conditional

system for members of the Group’s Executive Committee.

Conditional system

2003 plan:

For the stock subscription options granted to senior

management executives and members of the Group Executive

Committee, the exercise of options is subject to the following

conditions:

during the period from November 19, 2003 through

November 19, 2007, the performance of the SUEZ share

must equal or exceed that of the Eurostoxx Utilities Index

over the same period, plus 1 % per annum;

the SUEZ share price must be equal to or exceed € 20.

•

•

Note 40:

Share based payments and employee share issues



2004 plan:

The exercise of half of the stock subscription options granted

to the Group’s senior managers and half of the options

awarded to members of the Group Executive Committee

(after deduction of approximately 10 % of their options,

which are subject to the “enhanced conditional system”), is

subject to a performance condition. The options subject to

this performance condition may be exercised if, during the

period from 17 November 2008 to 16 November 2012, the

SUEZ share price is equal to or greater than the exercise price

of € 18.14, adjusted for the change in the Eurostoxx Utilities

Index observed over the period from 17 November 2004 to

17 November 2008.

2005 plan:

The exercise of half of the stock subscription options granted

to the Group’s senior managers and to members of the Group

Executive Committee (after deduction for these latest of

approximately 10 % of their options, which are subject to the

“enhanced conditional system”), is subject to a performance

condition. The options subject to this performance condition

may be exercised if, during the period from 8 December 2009

to 7 December 2013, the SUEZ share price is equal to or greater

than the exercise price of € 24.20, adjusted for the change

in the Eurostoxx Utilities Index observed over the period from

8 December 2005 to 8 December 2009.

Enhanced conditional system

2004 plan:

Approximately 10 % of the stock subscription options awarded

to members of the Group Executive Committee are subject to

a more demanding performance condition. After deduction of

this 10 % portion, half of the remaining options are subject

to the “conditional system” above, and the other half is free

from performance conditions. The 10 % of options subject

to this enhanced performance condition may be exercised if

the SUEZ share price on 17 November 2008 (as measured by

the arithmetic mean of the share price during the previous

20 trading days) is equal to or greater than the exercise price

of the options, adjusted for the change in the Eurostoxx

Utilities Index observed over the period 17 November 2004

through 17 November 2008, plus 1 % per annum. If this

condition is met, then the associated options may be exercised;

if the condition is not met, then the options are irrevocably

forfeited.

2005 plan:

Approximately 10 % of the stock subscription options awarded

to members of the Group Executive Committee are subject to

a more demanding performance condition. After deduction

of this 10 % portion, half of the remaining options is subject

to the “conditional system” above, and the other half is free

from performance conditions. The 10 % of options subject

to this enhanced performance condition may be exercised if

the SUEZ share price on 8 December 2009 (as measured by

the arithmetic mean of the share price during the previous 20

trading days) is equal to or greater than the exercise price of

the options, adjusted for the change in the Eurostoxx Utilities

Index observed over the period 8 December 2005 through

8 December 2009, plus 1 % per annum. If this condition is met,

then the associated options may be exercised; if the condition

is not met, then the options are irrevocably forfeited.

40.1.2 Stock options plans in force

The current situation concerning the SUEZ stock option plans

in which there was participation by the Electrabel executives

concerned is described below.

Under the terms of the applicable French law (art. 174 of

Decree 67-236 of 23 March 1967 concerning commercial

companies), the capital increase of € 2.37 billion in cash on

13 October 2005 had the effect of modifying the exercise price

and the number of options at the date of the capital increase.

The table below shows the result of this adjustment.



Stock subscription options

plan

Date of authorizing

SM Vesting dateStrike price

Outstanding options at

13.10.2005Options granted

Options exercised

Options cancelled

Outstanding options at

31-12-2005Expiry

date

Remaining contractual

life

28.11.2000 (*) 05.05.2000 28.11.2004 34.39 6 643 409 - - 71 475 6 571 934 28.11.2010 4.9

21.12.2000 (*) 05.05.2000 21.12.2004 35.74 3 026 078 - - - 3 026 078 20.12.2010 5.0

28.11.2001 (*) 04.05.2001 28.11.2005 32.59 13 067 309 - - 39 453 13 027 856 27.11.2011 5.9

20.11.2002 04.05.2001 20.11.2006 16.69 9 221 577 - 8 153 10 987 9 202 437 19.11.2012 6.9

19.11.2003 04.05.2001 19.11.2007 13.16 8 114 792 - - 12 706 8 102 086 18.11.2011 5.9

17.11.2004 03.05.2004 17.11.2008 17.88 8 799 389 - - 44 045 8 755 344 16.11.2012 6.9

09.12.2005 13.05.2005 09.12.2009 24.20 - 6 531 100 - - 6 531 100 09.12.2013 7.9

total 48 872 554 6 531 100 8 153 178 666 55 216 835

Stock options

31.01.2000 (*) 11.06.1998 31.01.2005 28.46 919 904 919 904 31.01.2008 2.1

total 919 904 - - - 919 904

totAl 49 792 458 6 531 100 8 153 178 666 56 136 739(*) Exercisable plans.

40.1.3 fair value of stock options plans in force

Stock option plans are valued based on a binomial model using the following assumptions:

plan 2005 2004 2003

Volatility (1) 31.25 % 29.66 % 28.04 %

Discount rate (2) 3.25 % 3.70 % 4.30 %

Dividend in € (3) 0.8 0.8 0.7

Fair value of option at grant date (in €) 7.24 4.35 3.11

(1) The volatility calculated corresponds to a moving average of volatilities over the life of the plan.

(2) The discount rate corresponds to a risk-free rate over the life of the plan.

(3) Last dividend paid.

Due to the difficulties in valuing the restrictions applicable

under the “conditional system” and “enhanced conditional

system” as described above, no discount has been applied

in relation to these restrictions for calculating the value of

the options.

The change recorded during the financial year amounts to

€ 2.5 million in 2005, for the part which is borne by the

Electrabel accounts. This charge is balanced by an increase

in the share capital for the same amount.

As allowed under IFRS 2, an expense has been recognised

only for options granted after 7 November 2002 which had

not yet vested at 1 January 2005.

40.2 Employee share issues

Personnel in the Electrabel group were able to benefit from

the programme giving them a stake in the development of the

SUEZ group by means of share issues reserved for members

of personnel.

40.2.1 description of the proposed formulas

Members of personnel can subscribe to the share issues

reserved for them under the Group’s company savings scheme.

There are two formulas for making such subscriptions:

Spring Classic: this formula enables members of personnel

to subscribe to SUEZ shares, either directly or through the

intermediary of an FCPE (“Fonds Commun de Placement

d’Entreprise” = Company Shared Investment Fund), at a

discount on the price listed on the stock exchange.

•



Spring Multiple: this formula enables members of personnel

to subscribe to a number of SUEZ shares, either directly or

through the intermediary of an FCPE, enabling them to

benefit from the positive performance of the shares (lever

effect) once the blocking period has ended.

In the case of the Spring Multiple formula, specifically when

subscribing to the SUEZ shares directly, the beneficiary obtains

a Stock Appreciation Right (SAR) giving entitlement to receive

(in cash) a performance multiplier on the shares after the

5-year blocking period has expired. In accordance with IFRS 2,

this results in a debt towards the member of personnel on

the part of SUEZ. This debt is also covered by the warrants

subscribed by SUEZ.

40.2.2 Remuneration charge for 2005

In the case of the 2005 plan, the subscription price is

defined as the reference price on the date of allocation,

minus a discount of 20 %, amounting to € 18.2.

Excluding the SAR, charges to the accounts is determined

by the difference between the actual value of the share

• subscribed and the subscription price. This charge has been

estimated by the Group using the method determined by

the “Conseil National de la Comptabilité Français” (French

National Accounting Council), taking into account the fact

that the shares cannot be disposed of during a period of 5

years, as required by French law. The assumptions on which

the estimate is based are as follows:

Risk-free 5-years interest rate 2.60 %

Spread of the retail bank network 2.35 %

Financing rate for an employee 4.95 %

Lending cost of securities 1 %

This results in a charge of € 0.5 million for the Electrabel

group as at 31 December 2005 for the part that concerns it,

balanced by an identical increase in the share capital.

