Management Report on Company Business
Activities and Assets

BUSINESS ENVIRONMENT

The Economy in 2001

The world economies suffered a global recession in 2001, fuelled by the terrorist attack on the World Trade Centre on 11 September 2001. The Czech National Bank was forced to follow suit with the world's main central banks and cut interest rates. Even so, the Czech Republic's gross domestic product still registered growth of 3.6% year-on-year, which can be attributed in particular to fixed capital formation and household consumption. The annual inflation rate rose to 4.7%. Unemployment stood at 8.9%. The negative trend in unemployment continued, and was not even checked by the massive influx of foreign direct investment, which was reflected in a gradual appreciation of the Czech crown against the euro. As a result, the balance of payments registered a surplus of CZK 67.2 billion. The government's financing in 2001 closed with a central government budget deficit of CZK 67.7 billion.

Significant Events of 2001

In 2001, the energy market in the Czech Republic was preparing for the upcoming major changes in market conditions in the energy industry. The key topics included the privatization of the energy industry and the preparation of electricity market liberalization in conjunction with the conclusion of the European Union's Energy Chapter and the activation of Temelín Nuclear Power Station. The much anticipated December privatization of the state-held stake in power company ČEZ and in the regional power distribution companies did not materialize. German-based RWE Gas emerged as the winner of the tender in the sale of the Czech gas industry. At the end of the year, accession talks with the European Union on the Energy Chapter came to an end. In the second half of the year, in the framework of negotiating the conditions for electricity trading for 2002, the market was liberalized for customers with annual consumption of more than 40 GWh.
The activation of Temelín Nuclear Power Station gave rise to new technical knowledge, both as regards the operation of the 1,000 MW blocks in the Czech grid and in relation to the practical fulfilment of the schedule for the launch of commercial energy block operations. The launch of the nuclear power station had political consequences in that exports of Czech electricity to Austria were halted and the power export agreement between E.ON and ČEZ was cancelled.

Generation of Electricity in the Czech Republic

Compared with the year previous, overall generation of electricity rose 1.2 TWh to a gross amount of 74.6 TWh. Of this, 73.8% was generated by conventional coal power stations, 19.8% by nuclear power stations, 3.3% by hydro power stations, and 3.1% by combined-cycle, gas, and incinerator power stations. Coal, especially brown, remained the main source of electricity generation. Supplies of coal to the power industry in 2001 came exclusively from domestic mining companies.

Czech Republic electricity generation (%)

Conventional power stations 73.8% Combined-cycle, gas, and incinerator power stations 3.1% Hydro and wind power stations 3.3% Nuclear power stations 19.8%

	Severočeské doly, a.s.
	Mostecká uhelná společnost, a.s.
	Palivový kombinát Ústí, s.p.
	Sokolovská uhelná, a.s.
	Lignit Hodonín, s.r.o.

Dominant Position of ČEZ and the Coal Market

ČEZ, the dominant electricity producer, generated 52.2 TWh of electricity (gross) last year, i.e. 1.3 TWh more than in 2000. ČEZ's share in overall electricity generation was 69.9%.
ČEZ was also the number one brown coal consumer. Of total sales of 50.8 million tons on the brown coal market in the Czech Republic, ČEZ accounted for 29.9 million tons (i.e. 58.8%). Black coal extraction amounted to 19.9 million tons. Therefore aggregate coal production was 70.8 million tons.

Market Share

Severočeské doly a.s. increased sales in 2001 by 0.4 million tons and 2.03% compared with the year previous thanks to an aptly applied sales strategy and targeted marketing operations. The Company's total coal sales of 22.6 million tons accounted for a 44.38% stake of the brown coal market. The Company therefore cemented its position as the top brown coal mining company.