Stock Appreciation Rights:

The impact of these programmes on the accounts is a charge

recorded for the acquisition period of the rights, balanced by

an identical increase in the share capital. The impact on the

result for 2005 is not significant.

Note 41:

transactions with related parties

The amount of transactions and outstanding balances between Electrabel S.A. and its fully controlled subsidiaries are eliminated

in consolidation and are therefore not included in the following information.

parent SuEZ S.A.

In € million 31.12.2005 31.12.2004

tRANSACtIoNS WIth thE pARENt:

Purchase of services -5 -3



Entities related to the parent

In € million 31.12.2005 31.12.2004

tRANSACtIoNS WIth ENtItIES RElAtEd to thE pARENt:


Purchase of goods -1 839 -1 575

Purchase of assets - -

Sale of services 3 10

Sale of goods 23 26

Sale of assets - -

Finance income 71 87

Finance cost -4 -3

outStANdINg BAlANCES WIth ENtItIES RElAtEd to thE pARENt:

Non financial receivables 77 52

Financial receivables 421 500

Cash and cash equivalents 648 1 136

Non financial liabilities -433 -323

Financial liabilities -56 -125

guARANtEES gIvEN to thIRd pARtIES oN BEhAlf of ENtItIES RElAtEd to thE pARENt:

Personal guarantees given 40 40

The transactions and outstanding balances are essentially

related to operations with Cosutrel C, Distrigas, Fabricom, SUEZ-

TRACTEBEL, SUEZ Energy South America and Tecnubel.

Most transactions with entities related to the parent, are

purchase transactions with Distrigas. The outstanding balances

relate for the most part to receivables from SUEZ Energy

South America, cash and cash equivalents transferred to

SUEZ-TRACTEBEL and liabilities with Distrigas.

Joint ventures

In € million 31.12.2005 31.12.2004

tRANSACtIoNS WIth JoINt vENtuRES:

Purchase of services -6 -

Purchase of goods -171 -

Purchase of assets - -

Sale of services 4 -

Sale of goods 77 15

Sale of assets 27 -

Finance income 10 -

Finance cost - -

outStANdINg BAlANCES WIth JoINt vENtuRES

Non financial receivables 25 -

Financial receivables 340 149

Cash and cash equivalents - -

Non financial liabilities -61 -

Financial liabilities - -



Information on joint ventures was included for 100 %. The

numbers are not adjusted for the percentage that was used for

the preparation of the consolidated financial statements.

The purchase and sales transactions of goods were for the

most part concluded with AceaElectrabel Trading, whereas

the sale of assets relate to a transaction with AceaElectrabel

Produzione. The outstanding balances are with Electrabel

Acea, Zandvliet Power and Roselectra.


In € million 31.12.2005 31.12.2004

tRANSACtIoNS WIth ENtItIES ACCouNtEd foR uSINg thE EquIty mEthod:


Purchase of goods -1 373 -1 695

Sale of services 1 531 1 541

Sale of goods 766 993

Finance income 25 50

Finance cost -3 -13

outStANdINg BAlANCES WIth ENtItIES ACCouNtEd foR uSINg thE EquIty mEthod

Non financial receivables 1 338 1 535

Financial receivables 1 162 1 672

Non financial liabilities -358 -394

Financial liabilities -26 -177

guARANtEES gIvEN to thIRd pARtIES oN BEhAlf of ENtItIES ACCouNtEd foR uSINg thE EquIty mEthod

Personal guarantees given 30 61

Except for certain purchase and sales transactions of goods with CNR (Compagnie Nationale du Rhône), all changes in the balances

are related to transactions with mixed intermunicipal distribution companies and with Elia.

Remuneration of key management personnel

Key management personnel include members of the Board as well as members of the executive and general management

committees.

In € million 31.12.2005 31.12.2004

Short-term employee benefits 9.7 9.7

Post-employment Benefits 0.8 0.7

Other long-term employee benefits - 0.1

Termination benefits - 6.4

Share-based payments 0.6 0.6

totAl 11.1 17.5

The amounts described in the above table include social contributions taken in charge by the company as well as amounts that

could be, if necessary, released back.



Some current cases can be considered as “contingent assets

or liabilities” in the sense of the IFRS definition. The most

important of these are described briefly below, together with

the main pending disputes and uncertainties.

Regulated tariffs (transmission of electricity / distribution of gas and electricity)

As described in the Electricity Act (29 April 1999) and the Gas

Act (12 April 1995), and confirmed in later Royal Decrees (those

of 22 December 2000 and 7 February 2002), the transmission

and distribution network operators are subject to the control

and approval of the CREG (Commission for Regulation of

Electricity and Gas) as regards to budgets of the regulated

entities and application of their annual tariffs.

For companies in the Group active in transmission of electricity

(Elia) and distribution of electricity and gas (mixed intermunicipal

companies), the actual regulatory environment in which they

operate is relatively recent and is still changing.

Since their tariffs do not enable them to cover their costs in

the long term, operators concerned have brought cases in

front of the ordinary courts and the Council of State, asking

for certain decisions on part of regulator to be quashed. In

their pleas, operators contest the regulator’s interpretation

of the regulations. These court cases are ongoing.

The main issues under discussion and litigation with the CREG

are: unjustified and arbitrary cost reductions imposed on the

distribution network operators in Flanders; rejection of certain

expenses because of unclear definition of “recoverable costs”

in the tariffs; and required allocation of the surplus/deficit

(difference between the budget approved by the regulator

and actual situation).

The Act of 14 June 2005 amending the Act of 29 April 1999 on

the organisation of the electricity market introduces long-term

tariffs and also imposes a requirement to define the method

used to determine total revenue (final determination and

validation of the RAB-‘Regulated Asset Base’) and fair margins

for setting the tariffs. However, the decrees implementing this

Act still have to be issued, but they are expected to become

effective in 2007.

Appointment of the network operator in the liège region

The City of Liège and Electrabel S.A. are partners in the

Intermosane intermunicipal company for distribution in the

Liège area since 1967. With the deregulation of the electricity

market in Wallonia, the City proposed that ALE should be

appointed as network operator to replace Intermosane, and

as supplier to customers who are still regulated. The Walloon

Government duly appointed ALE, on condition that the latter

had to acquire ownership of the Liège network, or at least

the operating rights.

In response, Intermosane and Electrabel brought the necessary

court actions to defend their interests. These actions are still

pending. As a consequence, Intermosane and Electrabel are

still active in the Liège area.

Seanergy project

On 30 June 2005, the Council of State rejected one of the

actions to quash the planning permission for construction of

the “Electrabel Seanergy” offshore wind farm, and reversed

the suspension of this planning permission. The Belgian

government reacted on 25 July 2005 by revoking the permits.

Electrabel, its industrial partner and Electrabel Seanergy in turn

brought an action in front of the Council of State, seeking to

quash the revocation. Faced with several claims for damages

and breach of contract from various contractors hired to build

the offshore project, the partners in turn sued the Belgian

government to recover damages. Negotiations are now being

held with contractors and the Belgian government with a

view to settling out of court.

Cogen certificates (WKK)

Electrabel brought an action in front of the Council of State

contesting the method used to calculate the amounts of the

cogeneration certificates granted for the cogen unit built

on a site belonging to Total. The determining factors in this

Note 42:

Contingent assets and liabilities, other risks and uncertainties



calculation were the commissioning date of the unit and

recognition of all or part of the investment as being a cogen

unit. This action has been brought as a holding action pending

a negotiated settlement with VREG (the Flemish authority

for regulation of the electricity and gas market).

green certificates

Electrabel and Electrabel Customer Solutions (“ECS”) were

fined € 0.5 million and € 3.3 million, respectively, for not

submitting enough “green certificates” in 2003 in respect

of financial year 2002. ECS incurred a similar fine in 2004

amounting to € 18.6 million. Electrabel and ECS appealed

against these fines to the Council of State and the Court of

First Instance, claiming among other things force majeure

in the form of an unfavourable regulatory environment that

made it impossible for them to build the necessary “green

electricity” generating facilities in time. On 2 December 2005

an agreement was signed with VREG to put the contested

amounts in escrow pending an out-of-court settlement

(currently under negotiation).

Further, ECS paid a fine of around € 18 million for not

submitting enough certificates in 2005 for 2004, although

it has contested this fine in the meantime. The main argument

put forward by ECS is that the refusal by VREG to accept

the documentary evidence of green electricity having been

generated outside Flanders is incompatible with the rules of

the Belgian Economic Union, the EU and EFTA.

Synatom investment policy

Synatom, the “company for nuclear provisioning”, sets aside

provisions in its accounts to cover the costs of decommissioning

the nuclear power stations and reprocessing of fissile materials

when the power stations have come to the end of their life.

Synatom can lend up to 75 % of the total amount of these

provisions, at the rate for industrial loans, to nuclear operators

that qualify as first-class debtors. The latter qualification is

reviewed periodically on the basis of indebtedness ratio and

credit rating.

The balance not lent to operators must by law be invested

by Synatom in assets outside the nuclear operators, with

investments being sufficiently diversified to minimise the

credit risk. However, the independent committee responsible

for monitoring provisioning arrangements has ruled out the

investments made by Synatom. The committee has challenged

Synatom’s interpretation of the legal criteria for the types of

assets in which it can invest. As permitted by the legislation,

Synatom has appealed against this ruling to the Minister

of Energy.

Competition and cartels

The EU Commissioner for Competition has announced on

several occasions that “sectoral” investigations are being

prepared for the second half of 2005, in particular for the

energy sector. Such investigations are not aimed at a particular

operator, but instead consider the overall functioning of a

market such as the supply of gas or electricity. On this basis

the Directorate General for Competition has decided to set

up individual inquiries.

long-term energy contracts in hungary

The European Commission has opened a formal examination

procedure under the terms of the Commission’s treaty on state

subsidies, concerning the long-term contracts for purchases

of electricity which MVM Rt (the state-owned grid operator)

has made with electricity producers. The aim of the inquiry

is to obtain more information on these contracts, so as to

determine whether they form an obstacle to deregulation

of the electricity industry and present an undue obstacle to

competition.

Dunamenti Eromu Rt, in which the Electrabel group holds

a stake of 74.8 %, has signed such contracts which expire

between 2010 and 2015. In view of the above, together with

developments in local legislation concerning the electricity

industry, there are some uncertainties as to whether these

contracts can run to term. Discussions are currently being

held with MVM Rt.

deduction of environmental taxes (REB)

The Dutch tax authorities are examining the deductions made

for financial years 2002 and 2003 under the REB environmental

tax law (art. 360 WBM). The local authority in charge of

environmental matters has challenged the validity of these

deductions. Electrabel considers that all the conditions of

this law have been met and that the deductions for “green

energy” charged against the REB environmental tax are

justified. However, management has considered it preferable

to set aside provisions for part of the contested sums, up to

an amount that it considers adequate to cover the risk.



Stranded costs in the Netherlands

Under a purchase agreement of shares in EPON (since renamed

Electrabel Nederland) concluded in 2000, Electrabel submitted

a request to the Dutch court of arbitration in January 2003,

concerning a dispute with the former EPON shareholders

for payment of stranded costs incurred by these companies

before deregulation of the electricity industry; these costs

have since become very difficult or even impossible to recover

as a result of deregulation. A decision on the merits of the

case was handed down in September 2004, according to

which Electrabel cannot obtain compensation from the former

shareholders for these stranded costs. The Group lodged an

appeal against this decision with the ordinary civil court of

Amsterdam in December 2004. If Electrabel wins this appeal,

the case would be submitted to another civil court which

would decide on the merits of the case.

As a result of the same acquisition Electrabel also became a

shareholder in NEA, the former owner of the Dutch electricity

grid. The Group stands to obtain a residual liquidation bonus

from its stake in this company, if the procedures now in course

with NEA turn out positively.

tax risk in the Netherlands

The activities in the Netherlands are mainly financed by loans

from Cosutrel, the Group’s coordination center. The Dutch tax

authorities are presently considering whether the interest paid

to Cosutrel – amounting to € 210 million on 31 December

2005 – can be deducted for tax purposes. If the deduction is

not allowed, then in view of the current deficits this would lead

to a tax charge for Electrabel. However, the company considers

that this scenario is not very likely, and that there is no basis

for the position taken by the Dutch tax authorities.

other

Apart from the above-mentioned cases, the Group is involved,

as plaintiff or defendant, in various court cases relating to its

ordinary activities, which in the Company’s opinion are not

liable to have a significant impact overall for Electrabel.

On the basis of the information available, the provisions

together with the assets and liabilities appearing in the

accounts as at 31 December 2005 represent the best estimate

of the financial consequences for Electrabel.

To the Company’s knowledge there are no other disputes or

arbitration cases that are liable to have a significant impact,

or that have had a significant impact in the past, on the

financial situation, the results, the activities or the assets of

the Group.



Note 43:

other off-balance commitments and rights

The other off-balance commitments that are not mentioned in other notes are summarised as follows:

In € million 31.12.2005 31.12.2004

Commitments due to energy trading activities 126 104

Bank guarantees 695 644

Pledged shares 96 94

Other commitments 306 270

guarantees and commitments 1 223 1 112

Securities received on market 267 182

Received guarantees on payments 288 -

Rights linked with trading activities 477 457

Other rights 71 32

Received guarantees and rights 1 103 671

The major commitments of the Group relate to a ‘cross border

lease’. In this context the Group issued credit letters and

bank guaranties.

In 1999, Electrabel entered into a ‘cross border lease’ relating

to the production capacity of the Genk-Langerlo plant. This

transaction consisted on the one hand of a transfer by

Electrabel of the power rights of this plant to a third party

and on the other hand an agreement with the same third party

to repurchase this right. Electrabel prepaid the full amount of

lease payments to financial intermediaries which will make

the lease payments over the lease term. No liability towards

the lessor was recognised in the balance sheet. Legally this

liability is considered as reimbursed.

However, if the financial intermediaries fail to meet their

obligation to make the lease payments, Electrabel has to

pay the remaining amount. The commitment will decrease

over the lease term as the financial intermediaries making

the lease payments. At the end of 2005, this commitment

amounts to € 565 million.

Electrabel has also entered into a “cross border lease” on its

power plants in the Netherlands. The transactions were entered

into by Electrabel Nederland N.V. and provide third parties

– by means of independent legal entities- with long lease

and building rights on the assets. However, since Electrabel

Nederland N.V. retains the user rights and economic ownership

of these assets, the assets are recognised in the same way

as assets for which Electrabel Nederland N.V. has legal and

economic ownership. In relation to these transactions,

Electrabel has constructive and legal obligations as well as

rights. For the obligations Electrabel issued letters of credit

for an amount of €127 million.



Note 44:

Events after the balance sheet date

The entity is not aware of any events that occurred after the balance sheet date that require disclosure and/or that have a

significant impact on the financial statements.

Note 45:

list of major consolidated entities

fully consolidated investments

Name domicile vAt N°Interest % 31.12.2005

AlpEnergie Italia S.p.A. (1) Milan IT 12.603.500.153 100.00Brucall S.A. (2) Brussels BE 876.287.508 75.00Casmo Power Spain B.V. Amsterdam - 100.00Castelnou Energia S.L. Madrid ES B 82.459.702 100.00Cosutrel S.C.R.L. (division A) Brussels BE 442.100.363 53.05Cosutrel S.C.R.L. (division E) Brussels BE 442.100.363 100.00Dunamenti Eromu Rt. Százhalombatta - 74.82Electrabel Customer Solutions S.A. Brussels BE 476.306.127 95.80Electrabel Deutschland AG Berlin DE 202.634.064 100.00Electrabel España S.A. Madrid ES A 82.508.441 100.00Electrabel European Portofolio Management B.V (2) Zwolle NL 8073.42.051.B01 100.00Electrabel France S.A. Lyon FR 444.256.986 100.00Electrabel Green Projects Flanders C.V.B.A. Brussels BE 465.399.763 67.10Electrabel Green Projects Flanders WHH C.V.B.A. Brussels BE 862.382.557 67.09Electrabel Hungary Kft Százhalombatta - 100.00Electrabel International Holding B.V. Amsterdam NL 809.759.500.B01 100.00Electrabel Invest Luxembourg S.A. Luxembourg - 100.00Electrabel Italia S.p.A. Rome IT 06.289.781.004 100.00Electrabel Italia SIM (2) Rome IT 08.263.671.003 100.00Electrabel Nederland Beheermaatschappij B.V. Zwolle - 100.00Electrabel Nederland Coöperatieve UA Zwolle - 100.00Electrabel Nederland Holding B.V. Zwolle NL 808.013.269.B01 100.00Electrabel Nederland N.V. Zwolle NL 807.342.051.B01 100.00Electrabel Nederland Sales B.V. (2) Zwolle NL 809.502.318.B01 100.00Electrabel Nederland Services B.V. (2) Zwolle NL 8073.42.051.B01 100.00Electrabel Netten Vlaanderen N.V. Merelbeke BE 477.445.084 100.00Electrabel Polska Sp.z.o.o. Katowice PL 866.15.32.643 100.00Elektrownia im.Tadeusza Kósciuszki Spólka Akcyjna w Polancu Polaniec PL 867.00.01.429 100.00Elpoautomatyka Polaniec PL 866.16.01.433 100.00Elpoeko Polaniec Polaniec PL 629.21.76.802 100.00Elpoinformatyka Polaniec PL 866.16.04.348 100.00Elpolab Polaniec PL 866.16.01.427 100.00Elpologistyka Polaniec PL 866.16.01.462 100.00Elporem Polaniec PL 866.16.01.479 100.00Elpoterm Polaniec PL 866.16.01.410 100.00Energie SaarLorLux AG Saarbrücken DE 204.366.919 51.00Hidrobages S.A. Madrid ES A 08.762.395 100.00Laborelec S.C.R.L. Linkebeek BE 400.902.582 100.00Morata Energia S.L. (2) Madrid ES B 82.709.700 100.00N-Allo France S.A.S. (2) Saint-Avertin FR 483.036.406 65.00N-Allo S.C.R.L. Brussels BE 466.200.311 99.91Parque Eólico Terras Altas de Fafe (2) Lisbonne PT 506.084.019 100.00Rosignano Energia S.p.A. (‘Rosen’) Rosignano IT 01.079.020.499 99.50Société Hydroélectrique du Midi (SHEM) (2) Paris FR 04.552.139.388 80.00Spark Energy N.V. Zwolle NL 808.521.482.B01 100.00Synatom S.A. Brussels BE 406.820.671 100.00Teveo N.V. Oostende BE 406.933.410 99.97Twinerg S.A. Esch-sur-Alzette LU 175.44.021 65.00

(1) Entity was recognised for 50 % using the Equity Method in 2004.(2) New entity in the consolidation.



Interests recognised using proportionate consolidation


AceaElectrabel Elettricità S.p.A. Rome IT 07.305.361.003 40.59

AceaElectrabel Produzione S.p.A. Altino IT 02.019.870.696 70.30

AceaElectrabel S.p.A. Rome IT 05.863.631.007 40.59

AceaElectrabel Toller S.p.A.(1) Rome IT 08.276.981.001 70.30

AceaElectrabel Trading S.p.A. Rome IT 02.018.600.698 50.00

ElectrabelAcea S.p.A. Rome IT 07.242.791.007 70.00

Roselectra S.p.A.(2) Rosignano IT 01.388.480.491 69.94

Tirreno Power S.p.A. Rome IT 05.848.381.009 35.00

Umbria Energia S.p.A.(1) Terni IT 01.313.790.550 20.30

Voghera Energia S.r.l.(3) Voghera IT 01.889.170.187 56.24

Zandvliet Power N.V. Antwerp BE 477.543.470 50.00

(1) New entity in the consolidation.(2) Fully consolidated and interest of 99.50 % in 2004.(3) Fully consolidated and interest of 80.00 % in 2004.

Interests accounted for using the Equity method


Belgium Electricity Lines Engineering S.A.(1) Brussels BE 471.869.861 27.45

CN’Air (2) Lyon FR 33.450.809.835 49.98

Compagnie Nationale du Rhône S.A. Lyon FR 957.520.901 49.98

Elia Assets S.A.(1) Brussels BE 475.028.202 27.45

Elia System Operator S.A.(1) Brussels BE 476.388.378 27.45

Energie du Rhône S.A.S. Lyon FR 435.080.866 69.49

Energieversorgung Gera G.m.b.H Gera DE 150.518.454 49.90

Generg SGPS Lisbonne PT 504.680.544 42.50

Kraftwerke Gera G.m.b.H. Gera DE 158.885.818 49.90

(1) Decrease of interest which was 64.05 % in the past, due to the issuance of the Elia-shares on the stock market.(2) New entity in the consolidation.



Interests accounted for using the Equity method: intermunicipal entities

Name domicile vAt N°

Share in the activities (%) 31.12.2005

Electricity gaz tv

Gaselwest Roeselare BE 215.266.160 62.75 68.16 23.9

Ideg S.C.R.L. Namur BE 201.400.308 47.51 99.66 -

I.E.H. S.C.R.L. Charleroi BE 223.414.061 49.51 - -

I.G.A.O. C.V.B.A. Antwerp BE 204.889.734 - 52.55 -

Igeho S.C.R.L. Tournai BE 202.500.366 - - 99.15

I.G.H. S.C.R.L. Charleroi BE 228.524.872 - 57.87 -

Imea C.V.B.A. Antwerp BE 204.647.234 51.25 - 33.33

Imewo C.V.B.A. Eeklo BE 215.362.368 62.25 57.85 -

Inatel S.C.R.L. Fosses-la-Ville BE 213.329.625 - - 58.76

Interest S.C.R.L. Eupen BE 205.843.502 49.01 - 50.00

Intergem C.V.B.A. Dendermonde BE 220.764.971 52.31 61.8 4.35

Interlux S.C.R.L. Arlon BE 204.360.687 92.11 99.98 -

Intermosane S.C.R.L. Liège BE 204.260.125 34.15 50.00 50.00

Interteve C.V.B.A. Lier BE 213.011.505 - - 50.00

Iveka C.V.B.A. Malle BE 222.030.426 40.00 50.11 5.00

Iverlek C.V.B.A. Leuven BE 222.343.301 50.00 59.02 99.93

Sedilec S.C.R.L. Louvain-la-Neuve BE 222.548.583 49.00 83.32 -

Seditel S.C.R.L. Louvain-la-Neuve BE 222.592.531 - - 50.00

Sibelga S.C.R.L. Brussels BE 222.869.673 46.03 47.01 -

Sibelgas S.C.R.L. Brussels BE 229.921.078 50.00 50.00 -

Simogel S.C.R.L. Mouscron BE 201.258.172 66.09 81.14 53.69

Telekempo C.V.B.A. Ekeren BE 213.011.604 - - 50.00

Telelux S.C.R.L. Marche-en-Famenne BE 212.686.950 - - 71.26

Tevelo C.V.B.A. Beveren BE 213.051.491 - - 50.00

Teveoost N.V. Lokeren BE 212.057.935 - - 52.98

Tevewest N.V. Brugge BE 212.004.089 - - 50.00



Note 46:

Average number of personnel

The evolution of the average number of personnel of the Group in full time equivalents per entity is as follows:

31.12.2005 31.12.2004

ElECtRABEl S.A. ANd SuBSIdIARIES

AlpEnergie Italia S.p.A. Milan 9 -

Brucall S.A. Brussels 42 -

Castelnou Energia S.L. Madrid 24 -

Dunamenti Eromu Rt. Százhalombatta 429 440

Electrabel Deutschland AG Berlin 62 49

Electrabel España S.A. Madrid 22 16

Electrabel S.A. Brussels 8 717 9 075

Electrabel France S.A. Lyon 32 20

Electrabel Hungary Kft Százhalombatta 16 16

Electrabel Italia S.p.A. Rome 13 11

Electrabel Italia SIM Rome 2 -

Electrabel Nederland N.V. Zwolle 745 804

Electrabel Nederland Sales B.V. Zwolle 100 -

Electrabel Netten Vlaanderen N.V. Merelbeke 2 989 3 180

Electrabel Nordic A.S. Oslo - 6

Electrabel Polska Sp.z.o.o. Katowice 20 17

Elektrownia im.Tadeusza Kósciuszki Spólka Akcyjna w Polancu and subsidiaries Polaniec 1 389 1 446

Energie SaarLorLux AG Saarbrücken 101 102

Laborelec S.C.R.L. Linkebeek 159 177

N-Allo S.C.R.L. Brussels 724 651

Rosignano Energia S.p.A. (‘Rosen’) Rosignano 28 29

Société Hydroélectrique du Midi (SHEM) Paris 215 -

Spark Energy N.V. Zwolle - 66

Synatom S.A. Brussels 16 17

Twinerg S.A. Esch-sur-Alzette 20 19

15 874 16 141

JoINt vENtuRES (foR CoNSolIdAtEd pRopoRtIoN)

AceaElectrabel Elettricità S.p.A. Rome 81 65

AceaElectrabel Energia S.p.A. Altino - 15

AceaElectrabel Produzione S.p.A. Altino 86 83

AceaElectrabel S.p.A. Rome 1 1

AceaElectrabel Trading S.p.A. Rome 10 6

Roselectra S.p.A. Rosignano 7 1

Tirreno Power S.p.A. Rome 234 254

Voghera Energia S.r.l. Voghera 18 19

437 444

totAl 16 311 16 585


Consolidated financial statements4 Statutory Auditors’ report4

Statutory Auditors’ report

Statutory Auditors’ report on the consolidated financial statements for the year ended 31 december 2005 presented to the shareholders’ meeting

To the Shareholders

In accordance with the legal and statutory requirements, we are pleased to report to you on the performance of the audit

mandate which has been entrusted to us.

We have audited the consolidated financial statements of Electrabel SA (‘the company’) and its subsidiaries (jointly ‘the Group’),

prepared in accordance with International Financial Reporting Standards as adopted by the European Union and with the legal

and regulatory requirements applicable in Belgium, which comprise the consolidated balance sheet as at 31December 2005, the

consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for

the year then ended, as well as the summary of significant accounting policies and other explanatory notes. The consolidated

balance sheet amounts to € 29,382 million and the consolidated profit for the year then ended amounts to € 2,083 million. We

have also carried out the specific additional audit procedures required by the law.

The preparation of the consolidated financial statements and the Directors’report on the consolidated financial statements, the

assessment of the information that should be included in the Directors’report on the consolidated financial statements and the

company’s compliance with the requirements of the law and the articles of association are the responsibility of the board of

Directors.

Our audit of the consolidated financial statements was conducted in accordance with legal requirements and auditing standards

applicable in Belgium, as issued by the “Institut des Reviseurs d’Entreprises/Instituut der Bedrijfsrevisoren”.

unqualified audit opinion on the consolidated financial statements

The above mentioned auditing standards require that we plan and perform our audit to obtain reasonable assurance about

whether the consolidated financial statements are free of material misstatement.

In accordance with those standards, we considered the Group’s administrative and accounting organization as well as its internal

control procedures. We have obtained the explanations and information required for our audit. We have examined, on a test basis,

the evidence supporting the amounts in the consolidated financial statements. We have assessed the accounting policies used,

the consolidation principles and significant accounting estimates made by the company and the overall consolidated financial

statements presentation. We believe that our audit provides a reasonable basis for our opinion.

&


Consolidated financial statements 4Statutory Auditors’ report 4

In our opinion, the consolidated financial statements as of 31 December 2005, give a true and fair view of the Group’s financial

position, results and cash flows in accordance with International Financial Reporting Standards as adopted by the European Union

and with the legal and regulatory requirements applicable in Belgium.

Additional certifications

We supplement our report with the following certifications which do not modify our audit opinion on the consolidated financial

statements:

The Directors’report on the consolidated financial statements includes the information required by law and is in agreement

with the consolidated financial statements. We are, however, unable to comment on the description of the principle risks and

uncertainties which the Group is facing, and of its situation, its foresable evolution or the significant influence of certain facts

on its future development. We can nevertheless confirm that the matters disclosed do not present any obvious contradiction

with the information of which we became aware during our audit.

24 March 2006

The Statutory Auditors

•

dEloIttE Reviseurs d’entreprises

S.C s.f.d. SCRL

Represented by P. Maeyaert and J. Vlaminckx.

ERNSt & youNg Reviseurs d’entreprises

SCC

Represented by V. Etienne and P. Anciaux.


Consolidated financial statements4 Statutory Auditors’ report4


5 Annual accounts Electrabel S.A.

Introduction p. 158


Assets p 159

Liabilities p 159



&

&

&

&


Annual accounts Electrabel S.A.5

Introduction

In view of the importance of the parent Company’s capital

and turnover figures in the consolidated accounts, a more

detailed publication of the statutory annual accounts and the

associated commentary in this brochure would be redundant

in most instances since it would merely be repeating the

explanations given in the consolidated accounts.

In agreement with the Companies Code, it has been decided

to present an abbreviated version of the statutory annual

accounts of Electrabel S.A.

The College of Statutory auditors has published an unreserved

report on the statutory annual accounts of Electrabel S.A.

Those documents have been submitted to the National Bank of

Belgium and are available on the website www.electrabel.com.

A copy may be obtained simply by writing to the following

address:

Electrabel

Boulevard du Régent 8

B-1000 Brussels

Belgium

Tel. + 32 2 518 65 99

Fax + 32 2 511 65 99

&

Introduction

&


Annual accounts Electrabel S.A. 5

Balance sheet – € thousand

Assets&

31.12.2005 31.12.2004

FIxEd ASSEtS 10 921 954 11 751 819

Formation expenses - -

Intangible assets 104 273 68 674

Tangible assets 1 442 506 1 554 955

Financial assets 9 375 175 10 128 190

CurrEnt ASSEtS 8 675 107 7 122 938

Amounts receivable after more than one year 1 818 2 274

Stocks and contracts in progress 198 582 201 161

Amounts receivable within one year 1 632 410 2 473 705

Short-term investments 6 469 447 4 170 729

Cash and cash equivalents 203 998 187 821

Prepayments and accrued income 168 852 87 248

totAl ASSEtS 19 597 061 18 874 757

Liabilities&

31.12.2005 31.12.2004

CApItAl And rESErvES 7 177 198 6 673 222

Capital 2 072 722 2 072 722

Share Premiums 927 566 927 566

Reserves 4 014 732 3 536 802

Profit brought forward 162 033 135 982

Investment grants 145 150

provISIonS And dEFErrEd tAxES 566 396 615 207

Provisions for liabilities and charges 566 396 615 207

AmountS pAyABlE 11 853 467 11 586 328

Amounts payable after more than one year 6 918 098 6 546 298

Amounts payable within one year 4 538 699 4 741 344

Accruals and deferred income 396 670 298 686

totAl EquIty And lIABIlItIES 19 597 061 18 874 757

&

Balance sheet


Annual accounts Electrabel S.A.5

Appropriation account – € thousand

31.12.2005 31.12.2004

proFIt to BE ApproprIAtEd 2 175 560 1 078 290

Profit for the period available for appropriation 2 039 578 960 737

Profit brought forward from previous year 135 982 117 553

ApproprIAtIon to CApItAl And rESErvES -1 100 000 -75 000

To legal reserve - -

To other reserve -1 100 000 -75 000

rESult to BE CArrIEd ForwArd -162 033 -135 982

Profit to be carried forward -162 033 -135 982

proFIt to BE dIStrIButEd -913 527 -867 308

Dividends -910 978 -864 880

Directors’ fees -2 549 -2 428

If the proposed allocation of the profit is approved, and taking into account the tax regulations, the total net dividend, off witholding tax, per share will be fixed at: 12.4500 € 11.8200 €

With STRIP VVPR: 14.1100 € 13.3960 €

&

Income statement – € thousand

31.12.2005 31.12.2004

Operating income 9 073 296 8 840 908

Operating charges 8 289 221 8 113 021

opErAtIng rESult 784 075 727 887

Financial income 1 023 650 902 911

Financial charges 397 896 460 131

Financial result 625 754 442 780

prE-tAx opErAtIng rESult 1 409 829 1 170 667

Exceptional income 171 896 281 765

Exceptional charges 7 396 354 129

Exceptional result 164 500 -72 364

prE-tAx proFIt For thE yEAr 1 574 329 1 098 303

Taxes on profit 156 821 142 232

proFIt For thE yEAr 1 417 508 956 071

Removal from untaxed reserves 622 070 4 666

proFIt For thE yEAr AvAIlABlE For ApproprIAtIon 2 039 578 960 737

&

Income statement - Appropriation account


Tables p. 162

Glossary p. 167


Information p. 170

&

&

&

&


Tables

Energy balance – in GWh

2005 2004 %1. Generation of Belgian nuclear power plants operated by Electrabel 45 169.4 44 898.9 0.6

2. Drawings on nuclear power plants outside Belgium 7 832.3 7 835.2 0.0

3. Generation of Belgian thermal and hydroelectric power plants operated by Electrabel(1) 24 083.3 23 483.3 2.6

4. Generation of thermal power plants operated by Electrabel outside Belgium 38 628.9 36 965.0 4.5

5. Generation of Belgian combined heat and power units 5 078.8 5 163.7 -1.6

6. Purchases on the markets and from other producers 32 227.9 27 707.2 16.3

7. Purchases from Belgian in-plant generators 178.8 201.4 -11.2

8. Generated, drawn and purchased energy (1 + 2 + 3 + 4 + 5 + 6 + 7) 153 199.4 146 254.7 4.79. Supplies to various producers 4 948.6 4 956.7 -0.2

10. Energy absorbed by pumping 1 777.7 1 696.6 4.8

11. Available energy (8 - 9 - 10) 146 473.0 139 601.4 4.912. Losses 1 026.4 811.5 26.5

13. Sales by Electrabel group – generation (11 - 12) 145 446.7 138 789.9 4.814. Direct customers 135 887.6 125 456.5 8.3

a) open market in Belgium(2) 55 910.2 56 425.5 -0.9

b) outside Belgium 47 220.6 43 645.4 8.2

c) wholesale 32 756.8 25 385.6 29.0

15. Distributors in Belgium 9 559.1 13 333.4 -28.3

a) sales to mixed intermunicipal companies 8 413.0 11 590.4 -27.4

b) sales to other distributors 1 146.1 1 743.0 -34.2

16. Other direct purchases by Belgian mixed intermunicipal companies 427.5 606.5 -29.5

17. Energy purchased by Belgian mixed intermunicipal companies (15a + 16) 8 840.5 12 196.9 -27.518. Losses 664.6 836.4 -20.5

19. Sales by Belgian mixed intermunicipal companies (17 - 18) 8 175.9 11 360.5 -28.0a) customers regulated market 8 075.4 11 149.8 -27.6

b) distributors not associated with Electrabel 100.6 210.7 -52.3

20. Consolidated final sales by Electrabel group 145 209.6 138 560.0 4.8a) customers open and regulated markets (14 + 19a) 143 962.9 136 606.3 5.4

b) distributors not associated with Electrabel (15b + 19b) 1 246.7 1 953.7 -36.2

(1) Final net generation.(2) Including the customers of Electrabel Customer Solutions.

Main evolution of generating facilities in 2005 – in MW

New capacity Country Commissioned Under construction ProjectCoMbINEd CyClE GaS TUrbINEZandvliet Power (50 % Electrabel) Belgium 197.5

Amercoeur Belgium 420 (*)

Sidmar(4) Belgium 350 (*)

Flevo Netherlands 800

Fos-sur-Mer France 420

Site to decide Germany 800

Voghera Italy 385

Torrevaldaliga (repowering)(1) Italy 568.5

Tables

&


New capacity Country Commissioned Under construction ProjectCoMbINEd CyClE GaS TUrbINE

Vado Ligure (repowering)(1) Italy 382.5

Leinì Italy 385

Roselectra Italy 385

Napoli Levante (repowering)(1) Italy 187.5 (*)

Castelnou Spain 760

Morata de Tajuña Spain 1 200

Caelgese (Torrelavega) Spain 800

CoMbINEd hEaT aNd PoWErRömerbrücke (repowering) Germany 41

Several sites Belgium 150

CoNvENTIoNal ThErMal (Coal)Rotterdam Netherlands 750

Site to decide Germany 750

WINdfarMLanaken Belgium 8

Perwez(2) Belgium 7.5

BASF Belgium 18(*)

Büllingen Belgium 12(*)

Dour-Quiévrin Belgium 6

La Roche Belgium 8

Several sites Belgium 100

Strépy Belgium 4.6

Eems Netherlands 27

Flevo Netherlands 6

Beaucaire (CNR) France 11.5

Fos-sur-Mer (CNR) France 10

Several sites France 80

Several sites (AceaElectrabel) Italy 100

Doninhas (Generg) Portugal 0.85

Fafe (agreement with Gamesa) Portugal 80

Meadas (Generg) Portugal 9

Caramulo (Generg) Portugal 90

Pinhal (Generg) Portugal 128

Gardunha (Generg) Portugal 106

Videmonte (agreement with Gamesa) Portugal 32

Several sites (Generg) Portugal 68.25 (*)

Several sites (agreement with Gamesa) Portugal 101 (*)

Several sites Poland 160

NUClEar PoWEr STaTIoNDoel Belgium 40

hydroElECTrIC PoWEr STaTIoNSHEM France 4.5

Existing capacity decommissionedCoNvENTIoNal ThErMalDunamenti Hungary 362.9

CoMbINEd hEaT aNd PoWErVPK(3) Belgium 9.5

ENErGy rECovEryIVBO(3) Belgium 4

(*) Decision or engagement taken.(1) Ownership Tirreno Power (50 % ElectrabelAcea).(2) Joint venture with Air Energy.(3) End of contract.(4) Type of power station to be decided.

Tables


Composition of generating facilities end 2005 – in MW

Tables

Power station

Net generating

capacity fuels

bElGIUM 13 165.3CoMbINEd CyClE GaS TUrbINE 1 853

Drogenbos 460 Gn

Herdersbrug (Bruges) 460 Gn

Saint-Ghislain 350 L, Gn

Vilvoorde 385 Gn

Zandvliet Power (50% Electrabel) 197.5 Gn

CoMbINEd hEaT aNd PoWEr 805.1

Turbine 731.1

BP Chembel (Geel)(1) 43 Gn

Cockerill Sambre (Charleroi) 45 Gn, Gc, Gf

Degussa (Antwerp)(1) 43 Gn

Esso (Antwerp)(1) 38.8 Gn

Fluxys (Zeebruges)(1) 40 Gn

Ineos Phenol (Beveren)(1) 22.8 Gn

Langerbrugge 59 Gn

Lanxess (Lillo)(1) 43 Gn

Monsanto (Antwerp)(1) 43 Gn

Oudegem Papier(1) 14.5 Gn

SAPPI (Lanaken)(1) 43 Gn

Solvay (Jemeppe-sur-Sambre)(1) 94 Gn

Tate & Lyle (Aalst)(1) 48 Gn

Total Raffinaderij Antwerpen(1) 154 Gn

Engine 74 Gn, Bg

CoNvENTIoNal ThErMal GENEraTIoN 3 961.3

Conventional thermal 2 613

Amercoeur 256 S, L, Gn, Gc

Awirs 416 S, L, Gn, Bm

Kallo 522 L, Gn

Mol 255 S, L, Gn, Bm

Monceau 92 S, L, Gn, Gf

Rodenhuize 526 S, L, Gf, Bm

Ruien 546 S, L, Gn, Bm

Conventional thermal with repowering 935

Langerlo 602 S, L, Gn, Bm

Ruien 333 S, L, Gn, Bm

Power station

Net generating

capacity fuels

Gas turbine 108

Drogenbos 78 Gn

Mol 30 Gn

Turbojet 228

Aalter 18 L

Beerse 32 L

Buda 18 L

Cierreux 17 L

Deux-Acren 18 L

Ixelles 18 L

Noordschote 18 L

Schaerbeek 18 L

Turon 17 L

Zedelgem 18 L

Zeebruges 18 L

Zelzate 18 L

Energy recovery 77.3

Indaver (Beveren) 20

ISVAG (Wilrijk) 10.5

Schaerbeek 45

Dump 1.8

NUClEar GENEraTIoN 5 159.9

Doel 2 736.9 Nuclear fuel

Doel 1 392.5

Doel 2 433

Doel 3 965.8

Doel 4 945.6

Tihange 2 423.1 Nuclear fuel

Tihange 1 481

Tihange 2 967.7

Tihange 3 974.4

hydroElECTrIC 1 328.8

Pumped storage station 1 307

Coo I 474

Coo II 690

Silenrieux (Plate Taille)(2) 143


Power station

Net generating

capacity fuels

Hydroelectric power station 21.8

Bévercé 9.2

Bütgenbach 1.8

Cierreux 0.1

Coo-diversion 0.4

Heid-de-Goreux 8.1

La Vierre 1.9

Lorcé 0.1

Orval(3) 0.05

Rendeux (Bardonwez) 0.035

Stavelot 0.12

WINd farM 57.7

Bütgenbach 8

Gembloux(4) 6

Hoogstraten 12

Kasterlee 0.66

Lanaken 8

Pathoekeweg (Bruges) 3

Perwez(4) 7.5

Rodenhuize 4

Schelle 4.5

Wondelgem 4

ThE NEThErlaNdS 4 710.5CoMbINEd CyClE GaS TUrbINE 1 705

Eems 1 705 Gn

CoMbINEd hEaT aNd PoWEr 161

Turbine 161

Air Products (Rotterdam) 43 Gn

Almere 118 Gn

CoNvENTIoNal ThErMal GENEraTIoN 2 841

Conventional thermal 602

Gelderland (Nijmegen) 602 S, L, Bm

Conventional thermal with repowering 2 200

Bergum 664 Gn

Eems 695 Gn

Flevo 491 Gn

Harculo 350 Gn, Bm

Gas turbine 39

Eems 17 Gn

Flevo 22 Gn

Power station

Net generating

capacity fuels

WINd farM 3.5

Lelystad(5) 3.5

lUxEMboUrG 376.4CoMbINEd CyClE GaS TUrbINE 376.4

Esch-sur-Alzette 376.4 Gn

fraNCE 4 817.6

NUClEar GENEraTIoN 1 107.6

Chooz B(6) 650 Nuclear fuel

Tricastin 457.6 Nuclear fuel

hydroElECTrIC 3 710

Hydroelectric power station 3 710

CNR (19 stations) 2 937

SHEM (49 stations) 773

ITaly 2 224.7CoMbINEd CyClE GaS TUrbINE 1 072

Tor di Valle 118 Gn

Torrevaldaliga(7) 568.5 Gn, L

Voghera 385 Gn

CoMbINEd hEaT aNd PoWEr 379

Turbine 379

Rosen (Rosignano) 356 Gn

Tor di Valle 23 Gn

CoNvENTIoNal ThErMal GENEraTIoN 645.5

Conventional thermal 564.5

Napoli Levante(7) 115 Gn

Torrevaldaliga(7) 154 Gn, L

Vado Ligure(7) 295.5 S, L

Gas turbine 81

Montemartini 81 L

hydroElECTrIC 128.7


AceaElectrabel (7 stations) 97.3

Tirreno Power (17 stations)(7) 31.5

Tables


Power station

Net generating

capacity fuels

PorTUGal 163.7

hydroElECTrIC 33.2


Generg (9 stations) 33.2

WINd farM 130.5

Carreço-Outeiro (Generg) 20.7

Chaminé (Generg) 6.9

Doninhas (Generg) 0.85

Fafe 80

Meadas (Generg) 9

Vergão (Generg) 13

GErMaNy 295.5CoMbINEd hEaT aNd PoWEr 183.5

Turbine 183.5

Gera 74 Gn, L

Römerbrücke 109.5 S, Gn, L

CoNvENTIoNal ThErMal GENEraTIoN 112

Conventional thermal 112

Fenne (8) (9) 112 S

PolaNd 1 654CoNvENTIoNal ThErMal GENEraTIoN 1 654

Conventional thermal 1 654

Polaniec 1 654 S, Bm, L

Tables

37.1 %Nuclear 22.8 %

Conventional thermal

7.7 %Cogeneration

Hydroelectric and wind

12.4 %Combined cycle

gas turbine

20.0 %

131 TWh


12.4 %Energy recovery0.4 %

37.1 %Nuclear

1.2 %Fuel oil

131 TWh

Coal, biomass13.8 %

Gas35.1 %

37.1 %Nuclear 22.8 %

Conventional thermal

7.7 %Cogeneration


12.4 %Combined cycle

gas turbine

20.0 %

131 TWh


12.4 %Energy recovery0.4 %

37.1 %Nuclear

1.2 %Fuel oil

131 TWh

Coal, biomass13.8 %

Gas35.1 %

Generation by type of unit in 2005Net

Generation by fuel type in 2005Net

Power station

Net generating

capacity fuels

hUNGary 1 676.3CoMbINEd CyClE GaS TUrbINE 236.4

Dunamenti 236.4 Gn

CoMbINEd hEaT aNd PoWEr 201.5

Turbine 201.5

Dunamenti 201.5 Gn, L

CoNvENTIoNal ThErMal GENEraTIoN 1 238.4

Conventional thermal 1 238.4

Dunamenti 1 238.4 Gn, L

ToTal NET GENEraTING CaPaCITy 29 084.0(1) Industrial partnership.(2) Convention with the MET.(3) Ownership Orval.(4) Joint venture with Air Energy.(5) Commercialisation of generation.(6) Convention with EDF.(7) Ownership Tirreno Power (50 % ElectrabelAcea).(8) Convention with Saar Energie.(9) Supply of heat to the Saarbrücken region.

Fuels: Bg = biogas; Bm = biomass; Gc = gas from cokeries; Gf = gas from blast furnaces; Gn = natural gas; L = liquid fuel (fuel oil); S = solid fuel (coal).

In Belgium, Electrabel has power stations with heat generation in Aalst and Zwevegem (Bekaert).


Glossary

Glossary

autorità per l’energia elettrica e il gas (Italy)

Independent public authority, in charge of the regulation and

control of the electricity and natural gas sectors.

Commission de régulation de l’Énergie (france)

An independent administrative authority charged with

regulating the liberalised electricity and natural gas

markets.

dienst uitvoering en toezicht Energie (The Netherlands)

This organisation has the responsibility for implementing

the Dutch Electricity and Gas Acts, as well as supervising

compliance with these Acts. DTe falls under the Ministry of

Economic Affairs and has been included as a chamber within

the Dutch Competition Authority (NMa). As a result, effective

synergy is achieved between DTe and the other directorates

of NMa.

Eandis (belgium)

Single operator responsible on behalf of the Flemish mixed

distribution system operators for operating the electricity and

natural gas distribution networks in Flanders. It merges the

three former operators Netten Vlaanderen, GeDIS and the

Flemish platform of Indexis.

Electricity and Gas regulatory Commission (belgium)

An autonomous body, charged with advising the authorities

on the organisation and operation of the liberalised electricity

and natural gas markets. Moreover, it oversees and monitors

the application of relevant laws and regulations.

A General Council, consisting of representatives of the federal

and regional governments, of associations of employees,

employers and small businesses, of environmental associations,

and of generators, distributors and consumers, monitors its

operation.

Elia (belgium)

Company acting as Transmission System Operator. It is legally

independent and operationally autonomous. Elia is quoted on

the stock exchange. Its shareholders are the general public,

Electrabel, Publipart and the municipalities, represented by

Publi-T.

GrTN (Italy)

GRTN (Gestore della Rete di Trasmissione Nazionale) is

responsible for the operation of the Italian high-voltage

transmission system. The shares of GRTN are held by the

Ministry of Economic Affairs and Finance, exercising the

shareholder’s rights jointly with the Ministry of Production

Activities.

Intermixt (belgium)

Public utility organisation, comprising all municipal

representatives in the mixed intermunicipal companies for

the distribution of electricity, natural gas and cable TV.

laborelec (belgium)

Belgian laboratory for the electricity industry, a subsidiary

of Electrabel.

Mixed intermunicipal company (belgium)

Association of municipalities with the aim of providing public

utility services in partnership with a private partner, such as

Electrabel.

Netmanagement (belgium)

The brand under which Electrabel manages the electricity

and natural gas networks on behalf of distribution system

operators. These are responsible for the construction, operation

and maintenance of the distribution system in a given area.

In 2006 Electrabel will transfer these activities in Flanders and

Brussels to independent operators.

rTE (france)

Created by law, RTE (Réseau de Transport d’Électricité) is

the sole operator of the French high-voltage transmission

system.

TenneT (The Netherlands)

The transmission system operator for the national high-voltage

grid. The State is the sole shareholder.

&


Abbreviations&

Glossary

btob Business-to-Business (industry and companies)

btoC Business-to-Consumer (household and professional

customers)

btoP Business-to-Partner

CCGT Combined Cycle Gas Turbine

ChP Combined Heat and Power

CNr Compagnie Nationale du Rhône

CrEG Electricity and Gas Regulatory Commission (‘Commission

de Régulation de l’Électricité et du Gaz’ – Belgium)

CWaPE Walloon Committee for Energy (‘Commission

Wallonne pour l’Énergie’)

dSo Distribution System Operator

EbITda Earnings Before Interests, Taxes, Depreciation and

Amortization

EMaS Environmental Management and Audit Scheme

EU European Union

IbGE Brussels Institute for Management of the Environment

(‘Institut bruxellois pour la gestion de l’environnement’

– Belgium)

IfrS International Financial Reporting Standards

ISo International Organization for Standardization

rUE Rational use of energy

ShEM Société Hydroélectrique du Midi

TSo Transmission System Operator

vPP Virtual Power Plant

vrEG Flemish Regulatory Authority for Electricity and Gas

(‘Vlaamse Reguleringsinstantie voor de Elektriciteits-

en Gasmarkt’)

vvPr Reduced Withholding Tax (‘Verminderde Voorheffing/

Précompte Réduit’)

Symbols&

Energy

W watt

kW kilowatt (1 kW = 1 thousand W)

MW megawatt (1 MW = 1 million W)

GW gigawatt (1 GW = 1 billion W)

kWh kilowatt-hour (1 kWh = 1 thousand Wh)

MWh megawatt-hour (1 MWh = 1 thousand kWh)

GWh gigawatt-hour (1 GWh = 1 million kWh)

TWh terawatt-hour (1 TWh = 1 billion kWh)

J joule

MJ megajoule (1 MJ = 1 million J)

GJ gigajoule (1 GJ = 1 billion J)

MMBTU Millions of British Thermal Units

1 kWh = 3.6 MJ

1 MJ = 0.278 kWh

Electricity

V volt

kV kilovolt (1 kV = 1 thousand V)

LV low voltage (230 and 400 V)

MV medium voltage (1 to 30 kV)

HV high voltage (36 to 220 kV)

VHV very high voltage (380 kV)

A ampere

Gas

LP low pressure (< 0.1 bar)

MP medium pressure (0.1 to 15 bar)

HP high pressure (> 15 bar)

NG natural gas

LNG liquefied natural gas


Sites in Europe

BelgiumElectrabel S.A.

Boulevard du Régent 8

1000 Brussels, Belgium

www.electrabel.be

Tel. + 32 2 518 61 11

The NetherlandsElectrabel Nederland N.V.

Dr Stolteweg 92

8025 AZ Zwolle,

The Netherlands

www.electrabel.nl

[email protected]

Tel. + 31 38 427 29 00

LuxembourgTwinerg S.A.

201, route d’Ehlerange

4108 Esch-sur-Alzette,

Luxembourg

Tel. + 352 26 55 49 1

FranceElectrabel France S.A.

Le César

20 Place Louis Pradel

69001 Lyon, France

www.electrabel.fr

[email protected]

Tel. + 33 4 72 98 23 80

ItalyElectrabel Italia S.p.A.

Via Orazio 31

00193 Roma, Italy

www.electrabel.it

[email protected]

Tel. + 39 06 68 30 18 27

AceaElectrabel S.p.A.

Piazzale Ostiense 2

00154 Roma, Italy

Via dell’Arte 73-77

00144 Roma, Italy

www.aceaelectrabel.it

Tel. + 39 06 57 99 66 91

SpainElectrabel España S.A.

General Castaños 4

3a Planta

28004 Madrid, Spain

www.electrabel.es

[email protected]

Tel. + 34 91 310 62 70

Castelnou Energia, S.L.

General Castaños 4

3ª Planta

28004 Madrid, Spain

www.electrabel.es

[email protected]

Tel. + 34 97 882 80 15

GermanyElectrabel Deutschland AG

Friedrichstraße 200

10117 Berlin, Germany

www.electrabel.de

[email protected]

Tel. + 49 30 72 61 53 500

PolandElectrabel Polska Sp. z o.o.

ul. Uniwersytecka 13, Altus Building

40-007 Katowice, Poland

www.electrabel.pl

[email protected]

Tel. + 48 32 60 30 599

Electrabel Polaniec S.A.

Zawada 26

28-230 Polaniec, Poland

www.electrabel.pl

[email protected]

Tel. + 48 15 865 67 01

HungaryDunamenti Eromu Rt.

Eromu út 2

2440 Százhalombatta,

Hungary

[email protected]

Tel. + 36 23 544 161

Electrabel Magyarország Kft.

Csenterics u. 8

2440 Százhalombatta,

Hungary

[email protected]

Tel. + 36 23 544 161

Sites in Europe

&


Information

Electrabel S.a.

Boulevard du Régent 8 – 1000 Brussels

Belgium

www.electrabel.com

Tel. + 32 2 518 61 11

Fax + 32 2 518 64 00

VAT BE 403 170 701

RPM/RPR Brussels 0403.170.701

Investor relations

Jan Van Brabant

Tel. + 32 2 518 65 99

Fax + 32 2 511 65 99

[email protected]

all financial information on www.electrabel.com

The Annual report together with the detailed statutory annual

accounts of Electrabel S.A. can be found in PDF format on

www.electrabel.com

Here you will also find:

the agenda of the general meetings of 11 May 2006;

the most recent shareholder’s agenda;

all Annual reports from 1998 onwards;

all financial information about the company towards

investors and shareholders.

The yearly and half-yearly results will also be found under

‘Newsroom – Press releases’.

C’est avec plaisir que nous vous enverrons ce Rapport annuel

en français.

Graag bezorgen wij u dit Jaarverslag in het Nederlands.

•

•

•

•

activities report

Our Activities report 2005 is published

on www.electrabel.com in PDF format.

It is available as a brochure

in English, French and Dutch.

Environmental report

Our Environmental report 2005 is published

on www.electrabel.com in PDF format.

It is available as a brochure

in English, French and Dutch.

demands

For copies of these reports and other documents:

Electrabel

Boulevard du Régent 8 – 1000 Brussels

Belgium

www.electrabel.com

Tel. + 32 2 518 62 22

Fax + 32 2 518 64 00

&

Information

2

3

1 4

5

MessAge froM gérArd MestrAllet And JeAn-Pierre HAnsen p. 2

MAnAgeMent Bodies And Auditors p. 4

PAnorAMA electrABel grouP p. 5




directors’ rePort p. 11



corPorAte governAnce p. 31

Introduction p. 32

Board of Directors p. 33

Committees established by the Board of Directors p. 39

College of statutory auditors p. 43

Other information p. 44

consolidAted finAnciAl stAteMents p. 47



Balance sheet p. 52





AnnuAl Accounts electrABel s.A. p. 157

Introduction p. 158




tABles And glossArY p. 161

Tables p. 162

Glossary p. 167


Information p. 170

Surprising energy

This Annual report shows jugglers, musicians, rope-skippers

and artists that bring energy to life. Their attitudes and

movements express teamwork, cooperation and trust in

the partner. By working together, they each fulfil their own

projects. Just like Electrabel, striving to offer its customers

creative tailor-made solutions.

The playful images come from original models of the fanciful

Italian designer Silvio Pasquarelli. Various materials from the

electricity and natural gas business are transformed creatively

and turned into a surprising and energetic universe.

Colophon

This Annual report was produced by the Electrabel

Secretariat.

Graphic design and production by Labrador, Paris (France).

Photograph: Serge Verheylewegen.

Printing: Antilope, Lier (Belgium).

Responsible editor: Patrick van der Beken Pasteel

Boulevard du Régent 8, 1000 Brussels, Belgium.

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Annual report 2005

annual - ku leuven1)en… · staff: 438 sales: 13 667 gwh generation: 2 225 mw staff: 1 125...

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